Thursday, August 11 2022

Jay Thompson is a former brokerage owner who spent over six years working for Zillow Group. He is also co-founder of AgentLoop. He “selectively retired” in August 2018 but can’t seem to leave the real estate industry behind. His Inman weekly column is published every Wednesday.

Flashback to 2004: I walked into the Arizona School of Real Estate and Business in Scottsdale, Arizona, approached the front desk person and said, “I want to get a real estate license!” The helpful person behind the desk said, “Sure, wait a second.” Then she rummaged through a filing cabinet, pulled out all sorts of documents and forms.

“Here is our current schedule. You have three options and can take the required pre-licensing courses in our intensive nine-day course, or you can take a two-week or one-month version, on these available dates.

“What the hell, let’s go. I will be taking the nine-day crash course starting next week. This would be the first of many mistakes I’ve made in my real estate career. No one in their right mind should ever take nine consecutive days of ten-hour real estate courses.

“Great!” she replied, “Fill in this, this, this, this and that. It will be $599, plus tax. Cash, check or credit card?

Handing over my card, I silently wondered if I had enough available credit to cover it.

“Did you also want to put your background and fingerprint charges on that?”

“Uh, do I need this stuff?”

“Yes, if you plan to take the licensing exams.”

“Okay how much?”

“$75.”

Shrugging, she processed the card. Luckily, no “Your card has been declined” scene played.

I left, thrilled to be about to embark on a new career and slightly terrified of my rapidly diminishing available credit.

I had no idea how many times I would pull that credit card out of my wallet before I made my first sale.

Real Estate License Cost

There is a fairly common misconception about what it costs to get a real estate license. It’s easy to think “all I have to pay is tuition and exam fees”. It’s a bad way to think.

One would be well advised to consider not only the obvious upfront expenses, but also the hidden costs. Back in the dark days of 2004, when I got my license, there wasn’t much information about it on the internet.

You’d think that nearly two decades later, the web would be filled with information, charts, and spreadsheets outlining all the expenses—upfront and hidden—to get a real estate license.

Think again. Searching for this column, I couldn’t find a single source that covered (almost) everything. It seems real estate schools and brokerages aren’t too keen on being upfront with the cost of licensing. It’s probably because it’s easier to cover it up and hang on to licensing courses while thinking you’re just going to pay and pay to complete the process.

Why scare away future students and agents, the people you need to pay your bills?

It’s probably over there. My research was not exhaustive. After all, I’m on a deadline – which has already passed. The following is a fairly comprehensive list, but be aware that the fees, expenses, and time required to obtain a license vary widely from state to state.

Your first step is to understand the educational requirements of your state. The best source for this information is either your state’s Department of Real Estate (DRE) or the Real Estate Commission (REC). Just Google” real estate license requirements” and have your credit card ready.

Education requirements

Prices for real estate schools can vary from state to state, but within a state they are generally similar. A school will not survive long if it charges significantly more than other schools in the area. Online classes are now legal in many states and can save you a few dollars compared to in-person classes.

Real estate schools do not prepare you for a career in real estate. Their sole purpose is to prepare you to pass licensing exams. (And no, the exams don’t prepare you to sell real estate either.)

Passing exams is a crucial first step in your real estate career. Don’t try to save a few bucks here because you’ll lose everything if you’re not prepared to take and pass the exams. Costs vary across the United States and range from $200 to $1,000.

Licensing exams

There are usually (perhaps always) two exams to pass, a state exam and a national exam. Each will have a fee to take the exam (and can be taken on the same day). You can retake a state or national exam if you fail. Of course, you will have to pay the exam fee again.

Exams are proctored (supervised by a human) and usually taken at a commercial exam center. There are usually exam application fees in addition to fees for state and national exams. Expect to pay between $150 and $400 to apply and take both exams.

Background and fingerprint checks

Most states require some sort of background and/or fingerprint check to issue a license. They can probably be done before taking the exam, but you might want to wait to make sure you pass the exams first.

