Should Real Estate Investors Get a License?

Almost every investor asks himself or herself this question. Haven’t you?

Unfortunately, there is not a “one-size-fits-all” answer. Before you make a decision, you must ask yourself these questions:

1. Why are you considering getting a real estate license?

2. How do you expect the license to benefit you?

3. Do you have the time it will take to get your license and the continuing education?

4. What are the downsides (if any?) to investors that obtain a license?

Advantages to Holding a Real Estate License

1. Money. When you hold a real estate license, you can list your own properties and offer to pay a commission only to an agent who brings you a buyer. In addition, if a potential buyer contacts you about one of your properties (listings) and decides it doesn’t meet their criteria, you can show them other properties and receive a commission if you are able to help your buyer find a property and it closes.

On the other hand, when you purchase a property that is listed with a REALTOR®, you save money there, too. Part of the fee the seller has already agreed to pay his Realtor® will be shared with you, reducing your cost of acquisition.

2. Time. When you are searching for investment property, you can simply log into your local Multiple Listing Service (MLS) and access market information. This sure beats asking and waiting for an agent to provide you with listings, comparable properties and other pertinent information. In hot markets, accessing information fast is important. It will enable you to make offers the same day a property comes on the market through the MLS. 

3. Information Access. You will know about new listings, price drops, and other information as soon as it is listed on your MLS. You can also search expired listings (a great source of deals) with ease.

4. Education. Although many investors seek a license to save time and money, you will be surprised at how much you learn by completing the real estate licensure process. From creative financing options to legal requirements and more, that additional knowledge will become earning power for your investing.

5. Documentation. When you have a real estate license, you have access to useful documents – offers and contracts, disclosures, third-party financing agreements, etc. Your local Association of Realtors offers a database with every document you need to process a real estate transaction. These local Realtor® Association forms are generally prepared by attorneys and are “fill in the blank” forms. Having access to these forms (which can only be used by licensed REALTORS®) will reduce your exposure to potential liability.

Disadvantages to Holding a Real Estate License

1. Money. It’s not cheap to obtain and maintain a real estate license. Expenses include education, state licensing fees, local board dues, National Association of Realtor dues, continuing education classes, Supra Keys (keys to access locks on properties for sale), and possible brokerage fees. Just some areas you’ll find requiring costs include:

Education – You can take on-line courses or attend a real estate school. Go online to find courses in your area. Learn how many hours are required and the cost involved.

State Real Estate Commission Fees –  Go online and find your State’s Real Estate Commission. Find the schedule of fees and make a note of the cost of the initial and renew license fees. For example, the California Department of Real Estate fee for a new license is $305.

Local Board Dues – As a licensed REALTOR®, you are not automatically a member of an MLS. You will have to pay an initial fee and monthly, quarterly, or annual fees to be a member of an MLS board. Go online to find fees for your area MLS boards.

2. Time. Taking courses, whether online or at a real estate school, is time-consuming. Expect to spend many hours annually taking courses, studying, and taking state exams. Texas is one of the most onerous, requiring 180 hours of study for a real estate license.

3. Information Disclosure. Yes, the same advantage of learning about potential investments can also be a downfall. If you find an investment property that is for sale by owner, you have to disclose to the seller that you are a licensed REALTOR®.

It’s been my experience that disclosing myself as a REALTOR® is an immediate turn-off to some FSBO sellers. I find myself having to explain I don’t want to list their property; that I’m truly interested in buying it. Additionally, many sellers are leery of working with REALTORS®. Licensed REALTORS® are (often correctly) presumed to have superior knowledge of the market, and must take precautions to not be perceived as taking advantage of a seller. 

4. Broker Requirements. A REALTOR®, is not necessarily a broker. In most states, REALTORS® are required to be sponsored by a broker. Should you choose to hang your license with one of the popular brokerage firms, expect to pay a hefty initial fee and monthly fees. In addition, any commission you earn will be shared with your broker.

Each broker is free to set its own requirements – open house attendance, showings, office hours, monthly fees, commission splits, etc. – for agents whose licenses it sponsors. Find out exactly what a broker expects from you before you make a decision to seek a license and/or affiliate with that broker.

Of course ultimately you can earn your own brokers’ license and free yourself from the requirements another broker may impose. The requirements vary by state but often include a time during which your license must be sponsored by a broker (commonly 2 years).

Conclusion

Is it beneficial for you to get a real estate license? After you’ve know why you want a license, consider how it will benefit you, how much it costs, how much time is involved, and any downsides, you’ll be in a good position to make your decision.

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