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September 3, 2019

Real Estate Agent 101: FAQs

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Over the years I've been asked many questions about real estate and what it's like being a real estate agent. Some of those questions have been inspiration for some of my in depth Q&A articles. The other questions are more "short answer" topics and would be great for a real estate related FAQ post, which is why I put this article together.

Please note that these answers are not intended as legal or tax advice and you should always check with the appropriate professionals.

Real Estate Agent 101: FAQs 1

Q: Are Real Estate Agents Employees or Independent Contractors?

A: Real estate agents in California are both! Those with a Salesperson's license (as opposed to a Broker's license) must work under a Broker. The Broker utilizes an employment agreement when employing that agent and the agent MUST follow the rules of the Broker. That includes a dress code, mandatory meetings, branding, and other such requirements. In turn the Broker is required to supervise the actions of all the agents under him or her.

The Independent Contractor status comes into effect with regards to insurance, taxes, wages and benefits. The employing Broker is not required to provide Worker's Comp insurance, is not required to withhold employment taxes and is not required to provide benefits, regardless of how many agents work under him or her. Note that anyone employed in a non-licensed capacity (receptionist, office managers, transaction coordinators, etc.) are treated as full employees and count towards the size of the company. Since real estate agents are independent contractors and not employees, they are not paid a salary or hourly wage.

Q: Do Real Estate Agents Get Overtime?

A: Since real estate agents are 100% commission based, there is no such thing as a regular time, overtime or double time. If you don't work, you don't get paid.

Q: Do Real Estate Agents Get Vacation Pay, Sick Pay or "PTO"?

A: As in the question above, since real estate agents are not employees and do not get a salary or hourly wage, there is no such thing as paid time off. If you get sick or take a vacation, you need to have a support system in place to keep the clients happy.

Q: Are Real Estate Agents Notaries?

A: While some may be (our Broker Ryan used to hold a notary license, for example), this is a separate license that is administered by a different department within the California government. A real estate salespersons or Broker's license does not grant the holder notary powers.

Q: Do Real Estate Agents Have to Present All Offers?

A: Unless the agent has specific instructions from the seller not to present certain offers, the agent is legally required to present all offers.

Q: Are Real Estate Commissions Negotiable?

A: This is one of the most frequently asked questions. The short answer is yes, fees are negotiable but agents do not have to negotiate. The long answer is as follows. The Sherman Anti-Trust Act of 1890 essentially outlawed companies working together to inhibit competition within their industries. One such example is price fixing. The classic example of price fixing would be for Company A and Company B to agree to not charge below a certain amount to guarantee higher profits. In real estate, this would be two Brokerages getting together and agreeing to not charge less than X% commission. In the eyes of the law, it does not matter if there are two companies in that area, or two hundred. Price fixing is illegal.

Now the law does allow for the owner of a Brokerage to set a minimum commission that their agents are allowed to charge, so long as that minimum commission is reached independently. Because Brokerages have overhead expenses (rent, utilities, insurance, etc.) and they get paid through the brokerage's split of the agent's commission, they need to set minimum numbers to make sure the bills get paid.

Now onto the agent. If you try and negotiate the commission the agent charges, the agent is under no legal obligation to negotiate. They have every legal right to charge what they feel is an accurate value for their services and you have every right to shop around. That is the beauty of Capitalism and how our Free Market system works.

Q: Can Real Estate Agents do Property Management?

A: This is a somewhat tricky one. Technically any licensee can do property management, if their Brokerage allows it. The only catch is that if the property manager collects the rent and makes any payments for the landlord, that money must go into a Broker's trust account. Trust accounts are subject to a set of very strict rules and are subject to regular audits by the Department of Real Estate. It is for that reason that many Brokerages do not have trust accounts.

If the tenant sends the rent directly to the landlord and the licensee handles only non-monetary issues (contracts, repairs, showings, etc.), then a licensee is capable of doing property management without a trust account.

As the exam prep courses I took said when asked what license is required to do property management, the best answer is "A Broker's License."

Q: Can Real Estate Agents Flip Houses?

A: Yes. Having a license does not prevent you from exercising any rights that you had before you earned your license. The only item of note is that as a licensee you are considered more educated than the average person and as such, held to a much higher standard.

Before you got your license you could buy a home for $200,000 and turn right around and sell it for $300,000 without the prior owner knowing that was your intention. This is called a "Hidden Profit" or a "Secret Profit" and is not allowed as a licensee. As a licensee you must disclose that you intend to resell the property for a profit at the time of your offer and the seller MUST be fully aware of that.

The general wisdom is to have that written into the contract, include it as a separate addendum, AND have them sign comps showing what the house is worth on the open market.

Q: Can Real Estate Agents Buy a House for Themselves?

A: Of course you can! As a matter of fact, I've sold a few homes over the years to other real estate agents. You just need to disclose that you're a licensee when making the purchase.

