Off-market real estate deals can make you a millionaire in just a few YEARS. Instead of buying the nicest-looking rental property in the best area through a brutal bidding war, David Lecko went the opposite route, purchasing the properties nobody else wanted, finding deals simply by driving for dollars or paying someone else to do so. He went from a burnt-out nine-to-five worker to financial freedom in just two years by following this strategy, and you can do it, too!

David was working all day and all night, making a meager salary with almost zero time freedom. His boss, who worked far less than he did, outsourced his business and had rental properties on the side. David knew that to be in the same position, he’d have to mimic his boss’ path to wealth. So, after work, David would drive around his local area, looking for the tallest grass, the biggest roof repairs, and the worst paint jobs. He finally found his first deal, which cost less than a used car, but ended up springboarding David to make millions.

In today’s episode, David will walk through EXACTLY how to find off-market real estate deals the RIGHT way, how to get around the lazy lists that most off-market investors use, and how to turn a few properties into millions of dollars of wealth and close to six figures a year in passive income. And in today’s tough housing market, finding deals like these is even MORE crucial. So, what are you waiting for? Financial freedom is only a couple of years away!

David:
This is the BiggerPockets Podcast show, 830.

David Lecko:
I actually started in 2016 when I worked for somebody who had five rental properties, and I was like, “Why do you have this?” He said, “Well, unlike the stock market that can go up and down, if you get rentals and you buy them right and manage them well, they’ll always make money.” That’s what motivated me to go looking for some of these real estate deals. There weren’t any, nothing was going to cash flow until I found out about going off market and then providing value to somebody, getting a discounted property, fixing it up. That’s actually led me to 2 million in rentals that I have today with a million-dollar equity position.

David:
What’s up everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, the biggest, the best, and the baddest real estate podcast in the world. Every week we bring you stories, how-tos and the answers that you need to make smart real estate decisions now in this current market that is ever-changing. We have a great story for you today. Joining me is my overly eccentric co-host, Rob Abasolo, who is either being a mime or doing ASL for those who are watching on YouTube. Rob, how are you today?

Rob:
Oh, my gosh. Dude, I got home at 4:00 AM last night. Now, I feel like I’m on vacation. Now, I feel like I’m on vacation, because being on a plane with a two and a three-year-old for 12 hours? Hmm.

David:
Today we’re about to speak with David Lecko. He’s going to be describing the strategy that he’s used to build a $2 million portfolio with $72,000 a year in cashflow that he started with only $4,000.

Rob:
It’s crazy, man. On top of that little fun fact, he’s also the founder of DealMachine, which we didn’t really talk about in the podcast today. He’s got a really cool story and really breaks down, I mean, really everything from the beginning, I think it’s going to be encouraging for a lot of people to hear his story.

David:
Absolutely. Today’s quick tip is going to be brought to you by Rob, who actually has some advice to share that came out of today’s show.

Rob:
Hey, when you see an opportunity, take action. You’re going to hear why today at the very end of the podcast. We talk about a deal that I just did because the moment I saw the opportunity, I made the phone call and got stuff done.

David:
There you go. Strike when the iron is hot because it doesn’t stay hot forever. As we know, decisions are made based on emotions and emotions change. When you’ve got the right opportunity, don’t waste your shot. Much like Eminem said, you may never get it again. All right, let’s bring in David. David Lecko, welcome to the BiggerPockets podcast. How are you today?

David Lecko:
I’m great, thank you so much.

David:
Nice, man. Can you give our listeners a quick rundown of who you are, where you invest, and how long you’ve been investing for?

David Lecko:
I actually started in 2016 when I worked for somebody who had five rental properties and I was like, “Why do you have this?” He said, “Well, unlike the stock market that can go up and down, if you get rentals and you buy them right and manage them well, they’ll always make money.” We know Warren Buffet says the rule is don’t lose money, never lose money. That’s what motivated me to go looking for some of these real estate deals, but there weren’t any, nothing was going to cashflow until I found out about going off market and then providing value to somebody, getting a discounted property, fixing it up. That’s actually led me to 2 million in rentals that I have today with a million-dollar equity position and about $95,000 in net cashflow expected this year. Last year was 72, but I did a couple of acquisitions this year. Those properties were acquired over about a two-and-a-half-year period from 2017 to ’19. Then I chilled out for quite a while. I had a lot of appreciation. I’m now re-motivated to go acquire some more rental properties.

David:
All right, I want to ask you, Rob, a quick question. How long do you think we’ll still hear stories about people who heard about real estate from a human? Because now with YouTube and social media, it’s bombarded by real estate. I just realized, that’s how people used to say it. Like, I met a guy in a restaurant one day, mysterious man smelled of rich mahogany and leather-bound books. He told me he had rental properties, and I was so fascinated. Versus what it’s like now. I’m just curious, Rob, what your perspective. Do you think that anyone will ever hear about real estate from a human from this point forward?

Rob:
That’s very funny. I was legitimately just thinking about this because everyone that I follow on Instagram, they are all real estate people. It’s all like, “Here’s five rental strategies you need to perfect in 2022. Here’s how to make $10,000 cashflow.” That’s all my Instagram is. I’m like, man, the entire Instagram landscape has really changed for the real estate industry, but that is really a big part of how people even find out about real estate. I don’t know. I think the days of the coffee shop, meeting with an older real estate vet and they teach you everything and take you under their wing, I feel like those, yeah, it’s getting a little bit more rare these days.

David:
That’s true. Also, I feel like when you talk to someone before they tell you what they actually had versus when you hear something online, now it might be someone with a house they live in and one investment property, but they’re talking about it as if they have 50 rentals. That’s a little different too. It’s easier to find out about it, but you got to dig a little bit deeper to figure out what’s really going on, and that’s what we’re going to do today. David, we’re going to hear all about your expertise in a second here, but give me an idea on what strategy or tactic is working for you right now.

David Lecko:
I’m doing two things right now. I’m paying a driver to look for rundown properties. I’m sending marketing and I’m getting calls back answered by a call center, and then I follow up and do a virtual appointment. The other thing I’m doing now that’s new for this year that I’ve had a couple successes with so far, is actually making offers on properties in the MLS in my market that are over 45 days old and I’m sending 70% offers to those properties. I’ve sent about 500 of those offers and done about three deals, in the last three months I would say.

David:
You’re taking steps just to get the ball rolling. You’re trying to get the conversation going, just get that first date and then see where things go.

David Lecko:
Actually, the on-market listings that I’m giving it 70% off, they’re actually just receiving offers. 70% off as is, and you never know what they’ll accept unless they have a low offer in their hand. That’s actually, I mean they’re signing it and I’m like, “Oh, wow. I have a property on your contract.”

Rob:
I have a question about that. You’re making these offers, presumably if they’ve been on the market for 45 days. We’re getting towards the point where that listing is going to expire. That agent is probably going to lose the contract, is my guess. When you make an offer, how are you actually doing that? Do you have a realtor representing you making that offer, or are you just making that offer to the listing agent and asking them to represent both of you?

David Lecko:
It’s through an agent and I use a software that connects to her email and uses her contract and fills in the DocuSign details. I have a slider that says what percentage do I want to send out all my offers. I usually do 35 per week because she’ll get an influx of emails and texts and she does respond to those. Some of those end up being a counter. That’s how I get the ball rolling. It doesn’t take her time, but we have a process and a tool that we use that allows me to send those offers like that.

Rob:
Hold on. That sounds like the most system and process-oriented way of doing this. I just thought you were calling, “Hey, make this offer.” You actually have this, I don’t want to say automated, but really efficiently laid out to where if you’re going to make 35 offers, are you actually examining all of those properties running the numbers on them, or you’re just like, all right, hey, if it’s 70% and they accept, I’ll then run my numbers?

David Lecko:
The second thing. I’m doing a little bit of filtering, I just want a three-bedroom, two-bath house with a certain square footage. I’m not doing these offers on commercial buildings or I’m not doing it on a two-bedroom, one-bathroom house because I just do want it to actually be a property that I’d probably buy.

David:
We’re going to get into those details a little bit later. Before we move on to the show, just remind me, which area are you buying these in?

David Lecko:
Indianapolis, Indiana.

David:
We’re going to talk about the Indianapolis market as well. We’ll ask you some tough questions, so get yourself prepared for that. Hopefully, it gives you an opportunity to shine. Let’s start with a story. Tell me about a moment before you found real estate, when you knew things had to change?

David Lecko:
Man, my life was actually horrible. I’m working for this company for two years on a product that I actually built before I ever worked there, and I sold it for $10,000 now as a recruitment tool in another industry. The reason why I bought it is because there’s advice from Gary Vaynerchuk, for example, that says, you shouldn’t take the most expensive, the highest-paying job, you should actually go work for somebody that you want to emulate. That’s exactly what I did. I sold this tool I built and it was a low cost, and I was getting paid $55,000. On the first day, the CEO says, “Hey, David. Please don’t share what you make with anyone else on this team because nobody else makes that much.” I was like, “Man, I don’t even feel like that’s that much.”
I took a $20,000 pay cut to get here, and I did though really working a ton and I’m working a ton. I’m the software developer, I’m the tech support, I’m the trainer. When there’s a problem, I’m not actually having anyone else be able to do those things, so there’s no backup. I’m actually the most knowledgeable person that they have. This culminated over two years. I’m learning a lot. There was always these times where I take my computer to the bar with me if I was going to go out with friends, because something’s going to come up, I want to be able to fix it instead of have to drive home and come back. Finally, I’m at my best friend’s wedding and I’m actually in the wedding party. I leave the reception because I got the call, something is wrong and I’m out in my Honda Accord, 10-year-old Honda Accord with my hotspot and I’m fixing this tool.
I was like, man, he was upset, his wife was upset. I felt terrible because I’m missing the reception. I knew that something had to change. I knew that the owner of this company of mine had these rental properties, and so I knew I needed to start taking action towards making a change, towards finding an off-market deal. At the time he said, well, he bought these properties in 2009, which was a great buying opportunity, and I was a little bit discouraged by that. It wasn’t his intention, but I looked at the market and I couldn’t find anything that would cashflow. Thankfully, I went to a meetup and found people that were doing deals all the time. That’s when I realized you can’t just time the market. You’ve got to find deals in whatever market condition exists. You’ve got to figure out how to find good deals in all those conditions.

Rob:
You went to a meetup and you said people are doing deals. As someone that didn’t know anything about real estate or not all that much, you go to a real estate meetup and you find out that people are doing all these things. What kind of deals were they doing and then were they all doing so many types of real estate that it was overwhelming? What was that first experience even like?

David Lecko:
Well, it was pretty awesome, because they actually had a prize that was a random drawing for all the attendees, and I won the prize. It was an iPad, and I thought, “This has got to be a sign.” I’m not super spiritual, but this definitely doesn’t feel bad. This is great. I won this iPad and I immediately sold it for 500 bucks and I used that to start sending postcards to distress properties. I remember, there were people doing a lot of stuff, but the prevailing theme was wholesaling.

David:
I love this. What you’re saying is if somebody’s having a hard time getting started, they need to go to events, win prizes, and then pawn off the prize to get the capital C to get started. Correct?

David Lecko:
Yeah, exactly.

Rob:
I love it. I love it because instead of just having an iPad where you could log into Netflix and hang out and do nothing, you’re like, all right, look, I could have this iPad or I mean, it’s basically a free $500 that I can use to experiment and just do random things with in the real estate world and see what sticks. Somehow you land into the postcard world. How did you even learn about that?

David Lecko:
There was definitely a blog post on BiggerPockets that I saw on driving for dollars. The unique aspect of it was this person was putting the photo of the house on the envelope. That was something that they said gave them a better chance, a better response rate. From this day forward, every piece of mail that I’ve sent has the photo of the house on the property. Not the Google photo, like an actual photo that he took. People called back, still to this day, they’re like, “I got a few pieces of mail, but I called yours because it looked like you put a lot of time in it.” Or, “I could tell you’re really here. I could tell you were local.”

