This is a basic review of the principles of real estate. As a licensed agent, you have experienced how demanding the real estate business can be. You are required to understand and communicate the fundamentals of real estate. The successful selling and purchasing of real property is your business and you are expected to know how things are done and why they are done.
Our knowledge goes a long way in helping our clients navigate the many varied and unique transactions. Real estate is not a simplistic business but rather filled with complex legal theories and as you know, unusual situations. Your experience goes a long way but mastering the basics always comes in handy. This course helps you to remember the academic subtlety that keep you and your brokerage out of trouble.
Real estate brokers used to look at a roof and say that it looks like it will hold up for 10 years. In order to manage risk appropriately, satements need to be carefully given. We must back up everything we say with due diligence, disclosure, and legal knowledge. Transactions require concrete analysis of real property issues in almost everything we do. Title reports, surveys, and third party reports all need to be reviewed and in many cases referred to the proper legal professional.
Real estate is without a doubt an exciting business. We as licensees are at the front of our economy, good or bad. Half the world's wealth is in real estate. The most important decisions in most families is the purchase or sale of residential real estate. People are also involved in many of the other real estate fields such as tenants, landlords, developing, or investing. You are literally on the cutting edge of helping people with varying backgrounds to navigate the unique and complicated issues in real estate.
Again, this is a basic course that you may appreciate more now that you have some experience under your belt. Let's get started with the very basics of Washington real estate by reviewing the types of licenses held in Washington.
Upon completion of this section, you should be able to:
Washington State can be a bit confusing, when it comes to who holds what license. To begin with, it's important to know there are only two licenses in Washington State, that's Broker and Managing Broker. It all comes down to the ability to supervise other brokers. If the job requires supervision of brokers a managing broker’s license is required. This includes supervising yourself such as in a one-person office. The two types of licenses is simple, but confusion happens when we get into all the job functions and titles that are broker and managing broker can have. A person with a managing broker's license may be a designated broker. That's the person ultimately responsible for the firm. They can also be branch manager, someone who is in charge of a branch, but is it the designated broker. Another title is managing broker, that's the same as the license name. A managing broker, who's not the designated broker or branch manager, may have responsibility managing other brokers. That would only be a couple brokers within the firm, but not necessarily the entire branch. A managing broker can also have no responsibility to manage anyone and still hold the license.
A person with a broker's license may be a property manager. That’d be anyone that is focusing on managing income properties for owners. Lastly, the title broker. A broker is someone who would work with clients to help them buy and sell real estate. We hope the short video has helped to establish an understanding, that well we have many different job functions and titles in real estate brokerage. There are only two licenses given in Washington, a Brokers license and Managing Broker.
When working for a brokerage firm, brokers typically operate as independent contractors. An independent contractor is a person who provides services under the terms of a written agreement. In practice, this indicates a relationship where the independent contractor acts as a separate business and is therefore responsible for work aspects such as setting their own hours. An employee, in contrast, works directly for the firm and would have activities including hours dictated by their employer.
There are advantages and disadvantages to being an independent contractor. In addition to the schedule flexibility, another advantage is that independent contractors can include some of their expenses as tax deductions since they file as a separate business. Also, independent contractors can choose how to allocate operating expenses and marketing dollars.
As always there's a flip side. While independent contractors gain flexibility, they also sacrifice stability. They do not receive paid vacation days, health benefits, retirement benefits, or guaranteed income (e.g. a salary or hourly wage). This sacrifice provides great upside since independent contractors are paid for what they produce, with any extra production directly benefiting their bank account. But it is crucial to be aware of the downside risks.
Most real estate brokers are independent contractors and not employees of a brokerage. Usually a brokerage will have an independent contractor agreement signed by both the designated broker (person running the brokerage) and the broker (licensed broker working on behalf of the brokerage). The agreement will likely cover some of the following topics:
Let's look at an example of an independent contractor.
Example: Steven is a real estate licensee who has entered into a written contract with his designated broker. The contract specifies that he will not be an employee. Steven has agreed that his entire income will be based off of his sales commissions instead of an hourly wage. Independent contractors are not paid any set amount of salary or receive hourly wages, thus they cannot be treated as employees.
For tax purposes, an independent contractor will receive a Form 1099-MISC, Miscellaneous Income, from the brokerage to report what it has paid. The independent contractor is then responsible for paying income tax. The business does not withhold taxes and therefore, the independent contractor should make estimated tax payments during the year to cover tax liabilities.
This distinction between independent contractor and employee is important for federal income tax purposes and affects the relationship between a designated broker and a licensee. The Internal Revenue Service (IRS) has various criteria that determine whether a worker is an independent contractor or an employee. The criteria fall into three main categories as summarized in the following excerpt from the IRS:
Behavioral Control - These facts show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually control the way the work is done - as long as the employer has the right to direct and control the work. For example:
Instructions - If you receive extensive instructions on how work is to be done, this suggests that you are an employee. Instructions can cover a wide range of topics, for example:
If you receive less extensive instructions about what should be done, but instead of how it should be done, you may be an independent contractor. For instance, instructions about time and place may be less important than directions on how the work is performed.
