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 Should a Real Estate Investor Hold Their Own Real Estate License? (Part 5)
By: Darin "Sid" Cameron, CRS
Wed, Aug 9th, 2006 7:28 pm

Recently I was asked...

“I am brand new to this industry. I am going to be rehabbing homes and doing a little bit of property management. I am really confused about whether or not to become a licensed broker. I have passed my real estate sales person state test, but I will be owning my own property when I go to sell it. Any advice - pro-broker license or against broker license?”

Today is Day 5 of this topic as we look at we continue with the disadvantages that a real estate investor would have by holding their own real estate license (either as a salesperson working for a broker or as their own broker).


4) MAINTAINING DISTANCE. When you are selling or managing your own properties (regardless of how you decide to do it), the clients (renters, buyers or buyer’s agents) all have access to you and expect you to make decisions immediately.  The buck stops with you and they know it.

One of the real advantages to outsourcing these services is that the client’s primary point of contact becomes someone else who’s, “just doing their job”- allowing you to maintain your distance from an emotional buyer, demanding buyer's agent or a disgruntled tenant.

I know of two different situations within the past year where rehabbers were working directly with the buyers of pre construction rehabs  (FYI, pre construction means a contract was written before the houses were completed or really even started).

In both cases, the buyers started out innocently asking if simple (and cheap) things could be changed as the properties were being completed. Both rehabbers gladly obliged because they wanted happy customers.

However, once the precedence was set that they “could get anything they wanted” the buyers became nightmares- demanding thousands of dollars in upgrades that weren’t apart of the contracts- and even hiring lawyers to determine if they could sue to get them.

When this happens, buy a bottle of Tums and kiss your profits goodbye.

Now a *good* agent (emphasis on good) will manage this process for you to keep you insulated. If you are 100% new to real estate, it would probably amaze you on how rational, sane, and very likable people can become completely emotional and dangerously raving lunatics when everything in a real estate contract isn’t going their way.

The same is true with property management. Tenants are prone to reacting differently when it's a property manager “who’s just doing his/her job” tells them they can’t have something verses when it’s the property owner.

Why is it that way?  Think about it.  Who does the tenant think is getting rich off of their rent- the building owner or the employee who just manages the building?

5) FLEXIBILITY. As a licensed person, every property of yours that is sold must be advertised as a "Broker or Agent Owned" home.  If you meet a buyer prospect at one of your homes you must disclose that you're licensed and have ownership in the property- it can't just be implied.

If a buyer prospect asks you to compare your property with another, as a licensed person you need to avoid crime statistics or census data that might be construed as discrimination and if you're a member of the local Association of REALTORS you need to avoid saying things about other properties that could be construed as an Ethics violation.  As an unlicensed person, the rules of the state real estate commission or the association don't apply to you.

There are also a lot of rules and regulations on how a licensed person may market and advertise their properties as well.  For example, if you're licensed you can’t just get a generic For Sale or For Rent sign from Home Depot to stick in the yard because state law requires all advertising by licensed people to disclose who the broker is.  And if you're just a salesperson, any ad you run that includes a phone number will be required to also have a broker's phone number as well.

6) ASSISTANCE AND ADVICE. In case you haven't realized it yet, taking a two week real estate class doesn't make you or anyone else an expert in real estate.  In fact, odds are you'll never even see or discuss how to fill out a real estate sales contract in your licensing class.

The value in hiring an agent to represent you is so you have someone who knows a whole lot more about real estate than you do in order to help you achieve your goals quicker and easier (and realize goals CAN be different- be it selling a house quickly vs. selling a house for the maximum you can get regardless of how long it takes or keeping a property 100% occupied vs. taking the time to get quality renters who pay rent on time, etc).

With that said, the reason why most people have a negative attitude about working with a real estate agent is because they've hired an agent for reasons that weren’t business related (i.e. it’s their cousin or some nice lady from church) and that person doesn't really have the knowledge, training or experience you need.

That's especially true with a niche like investment real estate because how pretty the curtains are doesn't matter when you're buying a 4 unit apartment building that needs to cash-flow in 90 days.

There are also a surprising number of people that hire an agent to represent them but then treat them as an adversary (i.e. heaven forbid the agent trying to help you set rent should know what your monthly expenses are).

If you are new to rehabbing, new to landlording, AND new to real estate sales and property management, don’t you think it would be a good thing to seek out someone who can give you advice to help you keep from making costly mistakes?

It’s no different than hiring the accountant or attorney I suggested you talk to prior to starting a business.

Even if your long term goal is to own your own brokerage, you might find value in going through the process (as a seller and as an agent working under an established broker who can assist you in the process) a few times prior to becoming your own broker.

7) LIABILITY. Almost forgot this one. Here's an interesting (and potentially scary) statistic. Over 50% of all lawsuits filed in the U.S. are real estate related. As I eluded to above, very nice people can become very irrational when it comes to their homes. As a broker/owner of a brokerage you are responsible for your own actions and anyone that is working under you. Take that for what it is worth.

[ Next Article: << More Random Thoughts on a Topic that's been Beaten to Death ]
[ Previous Article: >> Should a Real Estate Investor Hold Their Own Real Estate License? (Part 4) ]

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Darin 'Sid' Cameron, CRS

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Darin "Sid" Cameron spent 15 years working in tech sales which in 1998 relocated him to St. Louis. In 2004 he took over web development tasks for Kimberly's real estate team and later became the full-time Marketing and Operations Director. In 2011, he launched two brokerages, The Realty Store, Inc. and Realty Referral Partners, Inc. Sid holds a real estate broker's license in Missouri, CRS certification and was the first CyberStar in the St. Louis area.
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