Rob:
That’s cool. You went to BiggerPockets, you figured out the idea of driving for dollars. You’ve unlocked a really great entry point into your real estate career and it seems like it’s working. How did that feel emotionally for you for it to start clicking really, I mean it seems like it’s relatively soon into your career?

David Lecko:
Well, there was a period of time where I was just looking for the rundown properties and I wasn’t sending out the mail yet. I was prepared for it. I had the money set aside for it. What I was focused on was finding the properties. It was so much fun driving up and down and just picturing myself buying this property. It felt really awesome. Two months into that, I had a nice list on a tablet of paper, but my stomach sank to the floor when I saw one of these properties had started construction. I went home, looked up. Sure enough, this property actually recently sold and I looked up the price. I wasn’t an expert on numbers, but I felt like it was way lower than what I would’ve even felt comfortable offering. I knew that could have worked for me. I had this terrible feeling that I didn’t even reach out yet, spent so much time just thinking about these homes that I wasn’t following up.
I realized humans have a lot of follow-up issues in general, and I needed to start nipping that in the bud and doing something. I went to go put those letters together with the photos, and that’s when I realized putting letters takes a long time, and at the time, you couldn’t send out mail one at a time. You had to buy a minimum of 200 with some mail house. That’s what left me doing them myself in my basement, which took quite a bit of time. That was the next struggle for me. I’m glad I did it because I didn’t have a ton of money and I heard over and over the driving for dollars is the best list.

Rob:
Well, there’s something ironic about the fact that you were making this list on a tablet of paper instead of an iPad, an electronic tablet. That’s pretty funny. You find this house, you find out it’s the one that got away, but not really, because you never even tried to get it to begin with. Then you get into this time suck. At this point in your journey, was time something that was very important to you or was that the beginning of your journey where time is all you had? Tell us about the emotions of that time in your real estate career.

David Lecko:
Well, as you know, I was working a job that was time-consuming. I don’t know the exact hours. It had some flexibility during the day, but it required lots of stuff at night and random times when people were using the software and I would need to go and fix it. I was feeling quite burnt out. I did enjoy driving around, but when it came time and I realized how time-consuming this was, it just didn’t feel like I had time. Working 9:00 to 5:00, couple of random things for work in the evenings. Now, I have to not only go out and look for properties, but I got to put them together and there’s not enough time left to go hang out with friends, to go eat dinner or anything else like that that I needed to. I was definitely feeling like the candle was burning at both ends.

Rob:
For sure. I think a lot of people feel that way, especially at the beginning of the real estate career. If you’re working a 9:00 to 5:00 or if you’re working any kind of job, and then when it’s over, you still have to do the real estate stuff to get that going as well. At this point in your career, did you have a very clear why defined, like your mission statement? Did you know what you wanted? I know that you missed some important moments in the best friend’s wedding and everything like that. Had you already defined what your why was?

David Lecko:
I had missed some important moments. I also noticed the owner of the company I was working for and learning so much about, didn’t put in the hours that I was. Now, I got the sense he did at the beginning, but I wanted that. I didn’t want to have to work so much for a small salary that I couldn’t even talk about. I wanted something more. It was definitely, I wanted time freedom, but it probably even goes back to high school where I saw some kids had these really cool cars and I wanted that. I wanted more than what I had growing up. I was driven by those two things.

David:
David, when you look at why you were driven for time freedom, can you trace it down to a specific event that happened in your life, an experience you went through, something you witnessed? I think a lot of us would like to have time freedom. We would rather not have to work for somebody else. If you’re lacking the motivation to get out there and make it happen, because it comes at a price. As you well know, you give up a lot of security, you maybe work more hours in the beginning when you’re trying to build that. What do you think about your story specifically led to you having that fire that you were able to use to get over the hump?

David Lecko:
My dad worked at a telecom company. He had a friend that was a contractor. I didn’t really know what that meant. They were buddies. That friend was not only a contractor himself, but he owned a contracting business. He would place people in different companies like this telecom company, and he would make a portion of their earnings as well. I met him at a breakfast with my dad. He gave me a book called The 4-Hour Workweek. That book taught me that you could build a business so you can earn income that’s not limited by how much time you put into it as long as you’re the one who’s actually setting up the business in the right way. That has to be my moment where I knew there was a better path than what I had been exposed to in the just W2 world.

David:
What about that quest for time freedom led you into our world of real estate?

David Lecko:
Well, it seemed like rental properties were pretty stable. If they were never going to lose money, if they were always going to appreciate as long as you manage well, it seemed like the more rental properties I get, the more secure salary I can have, where a business might have fluctuations, that was intimidating to me. A rental properties is physically, you could touch it, you could see it, you can rent it out for a certain price. Then when I went to the Federal Reserve graph on rent rates, I saw that it never went down. Even in 2008, it stayed constant for a year and it kept climbing up. That’s what seemed like it would give me the security the most secure way.

David:
It wasn’t that you heard someone else talking about it or you heard it on a podcast or a YouTube channel. Was there a certain influencer that caught your attention or did you just sit down and logically think through real estate makes the most sense?

David Lecko:
The time when I figured out real estate would make the most sense was the boss that I had at the final job that I had, had five rental properties. I asked him, I said, “I put my money in a 401k, why do you invest in real estate?” He told me it’s because you’ll never lose money as long as you buy them right and you manage them well. I had seen my 401k go up and down and felt like I had no control, and the feeling of control is just such a good thing. I knew that, that was something I wanted to go after at that point.

Rob:
Yeah, man. Let’s fast-forward a little bit. You go to this meetup, you sell the iPad, you get your postcards out. One of your dream deal gets away and you realize I got to take action. Where did that actually culminate into your first deal? Tell us about how that first deal actually took place.

David Lecko:
I got a phone call and he says, “Hey, I’d like to get an offer on my property.” I just knew after putting in 300 properties over the course of six months that it must be this small house, I remember with a blue tarp over the entire roof. I just knew that was probably it. When I looked it up, sure enough, it was. I didn’t know what to actually say next because I had never done this before, Rob. I just said, “Well, how about I meet you at 6:00?” I got off the phone as soon as possible, and once again, when I met him at 6:00, I didn’t know what to say. I didn’t know what to ask. I said, “Well, let me just take some pictures and I’ll just ask you about things that I see while you’re walking me through the house.”
Then it wasn’t a very big house, it was 600 square feet. I took the photos and then he said, “How much will you offer?” Again, I didn’t know, so I was like, “I’m going to get back to you 24 hours. I’ll have an offer in front of you.” I went home and I was going to offer $10,000 for this house. Now, it was in rough shape. I found out later that he thought I was just going to demolish it, but I ended up repairing it. I’ll tell you that I actually remembered this episode on the BiggerPockets Podcast where they said, “If you don’t feel like you’re uncomfortable making this offer, if you don’t feel like you might be offending them, you’re not offering lower enough. Because there’s going to be problems you’re going to encounter, and if you don’t leave yourself the profit margin, you’re going to find yourself in a bad place where you own this deal that you’re upside-down in.”
Instead of offering $10,000, I remembered that and I offered $4,782. Now, it was specific because I felt like that would help him see I approached this in an analytical way. I actually looked at some of the comparable sales by square foot, and then I subtracted the cost of everything that I knew I needed to do in that house, which was pretty much everything. Then I did subtract $10,000 for my profit, or in case something unexpected came up. I showed him that transparently. I said, “This is how I got to your offer price. I can make you this cash.” Because I actually had $4,000 and he waited a day. I got nervous, but he just said, ultimately, in a super calm voice, “I’ll accept it. Let’s go forward with it.” That’s how we ended up doing my first deal.

Rob:
I just want to make sure I got these numbers right. You offered $4,750 for an entire house?

David Lecko:
It’s 600 square feet. It was the smallest house in the neighborhood. There wasn’t even really a true exact comp because all the other houses were 1200 square feet. That’s right. 4,000 bucks.

Rob:
That’s great. You ended up renovating it yourself or is that what happened next?

David Lecko:
Good thing to know here is in the Midwest, Rob, as you know, there’s these neighborhoods that a house in perfect condition may only be worth 50 grand. You can get in trouble investing in these neighborhoods because you buy a house for 4,000 and you put 45 into it. It’s like, you don’t have a deal. That’s just a house. A lot of times it takes more than 45 grand to repair one of these crazy things. I thought this one could be worth a hundred grand. My plan was get four no interest credit cards. I applied it all on the same day because I was like, let me do it all at the same time. Maybe I could trick the credit bureau so they don’t know I have all these other cards. I did $65,000 renovation and then I rented it out for 99. It’s rented for 1200 now, but that’s how I ended up doing it. I still own the property to this day.

Rob:
Cool. When you took out the credit cards, I mean it’s not like you can just swipe your card to pay for vendors and stuff. Were you doing a cash advance? Did they send you a check that you could deposit into your account or what?

David Lecko:
I think those are really good. I didn’t know about those. The contractor that I found would actually let me swipe a credit card, yes, on his square account that he could use to receive payments. Now, he did charge me the extra 3% fee, but that was the only option I had.

Rob:
Well, you’d probably pay that regardless, even on a cash advance anyways. You buy this property, you rehab it, and that’s it. You were financially free, right?

David Lecko:
No, I didn’t know how to pay off those credit cards.

Rob:
Tell us about some of the lessons from that deal.

David Lecko:
I thought I could get a mortgage because on my account it appreciated for $100,000. Even though it was rented out for a 1% rural property, about 900 or a thousand bucks a month, the mortgage companies didn’t value the property like I did because there was no other house with that small of a square footage, and so I couldn’t get it to appraise, so I was stuck. It’s a good thing that my job actually picked up, my business for my primary income picked up. I ended up using that to pay down the credit cards. If I hadn’t done that, I would’ve been stuck. I would’ve had to go to a private lender or to sell the house or to get some type of bridge funding. That’s ultimately how I got unstuck, was I was able to ultimately pay those off. Another lesson that I learned was working with a contractor. A great way to find a contractor, the way I found him was I asked another real estate investor that I knew from one of those meetups who I should use, so he gave me his name.
Now, he didn’t have a crew ready, but he put one together. AKA, a group of people he hadn’t worked with before. Ultimately, after a month in, I was like, “Yo, what’s going on?” He’s like, “Well, they’re just doing this or that. They’ll start back in a week.” I got that about four or five times. I had a hard conversation with him. I was like, “Look, we’ve got to cut ties. Obviously, this isn’t going to work out.” I had paid him too much. I had paid him 50% of the project’s value. He had not done 50% of the work. I needed a refund if we were to part ways. We met in person. I think if you’re going to have a hard conversation with somebody, having it in person goes such a long way. It shows that you care and you can really read each other’s body language that way. That’s what we did. He ended up giving me a refund on one of those credit cards, and I started searching around for somebody else that could solve the problem.
The lesson there was actually don’t give huge chunks of payments, but do smaller increments. The other lesson was let him pick a due date himself at the beginning, then maybe add on a couple extra weeks and say, “All right, if you want this project, commit to this date. I’ll give you a couple extra weeks of padding. If it’s late, $50 per day from you that it is late.” Those are how I operate now with renovation projects. Two lessons there. Then the third one was I had to ask around for somebody who could bail me out of this project that was halfway complete that had a budget that wasn’t going to work anymore. Sometimes real estate investors have a special guy that can bail you out. When you need help, start talking with other people instead of just trying to figure it out yourself. Those are three lessons from that first deal.

Rob:
Going back to that second one about the timing. David, you have a trick of the trade here. I don’t know if you still do this, but didn’t you used to bonus your contractors based on if they hit their deadline? You would say, if you hit this deadline and you actually get done in time, I’m going to give you 1% more or something like that, or did you fall out of that strategy?

David:
How could you possibly know that since you never read any of my books? This is impressive.

Rob:
Well, I read the one book. I read Burr and I am in the first chapter of Pillars, which is not out yet, but it will be.

David:
Right on, man. Yeah, that’s exactly what I would do.

Rob:
David, I like that way more.

David:
You like what way more?

Rob:
I like the bonus for completing it on time, and I think people would be really motivated by that.

