I often get asked the question of whether having your real estate license as an investor is a good idea. I discuss most of the pros and cons in this article, but I wanted to throw out another — real life — data point…
I’m finishing up my taxes for last year, and thought it would be interesting to see exactly how much different our bottom-line would have been had we had no income or expenses relating to the purchase or sale of our own properties. This includes all the commissions we earned when purchasing our properties and all the commissions we saved (assuming we would have paid another agent 3%) when selling our properties. And subtracted from that, all the fees associated with my wife having and keeping her license, such as brokerage dues, cost of signs, cost of lockboxes, etc.
Simply put, thanks to the fact that my wife has her license and we’re able to purchase, market and sell our own houses, we earned about $42,000 in extra income last year!
Add on top of that the extra income we received by selling our houses for higher prices (my wife markets much better than any agent we’ve previously worked with) and the extra control we have over our deals (we can communicate and negotiate directly with other agents, mortgage brokers, appraisers, inspectors, closing attorneys, etc) and it’s clear that — for us at least — the trade-off between the extra work involved in managing our own deals and the extra income and control is generates is well worth it.
I’m still not saying that getting your real estate license is for everyone, but it something I think most investors should at least consider…
Hey J, how you been?
You have a great partnership with your wife. Do you think it would still be a good idea if you(yourself) had to get the license? I would suspect it would be.
J,
Do you submit offers on REO property with your wife as the buyer’s agent? I’ve heard you get more favorable treatment from REo listing agents if you let them get both sides of the commission.
Josh
Hey Chris –
If it were just me, I’d still definitely get my license. That said, I wouldn’t do nearly as good a job as she does…I just don’t have the patience for people. Most likely, I would piss off all the stupid agents I worked with and they’d never want to work with me again. My wife on the other hand can put on a happy face and make those idiot agents feel like they’re the most important people in the world.
So, short answer…yes, I would definitely still get my license, but would probably find myself out of the business very quickly… 🙂
Josh –
I realize that would make a lot of sense, but in reality, I don’t generally recommend that buyers deal directly with the listing agents. Here’s why:
1. The listing agent represents the seller, not the buyer. So, unless you are completely comfortable representing yourself (interpreting contracts, negotiating, etc), you’re better off having your own representative.
2. The listing agent is looking to make the most money with the least effort (at least that’s been my experience with REO agents). It takes a good bit more time and effort for a listing agent to represent you than to represent the seller, so a lot of listing agents would rather you have your own representation, even if it means they don’t get both sides of the commission.
3. Many REO brokerages won’t allow listing agents to represent buyers or to accept unrepresented buyers/offers. If this is the case, you’ll have to find your own agent anyway.
Lastly, with my wife as my agent, I can still give the listing agent our side of the commission (or part of it) if I want to…as a bonus. On top of that, they don’t have to do any extra work, so not only are they getting extra commission, it’s basically free of any additional hassle. This is a win/win for the listing agent.
Just my experience and opinion…
J Scott,
I agree totally. I can’t imagine being in this business without having my real estate license. On top of the commission money there are just so many other benefits to being licensed.
J Scott –
I agree fully.
I love to be able to baby sit my transactions and speak with the buyer’s agent. In my gut I get a much better opinion on what really is going on when i know all the answers.
Seems like most of the successful retail flippers I know hold their RE license. I really don’t get how it can hurt things, you may have to provide additional disclosures as a “professional.”
I agree, Math is Math. Sometimes it’s not the money you make, but the money you save. We did the same cost analysis the other day and the results are very similar. Good job J!
J-
I’m really surprised with your answer on not giving the listing agent both sides. I’m just getting into REOs and have little experience dealing with REO agents. I know on short sales the listing agents will screw you over any chance they get if they get a buyer who isn’t represented. But short sales are a totally different process and animal. I am licensed and am comfortable representing myself, I think you’ve got to be comfortable looking out for yourself because really good agents are few and far between.
Have you given listing agent’s bonuses from your wife’s commission before? Why? What were the circumstances? Did you tell them this when submitting the contract to get more favorable treatment?
I agree with the value of being an agent plust the fact that it gives you access to the MLS. My question is regarding you being the listing agent for the properties that you are selling. There is a lot of marketing and advertising you can do to get a property sold and in my opinion that is what differentiates a good agent from a bad one. How did you guys go about learning how to market effectively (since you obviously have had good results)?
Josh –
Not saying every listing agent is the same, but this has been our experience. The big ones (the ones we deal with the most) work purely on volume, and in the time it would take to help a buyer get an offer submitted, negotiated, and through closing, they could list another few REOs. The math actually works out better by not representing buyers if the listing agents have enough volume to keep them busy with sellers.
As for us giving bonuses, we do it often. The biggest reason is to build relationships with the listing agents so that they give us preferential treatment in the future. For example, we’ve had listing agents tell us what the highest offer they’ve received in a multiple-offer situation, so we knew exactly what to offer to get the property! This type of thing is amazingly valuable.
We generally mention the bonus before closing if things have gone smoothly and it’s an agent we want to work with again. We also do the same for the agent’s that represent our buyers if we like them and want them to show more of our houses.
Luis –
Carol (my wife) spent many years managing marketing teams for some big Fortune 500 companies, so she knows marketing inside and out. We’ve found that most of the agents in this business have very little marketing skill or initiative, so the bar is set pretty low.
Between my wife’s marketing talent and the low expectations set by the industry, we have a huge advantage over most of competitors…
Great article, J. The part about dealing with the REO listing agents is something I had not thought of. Makes a lot of sense.