Licensure costs involve more than the fee for those test prep classes. Find out the hidden price of starting a real estate business in 2022.

Jay Thompson is a former brokerage owner who spent over six years working for Zillow Group. He’s also the co-founder of AgentLoop. He “selectively retired” in August 2018 but can’t seem to leave the real estate industry behind. His weekly Inman column is published every Wednesday.

Flashback to 2004: I walked into the Arizona School of Real Estate and Business in Scottsdale, Arizona, approached the person at the front desk and said, “I want to get a real estate license!” The helpful person behind the desk said, “Sure, hang on one second.” Then she reached into a file drawer, pulling out all sorts of documents and forms.

“Here’s our current schedule. You have three options and can complete the required pre-licensing classes in our nine-day crash course, or you can take a two-week or one-month version, on these available dates.”

“What the heck, let’s get it done. I’ll take the nine-day crash course that starts next week.” This would be the first of many mistakes I made in my real estate career. No one in their right mind should ever take nine straight ten-hour days of real estate classes.

“Great!” she replied, “fill out this, this, this, this and that. That’ll be $599 dollars, plus tax. Cash, check or credit card?”

Handing over my card, I silently wondered if I had enough available credit to cover it.

“Did you want to put your background and fingerprinting fees on this too?”

“Uh, do I need that stuff?”

“Yes, if you plan on taking the licensing exams.”

“OK, how much?”

“$75.”

Shrugging my shoulders, she processed the card. Fortunately, no “Your card was declined” scene played out.

I walked away, excited that I was about to embark on a new career, and slightly terrified about my rapidly dwindling available credit.

Little did I know how many more times I’d be pulling that credit card out of my wallet before I closed my first sale. 

Cost of a real estate license

There is a fairly common misperception about what it costs to get a real estate license. It’s easy to think “all I need to pay is the education and exam fees.” That is a bad way to think.

One would be well-advised to consider not just the obvious up-front expenses, but the hidden costs as well. Back in the dark ages of 2004 when I got licensed, there wasn’t much information about this on the internet.

You’d think almost two decades later the web would be stuffed full of info, charts and spreadsheets outlining all the expenses – upfront and hidden – for getting a real estate license.

Think again. In researching for this column, I couldn’t find a single source that covered (almost) everything. Seems the real estate schools and brokerages aren’t too keen on being upfront with the cost of licensing. That’s probably because it’s easier to gloss over it and get you hooked into licensing classes while figuring that you’ll just pony up and pay to finish the process.

Why scare off prospective students and agents, the people you need to pay your bills?

It’s probably out there. My search wasn’t exhaustive. After all, I’m on a deadline – which has already passed. What follows is a relatively comprehensive list, but be advised that fees, expenses and the time required to secure a license vary widely by state. 

Your first step is to understand your state’s education requirements. The best source for this info is either your state’s Department of Real Estate (DRE) or Real Estate Commission (REC). Just Google “ requirements for real estate license” and get your credit card handy.

Education requirements

Real estate school prices can vary from state to state, but within a state are typically similar. A school won’t survive long if they charge substantially more than other schools in the area. Online classes are legal now in many states and may save you a few bucks over in-person classes.

Real estate schools do not prepare you for a real estate career. Their sole purpose is to prepare you for passing the licensing exams. (And no, the exams don’t prepare you to actually sell real estate either.)

Passing the exams is a critical first step in your real estate career. Don’t try to save a few bucks here because you’ll lose everything if you’re not prepared to sit for, and pass, the exams. Costs vary across the U.S. and range from $200 – $1,000. 

Licensing exams

There are usually (maybe always) two exams that have to be passed, a state exam and a national exam. Each will have a fee to take the exam (and can be taken on the same day). You can retake a state or national exam if you fail. Of course, you’ll need to pay the exam fee again.

Exams are proctored (monitored by a human) and typically taken at a commercial exam center. There is usually an exam application fee in addition to the fees for the state and national exams. Expect to pay in the $150 – $400 range to apply for and take both exams.  

Background and fingerprinting checks

Most states require some sort of background check and/or fingerprinting to issue a license. They can probably be done before you take the exam, but you may want to wait to ensure you pass the exams first.

