Getting degrees and licenses are nothing new for doctors. This is why I’m never surprised when I hear this question, “Should I get my real estate license?” I’ve heard it too many times to count.
They're usually asking this for several reasons:
1) To save money on commissions for the sale of their own home
2) To receive the commission when purchasing their own home or a rental property
3) Thinking it might help to attain Real Estate Professional Status (REPS)
I got my real estate license over eight years ago, and currently, I run my own brokerage – Curbside Real Estate. My original decision to get my license was to learn more about the purchase and sale process and perhaps save some money on commissions.
But since then, it has evolved into helping physicians purchase their dream home by connecting them to the very best resources available today. It’s been well worth it for me but I can’t say it would be the same for everyone.
In this article, I want to share with you a few things that I've learned by getting my license and discuss the benefits and downsides of it.
Benefits of Having a Real Estate License
1. Become an Expert at Understanding the Purchase Contract
The purchase contract is at the core of every transaction.
Whether you’re a buyer, seller, or investor in a deal, it's crucial to understand the terms and conditions of the purchase contract. Getting your license will help learn the background behind the terms you agree to while entering a contract.
It’s surprising to see so many people sign contracts without fully understanding it and simply relying on their agent's expertise.
2. Save on Commission
It's true; you can save on commission or gain the commission in a transaction. When it comes to residential homes, the commission for agents varies, but they usually range between 5-6% to be split evenly between the agents on both sides.
As a seller that’s a commission that your listing agent would normally receive. As a buyer, it’s commission you can receive from the seller’s side.
Over multiple transactions, these commission amounts can really add up. Some of these commissions are quite significant as the price of the properties run in the high 6 or 7 figures.
I remember looking at some of those commission checks and thinking it’s the equivalent months of weekend and night calls.
3. Access to the MLS
Having a real estate license can give you access to the Multiple Listing Service (MLS), which all agents use to spot new properties on the market. You can access them faster than having to rely on your agent to relay the information to you.
In addition, MLS provides valuable past and present property information like sales prices and comps for comparison. Further, you can see neighborhoods that are hotbeds and home types that are most popular among buyers to make an informed decision.
Downsides to Getting a Real Estate License
Let's take a look at some of the reasons that might make you turn the other way:
1. Time & Fees
Going through the coursework to get your license can take weeks to months. As a busy professional, are you willing to spend your limited downtime going through more courses and tests? In addition to devoting your time, you'll likely be spending anywhere between $1500 to $2000 to get your license.
There are plenty of costs associated with getting your license, such as examination fees, prep courses, license renewal fees, MLS subscription fees, real estate board fees, and so on. Paying fees to maintain your license won't make a whole lot of sense if you're not going to utilize that license.
2. Held to a different standard and liability
When you're representing yourself, especially during a property sale, you're held to a higher standard and exposed to additional liability. You're required to understand all the disclosures set forth by your state's real estate commission.
3. You’ll likely have to share the commission
Unless you get your broker's license, you must work with a broker and give up their share of the commission, which can range anywhere between 10-50% depending on where you hang your license. Depending on the brokerage you join, there might also be monthly or quarterly “desk fees.”
4. You’re on your own
Once you have your license, you'll be writing your own offers and submitting paperwork to agents, brokers, lawyers, and the MLS. You won't have assistance from another expert to review the details of a contract with you.
5. You might negotiate yourself a worse deal
You might not have great negotiation skills, due to which you might miss out on better pricing for a deal. As doctors, we end up negotiating quite a bit, whether it’s with patients or even insurance companies. However, it feels quite different to negotiate directly on a real estate transaction when it’s primarily all about numbers.
Steps to Get Your License
So what are the steps to get your license:
- Complete prelicensing education requirements set forth by your state
- Pass the exam and obtain an official real estate transcript or certification
- File real estate license application and wait to hear back (few weeks to several months)
- Complete post-licensing education or first renewal mandated by your state
- Join your local, state, and national real estate boards
- Fulfill continuing education credits approved by your state real estate commission
Does a License Get You Real Estate Professional Status?
Having a real estate license is not the same as having a real estate professional status. I've done a detailed post on Real Estate Professional Status (REPS) in the past, which you can find here.
In addition to the number of hours required, the big question is – Do the hours put toward getting your real estate license help you attain REPS?
Unfortunately, I don't have a clear answer to that question. I've consulted multiple CPAs and tax professionals on this matter, only to receive several different answers. Some say only the hours spent actively managing your own rental property can be counted toward REPS. In contrast, others argue that any real estate related activities (including getting your real estate agents license) can be counted toward REPS.
Ultimately, I think it's essential to consult a tax professional familiar with this tax law section, who can cite cases to prove their position. As always, do your homework if attaining REPS is the reason you're planning to get your license.
I firmly believe that having your real estate license can be beneficial as a doctor. Who doesn’t want to be more of an expert in something you’re interested in and can net you some extra income. If you plan on creating a business around your real estate license, such as acting as an agent on deals, both for yourself and others, you can create an additional stream of income.
That being said, for most people, it would make sense to partner with a trusted agent who can work on your behalf to scour the market for deals. Meanwhile, you can leverage their time and expertise to focus on the big picture stuff, like what investments will help you achieve your financial goals, how to make the best us of your capital to invest, etc.
What are your thoughts on getting a real estate license? Are you considering getting one? I would love to hear your take on things. Feel free to drop them in the comments below!
Join our community at Passive Income Docs Facebook Group. Just click below…