How to Pick an Investor Friendly Real Estate Company for Wholesaling!

If you are a newer agent, picking a real estate company to work for can be a challenging, confusing, and often times a harrowing decision! I remember when I was a brand new agent in Charleston South Carolina. My first brokerage was a little company called Agent Owned Realty. My broker, was a nice guy, however  I wasn’t exactly the sharpest tool in the shed! I remember very clearly how as a new agent I had to learn from the ground up how to survive. Back in those days, (prior to the MLS on computers, smart phones, fax machines and all the niceties that modern agents now enjoy today) we had MLS books, pagers,  telephones, and nice car. It was truly a image business.

Fast-forward 18 years and now I am a broker in Tucson Arizona. Since then, the MLS has changed from being it’s book form to super accurate MLS data results as well as computerized auto searches. Everything is computerized now. Things that we used to take as special novelty items, are now commonplace. So when choosing a real estate company to choose, I’ve had a little bit of experience in the matter. From being a broker/owner, a broker/agent, an agent/salesperson, as well as a consumer.  I’ve seen it on all sides of the spectrum, and I have a few items I’d like to share with you today to help you choose the correct company for your wholesaling business.

By taking steps to get a real estate license you have received a winning lottery ticket! All you need to do is cash it in

First of all… congratulations for your decision to become an agent in the first place! By taking steps to get a real estate license you have received a winning lottery ticket! All you need to do is cash it in! Why do I say a winning lottery ticket? Because a real estate license is a license to print money (metaphorically speaking). With a license, you are able to do virtually anything in your state as it relates to real estate. You can list property, you can represent buyers in the purchase of property, you can aid tenants in the finding of rental property, you can represent 10 owners, represent a  multinational corporation, overseas buyers, Chinese investors, Swedish nuns, you name it! Anyone! If they have any business to do with real estate in your state, you are licensed to help them! It’s like a license to kill!

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As a wholesaler, you are already familiar with alternative ways of lead generation. By becoming a Realtor®, you will expand your streams of income, your methods of lead generation, your ability to receive and give referrals, as well as many other opportunities via your colleagues in the office. But the overriding question comes up, if you get your license, or you are currently licensed and want to wholesale, how do you find a broker that will be “easy to work with?”

A few years ago, I did a video on how to select a great real estate company. It can’t be attention of a few Realtors®, and a few Investors, and they asked me specifically in my Facebook group The Red Pill Investor (Public Version), if I had a specific version for investors. While that video is directed primarily towards Realtors®, many of the lessons can be directly applied towards Investors who are considering becoming Realtors®. So let’s talk about some of the differences so you can make a good decision that fits your ideal in terms of your business model as well as your  commitment level.

First, let’s start off by dispelling some of the myths about how agents work. It is important that you understand how agents work so that you can understand how you can choose a good firm. Unlike what you may have heard, real estate agents are independent contractors. Which means that they work for themselves, and are not, not, repeat NOT working FOR a broker. Real estate agents work on a contract troll basis with the realty company that they choose to work with. As a newer agent, all of the real estate companies in town will want to have you work for them. Why? Because they know, that you are a good potential moneymaker for them. So understand right from the beginning that you are able to go to practically any brokerage in town and get a job so to speak as a real estate agent for their firm as an independent contractor.

Horrible Bosses!
Horrible Bosses!

Do not be misled into thinking that you are somehow being done a favor by them allowing you to work with them. You can work anywhere you want to. However this does have a limitation. You, in order to be licensed actively, must be held responsible by a designated broker of some type. Individual states will call it different things, but the idea is that a licensee “works” for a Designated Broker of some type. The purpose of this is for consumer protection. That way any new licensees activities are supervised by a broker to ensure that the public is not hurt. Once you reach broker level, then you generally are able to work on your own. (Check your local state for legislative answers to this matter.)

Now that you know how agent’s work, it’s time to choose a company! Which way should you go? Well there are generally two types of “houses” to speak of. A “split house” versus a “100% house”. Each type of brokerage “house” has its advantages as well as its disadvantages. Let’s examine a few of each.

For my brokerage, Realty Executives Tucson Elite, we are considered a “100% brokerage”. Meaning that you are able to work without splitting your commission with the broker so long as you pay a monthly fee. The amount of the fee, depends on the brokerage in the city that you work in. Some companies are more expensive to work for than others but have more prestige. Some companies are cheaper to work for but have less amenities such as faxes, copiers, or charge by the copy. The trick, is to find a brokerage that has a good mix of both. You want a company with a good name, that is respected in your community, or is at least somewhat known. It is not a good idea to start out with a brand new company, or a lesser-known name. While I know that one can be successful in a lesser-known brand, when you are new, and part time or something like that then you need every advantage you can get.

Some of the advantages of working in a “100% brokerage” is that the broker who is in charge generally is available for questions, and is in charge of keeping the office profitable. So long as the office is profitable, then there are no problems. How they maintain profitability, is to ensure that “your rent is paid”. The broker, is also required to ensure your compliance with all legal statutes. Now here is how this will benefit you! If you are a realtor, you can’t help the fact that you must disclose you are an agent when buying your own (Article 4 Code of Ethics NAR). By disclosing that you were an agent, you are now involving your agency. Which means that your broker is now involved. Like it or not, they are involved. Even if you do not disclose it, you are still involving your broker. By having a license, like it or not, you are involving other people. By not disclosing this activity to your broker, you are unfairly putting your agency, your broker, and your friends at risk. So be a friend, and disclose!

