Do you need a real estate or contractor’s license to flip houses?
You’ve started flipping houses, or you want to start flipping houses, and you’re curious if a contractor’s license or real estate license is required. Let’s discuss.
Do you need a real estate license to flip houses?
While laws vary from state to state, I think it’s very unlikely you’ll need a real estate license to flip houses. I don’t imagine there are any states that would require a real estate license to purchase or renovate a house, but what about when you go to sell (flip) the property?
Well, even then, you wouldn’t need a real estate license because you can sell the property For-Sale-By-Owner (FSBO), or you can hire a Realtor to list the property for sale on MLS for you. (Check out this post for more on MLS)
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Now, to list a property for sale and receive a commission for the sale, you’ll likely need a real estate license.
Biggest Advantage of getting your real estate license to flip houses
While getting your real estate license is likely not required to flip houses, getting your license can certainly save you money.
Save on real estate commission
When you sell a property (unless its FSBO), you’ll likely pay around 6% in real estate commission. So, if you sell a flipper for $100,000, that’s $6,000.
Let me quickly explain how, in this example, that $6,000 would probably be paid out.
In a typical real estate transaction, you have at least four real estate professionals involved. 4?! Yes – at least. The buyer has their agent, and you have your agent (assuming you’re not going FSBO). So that’s 2 right there.
Additionally, unless a real estate agent is acting as their own broker, they will be assigned to a broker. So, you’ve got 2 real estate agents, and 2 real estate brokers. They all get paid.
Breaking down the pay between brokers and agents
Here’s how the pay would usually break down. Continuing with our example above, at closing, the $6,000 gets paid to the broker on the seller’s side. That broker typically pays half ($3,000) to the buyer’s broker. So each broker now has $3,000.
Out of that $3,000, each broker pays their respective real estate agent. While the split between real estate agents and their brokers is completely negotiable, it’s usually 50/50. So, in our example, each broker keeps $1,500 and pays the agent $1,500.
So, if you’re acting as your own agent, then you save yourself $1,500.
Furthermore, if the buyer isn’t represented by a real estate agent, then you save yourself $3,000 because you’re representing yourself and the buyer. This is known as dual agency (a topic for another post).
Expenses of maintaining your real estate license may not be worth it
I will say, though, that’s it’s probably not a good idea to go through the effort of getting your real estate license if you’re only flipping a couple houses a year.
This is true for the simple fact that, in addition to all the schooling, there are ongoing fees to being a Realtor. Here’s a great piece by Realtor.com that explains potential real estate agent fees.
If you’re doing many flips a year, though, you can see how the savings could really add up.
Do you need a contractor’s license to flip houses?
Here’s a fantastic article put out by Home Advisor that breaks down contractor licensing requirements by state. Check it out here.
Generally speaking, though, I doubt you need a contractors license to flip houses unless you’re adding on to the structure or making substantial structural changes. Even then it may not be required.
Now, it’s likely that various permits will need to be pulled depending on what you’re doing with electrical, plumbing, & HVAC, but those respective sub-contractors should be pulling their own permits. Again, though, this may vary depending on where you’re located.
So, do you need a real estate license or contractor’s license to flip houses? While license requirements vary by state, it’s unlikely you’ll need to get your real estate license or contractor’s license to flip houses.
With this being said, in this post, I’ve provided a reason to strongly consider getting your real estate license if you’re flipping a good number of houses per year. I hope this post helped.