Are you considering getting a real estate license to boost your investment business? If so, it's important to know what you're getting into. Obtaining a real estate license involves not only following rules and regulations but also committing a significant amount of time and money. However, the benefits that come with having a real estate license can greatly outweigh the costs.
The Cost of Obtaining a Real Estate License
The cost to obtain a real estate license can vary depending on your location. In the United States, the cost ranges from $400 to $1000+ depending on the state. However, keep in mind that there are additional costs associated with obtaining a real estate license. It's not just the cost of the certification process. To obtain a real estate license, investors will need to participate in relevant courses, submit applications to take the exam, and even take on marketing responsibilities.
According to experienced sponsor Tam Le, "I advise you to be aware of the hidden costs before attempting to obtain a real estate license, including parking fees, registration fees, maintenance deposits, and preferred location fees (PLC)." Each of these components can require a certain amount of capital.
Picture: How much money do you need to become a real estate broker?
1. Education
Estimated cost: $200 - $1000
Each state has its own prerequisites for becoming a licensed real estate agent. Those considering taking the state licensing exam must have completed a predetermined amount of education. The number of required hours can vary significantly from state to state, ranging from 63 hours in Florida to 180 hours in Texas.
It's worth noting that the costs associated with the education requirements can vary as well. While it's possible to obtain acceptable education for as little as $200, it's important to keep in mind the adage "you get what you pay for." Investing a few hundred dollars in comprehensive real estate education that meets your state's requirements and prepares you for the exam may be a worthwhile investment.
2. State Licensing Exam
Estimated cost: $85 - $200 per exam
The licensing courses that prepare you for the state licensing exam typically do not include the cost of the exam itself. To determine the true cost of becoming a licensed real estate agent, you need to consider the exam as a separate expense. On average, state licensing exams range from $85 to $200. However, the fees associated with taking the exam are not a one-time expense. Those who do not pass the exam on their first attempt are subject to additional fees for subsequent attempts. It's important to approach the exam with proper preparation to avoid multiple exam fees.
3. Background Check
Estimated cost: $50 - $100
If you are granted an active real estate license, you will have access to valuable information. However, with great access comes great responsibility. Real estate agents are granted access to all properties listed on the Multiple Listing Service (MLS). Given the unrestricted access that real estate agents have to homes they don't own, it's not surprising that they are subject to background checks. Aspiring licensed real estate agents must undergo an FBI background check, which, like everything else on this list, comes with a cost. You will need to provide the relevant agencies with your fingerprints and Social Security number, and the cost associated with the background check is the processing fees. Luckily, the cost of a background check is relatively affordable, ranging from $50 to $100.
4. Affiliation with a Brokerage
Estimated cost: Varies by brokerage
Most states require newly licensed real estate agents to associate their license with a brokerage for a minimum of two years. By doing so, most agents take new licensees "under their wing" and "mentor them." This is one of the best ways for newly licensed real estate agents to gain valuable experience in a relatively complex field. However, it's important to note that this experience comes at a cost rather than a direct fee. The fees can vary significantly between brokerages.
Expect two specific fees: a monthly "desk fee" and having to "give a portion of your commission on each transaction." As part of the broker's commission split, this can be quite a chunk to swallow, as standard real estate commissions range from six to eight percent of the sale price. That's about $7,000 on a $100,000 home. And while most brokers expect a small portion, a small percentage can add up to a substantial amount over time if I may say so. Not all brokers want a small part; some brokers comfortably take half of your commission—a lot more than what most people are willing to part with.
For the "desk fee," some brokers charge as much as $1,500 per month. For those unfamiliar with the concept of desk fees, it's the cost associated with getting office space. The broker provides you with office space and a desk to conduct business for a relatively small fee—hence the name. Desk fees can vary greatly but are typically a predetermined fixed fee.
5. Errors & Omissions Insurance
Estimated cost: $350 - $400 per year
According to Investopedia, "Errors and omissions insurance is a type of professional liability insurance that protects companies and their workers or individuals from claims made by clients for inadequate work or negligent actions. Errors and omissions insurance typically covers both court costs and any settlements up to the amount specified in the insurance contract."
As even small transactions can have a big impact in the real estate industry, it's only fitting that every licensed real estate agent must have errors and omissions insurance. More importantly, the real estate company won't pay for it. Therefore, you should expect to pay at least $400 per year. Otherwise, your license will be immediately suspended if your errors and omissions insurance expires.
6. National Association of Realtors Membership
Estimated cost: Membership fee plus $150 per year
It's not surprising that many real estate brokerages require their employees to become members of their local real estate association. By doing so, real estate agents are included in the National Association of Realtors and gain access to various tools and information, not to mention multiple listing services. And multiple listing services are one of the best tools for real estate agents nationwide. However, as you can expect, all of this comes at a cost.
According to the official National Association of Realtors website, "membership dues are $150 per member for 2021 and 2022. This amount is recorded for all active REALTOR® members and REALTOR®-cooperating members through the primary association and must be paid to NAR by January 1." That, along with an application fee and the cost of an ethics course (under $100), completes the financial requirements.
7. Business Expenses
Estimated cost: $500 - $1000 per year
There are various business expenses that investors should expect to incur to maintain regular operations as a real estate agent. These expenses include office costs, mobile phone expenses, internet fees, computer software, client meetings, client gifts, and more. Essentially, business expenses refer to anything you need to purchase to complete your tasks as a real estate agent.
These expenses can vary significantly depending on how you set up your current real estate business, the number of staff or partners you have, and the volume of clients you want and can handle. Location also plays a role, as startup costs can vary from one market to another. While business expenses don't begin at the time of licensure, they're still important to consider when evaluating the viability of this opportunity.
8. Marketing Expenses
Estimated cost: $1000 per year
After completing the education and certification process, the most crucial part begins: marketing yourself as a real estate agent. This means spreading the word about your job and how you can help potential clients. If you want to work as a real estate agent, some expenses to consider include business cards, a website, social media advertising, flyers, and even direct mail items.
Each of these items may seem like a small expense on its own, but they can add up to a marketing budget. However, it's important to remember that real estate agents have a lot of flexibility in marketing. You can not only reuse some materials but also explore low-cost marketing avenues (such as social media or word-of-mouth referrals).
9. Continuing Education
Estimated cost: $50 - $300+ per year
Throughout your career, your real estate education will continue. This includes continuing education classes after licensure and specialized education for specific areas of the real estate market. As there is always something new to learn in this ever-changing industry, many believe that investing in continuing real estate education is worth the investment.
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