David:
Here’s what I would do. I realized there was a bit of a power struggle going on, and when I say that, I don’t mean in an unhealthy way, just human beings have different incentives. When we are an investor, our incentive is to get the work done as fast as possible, as cheap as possible, and as well done as needs to be done. The contractor’s job is to get as much money as they can, take on as many other jobs at the same time as they can and be held the least amount of accountable. They’re going to take on all these different jobs, they’re going to spread their crews thin. What you get is this clashing of, you said you were going to be done by X and them not wanting to tell you, well, I didn’t bid this right or I didn’t know the details, or the guy that was supposed to be working on it didn’t show up to work, or he ended up sucking. Or I had to put them on another job because we didn’t do that one right so yours fell behind. You never get the truth.
What I figured was I just want to fight my way to the top of the funnel of priorities in their head. When we were discussing the scope of work, I would say, look, this is going to be a contract, which you should be familiar with because you are a contractor. As a contractor, how long will it take you to do this job? They would give me a timeframe, say eight weeks. I’d say, okay, what if I give you nine? Oh, yeah. That should be no problem at all. Well, yeah, it definitely shouldn’t be because you told me eight. Here’s the deal. If you get this done in nine weeks, I will pay you what we agreed upon and I gave you an extra week of some grace. If you get it done less than that for every day that it’s early, I’ll give you a bonus of this much money. If it’s late, this is how much is going to come off the last draw. If they’re like, whoa, whoa, whoa, I can’t guarantee it’s going to be eight weeks.
Well, now you know the truth. You just do a little bit of digging and the truth will come out. If they go, yeah, no problem at all. Now, they’re incentivized to keep your job as the priority because they want to make all the money they were supposed to get and they hopefully want to make more money, which makes you a more important customer than the person who’s complaining that they left some paint on the cabinets or one of the tiles wasn’t laid correctly and they got to send someone back. They’re going to make that person wait five weeks. They’re not going to make me wait five weeks, and if somebody with paint on their cabinets has to wait five weeks, I’m okay with that. I’m not okay with it when it’s me when I got a 12% hard money loan and the market is shifting all the time, and if they don’t fix this thing, then the next thing can’t get done. We all know how the domino effect works.

David Lecko:
I think that’s really smart. Now I’m going to have to read that book to figure out the percentage that you pay as a bonus because I want to start doing that.

Rob:
Yeah, man. It sounds like you guys had similar strategies except David does actually do a percentage of money or whatever. You do this deal and it seems like it’s going pretty well. You’re obviously starting to move into your real estate business here and you talked about driving for dollars. Now, a lot of people can be a little wary about driving for dollars as extremely time-consuming and sometimes not worth the time. What would you say to that? Because I know you’ve built your business effectively on this model.

David Lecko:
Definitely. The advice I was hearing from everyone at that meetup was to go Drive for Dollars. At my time, there wasn’t really another option because just the group that I was with, they were saying that, that’s what I need to do. Then I totally get though that it can be time-consuming. If you’re a doctor, this may not be the strategy for you. It’s great if you have more time than you have money. Because the list is so good, these big real estate investors don’t typically do it because they’re buying these lists that are easy to get and they’re just spending more mail, spending more money on more marketing to those bigger lists, which is required because they’re competitive and they’re bigger lists and they’re less niche.
The driving for dollars list is a list that nobody else has. You’re the one who drove around and found those rundown properties. Plus, if a tree fell on a house that was vacant, that’s not going to show up on any list. You can’t buy that list. It’s hard to get. If you put in the time to do it, you can actually get a deal for smaller amount of money, because there’s less properties you have to market to, and there’s less people that are marketing to that homeowner. Therefore, you’re not going to have as much competitiveness in terms of them trying to shop around and get the best price. That’s why I like driving for dollars and why it’s been a really great business

Rob:
Actually, can you just run us through what is driving for dollars? I want to make sure that everyone at home is on the same page as us because we’re going to be talking about this a little bit more.

David Lecko:
Driving for dollars is a strategy to find a real estate investment by looking around for a rundown property. Then you look up who owns it and send the owner a letter asking if they want a cash offer on their house, and if they do, they call you back. That’s what driving for dollars is. The reason why it works is because that house is run down. They probably can’t sell it on the market. If something happens in their life, they might not have the cash to deal with a medical expense or deal with something that would cause them to have to move. They need to unload that property. Like a pawn shop. When you take somebody to the pawn shop, you’re not getting the top dollar, but you do want to take it there because it’s the easiest thing to do, it’s the quickest way to get cash and move on to the next thing in your life. People do that with their house. People need that service with their house and driving for dollars is a great way to identify those types of properties.

David:
Can I tell you why I like that strategy? Because it’s very difficult to do, which means nobody else wants to do it. There is a trend in our country, in our culture of how do I automate, delegate, systemize? I wanted to do a thing that makes me a bunch of money on its own and I just show up to the money tree and I pull the dollar bill out of the business, but I don’t want to have to pull the weeds, water the tree, shelter the tree, check the pH balance of the soil. I don’t want to do the work of a farmer. I just want it to grow and give me money. There’s become an obsession with that and there’s little tiny ways this will work for a short period of time. We saw it with crypto, we saw it with NFTs. Drop shipping at one point was like, it was like you struck oil and there was all this gold, and then everyone rushes into it, it dries up. It’s not a sustainable thing. You just might get lucky.
The popular way that most people are running businesses like you, David, is they’re trying to automate a system that sends letters that look like they’re handwritten, that hires somebody else in another country to oversee the job, that leverages out the answering of the phone and tries to qualify the leads and then sends somebody else to the house to go negotiate with the person. When it becomes easy like that, it just means everyone else can do it and someone with more money, more experience, more resources than you will just do it better. You end up chasing the same deals that everybody else is chasing, asking how come these strategies that I heard people talk about on the podcast don’t work? Driving for dollars cannot be leveraged. You can’t pay somebody to go out there and just drive around and look for the right homes, at least not effectively.
You have to go do it. When you do that, you find the property that’s not getting bombarded by other people. You find the lead that you actually have a chance to nail down and you get to make the connection with that person. You get to go talk with them, build rapport, use all the skills that you’ve built. Not some employee that is like, I only want to do the bare minimum and I only want to get under contract if it’s easy. They can hit the layups, but they miss the tough shots. That’s what I love about what you’re saying. This is the strategy and I see you smiling because it sounds like this is landing with what you’ve recognized in your business that our listeners can go apply because it’s real and it’s honest and it works. It’s not looking for a cheat code that everybody else has already found. What do you think about that perspective?

David Lecko:
I think it’s absolutely true. I think that’s why it works so well, is because the easy way to do it is to go buy a list of absentee owners or go buy a list of high equity. It’s just the easiest thing to do. People do that. Seeing the property, laying eyes on the property is something that is harder to do, and I think that’s why it’s such a better list.

Rob:
I think there’s always going to be growing pains with really any model if you want to achieve automation or anything at the largest scale, I mean you do. I think that’s always really tough to do. I’m curious, David, obviously you were the one driving around doing a lot of your own deals when you were doing this. How did you actually scale out of that? Because I know you said that time was so important to you, and this sounds like, I know you said it doesn’t necessarily have to be a time-consuming strategy, but when you were starting out, I’m sure you hadn’t figured that out. How did you actually scale in a way that was effective when it came to driving for dollars”

David Lecko:
I just kept doing it and I kept doing deals. As soon as I had done maybe $200,000 of, I did a couple of bird deals where I got the cash out and I could recycle that money. That’s when I realized, all right, maybe my job is worth what you can actually hire somebody to do this for, which might be $20 an hour looking at Amazon driver salaries. We can get into that, but that’s whenever I figured out maybe I shouldn’t be the one driving anymore. That was a couple of years into it after I had done several deals and after I learned a lot of the neighborhoods that I wanted to buy in, knew those by heart already.

Rob:
We’ve actually heard a couple of interesting strategies on BiggerPockets of how people, I don’t want to say automate, but increase their deal flow. We had someone on the podcast said that they give flyers to pizza delivery people and they say, “Hey, anytime you see a distressed property or if you’re delivering to a distressed property, leave this on the pizza box or leave it on the door or whatever.” I’ve also heard of people doing that with UPS drivers and all that type of stuff. It seems like you can get creative with ways of increasing your deal flow. Did you ever go down that route or did you just go straight to hiring somebody?

David Lecko:
I never did the pizza delivery thing. There’s basically three ways that you could hire a driver, and most of them are tricky if you don’t know exactly what you’re doing, which is still what makes driving for dollars great because it’s difficult to scale. Here’s the three payment strategies that people use. They either do per hour or they do per deal added or they do, you get a bonus when I close a deal, like to the pizza guys. People have made it work. I have not. One thing I’ve observed is that if you’re going to give a bonus when you close a deal, that could take three months. These houses have been distressed for a long time, so they’re not going to sell right whenever they get a postcard from you. You need to keep sending postcards. Every basic marketing advice says it takes 10 to 13 touchpoints before somebody responds to your marketing.
You’ve got to catch them at the right time. By the time that happens, the person you trained what properties to look for, they probably have moved on because they have bills to pay, they need to live their lives. Unless it’s like your mom, your spouse, somebody that loves and caress about you and can stick with you for three months without payment, I don’t know that I’d spend time training anyone for this model where you pay a fee just when you close a deal. The other one is per property added. Some people might pay 25 cents to $2 for each property that looks distress that they add. You could do that. It has worked. All three of these have worked, but I don’t like that one because people like security of knowing how much they’re going to make, and we think about jobs in terms of hourly payment.
That’s why the hourly payment is actually the best when you’re going to recruit somebody reliable and you want them reliable. If you’re going to spend time training them, you don’t want to train them and have them go away. I posted a job on Indeed for hourly, and I got a bunch of people responding. I set up five interviews on a Saturday and every person actually did not come to the interview. I texted them, I was like, “What happened?” One person even said, “I moved to Florida.” It’s like, I felt so disrespected, it was a huge waste of time. I knew I needed to change something. I incorporated a test project. Now, I posted the job again. When they applied, I said, “Please send me a two-minute video. Download this app that I use to look for rundown properties. It’s free, no cost. Just add three properties. Text me when you do that. I’ll Venmo you 10 bucks.”
That really weeded out people. If they did that, I knew they were tech-savvy. I knew that they had read my instructions instead of blindly apply. I knew they were serious. Then I pretty much had a 100% show up rate when I scheduled an interview. Finding them, I would incorporate a test project like that. Then $5 more than what Amazon drivers make is fair because the driver that works for you is they’re going to actually be using their own car and paying for their own gas. They will want to work for you because they love seeing that money that’s a little bit more than what they could make at Amazon. It’s a good deal for you as well because they’re paying for the car and the gas. If I were to say a couple of more pitfalls, have a weekly meeting with this person to review the properties they added and make sure that they feel like they’re a part of the team as well. That’ll keep them going week after week and stick with you for a long time.

David:
We’ve covered the bottom of the funnel, the hiring and the delegation of how you’re going to spread out some of the workload. What about the top of the funnel? How are you going to build this list of potential opportunities to pursue?

David Lecko:
I actually was given the advice that if you find a hundred rundown properties, that’s about what it takes to get a deal. Now, as time goes on, I’ve had the fortune of working with a lot of people who scale their Driving for Dollars teams, and I noticed that it depends on your market. If you’re in a lower-cost market, I’d recommend four to 500 rundown properties marketed six times each. If you actually are in the more expensive markets like Seattle, Los Angeles, somewhere in New York State, you may need to add as many as 1500 to 2000 rundown properties before you get a deal. Now, if you’re wholesaling, typically you’re going to get 15% of that value of the property as an assignment fee. You’ll notice that even though you spend more time and money to get a deal in a high price market, you’re going to make a bigger profit. It’s easier to get started in a Midwest market that’s lower cost. You’ll make a smaller profit, but it’s easier to get started.

David:
Why is that? Is that because most people are attracted to the higher profit market, so you’re just competing with a lot more people?

David Lecko:
Wish I had the answer, I just know what I observed.