Be aware, however, that fingerprint processing may take some time. I did mine after passing the school exams before taking the license exams. $100-$150 is the typical expense.

State fees DRE/REC

Once you pass your state and national exams, you still don’t have a real estate license. These are issued by the Department of Real Estate / State Real Estate Commission. Of course, they charge a fee for that. These fees also vary widely from state to state and range from $60 to $615.

Brokerage fees

Once you have a real estate license in hand, you may think you are done and can start selling real estate. Not so fast. Every state I know of requires that you “hook up” your license with a brokerage before you can engage in licensing activity.

Some brokerages have onboarding fees, some don’t. Some charge a split commission (the brokerage gets a portion of the commission you earn), some don’t. Some charge office fees. Or marketing fees. Or technology fees.

Many articles could be (and are) published on how to choose a brokerage. It’s not just about finding the lowest fees. You should interview brokerages even before taking pre-licensing courses.

Choosing the right brokerage firm is the most important decision in establishing your real estate career. I’m not going to put a cost on brokerage fees as it varies wildly, but you should definitely investigate this expense.

Errors and omissions insurance

Your brokerage should require you to have “E&O” insurance. If they don’t, strongly consider going with another brokerage. E&O will cover many things if you make a mistake or omission, and those could easily be between thousands and tens of thousands of dollars.

Like all insurance, there will be a deductible for the E&O policy. Some brokerages pay the deductible, some don’t.

This should be spelled out in your independent contractor agreement. If not, consider finding another brokerage again. Some brokers pay your errors and omissions from the commission breakdown, some charge you a fee, some expect you to guarantee and pay for coverage. Expect to pay between $350 and $450.

Membership of an association of real estate agents

More than likely, you will need to join an association of local, state, and national real estate agents. These usually have an annual fee and can pro-rate expenses based on what time of year you sign up. National Association of Realtors (NAR) dues are currently $150/year, plus a special $35 consumer advertising campaign dues. Local and state association fees vary. Expect to pay between $400 and $800 for all local, state, and national association dues.

MLS fees

The vast majority of regions in the United States use a Multiple Listing Service (MLS). Some areas will require multiple MLS memberships. Most charge a fixed annual rate in the range of $300 to $700. Some also charge an “initiation” fee; I saw one for $500.

“Most” is the key word here. Metro Atlanta’s FMLS, for example, charges per ad, at 0.12% of the sale price. 0.12% might not seem like a lot, but do the math. It will cost you $1,200 to list a $1 million home. Sell ​​homes totaling $10 million in the year and you pay $12,000 to list those homes in FMLS.

There are some 500 MLSs nationwide and there may be others that charge a fee per listing like Atlanta’s FMLS.

The grand total is in the range of $1,560 to $4,115. You are unlikely to be at the low or high end of each category. I do not include initiation fees or MLS per listing in this range. It is important to note that this range does not include brokerage fees and expenses.

But that’s not all…

Secondary but necessary current expenses

In addition to the initial license fees mentioned above, you will also incur business expenses, marketing costs, and have to pay for ongoing training to maintain an active license.

It is impossible to quantify these expenses, but they are all necessary for the proper functioning of your real estate business. There are agents who spend millions of dollars a year on sales and marketing expenses.

The sale of real estate is a relatively easy activity to grasp. It is not a simple or inexpensive industry to stay in or succeed in.

That said, it’s an incredible career. It’s one of the few career paths you can take where you have almost total control over your success. Do your research upfront and understand that real estate licensing school won’t lead you to success, but it will set you on the path to virtually unlimited rewards.

Jay Thompson is a real estate veteran and co-founder of AgentLoop living in the Texas Coastal Bend. Follow him on Facebook, instagram and Twitter. He holds an active broker’s license in Arizona with eXp Realty. Called “the hardest working retiree ever”, as the founder of Jay.Life he writes, speaks and consults on everything related to real estate.

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