Training - If the business provides you with training about required procedures and methods, this indicates that the business wants the work done in a certain way, and this suggests that you may be an employee.
Financial Control - These facts show whether there is a right to direct or control the business part of the work. For example:
Significant Investment - If you have a significant investment in your work, you may be an independent contractor. While there is no precise dollar test, the investment must have substance. However, a significant investment is not necessary to be an independent contractor.
Expense - If you are not reimbursed for some or all business expenses, then you may be an independent contractor, especially if your unreimbursed business expenses are high.
Opportunity for Profit and Loss - If you can realize a profit or incur a loss, this suggests that you are in business for yourself and that you may be an independent contractor.
Relationship of the Parties - These are facts that illustrate how the business and the worker perceive their relationship. For example:
Employee Benefits - If you receive benefits, such as insurance, pension, or paid leave, this is an indication that you may be an employee. If you do not receive benefits, however, you could be either an employee or an independent contractor.
Written Contracts - A written contract may show what you and the business intend. This may be very significant if it is difficult, if not impossible, to determine status based on other facts.
Since you will likely be your own boss, you will need to ensure you have the self-discipline to accomplish what you set out to do. Here are some tips for making sure the job gets done.
As you set goals for yourself, a good strategy is to follow the acronym SMART. Make sure your goals are Specific, Measurable, Attainable, Relevant, and Time-bound. Doing that will help you set goals that you will be motivated to tackle.
It can take some time, often many months, to develop a client base. Regardless of which job in the industry you choose, knowing how and when you will be paid is important. For those who choose to go into sales, the time between the signing of a contract and your potential payday can be anywhere from 30 days in residential real estate to much longer in commercial real estate. With this in mind, having funds set aside to finance the initial start-up period is prudent.
Real estate is competitive. You'll need the correct tools to be successful in your career. This means that you'll need to be knowledgeable about the technology used by your clients, such as phone applications, and have the equipment necessary to excel in your career.
Real estate can involve working many hours, including nights and weekends. This is especially true for residential real estate, when your clients are working a typical nine-to-five job and only have time to market their home or shop for homes in the evening or on the weekend. Approaching this work with accurate expectations will help you succeed.
A friendly demeanor will be one of your most valuable assets. Listening is a vital skill since you need to empathize and understand a client's needs. For example, ask questions to help understand what the client is trying to accomplish. If your clients recognize that they have an advocate who understands their goals with an established plan to attain them, you will be on the right track.
Real estate law can change as well as the national and local market where you work, making it imperative that you keep up-to-date on recent changes and the effect that they have on your market. Education is the key to keeping yourself current. You can keep up by taking real estate courses (some will be required to keep your license), reading (e.g. newspapers, real estate publications), and through training from the managing or designated broker. Additional resources are made available through the Real Estate Division of the Washington State Department of Licensing, which is the regulatory agency responsible for the licensing of brokers. You will need to submit your application to become a real estate broker to them as well as to renew your license.
As a real estate professional, you will be asked for a lot of advice concerning the market; so keeping up on current trends and changes is indispensable. Your clients will depend on you to help them attain their goals, which might require knowledge far beyond just market conditions. Clients may want to know about school systems, crime rates, maintenance, construction, and "green" building. While it may seem overwhelming as you take the course, you will pick up knowledge quickly and develop lots of resources to help you stay up to date as you begin your career. While real estate certainly has a steep learning curve, you'll be up and running quickly if you are dedicated and diligent.
Real estate is a broad field and licensees will want to focus on one or a smaller subset of activities. There are a variety of companies out there with varying focuses, such as:
While it's possible for a company to engage in all of these activities, it is most common for companies to instead specialize in one or two areas. Apartments are considered residential but when they are larger in size they are closer to commercial real estate because of their investment purpose. Investment purpose means the property is designed to generate an investment income from the leasing of the building or units.
It is not uncommon for a brokerage to work in more than one area because there can be overlap between them, such as sales and property management of commercial real estate, since both deal with valuing and selling to commercial clients.
Deciding where to work is a difficult choice that involves many factors. Let's take a look at a few of the main factors to consider.
What type of assistance does the brokerage provide? Is the managing broker readily available? The amount of support from the brokerage (e.g. from management, secretarial services, and licensed assistants) is something to consider when assessing which brokerage will be best suited for you. The amount of support can vary considerably: from teams of brokers working in tandem and mentorship opportunities to brokerages that provide very little help. It's important to nail down what type of brokerage you are looking for and what your options are.
As a new student, you will learn a lot about real estate in this course. However, you will also learn a great deal on the job - for example, about the practicalities of sales, marketing, and writing contracts. Here we cover the legal basics of real estate in Washington while giving a background in the important basics of real estate. That said, expanding your base of knowledge and getting on the job training is essential for success. It's therefore important to find out what training the brokerage you are considering provides.
Firms come in many shapes, sizes, and management structures - from a two-person firm to a large, 100-person firm that has only employees. Consider which you will be most comfortable with and will help you reach your goals.