David:
This is a principle that runs throughout business, that’s pretty good for us to talk about it. I talk to my team about this constantly. This will apply to many things in life, but definitely to business. What I say is, it’s easy in, hard out, hard in, easy out. When you buy an online lead for a real estate team, like the David Greene team, and we go to Zillow and we say, “Hey, we want to buy a Zillow lead.” They’re very easy to get what we call leads. People will say, “Hey, I want to know about this house on Main Street.” They’ll ask a question, but they’re not reaching out to you because they want you to be their agent. They just wanted to know about a house and they were forced to go through these hoops they had to jump through. They’re very hard to close. You got to get a lot of them and put a lot of work in to close anything, but they were easy to get.
When you go to an open house and you meet a person organically and they’re motivated to look for a home and they’re out on their weekend trying to find one and they haven’t found a good agent, you build a stronger relationship with them, way easier to put those people into contract. This happens with a lot of things. The toughest markets to get your foot in the door in will make you the most money over the long term. The easiest markets to get into are easy for a reason. There’s not as much competition, there’s not as much demand or there’s a whole lot of supply. You will make less money later. It’s just this idea of delayed gratification. It’s not that one way is better than the other, it’s just know what you’re getting into. What’s your experience like David, with running the business when it comes to the things that are easier to get the phone to ring? Do they tend to have the smaller amount of margin in them?

David Lecko:
Yeah. I would say definitely the things that are easier to get the phone to ring have a smaller amount of margin in them. The easiest thing that I’ve ever done is pull a list of high equity properties to have 35% or more equity. Then also, they actually expired on the MLS. You can pull that list straight out of a tool and you could start sending postcards or calling them. Of course, they want to sell their house. They listed it and it failed. Everyone else is calling those people. The fact that you’re going to try to approach them, how do you make your deal sound sweeter than the rest? You compete on price and then the margin shrinks. Exactly what you’re saying.

Rob:
I have a question. I guess I don’t really understand how this part works. You said that you’re looking for something that has higher equity, so that means that the owner has a lot of equity in the house? Meaning, in your mind, if they’re a distressed seller, theoretically, there’s more wiggle room for them to come down? How do you even figure out how much equity someone has in their property? It seems like that’s private info now.

David Lecko:
I use DealMachine to go look for these rundown properties. It has public info. It also estimates the equity they have on there. Just to be clear, when I’m driving for dollars, I don’t even look if it’s absentee owner, owner occupied. I don’t look at anything. I just look if it’s distress, I send the letter. When David was talking about do easy things have smaller margin? I was using that as an example, because separate from driving for dollars, I’ve pulled a list of just properties that expired on the MLS with decent equity, and it turns out a lot of other people pull that list too so that the margins are smaller there.

Rob:
Sure. Okay, cool. If you’re driving for dollars, I know that at this point you have a whole system for getting everything out automated offers made, but do you have a target profit or assignment fee or ROI that you’re looking for on a specific property?

David Lecko:
I’m looking for something in the range of perfect condition, $200,000. I want to either do a Burr deal where I put in 75% and that way I can refinance out and have no money in it at all. The Burr strategy, read David’s book, or I actually just want to analyze the rental. Say, well, could this cashflow at least 500 bucks at that price point? Meaning, the difference between what my mortgage payment will be and what I can rent it for would be 500 bucks. Those are two analysis that I look at to see if I want to actually do a deal.

David:
Question for each of you. If you had an opportunity to be all in for zero money on a Burr and you’re still having 25% equity, so houses were 200 grand, you’re all in for 150, $50,000 of equity, but none of your own cash is left, you got it all out. However, it loses $150 a month in negative cash flow in the first year. Is this a bad deal or a good deal and why? Let’s start with you, David.

Rob:
It loses how much? You said $250?

David:
150 a month.

David Lecko:
I’ll say this, I wouldn’t keep it. If it was worth 200 and I’m 150 in, got all my money back out, I would sell it. I would never keep a property that loses money for myself.

David:
Great point. You would just basically take that 50,000 of equity and you’d sell it. Same for you, Rob?

Rob:
I don’t want to keep it. I was just negotiating a seller finance deal last week or two weeks ago, and I laid out the numbers. I said, “Hey, man. Look, this is going to lose on a long-term rental, 200 bucks a month.” He’s like, “Well, the thing about rental properties is other people are paying your mortgage, and so sometimes you got to take a small loss. At the end of the day, the appreciation and the location is all that matters.” I was like, “Look, I understand what you’re saying. I don’t go into any deal where I lose money.” We renegotiated the terms, at least break even.

David Lecko:
Some people will do that deal. I know I could be able to sell it because if you own a rental property in San Francisco, a $3 million house may be only rented for $5,000. That doesn’t even cover the mortgage payment. Could barely even cover the taxes, but people buy them, just not me.

David:
Same question, but now the house is in a prime market in the country, it’s worth 800,000. You’re all in for whatever, 75% of that is, very nice location, but it’s still losing $150 a month in cashflow. However, when you look at the principal pay down, you’re paying off much more than the 150 a month. The appreciation is all but guaranteed and you know that rents are going to be going up pretty significantly in the future because it’s such a gray area with less supply. What’s your answer now on that same scenario, David?

David Lecko:
I still wouldn’t do it because I don’t want to have to babysit a property. I don’t want to have to calculate how much of my active income I have to suck away to actually keep that property afloat. I want to scale properties and the only way to do that is to make sure they all positive cashflow. I think I learned this from the cashflow game that goes along with the Rich Dad Poor Dad book is you can’t get out of the rat race if you have negative cash flowing properties. Now, sometimes randomly you could get the appreciation and sell it, but you’re still not out of the rat race yet until you actually buy cash flowing rental properties that are positive. Again, I would sell that deal, use the cash to buy some cash flowing properties.

Rob:
I really don’t like to lose money on a monthly basis just because I’ve worked so hard to get my cashflow where it is. With that said, I feel like you want me to say I would buy it, so I’m going to say yes. No, I’m just kidding.

David:
I see that there’s a lot more hesitation in each of your answers though. There was like, hmm. It moves the needle a little bit, right?

Rob:
Of course. I guess the caveat to that is like, I would take a deal that loses money if there’s a clear path to not lose money. Let’s say that I’m inheriting a tenant that’s under market like you said, and as soon as they move out, I can increase rents to not lose the money, and that’s going to happen within a year, no problem. I can do that. If it’s like I’m inheriting a three-year lease where I’m losing 500 bucks a month, no, I would never do that. If it’s going to turn pretty quickly, then yeah, sure.

David:
What if this property that we just mentioned at $800,000 can have a cost stake study done and the bonus depreciation is going to save you 50 grand that year?

Rob:
Yes. You see? Now you’re asking a good question.

David:
I guess here’s what I’m getting at, are you losing money if you’re only looking at the monthly income versus expenses or are there other factors at play in the overall investment of real estate?

David Lecko:
Yes, 100%. That’s a very fair point because yes, I think if you knew that you were going to, like you’re talking about Burr, flip it, get out of it in the next three years and you’ve got a ton of equity in there and you’re only going to lose, let’s say 10 or $15,000 in rents, but you’re going to make $200,000 from that flip or something. Totally, I think at that point, it would make sense.

David:
What about you, David?

David Lecko:
I would flip it. I would make the quick cash. Unless it’s making me money $500 per month, I’m not going to keep it myself. I still might do the deal if I was going to go ahead and sell it.

David:
What I hear you saying is that you would create energy through capital gains of a flip and then read or invests that energy into the cash flowing real estate that you know can find somewhere else, right?

David Lecko:
That’s right.

David:
I like it. Great stuff.

Rob:
Is this a preview? Is this the Blinkist of Pillars of Wealth?

David:
Wow. Dude, you’re getting good. This is scary good. I think I picked the right co-host. Look at this, man. That was really, really good. The book that’s going to follow it is just an understanding that most people were taught how to buy real estate using a training wheels model, which was just cash in cash out every month. That cashflow was the only thing that we were trained to look at. Once you get into real estate investing, Rob, like you were just mentioning, you own quite a few properties now, you start to see that it’s not quite that simple. That there’s energy that’s flowing in and out of these assets in many different ways. It could come in through equity that you bought at below market value. Equity where you forced equity. The cashflow doesn’t stay the same every year.
Rents go up in some areas or you can add units to properties to make them worth more. Certain areas tend to appreciate more than others. There’s tax benefits owning real estate. Then I think things also change if let’s say that David’s business that he’s running is bringing in 50 grand a month in profit, well now that $150 a month he might be losing isn’t as significant as when it’s like, dude, I’m on a tight budget. I got to get out of the rat race. For the people listening, we’re not all in the same position and the part you start at is not going to be the part you end up with. It’s okay if your model and your blueprint doesn’t look exactly like everybody else’s. David, for the person who’s starting off here, the real estate investor, who’s the ideal avatar that should consider driving for dollars?

David Lecko:
I think somebody who’s not got a lot of extra cash that they’re willing to invest in marketing. I think that if you haven’t done a deal before, it’s a great way to learn your neighborhood. The combination of those two things would be what I would recommend who should drive for dollars.

David:
What do you think, Rob?

Rob:
I think this is going to make the most sense for the newbie. I think obviously, anybody can enter this, but a lot of the times, people who are already relatively established already have their deal flow established. They’ve already got their deal flow going from people that are driving for dollars. It does seem a little bit more of an entry point for most people. With all that said, I just locked down a seller finance property, driving for dollars as well, like a week ago. Accidentally driving for dollars, I was driving in my neighborhood and there’s a for sale sign with the flag on top of it that said seller finance, and I was like, well, hey, I’m driving and I’m going to make the call and I made the offer.

David:
What a smart marketing strategy for that seller. That’s a smart agent or whoever put that together. That’s a great idea.

Rob:
Dude, it was a dream. It was a dream. 3% interest, 10% down. I mean, 30-year maturity. He just doesn’t want to pay the capital gains. Here’s the best part, everybody, he has 150 units in Houston multifamily, and he is like, “I’m wanting to get rid of them all over the next couple of years.” Guess who’s going to be first in line? This guy right here.

David:
I mean, you never know when you’re doing the right actions and you’re taking the right steps, what that’s going to turn into. I think that’s awesome. Now, David, these days you’re cash-flowing about 72 grand a year and you’ve got more coming. You’re helping other people find and close deals all over the country. Do you have the time freedom now that you were looking for in the beginning?

David Lecko:
100%. I could live off 72 grand if I wanted to. Now, I do spend a little bit more from other active income, but I’ve got the time freedom. What I love doing is getting up at 4:00 and going wake surfing three times a week. That’s something that’s not super cheap, but I’ve got the time freedom and the disposable income to be able to do that. That’s one way I love spending my time freedom.

David:
What kind of a sentence starts off with what I love doing is waking up at 4:00?

David Lecko:
It’s 4:00 PM. I get up. No, I don’t wake up at 4:00 AM, I get up from my desk at 4:00 PM.

David:
Okay, all right. That might make a little bit more sense to me than I love waking up at 4:00 in the morning. Rob’s been spending the last three months dragging himself through broken glass, trying to get to the gym, waking up early and letting us all know the whole time how terrible it is. Then David walks in and says, “My favorite thing to do is wake up at 4:00 in the morning. That’s what I use my time freedom for.” You’ve been able to experience a life you wouldn’t have been without real estate. You’re doing the things you love. They keep you charged up. You’re getting your wake surfing done, you’re experimenting with different barbers. You found the perfect wave to your hair, which I don’t think should be lost on our audience since you do love wake surfing. I wonder what Rob’s equivalent would be. Maybe mountain climbing. The quaff kind of looks like a bit of a, have you tried that yet before, Rob? Since his hair looks like a wave and he likes to wake surf?

Rob:
I feel like mine does also kind of look like in this particular moment, it’s got this bottom cloth and then there’s another cloth on top of it. I woke up like this. I got in at 4:00 AM last night.

David Lecko:
That’s when I was waking up.

