The real estate investing landscape has altered considerably in the last decade. In the last ten years alone, the housing market has managed to peak, crash and recover — no surprise there. Those of you familiar with the real estate industry are more than aware of its propensity to operate in cycles; just about the only thing that remains constant is change. It is worth noting, however, that change isn’t relegated solely to the market itself.
The professionals in this particular industry must learn to change in order to meet the demands of each new cycle. In fact, those real estate professionals willing to change their tactics and adopt new strategies stand a better chance of realizing success at a higher level than those who neglect to embrace the inevitable change.
It’s a hard truth, but a reality nonetheless: the concept of change is relatively easy to grasp, yet slightly harder to implement. If for nothing else, change represents a distancing from that of which you are familiar with. There is a reason it feels so unnatural to many, but I maintain that change can be a great thing — the right change, of course. As an investor, it’s in your best interest to accept change in the right circumstances, which begs the question: How can today’s real estate investors see to it that they are making the right changes?
I regret to inform you that there isn’t an easy answer. What I can do, however, is point you in the right direction. There is one universal change I believe can help just about every real estate investor: becoming an actively licensed real estate agent. The benefits that have become synonymous with getting your real estate license are unquestionable. With the right credentials, you gain access to the multiple listing service (MLS), a professional network, tools unavailable to the public, and a number of other inherent advantages.
Such a distinct advantage doesn’t come without a significant caveat: it’s not cheap, or at least not as cheap as many would expect. At the very least, there are thousands of dollars in upfront costs in the first year alone. In addition, there a “maintenance” fees one must consider if they want to maintain their status as an actively licensed agent every single year.
For starters, each state has their own expectations of the real estate agents that will practice within their borders. Namely, most individual states will expect prospective real estate agents to have completed a certain amount of hours of credit education before they even take the licensing exam. Florida, for example, wants its aspiring agents to complete 63 hours of real estate education before they take the test. On the other end of the spectrum is Texas, who requires 180 hours of education. The state you choose to get licensed in will have it’s own guidelines as well, but know this: it isn’t free. Educational courses prior to taking the exam can cost you somewhere in the neighborhood of $200 to $1,000. I maintain, however, that you get what you pay for. So if you want to start your career out on the right foot, you may want to lean in favor of the more expensive end.
Only once you have completed your required education will you be permitted to take your state’s licensing exam. What’s more, it’s not free. Nobody is going to pay for you to take the test, and it will probably set you back anywhere between $85 to $200. Of course, that’s assuming you only take the test once. Provided you took your education seriously and studied accordingly, there is no reason you shouldn’t pass with flying colors, but there are those that must take the test multiple times to pass it, and every attempt represents another cost. Don’t forget to factor that into your budget.
In the event you pass your state’s licensing exam, you will then be subjected to a background check. Real estate agents are saddled with a lot of responsibility the minute they become licensed. Namely, they are given access to every property on the MLS. It only makes sense that a background check is required for someone that is granted such a privilege, and, you guessed it, there’s a fee. Submitting your Social Security Number, along with a few fingerprints, to the proper authorities will cost you somewhere in the neighborhood of $50 to $100. Like everything else, fees for this part of the process will vary, but they shouldn’t stray too far from what I have outlined here. And to be honest, it’s a fee I don’t mind paying. Real estate agents are given unparalleled access to many of our most valuable assets; it only makes sense that we can trust them.
Up to this point, the costs I have referenced are manageable and understandable, for the most part. The next cost, however, is the one most people are surprised to learn about: hanging their licensees with a broker. Just about every state will require newly licensed real estate agents to work under a broker for the first few years as a way to get their “feet wet.” And while working under a broker comes with many advantages, they aren’t without their cost — two costs to be specific.
First and foremost: the “desk fee.” As it’s name would suggest, a desk fee is what it will cost you for your own office space within a brokerage. Some brokerages can charge as much as $1,500 a month for a place to work. Desk fees vary greatly, but are generally a flat fee that has been predetermined.
On top of the desk fee, or sometime in place of it, brokerages can require you to split your commissions. The amount you split will be determined by the brokerage you work with, but I have seen some claim as much as 50%; that’s not a small fee when you consider agents can make as much as 8% on the sale of a property. That can be a tough pill to swallow for some, but there is no way around it.
In addition to splitting commissions, brokerages will require those working under them to have Errors and Omissions Insurance. As Investopedia so eloquently puts it, “errors and omissions insurance is a type of professional liability insurance that protects companies and their workers or individuals against claims made by clients for inadequate work or negligent actions. Errors and omissions insurance often covers both court costs and any settlements up to the amount specified by the insurance contract.”
Errors and Omissions Insurance will cost agents about $350 to $400 a year, and it’s non-negotiable. If you fail to renew your coverage, your license will be suspended immediately, so don’t think you can skip out on this cost.
Last, but certainly not least, are the costs associated with joining the National Association of Realtors (NAR). Most brokers that I am aware of will require agents to become members of their local Realtor board. As such, you will be given access to some invaluable tools, not the least of which is the MLS and an invaluable network of professionals. However, joining the NAR is yet another cost to budget for. As per the National Association of Realtors official site, “dues are $120 per member for 2017 and for 2018. This amount is billed to all active REALTOR® and REALTOR® Associate members through their primary local association and is due and owing to NAR by Jan. 1.” This is in addition to a signup fee and ethics class you must take before becoming a member.
It’s abundantly clear that becoming an actively licensed real estate investor isn’t cheap. It’s not uncommon for costs to reach thousands of dollars in the first year alone. And while subsequent years won’t have as many costs, there are certainly annual fees that must be accounted for. In addition to your NAR membership, Errors and Omissions Insurance, and the first few years of working under a broker, you will be expected to continue your education.
It’s worth noting, however, that even with all of these costs, becoming an actively licensed real estate agent can be one of the best decisions investors make. Few decisions, at least that I am aware of, can have a more positive impact on the growth of an investor’s company than the one that puts you on a path to becoming licensed. Of course, if you want to avoid all the fees (and time commitments), you could always choose to work with an agent that is already licensed, but that’s a story for another time.