As described in an earlier post, obtaining a real estate sales license in Massachusetts is a relatively cheap and fast process, rounding out close to $650 and 40 hours of class time. Unfortunately, real estate selling licenses do not permit an agent to sell as an individual and will require employment under a licensed real estate broker to make legal sales for the company. Given how lucrative buying and selling real estate can be it would be wise as a property management business to transition into this market as you grow. In the Leominster – Worcester area the median value of a home is roughly $230k – $260k and agent commission roughly 6%. That means if you were collecting the total commissions of each sale for your investors you’d be making roughly $13800 – $15600 per transaction. Crazy!
To try and circumvent this issue you may think, “Well, I’ll just get a broker’s license instead”, but it’s not that simple. Before obtaining the license you need to be employed and work under another licensed broker for a minimum of 25 hours each week over 3 years, then repeat similar steps to obtaining your real estate sales license. With this in mind, here are a few ways to begin legally selling real estate in your property management company:
- Have an employee become an agent at a local broker firm – After obtaining your real estate selling license partnering with a broker firm can give your company access to legal sales. A broker is responsible for all real estate transactions processed under their license and will need to be involved with all sales as such. This can and has held problems for brokers in the past as any sales done without their knowledge or consent through the company could affect their insurance, so having agents whom run a side business like property management are uncommon. Commission splitting also has no set standard, but can typically be found around 50 / 50. Although the profits as described above would not be as high, more likely $6900 – $7800 per transaction in our market, this can start a trustworthy and dedicated employee on the 3 year path to obtaining a broker’s license and separating the company from business partnerships.
- Hire an employee with a broker’s license – The most costly, but rewarding, way to enable your company to sell real estate independently is to hire someone with an active broker’s license. Not only does this enable the company to manage sales independently, but also enables any employee with a real estate sales license to sell too. According to the employee recruitment sites Recruiter, Indeed, and Zip the average salary for a real estate broker is roughly $75k and can range between $56k – $100k+ depending on area and level of expertise. Although this amount may seem intimidating for startup companies without active investors it can be used as a starting point for creating company goals and setting visions for the future. For example, given the average salary of a broker and estimated commission made per transaction in our respective area the company would need to buy / sell a minimum of 6 houses for their clients in a year to afford the broker’s salary and still make a profit. This type of thinking can help to set margins and expectations for new hires as the company begins to look for expansion in hiring key people. One issue however with hiring an employee rather than working with a partner to utilize the broker license is the level of trust you put into a stranger. If this employee decides to abandon ship it also means your company needs to halt operations with selling real estate while you scramble to find another licensed broker.
- Utilize a local licensed broker firm – The easiest way to buy and sell property for your clients is by taking advantage of local brokerages without obtaining any required sales licenses. By buying and selling for clients in this fashion you’re charging a “finder’s fee” for referring the client to a licensed real estate seller. This fee has no set value, but can typically be seen at 25% of the commission received by the seller. By prospecting houses known as “for sale by owners”,FSBO, this type of research selling can be a very lucrative side revenue for a property management business without putting to much involvement on a single employee. Although it is the least profitable of all the methods of selling, it does distance you the most from liability as a company and requires the least amount of effort to start.
Having so many options to begin working towards real estate sales as a side revenue stream makes this an extremely viable option for any size startup or existing property management company. Given how important maintaining an active real estate broker license is once a company begins offering services to financially manage real estate I highly suggest working towards having the Owner of your property management company become the one who holds the license, otherwise any new hire will need to be met with extreme caution. With buying and selling homes being such a close market to actually managing the property it’d be a wise decision to do research on home costs and realtor commission cuts in your area to see which option works best for you!