David:
That’s funny, David, when it comes to landing these deals that you find the opportunity, you go talk to the seller. What we didn’t talk about are some of the psychological tools, scripts, whatever. What advice do you have for the person who thinks that they found an opportunity, they want to go open a conversation with the seller? Obviously, with your experience, you can write a person off who’s not serious, not motivated. You can also navigate the conversation when it’s a little more complex, but just for the person who’s like, man, I want to go talk to him, but I don’t know what I’m supposed to say. Are there books? Are there podcasts? Are there influencers? Who do you recommend that people listen to, to get better at having those uncomfortable conversations?

David Lecko:
I think Brent Daniels’ Talk to People would be a great person to follow and check out his Cold Calling Scripts on how to talk to people and have those conversations. Because ultimately, there’s only two things that give you money in this business, it’s finding distressed properties and communicating with the owners.

Rob:
I actually did a podcast with Brent not too long ago. Very nice guy. Love the philosophy. Seems very successful. Talking to people, what a novel concept, right?

David:
Right. I think for people that are good at talking to people, the assumption is why is this so hard? For people that are bad at talking to people, it’s like up there with public speaking. What I don’t want is for the people that are nervous about it, they don’t have a natural skill with other human beings conversating, but maybe they’re great at analysis or they have a great work ethic. I don’t want them to be afraid to go initiate contact. It is a skill that can be improved. I think when I read Pitch Anything by Oren Klaff, we had him on the show to talk about him. That was one of the takeaways I had is, there’s an actual science to communication. If you could get this down, people will listen to what you have to say and they will see your perspective and it will greatly increase somebody’s confidence with communication, which is what I teach to the people in my company.

David Lecko:
Communication is the foundation of life. I just started taking a storytelling class for the very same reason. It doesn’t matter if you’re trying to sell something, if you’re trying to entertain friends. The ability to communicate in a way that inspires people to listen and stay with you all the way to the end is the foundation of every relationship or every transaction. It’s just so important to life and I believe that.

David:
Awesome, man. That’s a great, great story and you did a great job of communicating today, so thank you for that. For people that want to communicate with you more, where can they find out more about you?

David Lecko:
You guys can follow me, dlecko on Instagram or if you want to check out DealMachine, get a seven-day free trial. We help people find distressed off market properties and make sure they’re communicating with those owners, which is so important. One of our top customers, and I host the DealMachine Real Estate Investing podcast where we interview people who’ve done their first wholesale deals.

Rob:
Love it. What about you, David?

David:
You can find me at davidgreene24 or davidgreene24.com to see what I got going on and how I can help people build their wealth. Rob, how about you?

Rob:
You can find me on YouTube over at robuilt where I talk about real estate, short-term rentals and life, liberty and the pursuit of happiness, and on Instagram too. All of it. If you want the goofy videos, go to Instagram.

David:
If you’ve got something off this episode and you want to keep learning more, check out BiggerPockets Podcast, episode number 781, where we have a round table discussion with Rob, Henry and I on the beginner’s guide to finding undervalued off-market deals in any market. Episode 731 with Brent Daniels or the Rookie Podcast, episode 241, where Sahleem Lee was interviewed, who went from being a line cook to a long-term investor with 32 wholesale deals. David, thanks for being here, man. Really appreciate you sharing your story as well as the details that you did. We will have to have you on again and follow up with how things are going. This is David Greene for Rob reading his second book Abasolo, signing off.

 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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CEDAR CREEK, Texas — Natural disasters are becoming more severe and more frequent. So far in 2023, 24 billion-dollar natural disasters have struck the United States, according to data from the National Centers for Environmental Information at the National Atmospheric and Oceanic Administration (NOAA).

This marks the all-time highest number of natural disasters causing $1 billion or more in losses in a year — and the year isn’t even over yet.

The alarming data underscores why housing professionals need to understand the financial impact of climate change on the real estate industry, George Gallagher, senior leader and principal of ESG, climate risk, natural hazard and spatial solutions at CoreLogic told attendees during a session at HousingWire Annual on Wednesday.

In an industry that is always looking for more data and more insights, CoreLogic’s financial analytics around climate change can offer “a path to clarity,” Gallagher said.

For instance, CoreLogic provides housing professionals with portfolio studies that have a special focus on climate risk. These studies help locate a concentration of risk (i.e. flooding or wildfires) in a loan portfolio to address potential problems.

A number of players in the industry benefit from the risk data, including real estate investors who need additional insights to make informed decisions. For example, if a property is exposed to high climate risk, its market value may decline. This may give investors pause as to whether a particular real estate investment is a sound one.

Loan servicers can use predictive analytics that map natural disasters to prepare for a wave of mortgage delinquencies after a natural disaster strikes. 

“As professionals are underwriting loans, servicing them or investing in loan portfolios, there is a big increase in the price of homeowners insurance,” Gallagher highlighted.  “And this has to be factored into the calculus for underwriting, the profit potential  for servicing, as well as how those loans are packaged into a security.”

The CoreLogic presentation at HousingWire Annual is timely with the anticipated release of the Securities and Exchange Commission’s climate-disclosure rule.

Started in March 2022, the SEC proposal seeks to amend disclosure law to better account for climate risk among public companies. If finalized this fall, the rule requires public companies to disclose items like greenhouse gas emissions or the physical risk posed by any entity they might control, among other items.

If adopted, the rule might have a ripple effect on housing agencies such as the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Finance Agency (FHFA) and Federal Housing Administration (FHA), which might enforce similar requirements.

Gallagher also pointed to growing concern about the threat uninsured climate-related losses pose to the broader financial system and economy.

In January 2021, the FHFA issued a request for information focused on climate and natural disaster risk management at Fannie Mae, Freddie Mac and the Federal Home Loan Banks



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loanDepots CEO and president Frank Martell said the mortgage market will remain challenging in 2024. Still, the company is working to make money and, when the market turns, accelerate growth in a profitable, sustainable way.

To get there, Martell said loanDepot is still committed to its Vision 2025 plan, announced three months following his arrival to the company last year. But it was built to have a “little bit of wiggle room” to adjust to market conditions and opportunities for tomorrow.

Martel spoke during the HW Annual Conference held from Oct. 4-7 in Austin, Texas.

“We put in place a Vision 2025 program, which looked at where we want to take the company as we go through this cycle and then come out the other end as a stronger, better and more successful company,” Martell said.

“The market has changed a lot. It has been laid down about five times since I joined the company, and you have to react to that and adjust to that. So, the Vision 2025 was built to have a little bit of wiggle room to adjust it. It’s about addressing and resetting for today’s reality, but also looking at what are the opportunities out there for tomorrow.”

loanDepot hired Martell in April 2022, three months after he retired from CoreLogic. He announced the Vision 2025 plan in July 2022, which included simplifying the organizational structure, focusing on client service, quality, automation and operating leverage.

The target was to reach $375 million to $400 million in annualized cost reductions by the end of 2022 and run-rate operating profitability exiting 2022. loanDepot has been able to narrow its losses. In Q2 2023, the lender recorded a loss of $34.3 million in non-GAAP adjusted net income, compared to a $60.2 million loss in the previous quarter.

“We are still likely to face a tough market in 2024. But I’m feeling pretty good about rebounding into the spring selling season. And so, we’re working to make money in this market. And then, as the cycle turns, to build the company and accelerate growth in a profitable, sustainable way.”

Running a public company, Martell said that amid a challenging mortgage market, “the most important thing is not to try to play with stock price.”

loanDepot’s stock closed at $1.47 on Wednesday. 

“Investors have a view of this sector in general; every company has a low valuation, and certainly in mortgages,” Martell said. “And there are some winners currently in the housing market that are doing better (…). What people are looking at is the companies that are going to come through as winners.”

Martell said loanDepot is investing in fundamental, underlying systems and looking at the point-of-sale technology. As the mortgage market discusses topics such as first-time homebuyers, affordability and the new generations of borrowers, lenders must develop different solutions and interfaces.

“We have a lot of investment going into how we interact with them, make them successful homeowners, and make the experience a little less painful and more productive.” 



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Mortgage-rate-lock volume fell 20% in September, led by a combination of seasonal decline in purchase activity and rising interest rates, according to Optimal Blue’s Originations Market Monitor report.

September’s rate-lock decline continues a four-month trend of falling mortgage volumes, with month-over-month purchase locks down 20%, cash-outs down 17% and rate/term refinances down 18% in September. Total loan volume fell 33% over the same period compared to a year ago.

““The refi share of total lock volume ticked slightly higher from 12% to 13%, primarily as a result of seasonal purchase declines. Cash-out volumes continue to be the lion’s share of refis at roughly double that of rate/term volumes, with virtually no mortgages in the money to refinance,” Scott Smith, interim CEO of Optimal Blue, said.

Purchase lock counts – which exclude the impact of rising home prices – were down 32% year over year, and 39% from pre-pandemic levels in 2019.

While conforming loans still made up the majority of production at 57% in September, conforming volumes trended well below pandemic levels, according to the report. 

FHA and VA loan production both gained in activity share to 20.6% and 10.4%, respectively. The lock-production share of nonconforming loans – including both jumbo and expanded guideline loans – grew in September to comprise 11.1% of the total.

The average loan amount increased to $353,000 in September while the average purchase price on locked loans remained the same at $450,000.

The 30-year conforming fixed rate rose 33 basis points during the month to close at 7.41%, according to the Optimal Blue Mortgage Market Indices. Rates for FHA loans averaged 7.18%, VA loans were 7% and jumbo loans were 7.6%. 

The 30-year, conforming rate spread to the 10-year Treasury yield narrowed 17 basis points, with the 10-year ending September at approximately 4.6% – nearly 40 basis points above the highs set last fall.

“As the market reacted to the Fed’s ‘higher for longer’ message, we saw mortgage rates pushed to multi-decade highs in September,” Smith noted. “We also continue to see average credit scores remaining high, suggesting tight credit availability and a relatively small cohort of buyers who can make a purchase in this historically unaffordable environment.”



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A Comparative Market Analysis (CMA) is a detailed report that helps real estate agents evaluate and determine the market value of a property. It is an essential tool that allows agents to clearly communicate a pricing benchmark for a property. Successful agents create effective and accurate CMA reports that help their clients make informed decisions.

A CMA report includes information on similar, comparable properties in the area, including recent sales, active listings and current market trends. Like you, as a real estate agent, I have prepared many reports analyzing pricing trends to help provide guidance to buyers, sellers and investors alike. In this article, I’ll share the steps, what to include, what not to includes, and how to assemble a CMA report that’ll impress your clients.

Key takeaways

— A comparative market analysis report can provide valuable insights for both buyers and sellers, as well as real estate agents. 

For buyers, it can help them determine if the property they’re interested in is priced correctly and if it is a sound purchase. This may affect their life savings since buying a home is one of the largest purchases one can make!

For sellers, it can help them determine the best price at which to list their property and ensure they get the best return on it. Sellers would be able to carefully review comparable properties on the market as well as those that have successfully closed.

How to prepare a CMA report for your clients

The most important factor in any CMA is the quality and accuracy of the information that goes into it. Proper research, and a thorough understanding of the data you’re including is required to get the best information out of the analysis.

If your CMA is put together in haste with irrelevant information, it will not be a helpful tool for anyone and may reflect poorly on you as the agent presenting it. It’s imperative that agents invest their time to properly prepare comps!

To create an effective and accurate CMA report, you need to consider several factors, including: 

  1. What is included in a CMA report
  2. What doesn’t belong in a CMA report
  3. How to choose or determine which comps to include
  4. How to evaluate each potential comp
  5. Market and neighborhood trends

Information your CMA report must include

You should include both active listings and closed listings in your CMA report. Your comparative marketing analysis should include the following data points:

  • Location of relevant listings that are comparable
  • Pricing of active listings
  • Selling price of recently closed sales in the same building or area
  • For recently closed listings, length of time property was on the market
  • Size and number of bedrooms and bathrooms in all comparable properties (known as comps)

Information to exclude from your CMA report

  • Personal owner information: Do NOT include names or details of any owners in the comps. The ideal comparison is an “apples-to-apples” analysis without the unnecessary distractions of irrelevant data.
  • Property appraisal information
  • Detailed outline or description of each property. CMA reports are simple and effective tools. These details are more relevant and appropriate in an appraisal. However, you’ll want to consider all of these details when choosing your comps. More on that later.  
  • Unlike Properties: Omit any properties in completely different locations or those in a different size or price range. 

