If I Want to Invest in Real Estate, Should I Become an Agent? (Part 1 of 2)

by Vena Jones-Cox

Question:

I am just getting started in real estate investing, and I’m thinking about getting a real estate license. What kind of problems am I going to have when I am both an agent and a buyer or seller in a particular deal, and what do I need to do to avoid them? -B.A., Asheville NC

Answer:

Getting a real estate license has always been a popular option for real estate investors looking to get better access to MLS listings and/or supplement their cash flow by earning commissions buying and selling properties for others.

And in the reverse, many “traditional” agents eventually get into real estate investing as a way to earn additional income and to take advantage of the great deals they come across in the course of listing and selling.

That’s why the question, “How do I invest in real estate AND keep my real estate license?” has been one of the most common I hear.

There are two major issues that licensees face when buying, selling and leasing properties on their own behalf. The first is disclosure; the second is agency.

Disclosure relates to what you say to people and when; agency describes who you represent in a transaction—or who the parties BELIEVE you represent.

As long as you play by the rules in these areas, you’ll avoid trouble in the third area: as you probably already know, a licensed agent is held to a “higher standard” in court than a non-agent, meaning that an unhappy buyer, seller, or tenant has less to prove in order for you to be found liable for irregularities in a transaction.

That’s why it’s really, really crucial that you dot all the “i”s and cross all the “t”s when you’re an agent as well as the investor in a transaction.

When, as an agent, I advertise to buy, sell, or lease houses, I must make certain disclosures to my potential customer. For instance, at the time of first contact, I have to let potential buyers, sellers, and tenants know that I am a licensed real estate agent.

I handle this by putting disclaimers on all of my flyers, cards, and letters that say “Buyer is a licensed real estate broker in the state of Ohio. Buyer is purchasing properties for her own investment. This is not an offer of agency. If this property is already listed with an agent, please disregard this notice.”

My ads in the paper end “buyer/agent,” or in the case of a property I am selling, “owner/agent.” In most states, license law requires that you disclose that you are a licensee “upon initial contact” with the potential buyer/seller/tenant.

So just to be sure, you should make another, verbal disclosure whenever anyone calls you to inquire about whether you’ll buy their home, or about a property you have on the market.

Reprinted from the Real Deal, a monthly newsletter for Real Life Real Estate Investors with permission of Vena Jones-Cox. Get a free 3-month trial subscription by clicking here. One per household, please.