Expert: Ray Beggs - 4/15/2006

Question
Hi.  I appreciate your time.  This is a fairly simple question, however I've never been able to find the answer to this basic question in any texts or online.  I obtained my California real estate broker license a few months ago.  I don't plan to start a business.  I simply got the license to save money on my own purchases.  I'd like to purchase a home in California for myself, and earn the 3% commission typically due to the buyer's broker.  I do not have a business, business name, business license, etc.  I am just representing myself with my broker's license.  Will the Listing agent(or Escrow) pay me my 3% split of the commmission if I don't have a business? In other words, can they cut me the check for the commission and simply use my social security number to report my payment to the IRS via 1099 for tax purposes?  Or do I need a business, business license, tax id, etc, to receive the commission check?  Thanks!

Answer
Hi Chris,

The answer unfortunately, is yes and no.

As a broker licensed with the DRE, you can do business with your license without anymore paperwork with the Department of Real Estate. The problem is, in a real estate transaction the SELLERS agent is the one who collects the entire commission. (Including the commission for the buyers agent) The sellers broker then "pays" the buyers broker (through escrow) their part of the split, which is listed in the MLS along with everything else about the listing. The selling broker even sends a 1099 to the buyers broker. Many brokers will not cooperate (or more specifically PAY) a broker that is not a member of the local MLS. Also, the selling broker will need your taxpayer ID# from the IRS so that they can properly send you a 1099. Also, most cities require a business license if you do business out of their town. Another stumbling block would be the issue of Errors and Ommissions insurance that you would not have. Many brokers require this on both sides.

Now that I have said all of that, let me make a couple of suggestions. When you make the offer, you could let the selling agent know that you are a broker and structure the deal in a way that you get benefit of the commission without actually getting it as a commission. (ie. you could have the seller credit you the amount of the buyers agent commission and then also put in the contract that the selling agent will not get the buyers agent commission.) Or, you could get a business license, get E+O insurance, join the local board of realtors and join the MLS. It's all up to how many deals you think you're going to do. Make sure you check with the broker each time you make an offer and see if he/she will have any problem with paying you as a broker/principal in the transaction. You might not have any problem at all or it might not fly.

Good luck with you future purchases.

Ray