A lot goes into getting licensed in real estate, and that means there’s a lot you need to know to ensure your business starts off on the right foot.
Key takeaways:
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Becoming licensed in real estate requires time and training.
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Every state has its own requirements for real estate licenses.
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Some real estate professionals can work on their own, others must work under another agent.
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Accounting is crucial for your success as a real estate professional.
If you’re thinking about getting licensed in real estate for the first time, there is a lot you need to know. You will essentially be starting your own business, for example, but there are laws and regulations – both national and state-specific – that govern what you can do on your own. Not following those laws could land you in hot water, so it’s important to understand the parameters before diving in.
This guide will cover the basic things you need to know about getting licensed in real estate.
Becoming licensed requires time and training
You probably would like to jump into real estate right away, but there are steps you need to take first. Here are a few facts to keep in mind as you start the process:
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Different states have different levels and titles for real estate professionals.
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Lower-level real estate agents work under brokerages’ names, but most are independent contractors of those brokerages.
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Agents help clients buy, sell, or rent their properties.
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Most states require agents to gain training by completing a pre-licensing course offered through state-approved schools.
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The length of the courses is determined by each state, with some requiring as low as 40 hours of class time and others requiring as much as 150 hours.
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During the pre-licensing course, prospective agents learn about real estate ethics, legal issues, finance, contracts, taxes, insurance, and more.
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Prospective agents must pass state and national licensing tests, plus a background check.
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Those who pass the licensing tests and background check can then work as associated brokers under the direction of a higher-level broker.
New agents who want to work on their own need to put in a few years of on-the-job experience and undergo further training and licensing to do so. That coursework covers topics such as real estate finance and taxes, real estate law and brokerage-specific law, real estate investments, construction and development, business law, and property management.
Every state has its own licensure requirements
Just like sales agents, states dictate the requirements for becoming a real estate professional. Some have different titles for different license levels, but all require the same basics to get started:
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Prospective agents must be at least 18 years old.
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They must have achieved at least a high school diploma (or equivalent).
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They must complete the state-mandated and -approved broker educational courses.
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Prospective agents must complete the license application and pay the required fee.
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They have to pass the state and national licensing exams.
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They also have to pass a background check.
Many states require at least two years of experience as a lower-level agent before you can think of moving on to the next level. Some require only one year, while others may require at least three.
Real estate role title differences
It’s important to know that your state’s real estate titles may not be the same as others. Many states use the terms “sales agent,” “real estate agent,” and “real estate broker” to denote different levels of real estate professionals within an agency, but others use a different naming system. Some states use the terms agent and broker interchangeably, with a “principal broker” being the highest-level agent.
The key difference is that, regardless of title, lower-level agents cannot work independently of a managing agent. That managing agent – often called a “broker” or a “principal broker,” depending on your state – oversees all the lower-level professional’s transactions for errors. Lower-level agents cannot run their own agencies or hire lower-level agents to work for them. Those who wish to start their own brokerages must hire higher-level agents to oversee their business.
Higher-level brokers who have completed the required amount of time as lower-level agents, finished the additional training, and passed the next level’s licensing requirements can work independently and form their own firms, however. They can also hire other agents and brokers to work for them.
Accounting is crucial for your success
One thing many prospective agents do not know before they get into real estate is that they are starting a personal business. Most are independent contractors of the brokerage they work under. There are expenses that need to be paid out – including the costs of coursework, licensing applications and testing, brokerage fees, and other business startup costs – in addition to the costs associated with your personal marketing efforts. You’ll want to keep track of all your business expenses for tax purposes.
Eventually, you’ll also have money coming in as commission checks for helping your clients buy and sell properties. That money will likely not be pre-taxed, especially if you’re an independent contractor, so you’ll need to keep track of your earnings for taxes as well. You may also need to pay quarterly tax estimates depending on how much you earn.
The right accounting software can help, but it is often more helpful to take a ground-up approach and seek expert help. There are people out there with a track record of training business owners and CEOs to make sense of their business and finances, after all!
How the right partner can help your business
If you’re a small business owner – and, as a real estate professional, you certainly are! – you need someone in your corner to make sure you’re keeping your finances in order. Franco Blueprint is passionate about guiding entrepreneurs like you through the process of managing taxes, getting paid faster, and automating their accounting. We have a proven track record of helping CEOs minimize risk, increase cash flow, and manage their businesses more efficiently – and we can do the same for you.
If you’re trying to start your own real estate business or trying to break through into the next level of growth, reach out to Franco Blueprint today so we can talk.