Licensed Investors: Should Your Broker Get a Cut of Your Deals?
Hey guys, this is JP here –
Today I want to share an answer for a very common question that I get from investors who are also licensed. This question was sent in by Mark, who asked:
“I am licensed and my broker wants part of the deals. What should I do with this proposal?”
Broker expects a cut
Okay, I assume, Mark, that you’re talking about wholesaling here. You’re a licensed Realtor and you’re doing wholesale deals, but not using your license necessarily in doing that. But the broker that you’re working under is expecting a cut.
I used to be licensed for many years, and I encountered this very scenario. Here are a few thoughts from my perspective and from my own experiences. You can take them for what they’re worth…
My understanding is that your broker should be cut into any deal in which you use your real estate license. That’s pretty much a given.
Assuming risk
Think about it this way. The broker is assuming a lot of liability because he is responsible for anything you do as an agent. So if you go and mess someone over and do something unethical, your feet will be held to the fire, but his will as well.
In fact, he could lose his license because of something you do, even if he has no knowledge of it.
This means that every broker who has agents working under him is assuming a lot of risk – therefore, they need to be compensated in some way for assuming that risk.
It’s unethical
There are investors out there who want a real estate license just to enhance their real estate investing business. Their idea is to hang their license under a broker but never pay them anything.
I think that’s a mistake.
In fact, in my opinion, it’s not even ethical to do that. Brokers not only need to be compensated for the risk that they’re taking, like we just mentioned, but also, they’re legitimately going to provide you with value and credibility.
When I was licensed I always used my real estate license as my big credibility factor.
Don’t be looking for ways to get out of paying your broker. If you use your license in some way – if you use the MLS to list the property at all – go ahead and bill something in for your broker.
When it’s time to find another broker
Now, if your broker believes he is legally entitled to get a cut on your wholesale deals, where you’re not using your license, in that case I believe he’s wrong.
You would do better to find another broker who is more aware of how real estate transactions work for investors.
Two different arrangements
I’m no longer licensed, but when I was, I had a broker who was also an investor. That means he really understood the situation clearly. Basically, I had two different arrangements with him.
- The first set up was on commission. Every few deals, I’d have his commission built in (we had an 80/20 split and I’d just factor in his 20%).
- The other arrangement was a flat fee. I paid him a flat fee every month regardless of how many deals I did. He loved that arrangement as well.
All of this is negotiable, but the point is you need to find a broker who’s willing to play ball on terms similar to what I’ve listed here. And all investors should go to great lengths to treat the broker fairly.
Hopefully, my insights have been helpful to those of you who are licensed – or even if you’re thinking of getting your license in the future.
As in working with all your team members, always go to great lengths to be fair. It will pay big dividends on down the road.
How do you work with your broker?
I’d love to hear about your experience. If you’re licensed, how do you and your broker work the payout details? Leave your comments below.
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