Assembling your comparative market analysis

I usually develop a report that is broken out into five sections, outlined below. Here are the steps you should take to develop your CMA report

Step 1. Gather subject property details

Whether you’re evaluating a listing for a seller client or potential property for purchase for a buyer, you’ll want to include details about the subject property, to include the home’s size, lot size (if applicable), age of the property, any renovations or upgrades, the condition of the property, its construction or design style, as well as its physical address and location.

Step 2. Select active listings comps

Choose active listings near to the subject property. The distance will really depend on your market and your knowledge of the surrounding neighborhoods. Choose properties of like kind. If your subject property is a single-family home, focus on single-family homes in the same school district.

Ensure that active comps are ones that have similar lot size, square footage, number of bedrooms and bathrooms, and number of parking spots included with the property (if it’s an apartment or condo). If active listings are abundant, you’ll want to limit your chosen comps to those that hit the market most recently.

Pro Tip:

Five to eight properties are the sweet spot. Floorplans are a bonus, but many agents don’t include them.

3. Recently sold comps

You’ll want to include recently sold properties of the same type and size, noting the same factors as with active listings comps. Choose properties that have sold in the past six months or in a period of rapid market movement, in the past three months. Focus on properties that closed with reasonable terms and within a reasonable number of days on market.

Pro Tip:

You don’t need to include all the property details in your Comparative Market Analysis. They are more appropriate for an appraisal. However, it may be helpful to add short descriptions like “renovated” or “XL terrace” to show unique features of the properties you’ve included in a “Notes” section at the end of your CMA report.

Here’s where your hyper-local market knowledge can really shine! It is essential to consider the micro-market or neighborhood trends when creating a CMA report. For example, in New York City where I live and work, many different neighborhoods border each other and are very close together – but property values vary significantly from one to the next.

It behooves you to confirm where any property sits when including it in the list of comparables as it may greatly affect the pricing. Including these details can show your client that you are a highly knowledgeable agent in your hyper-local area!

5. Develop your analysis or executive summary

For an apples-to-apples comparison, you’ll want to adjust for the differences between your chosen comps (both active and sold) and your subject property. For example, if one of the sold comps had an additional parking space, you’ll want to adjust its sold price down based on the local market value of a parking space. In a densely populated urban area, parking is at a premium, whereas in the suburbs, a parking space might not hold as high a value.

If an active listing has two bedrooms and your subject property has three bedrooms, you’ll want to adjust your price recommendation accordingly. Again, this is where your local market expertise is highly valuable to your client. Understanding the features and their value in your market is crucial to creating an accurate comparative market analysis for your client.

The full picture

Once you’ve gathered all the necessary data, it is time to put it all together. It is crucial to structure the report in a way that is easy to view and understand for your clients. What good is a report that you can’t read? You can use digital tools or print out the report, depending on your clients’ preference. 

You’ll likely see a trend emerge from the comps you’ve chosen and can give your buyer or seller an estimated value or market price for the subject property in question. If they are a seller, you can suggest a conservative, moderate and aggressive selling price for their listing. If they’re a buyer, you can suggest a conservative, moderate or aggressive offer price for the subject property they’re interested in. You get the picture! 

A note on timing

Now that you’ve done all the market research and analysis, it’s time to present your findings to your client. I find it helpful to send my comparative market analysis via email a few hours prior to an in-person or virtual meeting, where details can be discussed. This gives your clients an option to review or scan the document and prepare questions if needed.

On the other hand, sending it days in advance may result in clients canceling the meeting as they may feel as if they have your analysis and no longer need your expertise and services. I like to point out to clients that we will review the minutiae in our meeting. Presentation is key here!

Where to find good CMA report templates online

There are numerous templates available online that can help you create an effective and accurate CMA report. You can find free templates or purchase more advanced ones to provide your clients with a more detailed report. Your brokerage may also have a branded template available for use. You may also want to find a few and take the best formatting of each to create your own using tools like Canva.

Providers KeyFeatures Starting Price Learn More
Etsy Choose your level of design customization. Options for every budget. Professionally designed templates. CMA Report templates startign at $2 Etsy
Canva Wide variety of free, customizable templates and fonts. Download to multiple formats. Premium stock images. Free, with paid plans from $12 per month Visit Canva
HouseCanary Tools to help you select comps. Property value insights. $10 per report Visit HouseCanary
Cloud CMA Interactive, cloud-based tool. Premium, printed CMA reports. $49 per month Visit Cloud CMA
ShowingTime A suite of productivity tools for agents, including appointment setting. Branded, visual reports. $45 per user, per month Visit ShowingTime

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Frequently asked questions: CMA reports


  • What's the difference between a comparative market analysis and an appraisal?

    A comparative market analysis is an evaluation of a property’s value based on comparable properties in the area. It allows agents and their clients to compare similar properties relevant to their analysis.

    An appraisal is a more detailed professional report that provides a property’s appraised value based on a thorough inspection and analysis of the property’s condition and features. It is used by lenders and third parties to ascertain a specific price point of a home.


  • How many comps should be included in a comparative market analysis?

    There is no set number of comps that should be included in a CMA report. The number of comps you include will depend on the availability of comparable properties in the area and the quality of the data. I like to focus on having three to five ACTIVE listings and three to five recently closed properties, for a total of five to eight properties, for a complete picture.


  • What data sources should I use in a comparative market analysis?

    When creating a CMA report, it is essential to use reliable data sources. These may include local real estate listings, county property records, and MLS databases. The information should be recent and relevant to the current market. If there are no data points, older items may be included but there should be a footnote disclosing this.

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The Federal Housing Finance Agency (FHFA) Director Sandra Thompson said Wednesday that the agency is working to provide more clarity on its framework and use alternatives amid a spike in Fannie Mae and Freddie Mac‘s loan buybacks

The GSEs’ loan buybacks have been one of the top complaints among mortgage lenders in a near 8% mortgage rate environment. Thompson addressed the issue during a session at the HousingWire Annual conference held Oct. 10-12 in Cedar Creek, Texas.

“We want to figure out a way to balance the repurchase requests and the repurchase alternatives in a way that makes sense for everybody, because I’m very sympathetic to the environment that we’re currently in. But I’m also sympathetic to making sure that we purchase loans that are heavily manufactured in the way our expectations require,” Thompson said.  

According to Thompson, the loan repurchase framework was implemented nearly 10 years ago – the first thing she worked on when she started at FHFA. However, after record volumes of loans purchased by the enterprises in 2020 and 2021, there was an increase in repurchase requests in 2022.

“But I do realize that we’re in a completely different interest rate environment now. And repurchasing those loans in this high-interest rate environment certainly causes losses,” Thompson said.

She continued, “So, we’re working with the enterprises to look at how can we provide clarity [on the framework] (…) We want to make sure that we have quality loans. And that’s true on both sides.”

Thompson said she thinks not every repurchase request “either has or should end up with a repurchase.”

“Because every single defect is not a major defect. There could be some way or alternatives to repurchase that need to be considered,” Thompson said. “For example, if we’re talking about income, you may have more information that can help support a DTI [debt-to-income ratio] (…) There may be supplemental information that comes to the enterprise after the fact that probably should have met with the loan file. “

Technology also has a vital role in this discussion.

Thompson said, “If there are tools that can be helpful to the QC [quality control] process, that certainly would be helpful sooner rather than later.”

Thompson added, “It helps when you have some experience of people engaging with the enterprises on these processes because what I’ve heard is, in some cases, this isn’t always true.”

During the session, Thompson said that “there is urgency” on the loan repurchase matter.

“From my perspective, the repurchase request has gone down since the early days of 2022. It takes about six months after a loan is delivered for the processes to take place. And so we are seeing a downward trend in terms of repurchase requests.”

She added, “But what I would like to get in place is our repurchase alternatives and making sure that both parties – enterprises and the sellers – have a good understanding of what the requirements are.”



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What do beach trips, baseball tickets and fancy dinners have in common? All are violations of the 1974 Real Estate Settlement Procedures Act (RESPA) … or maybe they aren’t — it depends on the circumstances and who you ask.

Although RESPA prohibits quid pro quo payments, known as kickbacks, it allows for so much else, leaving room for interpretation.

“Regulators would like to think that their rules are very black and white, the problem is that black and white creates gray space,” Jerra Ryan, the vice president of Firstline Compliance, LLC, said in early June. “The only way you can navigate that gray space is to define what your black is in that space.”

And the market has gotten much darker over the last few years. 

After six years of no enforcement actions and a rapidly declining housing market, RESPA attorneys believe some in the industry may be more willing to test the boundaries. 

“I think folks tend to get creative and take a bit more risk than they might be willing to take in a market where rates are lower,” Holly Bunting, a partner at Mayer Brown in the areas of residential mortgage banking and consumer finance, said in an interview. 

Colgate Selden, founding member of the Consumer Financial Protection Bureau (CFPB) and an attorney at SeldenLindeke LLP, agrees: “People are getting more desperate in the mortgage industry in general. And they’re starting to ignore compliance or entering into agreements without fully documenting and monitoring them like they should, hoping they’ll make it through this downturn.” 

But this might all be coming to an end after the CFPB’s latest enforcement action on RESPA and mortgage kickbacks. The Bureau issued orders against Freedom Mortgage Corporation and Realty Connect USA Long Island in mid-August, its first such enforcement action since 2017. 

More than a dozen industry pros and attorneys told HousingWire that RESPA rules are unclear, leaving violations to flourish in a shrinking market. However, the Freedom case represented a “wakeup call.” 

Kickbacks in a shrinking market  

A shrinking market, defined by high mortgage rates and low inventory levels, appears to have exacerbated the existing mortgage kickbacks problem, industry pros told HousingWire. That’s because real estate agents and loan officers are in survival mode and desperate to close new business.

For lenders and brokerages, the risks of LOs or agents overstepping are high. A CFPB enforcement action could “force already financially weakened lenders into bankruptcy,” Selden said. 

“This should be part of the cost of your doing business – compliance and risk monitoring for these types of things. If you can’t do that, then maybe you should look at strategic options or shutting your doors anyway,” Selden added.  

More vexing for lenders and brokerages is that RESPA rules remain unclear, despite recent guidance from regulators and the existing consent orders. 

For example, paying for lead lists or desk rentals is typically not a RESPA violation. But that comes with some caveats. One can’t spend more than the reasonable market value, must also use these services and actually receive them. Regulators may also demand that you prove all of this. Otherwise, it could be seen as a payment for a referral, attorneys said.  

The same happens with concert or sports tickets as a marketing opportunity. Can the LO back up the narrative? 

“If you just give the real estate agent the tickets, you don’t go to the game, and you don’t sit and try to schmooze, that seems more like a thank-you thing for being of value in return for referrals, as opposed to a marketing opportunity and relationship,” Brian Levy, counsel at Katten and Temple, said.

The lack of clarity and myriad interpretations from regulators is a major frustration for industry firms.

“The line of what is legal and illegal depends on who is running the CFPB,” Steve Murray, partner at RealTrends Consulting, said. 

Murray adds: “Under the Obama administration, they basically just did away with marketing agreements even though many were written and performed within the laws that came out of the Bush administration. Then the Trump administration went back to more of where the Bush administration was, but now with Rohit Chopra [under the Biden administration], things are going back to where the Obama administration was.”  

The consent orders themselves are not always helpful in explaining the actual activities involved or rules as they only show one side of the story–the CFPB side. The orders can give insight into what the agency thinks the rule is or wants the rule to be. But the other party entering the consent order usually denies the allegations and is not permitted to say anything about the law. 

Companies typically agree with these orders because they want to avoid spending the resources fighting regulators in protracted litigation, whether in court or elsewhere. This makes the accusations a poor source of information to better understand the rules. 

“It often seems cheaper and less risky for mortgage lenders just to pay the penalty and move on in life,” Troy Garris, co-managing partner at Garris Horn LLP, said.