Q: Can Real Estate Agents Make a LOT of Money?

A: That really depends on what your definition of a "LOT" of money is and where you work. If you have a Beverly Hills $100 Million Dollar Mansion interpretation of "a lot of money", but work in a state where the average sales price is $100,000, you may need to sell every home in your state a few times over to get to that interpretation.

Real estate is one of the few careers left where is you put the time and effort in, really know your stuff, and have the support systems in place, there is no limit to the amount you can earn!

Q: Can Real Estate Agents Work Part-Time?

A: No, not if you want to succeed and realize your full potential. If you're a new agent starting out, you need to be at this full-time. During the day you learn, you have meetings, you go to trainings, you negotiate contracts, you keep deals alive. During the evening you meet with clients, you show properties, you write contracts. Most service providers (escrow, title, home warranty reps) work during the day. If you don't work their hours, you won't be able to reach them when you need to. If you want to be successful, you need to treat real estate as a full-time career.

If you've been selling real estate for 20+ years and you're ready to wind down and enjoy the fruits of your labor, yes you can work part-time.

Q: Can Real Estate Agents Work in Different States?

A: Yes. There is no limit to how many states you may work in, you just need to be licensed in all the states and abide by (and keep up with) their rules and regulations. I know several agents who are licensed in two or more states.

Depending on your state of license, the type of license you have and where you want to get your next license, you may benefit from what is known as "reciprocity". Reciprocity is the concept that a license issued in one state is good anywhere in the country. This is why you don't need a new driver's license or marriage license when you drive into Nevada from California.

Unfortunately for professionals, like real estate agents, it doesn't work that easily. For example, if you have a California Broker's license you can get a Nevada salesperson's license after passing an exam on state laws. You must then go work for a Broker. To get your Nevada Broker's license, you would need to follow the same steps as any other Nevada licensee. If all you have is a California Salesperson's license, then you are out of luck and must go through the full pre-licensing curriculum for Nevada.

Other states may honor a salesperson's license with a test on the state laws, and some other states may not honor any level of real estate license from another state. You're best bet is to check with the state department of real estate prior to making any long term multi-state plans.

Q: Can Real Estate Agents Have Their Own Website?

A: Yes, real estate agents may have their own website. As a matter of fact, it is something I encourage all agents to do. They should have their own site and their own email address. Agents that survive and thrive will typically change companies at least three times in their career. Having a website address, email and phone number that is not dependent on your Brokerage is crucial to long term success.

Q: Can Real Estate Agents Work From Home?

A: Yes, real estate agents and Brokers can work from home... at least in California. Other states may require a physical office, so check your state laws. While there are benefits to working from home, there are also detractors to it. For new agents, I wouldn't recommend it as being in an office puts you within easy reach of help and can expose you to good (and bad) habits of other agents. I personally do not recommend meeting clients at your house, that's a great use of the many Coffee Bean and Tea Leaf locations (or other coffee shops/fast food shops/etc. of your choice).

Q: Why Do Real Estate Agents Fail?

A: There is a statistic that says the majority of new agents do not make it past their first year, let alone to their license renewal. There are a lot of factors that go into this, but the biggest ones I see are 1) Unrealistic expectations and 2) Not treating this as a business.

Unrealistic Expectations

In a booming real estate market, where homes sell in a matter of days (if not hours), everyone thinks that real estate is easy and they get a license. Many even quit their jobs to pursue it full time. What they don't realize is that it's not an easy job. Not only that, but between school, exams, memberships, MLS dues, Supra Keys and boxes, signs, business cards and insurance, it takes a several thousand dollars just to get started! Then it takes money to get and market listings. When you sell the home, escrows are not a sure thing. Then once you get your first closed escrow you get to see that Brokerage Split take a good bite out of your checks. You could be left with considerably less than you thought.

For me (Ryan) the biggest shock was going from $2/month health insurance with low co-pays and free exams (I worked at a hospital) to paying over $500/month and having high co-pays. That I did not expect. Nor did I expect estimated taxes.

Not Treating Real Estate as a Business

When I got my salesperson's license, I had a never ended stream of phone calls, emails and text messages for the FIRST 9 MONTHS of people trying to sell me branded gizmos, doo-dads, mailers, drink koozies, note pads, pens, pencils, and everything under the sun that you can put a logo or name on! Not to mention all the companies that offer to sell "leads" for thousands of dollars a month, that promise the world (and seldom deliver).

Without a marketing and business plan (which they don't teach about in real estate school) it is all too easy to separate a new agent from their money.

Between not having enough savings and spending it too quickly, that is why most agents fail.

Conclusion

I hate to end on such a downer question, but that one is asked often by people exploring real estate and by seasoned agents as well!

I hope this FAQ list has helped you out. If you think of any questions that aren't on this list, drop me a line in the comment section below and I'll do my best to answer it. Maybe I'll even add it in to the FAQ!

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