Licensed agents: Investor or agent first?

Question

I've made the decision and am working toward getting licensed as an agent (well, it's "broker") here in Illinois. And yet, I'm doing so to break out of the corporate world so I can devote 100% of my time to real estate. My primary impetus for becoming licensed is to not become a full-time agent but to help me as a real estate investor.

Before this turns into another "should I get licensed or not" thread that has already been discussed here ad infintum, I've already made the decision to become licensed. Envisioning what that would be like in the near future, I'm wondering about potential conflicts with the sponsoring broker as an investor while licensed and expectations as an agent that will undoubtedly be placed on me by my managing broker.

So I ask the good folks here at BP whom are currently licensed agents (but are also active investors). How do you reconcile the two? Do you ever encounter issues/conflicts with your managing broker when you are out doing your own deals? How do you allay any concerns your managing broker may have about your investing activities? Do you cut them in on every deal? Or is your broker very hands off as long as you make a sale every now and then?

I realize these are probably questions I should ask when I interview a potential managing broker with whom I will work, but wanted to get your experiences and perspective on the subject.

Thanks in advance!

J Scott · Answer

Dean - It really depends on the broker you go with. If you go with one of the big names (Re/Max, Coldwell Banker, Century 21, etc), they'll likely require office hours, likely require you to handle leads they're getting, etc. They will have extensive overhead, and if you're not producing, they won't be able to pay the bills. On the other hand, smaller brokerages probably won't have fancy offices (may not have offices at all for the agents) and won't have much overhead. In addition, you'll likely be paying a monthly fee (regardless of the brokerage) that will offset what the smaller brokerages spend to keep you on-board -- so everything they're getting off your commissions is gravy/profit. Interview brokerages just like you'd interview potential employers, but remember -- they need you more than you need them. Tell them what you'll be doing, and they'll tell you if they're okay with that. Many of the smaller ones will be (in my experience)...

Jeff S. · Answer

Dean, are you coming to work with plenty of your own money? Being a commission only agent will automatically mean you can't qualify for financing w/o a track record of income. You will need living expenses plus all your financing money to make purchases. If you are needing income from sales, it would be in your best interest to work in an office with successful agents. Investor only brokerages don't always lend to doing much other business, and since their overhead tends to be low there is not much to show off to potential clients. Don't get me wrong, successful agents do invest, it just doesn't appear to be their primary activity. Something to think about.

Renae Bliss · Answer

I'm an agent that works with a Coldwell Banker; and even though MOST large chains would normally react & handle things this way, there are a few of them out there that don't! The office I've been blessed to work out of is one of them. They're more of a family (for the mostpart), and encourage success. There's always bad apples in every bushel, but overall, you might get lucky & find a great spot!

Dean C. · Answer

David, Very helpful and thanks for putting this together. After reading through your post, one brokerage locally immediately came to mind. Now I have an idea what to look for. Thanks for posting. It's very much appreciated.

David Beard · Answer

Dean -- Here are a few comments I'd made in another thread on being an investor/agent, based on some research I'd had done in my local market. Find a brokerage in your market that operates like www.ownerlandrealty.com. _____________________________ "At least *consider* getting your agent's license and hanging it with a cheap no-frills brokerage for investor-agents, giving you MLS access and the ability to "play" the commissions to your advantage -- sometimes taking the 3%, sometimes ceding it all to the listing agent, will vary with situation and your relationship to the listing agent. In this position, you are in better position to get the inside scoop from the listing agent. " "Kyle, I would ask around at REI club meetings, and network with agents and investors, to find a good local brokerage where you will only pay small flat rate commissions, and are pretty much 'left alone' to conduct your business as you see fit. In this market, ownerlandrealty.com is popular. Look at the business model on their site as a guide for what to look for in a company. " [Don't you have to pay expensive yearly fees if you get your license? That's why I've avoided doing it so far. ] "Here, my research indicates it averages about $100/mth for MLS, Board of Realtors fees, E&O insurance, etc. And then you pay the flat transaction fee on each deal, $300/deal for first 12 in a year, then dropping to $99/deal after that (at least for ownerlandrealty.com). There are small additional fees if you want a web site. Even a no-frills brokerage has a remarkable amount of agent support and training, free conference room space, a 'virtual' office, and web site for a nomimal fee. So I'd categorize these expenses as meager, and easily recoverable for the entire year (or several years), with a SINGLE deal. So I would not let the expense stop you. BTW, I am not an agent, but will probably move forward with it in the next few months."

Dean C. · Answer

Bryan, thanks for the reply. Here in Illinois, the state also upped the licensing requirements for becoming an agent. It used to be 45 hours and passing the state test. Now it's 90 hours including a 15 hour interactive course plus passing the state exam. Existing agents need to meet the tougher requirements but the state gives them a year to do so. This has forced many of the old timers out of the profession. It sounds like I need to be making contact with a few managing brokers here to get their requirements. Good luck in whatever you decide on your own path to becoming licensed.

Bryan Hancock · Answer

I have actually been kicking around the idea of getting my license for a few years now. There is a broker in town who I have been interacting with for 6 years that is very investor friendly and requires very small splits for overhead. Since we are doing more development deals now I would like to take a commission on exit if one of my broker partners bows out for whatever reason. Today I discovered that Texas now requires 7 (up from 5) 30-hour courses and the licensing exam to be a licensed agent. The brokerage requirement is based on some new points system and requires a minimum of 5 years as an agent. I guess they are trying to up their requirements. If your goal is to leave the corporate world I think becoming an agent is a good idea. It will provide some current income for you if you work at it and provide good service for folks. Finding good agents is tough in my experience so make sure you can provide great service for your clients and you should prosper.

Dean C. · Answer

Hi J. Maybe I'm overthinking this and translating my current environment and experience over to my future endeavor as an agent. I'm currently working in the corporate world where my time is micromanaged to a large degree. Managers up the chain from me want to know what I'm working on at any given moment, when I will be done with this or that project. There is this constant cloud over me that I had better be producing more that I cost this company. So then I got to thinking about my future as an investor/agent. Will it be any different? From a managing broker's perspective, I can see that s/he has a vested interest in his/her agents as s/he provides the overhead that allows a new agent to work under him/her. So I could see a discussion sometime about all of this and another attempt at micromanaging me. I hate being micromanaged. I consider myself a self-starter which I know is an important attribute in this biz. And did I mention that I hate being micromanaged? :)

J Scott · Answer

What specifically do you think your broker will be concerned with? You seem to indicate that you think there may be a conflict of interest somewhere, but I'm not sure where you're concerned about that. For reference, my wife and I have our licenses with a relatively large, local brokerage (3000+ agents). There are no required "office hours" (we've only been to the office a half-dozen times in four years), no required number of deals (we do about 40 transactions per year, but I know some agents who do 0), and the commission fee (no split) goes to the broker on every deal, regardless of whether we're buying for ourselves or not. So, there is no conflict of interest and no special concerns on the part of our broker -- we do everything legally, they get their cut, everyone is happy. So, search around. There are plenty of brokers out there who are fine with investors, who have policies that will mesh with your goals, etc -- and many brokers may be investors themselves, making things even better.

Dean C. · Answer

Glad to know your experience. When I'm ready to interview brokers, that's ground that is definitely getting covered. Thanks for the response.