In the spotlight: MSAs

The consent order against Freedom and Realty Connect focuses on marketing services agreements, an example of how the RESPA’s interpretations have evolved over time. Under MSAs, a lender or title insurer markets the services of a real estate agent or brokerage, and vice versa, in exchange for a set fee.

In 2015, the CFPB released guidance to MSAs since its investigation showed that lenders, appraisal management and title insurance companies used it to disguise kickbacks and referral fees. Basically, the CFPB found that MSA participants failed to provide the services under the agreements. 

Following the 2015’s guidance, many industry participants concluded that the CFPB considered MSAs to be a RESPA violation.  

Mike Golden, co-founder and co-CEO at @properties, said that the company had a mortgage MSA years ago for a while, which was a “nice income stream.” 

“But when the CFPB cracked down on that around eight years ago, we stopped it outright,” Golden said. “It was a bummer to lose the income stream, but it wasn’t worth the risk based on the potential penalties and some of the ways the government looked at it.”  

In October 2020, the CFPB published new guidance in the form of frequently asked questions on the RESPA Section 8 topics to provide more precise rules, considering that the bulletin from 2015 did not provide regulatory clarity, the CFPB stated. 

The guidance included, among other things, that the MSAs ought not to be directed to a specific individual but to a broader audience of potential customers, the services must be actually performed and the compensation must be at market value.

Based on this guidance, the CFPB alleged that Freedom provided real estate agents and brokers with incentives, including cash payments, paid subscription services and catered parties in exchange for agent and broker referrals for mortgage loan offerings. 

Freedom, the company’s attorneys, Realty Connect and the CFPB declined to comment on this story. 

In its consent order, the CFPB said that more than 2,000 real estate agents and brokers accepted free access to subscription services, such as property reports and sales comparables. In turn, most of them made mortgage referrals to Freedom’s traditional retail loan officers. 

“There were some classic, fundamental RESPA violations here that are pretty clear: the subscriptions for the real estate agents to look at property valuations and other defrayals of expenses for stuff that they would use in their business — that’s the classic, old school ‘things of value’,” Selden said. 

However, some of the allegations could be clearer, attorneys said. 

Levy, of Katten and Temple, said the CFPB failed to connect the dots on a RESPA violation when it mentions Freedom sometimes documented the number of referrals to track performance under the MSA agreement. 

“In any marketing spending, you need to track your return on investment,” Levy said. “However, if you vary the payment under the MSA based on the amount of referrals generated, it could be a problem, because the reason you are tracking it is that you want to pay for the referrals and not for the services.” 

Selden said a way to solve this problem is to track overall application volume, which is not necessarily resulting in closed loans.

“But the more applications you get, the more chances they might get closed on eventually. That’s traffic coming to the company, not necessarily referrals. And that’s the point of advertising,” Selden said.  

Levy also raises questions when the CFPB mentions that Freedom encouraged its MSA partners to use a third-party smartphone app, which its loan officers would share with the brokerage’s agents, who would later share with clients. The app featured the Freedom LO’s headshot and Freedom logo at the top and included buttons where the client could contact the Freedom loan officer directly for assistance. 

“What I think CFPB needs to say is that Freedom tied the MSA payments to making sure that these smartphone apps were distributed. That would have been problematic because that’s essentially paying for what amounts to a referral if that app is a way to communicate only for Freedom,” Levy added.  

(Editorial note: Levy and Selden are not involved in the case and provided their opinions based on the consent order.)

New enforcement actions on the horizon?

Industry experts believe that the Freedom case opens doors to more RESPA-related enforcement actions, and not just from the CFPB. State attorneys general may also pursue cases.

When the CFPB was created, it mainly targeted small actors, which is not the case now. But lenders always seem to get in trouble because “that’s where the money is,” attorneys said. 

Francis Riley, a RESPA attorney, said the Freedom case may seem like a pivot for the CFPB, “but one has to remember that this resulted from an investigation that most believe started over three years ago.”

“So it cannot be viewed as something new or a new focus by the Bureau. This could be closing the book on an investigation that did not materialize as strongly as the initial investigators might have thought. This may be why the fine is relatively small, notwithstanding the length of time the alleged conduct was carried on and the number of participants (those who received the benefit who are also liable under RESPA).” 

Now that a company allegedly receiving the kickback has been slapped with a fine, “it should be a wakeup call,” Riley said. 

According to Gretchen Pearson, the broker-owner of Berkshire Hathaway HomeServices Drysdale Properties, many smaller top-performing agents and teams think they can fly under the radar and are using “sham MSAs to do mortgage kickbacks.” 

“The agents don’t think they will get caught because they are smaller, and the CFPB wants to go after big fish,” she said. “But the LO will take up a corner of the ad space and pay for the whole advertisement, and it is getting sketchier with digital marketing.” 

Based on an advisory opinion released by the CFPB earlier this year, anything directed to the consumer online, such as a mortgage lender’s logo on a real estate brokerage’s website, could be considered co-marketing and needs to be evaluated to see if it fits within the scope of an accepted referral. 

According to sources, when mortgage kickbacks flourish, there’s no fair game for real estate agents and loan officers. Moreover, homebuyers don’t have access to all the options available in the market. 

Jack Granger, a New Jersey-based community mortgage loan officer at TD Bank, believes mortgage kickbacks affect mainly underserved communities. 

That’s because “people are desperate to buy and not as financially astute.”

He estimates that “three out of 10 potential borrowers don’t even get to” a loan officer offering the best options. It means these homebuyers are not referred to competitive programs, which would provide lower down payments, no mortgage insurance and grants for closing costs, saving the homebuyer thousands of dollars a year.  

Ken Trepeta, the president of RESPRO, said it’s important that “everyone plays by the same rules and we definitely don’t want to end up in a situation like 50 years ago when RESPA was enacted and just have an environment that is rampant with kickbacks.”

“We do not want to see a situation again that inspires Congress to act again and feel like they need to do something draconian because the current law is not being followed — you want the enforcement so that doesn’t happen.”



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If you’re interested in becoming a real estate agent in Illinois, you’ll be happy to hear that the path to getting your real estate license in the Prairie State doesn’t require as much of a time commitment as other states. What’s more, Illinois has reciprocity agreements with nine other states, making it an excellent location for starting an exciting, new career in real estate.

There are certain differences between being a real estate professional in Illinois and other states, which we’ll look at in this article. We’ll also dive into necessary steps and helpful tips, answer frequently asked questions, and provide all the key information you need to get your real estate license in Illinois, so keep reading.

How getting a real estate license in Illinois is different from other states

While most states call the professional who represents a buyer or a seller of commercial or residential real estate a “real estate agent,” Illinois calls this individual a “real estate broker.” The actual professionals who many states call “brokers,” however, are called “managing brokers” in Illinois. And you can also serve as a “leasing agent,” which is an individual licensed to engage in activities limited to leasing or renting residential real estate. [2]

DID YOU KNOW?

According to the Illinois Department of Financial and Professional Regulation (IDFPR)’s Division of Real Estate, there is no “real estate salesperson” or “real estate agent” license in Illinois. Anyone who wants to buy and sell real estate in Illinois must possess a real estate broker license. [1]

As a real estate broker in Illinois, it is not legal for you to work independently. You can rent and sell property, but you must be sponsored by a managing broker, who you will work under for two years. After two years, you are free to pursue your managing broker license if you so choose. 

Although the terms may initially be confusing, conducting business as a real estate broker in Illinois really comes down to completing the required prelicense coursework, passing the state and national licensing exam, securing sponsorship from a managing broker, and applying for your license. 

Requirements to get your real estate license in Illinois

Some people choose to begin their real estate career as leasing agents and become brokers down the road, but this is not a requirement for becoming a real estate agent in Illinois. You do have the option of immediately pursuing a broker license, as no prior experience is required. Here’s what is required:

Requirements checklist

  • Be at least 18 years old 
  • Have a Social Security Number or Individual Taxpayer Identification Number
  • Have a high school diploma or G.E.D. certificate
  • Fulfill your prelicensing education requirement by successfully completing 75 hours of approved coursework 
  • Take and pass the Illinois broker’s exam
  • Be sponsored by a managing broker
  • Submit a completed licensing application and the required fee
  • Be issued a broker license by the IDFPR [3]

The Illinois real estate license exam


  • How hard is it to pass the Illinois real estate exam?

    According to several reputable schools accredited by the IDFPR, the pass rate is approximately 75% for those taking the Illinois real estate broker exam for the first time. [4] There are 140 multiple-choice questions on the license exam, and a passing score is 30 out of 40 on the state portion, and 75 out of 100 on the national portion.

    75% is the score you’ll need the first time around to be eligible for your Illinois license


  • How long does it take to get a real estate license in Illinois?

    While getting licensed as a real estate broker in Illinois may mean investing more time and money up front, remember that brokers typically experience a greater return on this investment in the long run. Here’s a general idea of how much time to set aside:

    • 75 hours of study for the required prelicense coursework. You can take
      • an online, self-study coure (2 – 3 weeks)
      • a livestreamed or in-person course (3 to 5 weeks on average)
      • a hybrid course (6 weeks) or
      • an accelerated online course (meets once a week for 9 weeks).
    • 3.5 hours is the time allowed for both portions of the exam. And you’ll want to arrive at least a half hour early, so allot 4 hours for this
    • 45 days or less is the time it may take the IDFPR to process your application and issue your professional license [5]

    Total time it typically takes to become a real estate salesperson in Illinois:

    From a little over a month to 3.5 months.


  • How much does it cost to get a real estate license in Illinois?

    As with educational pursuit that will lay the foundation for a successful career, there are fees associated with getting your broker license to conduct business as a real estate agent in Illinois. When it comes to getting a real estate license, here’s what you need to budget for:

    • Prelicensing course = $200 to over $700 [6]
    • Broker exam fee = $55
    • License application fee = $125
    • License renewal fee after two years = $150 [7]

    Estimated total = Between $530 and $1,050

PRO TIP: Looking for financial assistance with completing your real estate broker education requirements? As a prelicense student, you may be eligible for tuition reimbursement scholarships and grants offered through the Illinois Real Estate Educational Foundation (REEF) and the GI Bill®.

For eligibility details, visit these web pages: REEF Scholarships and GI Bill® education benefit

5 important steps to getting an Illinois real estate license

Step 1: Complete real estate broker prelicensing education 

If you are applying for a real estate broker license in Illinois, the first step is to enroll in and complete an approved prelicense education course on commercial and residential real estate. Not only is the broker course required by the IDFPR, but it will also equip you with the in-depth knowledge you need to pass the exam and succeed as a Illinois real estate agent.

Prelicense Education Requirements 

The prelicensure coursework required to earn a broker license in Illinois consists of two courses that total 75 hours of study:

  1. A 60-hour course covering real estate broker concepts such as brokerage, contracts, real estate math, and real property
  2. A 15-hour course on broker applied real estate principles that applies real estate concepts to real-life scenarios [8]

PRO TIP: Before your course completion, be sure to register as a student with license exam vendor PSI. This will be important when it comes time to schedule your exam, as you’ll need the confirmation of eligibility from PSI that is generated when you register as a student.

To register as a student, visit PSI’s student portal. The portal allows you to add or edit your information, so the school you attend can electronically submit your course completion information to PSI. [9]

To meet the 75-hour prelicensing requirement for agent licensure in the state of Illinois, you can complete your coursework either through an online program or in a traditional classroom setting. Here are some of the IDFPR-approved, prelicensing course formats:

  • Online. These self-paced real estate courses can be taken anywhere, anytime, on any device with Wi-Fi access. It takes 2 to 3 weeks on average to complete an online prelicensing course. As a student, you can access the course materials online and must pass the online quizzes to complete the course. 
  • Webinars. Live and instructor-led, these online sessions generally start at 9 am and end at 4:30 pm. Online attendance is required for the entire duration of the course, and includes quizzes and discussions. It takes 3 to 5 weeks on average to complete the education requirements and you’ll need to pass a final exam for each subject of study.
  • Classroom. These in-person courses are held at classrooms throughout the state and take an average of 3 to 5 weeks to complete. As a student, you’ll need to pass a final exam for each subject of study once you complete the education requirements. 
  • Hybrid. This option combines self-guided online learning with live instruction from a teacher. Most classes meet once or twice a week for 6 to 9 weeks. Attendance and full participation in all sessions is required to complete the course. [10]

With so many prelicensing course formats to choose from, there’s bound to be one that suits your learning style and schedule.

