Should an Investor get a real estate license?

[Bob Galivan]

An email from Bigger Pockets popped into my inbox yesterday, and one of the titles caught my eye: As an investor, becoming a real estate agent can be a smart move..." That linked to an article by David Greene entitled "How to Become a Real Estate Agent: An Investor's Guide." That article provides a fairly comprehensive look at how to get a license and at the work of being an agent, but it did not address the question posed in the email "Should an investor get a real estate license?"

My answer to that question is usually "no" for a number of reasons. First, because pretty much all of the multiple listing services in the country have opened their databases to third-party sites like Zillow, Trulia, Realtor.com, et. al., the illusion of exclusivity is pretty much out the window. The old reason of getting your license so you had access to the MLS is moot. You still hear as a come-on to get a license, with the idea that getting the data from the horse's mouth gives you a jump on the competition; that the data provided by the third-party sites can be stale or out-of-date by a couple of days (which is true). But consider this: if the market is so hot that the MLS data is out of date within that short period of time, few investors are going to want to be in that market, because the prices are going to be going up, up, up.

The second reason that I often suggest investors forgo a license is that it creates a significant burden of compliance. There are laws on the books in every state that govern the sale of real estate that are incumbent on private investors. When you obtain a license, you are immediately held to a "higher standard" with regards to the sale and marketing of real estate than you might otherwise be as a private person. Agency laws that are present in most states make selling your own property a high-wire process, and may actually prevent you from selling or renting a property to a prospect unless they are represented by another agent.

The third reason is that once you place your license with a broker (as you must do), that broker is going to want compensation. You will see brokers advertising that you can earn 100% commission, or that they are a no-fee broker, but the broker is going to have a hand in your pocket. Some years ago, I was with a full-service broker on an 80% split. The 20% they collected paid for office, phones, clerical, etc. As my production ramped up, I started looking at other options and ended up with a broker and a 95% split.I was selling 50-60 homes per year, so it was high volume, and when I dug into my numbers, I found that no matter what broker I went with, my cost of doing business was running 10%-15% of my commissions - that's with broker fees, out-of-pocket expenses, etc. As an investor, the cost of the broker comes off your bottom line, no matter what. 

Some investors will work with an agent to get mls info as it appears, and will sometimes negotiate for multiple properties through an agent. The agent gets a commission, the investor gets the property. The trend I am seeing is that more an more investors find that neither the agent nor the license is really necessary in the current info-rich environment.