Now when you disclose this activity, it’s a good idea to have discussed it with your broker in advance. But then the question comes up, how do you discuss it with your broker? In my opinion, it is best to be upfront, truthful, and honest about it. You’re not doing anything illegal. So why be sneaky about it?

Simply tell your broker the following “Mr./Mrs. Broker, before I sign my contract to work with you I want to let you know that in addition to listing and representing buyers I routinely assign contracts for profit (AKA Wholesaling) that shouldn’t be a problem, correct?”
Any broker worth “working for”, will instantly recognize what an assignment is. If they do not know what an assignment is, the briefly explain what it is, but be very wary because if they are the broker of the firm and they do not know what it is now, then it will be very difficult to educate them later. Most brokers, will not have a problem with it so long as you disclose and stay within the bounds of the law. Let them know that you are professional enough and that you intend to disclose everything, and everything will be above board. Until you give them a reason not to trust you, they will.

In a 100% brokerage, you are able to do a lot more with your business. You are able to list properties at any price,  you can modify your commissions if you choose.  You can even choose to fail.  So long as that bill is paid, you can do practically anything you want. So long as it’s within the law.

A disadvantage to a 100% house, is that you must pay the bill. And the bill keeps coming and coming and coming! So if you’re not producing, it can get very expensive very quickly.

BonninStudio
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Now let’s direct our focus to a “Split Commission Brokerage”. With the explosion of the 100% commission business model, it is extremely rare to find a truly split commission brokerage these days. Many times they have a hybrid type of program which will allow the practitioner to go on a form of 100%, after paying, or contributing a certain amount in split commissions. Once they reach a certain criteria at a certain level, then they are able to go to 100% commissions thereafter until the year of their contract is up (Remember, the contracts are good for a year generally!). The obvious disadvantage to the new person, is that they are generally. unable to provide enough money from commission sales to go on 100% in their first year.

The split concept, is a relic (if you will) of older real estate. Times when the brokerages would split the commissions 50-50 with the new person. However times of changed, and the proliferation of 100% houses has made that very difficult business model to maintain. The advantage is obvious. In exchange for a split commission of some type, the newer practitioner is not required generally to have any monthly fee. If they do have a fee, it is very minimal like a desk fee.

Transaction fees can apply in both houses, as companies are attempting to find ways to remain competitive. While this business model is good for a practitioner, it does require a level of adherence to company standards in many cases. For example, the company may have a standard or minimal time that they will allow you to take a listing for. Areas that they prefer you to work, what chair you can sit in, anything! There is a smaller degree of freedom in this business model for a newer practitioner.

For the Wholesaler, it really comes down to what you want to do again with your business. Do you want to have a lot of freedom, then the 100% brokerage model may work for you. In the split model, you may have lesser degrees of freedom because they are counting on you to make, and produce sales. And 100% house, they count on you to write a check. By any means necessary. In this scenario however, they are counting on you to produce a transaction that they can get a split from. Unfortunately assignments are not able to be split with the brokerage.untitled

Now I know what I just said, may raise a few eyebrows. Let me explain. Since an assignment is a personal right much like buying a car and then selling it for a profit, a brokerage would not have any claim to the profits that you made off the car would they? Likewise they have no claim to any profits made from an assignment. For double closes? Where there really is real estate that is transferred? Then perhaps yes they may have claimed that depending on your contact. You need to negotiate that prior to signing anything! Negotiate on your own behalf with them as an independent contractor and determine what their company policy is on personalized sales. However recognize that this is not a sale in the traditional real estate sense. The only thing this has in common with a traditional real estate transaction, is the fact that the house is involved. On an assignment, a house is not sold, rather the “Right” to buy the house quote is sold.

Now your brokerage may require or request some form of Errors and Omissions insurance be placed on your transaction. That is completely normal, and absolutely worthless to you. Most Errors and Omissions insurance will not cover an assignment since it is not a regular real estate transaction. But let them have it anyway. One of my earliest sales trainers, Floyd Wickman, had a joke one time. He said “If your dad is rich, you’ll never go hungry.” Remember that your broker and your brokerage, has to make money too. They provide secretarial staff phones, copiers, faxes,etc. The amount of money that they will make on and errors and omissions insurance file from you is inconsequential. Less than $100.

“If your dad is rich, you’ll never go hungry.” –Floyd Wickman

Remember when picking a real estate company to work for as a wholesaler, or a Realtor® who was intending to wholesale, understand that your choice of company in the beginning must be predicated on honest and upfront discussion with your broker about your activities. Don’t be ashamed, it’s not illegal! The open, be honest and approach it like a business person would. I know you’ll do well!

Write me and tell me if you have any problems!

3 thoughts on “How to Pick an Investor Friendly Real Estate Company for Wholesaling!

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