Be advised though that fingerprinting can take some time to process. I did mine after passing the school exams before sitting for the licensing exams. $100 – $150 is the typical expense.

State DRE/REC fees 

Once you’ve passed your state and national exams, you still don’t have a real estate license. Those are issued by the state’s Department of Real Estate/Real Estate Commission. Of course, they charge a fee for this. These fees also vary significantly from state to state and range from $60 to $615.

Brokerage fees

Once you have an actual real estate license in your hand, you may think you’re done and can start selling real estate. Not so fast. Every state I’m aware of requires you to “hang” your license with a brokerage before you can engage in licensing activity.

Some brokerages have onboarding fees, some do not. Some charge a commission split (the brokerage gets part of the commission you earn) while some do not. Some charge a desk fee. Or a marketing fee. Or a technology fee.

Many articles could be (and are) published on how to choose a brokerage. It’s not about just finding the lowest fee. You should be interviewing brokerages before you even take pre-licensing classes.

Choosing the right brokerage is the most important decision in establishing your real estate career. I’m not going to put a cost on the brokerage fees because it varies tremendously, but you should absolutely investigate this expense.  

Errors & Omissions insurance

Your brokerage should require you to have “E&O” insurance. If they don’t, strongly consider going with another brokerage. E&O will cover many things if you make an error or omission, and those could easily be in the thousands to tens of thousands of dollars range.

Like any insurance, there will be a deductible for the E&O policy. Some brokerages pay the deductible, some do not.

It should be spelled out in your Independent Contractor agreement. If it’s not, again consider finding another brokerage. Some brokers pay your E&O from commission splits, some charge you a fee, some expect you to secure and pay for coverage. Expect to pay in the $350 – $450 range.

Realtor association memberships

More than likely you’ll need to join a local, state and national Realtor association. These typically have annual fees, and may prorate the expense depending on what time of year you join. The National Association of Realtors (NAR) dues are currently $150/year plus a $35 special assessment for the Consumer Advertising Campaign. Local and state association fees vary. Expect to pay in the $400 – $800 range for all local, state and national association dues.
 

MLS fees

The vast majority of areas in the U.S. use a Multiple Listing Service (MLS). Some areas will require membership in multiple MLSs. Most charge a flat annual rate in the $300 – $700 range. Some charge an “initiation” fee as well; I’ve seen one at $500.

“Most” is the keyword here. Metro Atlanta’s FMLS, for example, charges on a per listing basis, at 0.12% of the sale price. 0.12% may not sound like much but do the math. It’ll cost you $1,200 to list a $1 million home. Sell homes totalling $10 million in the year and you’re paying $12,000 to list those homes in FMLS.

There are 500 some-odd MLS’s in the country and there may be some others that charge a per-listing fee like Atlanta’s FMLS. 

The grand total is a range of $1,560 to $4,115. It’s unlikely that you’ll be on the low or high end in every category. I’m not including initiation fees or per-listing fee MLSs in this range. Importantly, this range does not include brokerage fees and expenses.

But that’s not all…

Secondary, but necessary, ongoing expenses

In addition to the initial licensing costs mentioned above, you’re going to also incur business expenses, marketing costs and have to pay for continuing education to maintain an active license.

It’s impossible to put a range on these expenses, but they are all necessary in order to run your real estate business. There are agents that spend millions of dollars a year in business and marketing expenses.

Real estate sales is a relatively easy business to enter. It is not a simple, nor inexpensive, industry to stay in or be successful.

That said, it’s an amazing career. It is one of the few career paths you can take where you are in almost total control of your success. Do your research upfront and understand that real estate licensing school won’t lead you to success, but it will start you down a path of virtually limitless reward.

Jay Thompson is a real estate veteran and co-founder of AgentLoop living in the Texas Coastal Bend. Follow him on Facebook, Instagram and Twitter. He holds an active Arizona broker’s license with eXp Realty. Called “the hardest working retiree ever,” as the founder of Jay.Life he writes, speaks, and consults on all things real estate.

Jay Thompson
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