Special considerations for attorneys in Illinois

Applying for your initial real estate broker license based on attorney status? To qualify for an Illinois broker license as an attorney, you must be at least 18 years old and be admitted to practice law by the Illinois Supreme Court.

You can register for the exam by submitting the Illinois Real Estate Examination Registration Form found in the Real Estate Examination Program Candidate Handbook. For approval before you take the exam, the state also requires that you mail a photocopy of your current Illinois attorney registration pocket card certificate to PSI at the address provided on the form.

Step 2: Successfully take the licensing exam 

After you successfully complete the 75 hours of prelicensing education, the school you attend will submit your course completion information to PSI / Applied Measurement Professionals (AMP). Once PSI/AMP confirms that they’ve received your information and you are an eligible candidate, you’re ready to schedule your Illinois licensing exam.

DID YOU KNOW?

After completing the prelicensing education in Illinois, you have two years to take and pass the state and national portions of Illinois’ licensing exam. [11]

You have a few different options when it comes to registering for the Illinois real estate licensing exam:

  1. Schedule online by going to PSI’s exam scheduling website
  2. Schedule with a phone call to PSI. Call 855-340-3893
  3. Schedule by mailing your registration form and exam fee to PSI using the address on the Illinois Real Estate Examination Registration Form found in the Real Estate Examination Program Candidate Handbook. To schedule your appointment, don’t forget to follow up with a call to PSI at least seven to 10 business days after you mail your registration form. Once you’ve scheduled your real estate licensing exam, it’s time to prepare!

PRO TIP: 

As you prepare to take your licensing exam and become an Illinois real estate agent, plan your study schedule well in advance. Set aside blocks of time on certain days when you will study. And try to find a quiet place to study where you won’t be distracted or interrupted. When it comes to how to approach your studies, don’t get overwhelmed! Just focus on being objective about your individual learning needs and concentrate your efforts on a few carefully chosen textbooks.

Consisting of 140 multiple-choice questions, the real estate licensing exam is divided into two parts. The first portion includes 100 questions on national real estate laws and regulations, and the second consists of 40 questions on state laws. 


  • When and where to take the exam: Exam sites

    Depending on location availability, exam dates are usually available Monday through Saturday, within a couple of days of scheduling. As far as testing sites, those are determined by PSI/AMP. Your exam will be given on a computer at a PSI Test Center. On the day of your exam, it’s wise to arrive at the Test Center 30 minutes before your scheduled exam time.

    There are an abundance of exam locations throughout Illinois and the following exam sites are proctored by onsite personnel:

    • PSI Test Centers in Carbondale
    • Champaign
    • Downtown Chicago
    • East Peoria and Peoria
    • Galesburg
    • Glen Ellyn
    • Carol Stream
    • Naperville
    • Springfield
    • Westmont
    • Evansville, IN

    Other locations use remotely proctored testing stations to monitor candidates. For a complete list of Illinois PSI Test Centers, visit Locations of Approved PSI.


  • What to bring to the exam: Be prepared

    When the day comes for you to take your real estate licensing exam, you must provide 2 forms of proper identification, as well as biometric identification, which may include a test center-captured photograph or a fingerprint scan. The primary forms of photo ID must be current, permanent, government issued, and include your name, signature, and photograph. [12]

    Primary forms of photo ID accepted by the state of Illinois are:

    • State-issued driver’s license with photograph
    • Passport
    • State identification card with photograph
    • U.S. military identification card with photograph

    The secondary form of ID must display your name and signature for signature verification. Additionally, you’ll be required to sign a roster for identity verification. Secondary forms of ID accepted by the state are:

    • A credit card with signature
    • A social security card with signature
    • An employment/student ID card with signature

    Here are a few of the items that you cannot bring into the exam room:

    • Documents or notes of any kind
    • Cameras, tape recorders, pager, cellular/smartphone, or other electronic communications device
    • Personal items, valuables, or weapons
    • Coats, hats, watches, wallet, keys

    There will be soft lockers available for storing your wallet and/ or keys during the exam. The proctor will lock the soft lockers before you enter the exam room and you will not have access to the locked up items until after the exam is completed.

    The following are also strictly prohibited during the exam:

    • Having visitors, guests, or family members in the testing room or reception areas
    • Participating in conversations with other candidates during the exam
    • Giving or receiving help during the exam
    • Attempting to record exam questions
    • Possessing personal belongings, documents, notes, books, or other aids without it being noted on the roster
    • Eating, drinking, or smoking

    Any prohibited possessions or behavior may result in disciplinary measures, including being dismissed and forfeiting the exam.

    A calculator is permitted during the exam, but only if it is silent and non-programmable, without alphabetic keypads or printing capabilities. Don’t worry, you will be given pencils during check-in and one piece of scratch paper to use during the exam.

    You will have 3.5 hours to finish the comprehensive exam. Good luck!


  • How to get your exam score

    To be eligible to apply for a broker license in Illinois, you must pass both the national and state portions of the exam. Specifically, your score will need to be at least 75% on both the state and national portions of the exam to pass and receive credit.

    Immediately after completing the licensing exam, your exam results will be available, so you won’t have to lose sleep at night wondering how you did. Just report to the testing supervisor after the exam to receive your score report.

Step 3: Secure a managing broker for sponsorship

In Illinois, new real estate agents are required to work under the supervision of a managing broker. As such, you’ll need to secure a managing broker before you can apply for your full license and conduct any business. 

With advanced certifications that enable them to own an independent real estate firm, a managing or sponsoring broker is an experienced real estate professional that can help you build a solid foundation for success in the future. As a new real estate agent, you’ll want a managing broker that you can depend on for employment, mentorship, and support.

Ready to find a real estate brokerage?

To select the best brokerage for you, here are four things to consider:

1. The size and culture

Do you want to join a bigger brokerage with an expansive network or do you prefer a boutique brokerage with a local vibe? Is your goal to sell high-value homes as part of a luxury firm or help first-time homebuyers make their dream of ownership come true? These are the questions you need to ask yourself as you look for a managing broker. Your answer should be based on your personal preferences and professional goals.

2. The commission split

A firm’s size and the number of real estate salespeople that are overseen by the broker are determining factors in the commission split. For a new real estate agent in Illinois, a fair commission split is between 50/50 (the real estate agent and broker receive equal sums of money from a commission split) and 70/30 (the real estate agent gets a larger sum of money than the broker).

3. The support and mentorship opportunities

When selecting a firm, look for a brokerage that will support your professional growth by offering mentorship and training programs. You’ll be better positioned to become established in the industry by having this support early on in your real estate career.

4. The tools and technology to succeed

Brokerage tools, cutting-edge technology, market assistance, and industry insights are key to succeeding as an Illinois real estate agent, so look for a brokerage that provides the resources and agent services you need to maximize reach for your clients.

Step 4: Complete your license application

Once you’ve passed both portions of your Illinois real estate licensing exam and picked a sponsoring broker, you’re ready to apply for your license. You can find your licensure application instructions in your exam’s score report and mail your application materials to: 

PSI, 3223 South Meadowbrook Road Suite B, Springfield, IL 62711 
Or visit the Online Services Portal to apply. A complete application will need to include:

  • Proof of completing your training program
  • Proof of passing the licensing exam and your score report
  • Proof of having a managing broker

Step 5: Start working under a managing broker

It can take two to four business days for your license application to post in the system and your status to update. Once it posts, the IDFPR will confirm your information and issue your real estate license. This part may take up to 45 days, but don’t fret! While you wait for the IDFPR to process your application and issue your professional license, the state of Illinois permits real estate brokers to work under their managing broker.

DID YOU KNOW?

As soon as your application is approved, you’ll need to file a 45-day permit sponsor card to activate your license.

FAQs to help you jumpstart your Illinois real estate career

If you’re a prospective or new real estate agent in Illinois, you may need some additional information to decide if a career in real estate is for you. Here are some answers to the most frequently asked questions about practicing real estate in Illinois.


  • What happens if I take the licensing exam and fail one or both parts?

    Should you fail only one part of the real estate broker exam, you’ll only need to retake that portion… but be prepared to pay the full exam fee for any retakes. You’ve got a total of 4 attempts to pass the exam, including the initial attempt.

    Exam questions are randomized, so the broker exam will be different each time. Even so, you’ll need to schedule a license exam retake on a different day. It’s a good idea to give yourself a few days anyway, allowing you to brush up on topics that you were tripped up by the first time you took the exam.


  • Can I apply for a Illinois real estate license online?

    Once you have passed the real estate licensing exam, you can apply for an Illinois broker license online by visiting the Online Services Portal. Once you’ve logged into your portal account, just complete your application online and submit it to IDFPR.


  • What is the Illinois real estate license renewal process?

    In the state of Illinois, a real estate broker license must be renewed every 2 years. Specifically, real estate brokers must renew their license in even-numbered years, so the next time broker license renewal applications will be due is April 30, 2024. [13]

    To start the renewal process with the IDFPR’s Division of Real Estate, you can sign into your IDFPR Online Services Portal account. You can also send paper renewals to:
    320 W Washington St, 3rd Floor, Springfield IL 62786. [14]

    To find out when your license expires, visit IDFPR’s Online License Lookup. This is where you’ll find your original issue date, license effective date, expiration date, license status, sponsorship status, and other license information.


  • How do I submit my license renewal?

    Approximately 90 days before the broker license renewal deadline, the Online License Renewal Portal will open. Around that time, renewal instructions will be emailed to you and will include the unique PIN number you’ll need to renew online. If for some reason you don’t receive a renewal notice, don’t worry! You can always access your renewal application on the Online License Renewal Portal by using your social security number and date of birth.

    The broker license renewal fee is $150 if you renew by the deadline. If for some reason you can’t renew your license until after the deadline, you’ll owe a late payment penalty fee of $50. [15]


  • Can I still practice real estate if I have not completed my renewal requirements?

    If you forget to complete your renewal requirements or the renewal application, or fail to pay the fee to IDFPR, you will not be permitted to practice real estate after the renewal deadline. The IDFPR takes this pretty seriously, and may subject you to disciplinary action for “unlicensed activity” if you practice on an expired or inactive license. The bottom line is that you should make renewing your license on time a priority.


  • Can I still practice real estate if I completed all the renewal requirements but my license hasn’t been renewed?

    If you completed your renewal requirements, paid the fee, and submitted the renewal application by the deadline, but you notice that your license hasn’t been renewed yet, you are still permitted to practice as a real estate salesperson in Illinois. Just be sure to keep the following documents, as you may need them to prove your timely renewal:

    • Records of your continuing education completion
    • A copy of the renewal application
    • Copies of your method of payment in case of an IDFPR audit (up to 5 years)

  • Do I need to be sponsored by a managing broker to renew my license?

    While it is not necessary for you to be sponsored at the point of renewal of your license in Illinois, licensees who renew without a sponsoring broker will have an “Inactive” status upon renewal. Until a sponsoring broker is added, you will not be allowed to practice licensed real estate activities.

    Checklist for license renewal
    Renewing your license in Illinois and avoiding a lapse in licensure is simple with this checklist.

    • Have a sponsoring broker
    • Successfully complete 45 hours of continuing education
    • Submit a license renewal application by the renewal deadline
    • Pay the $150 renewal fee

    2 years is how long your Illinois real estate license is valid.

    Renewal considerations for attorneys

    If you are a licensed attorney in good standing in Illinois, you will need to renew your broker license. You can complete the online renewal process and pay the license renewal fees required by IDFPR through the Online License Renewal Portal. You will also be required to upload proof of your Attorney Registration and Disciplinary Commission (ARDC) registration document to your Online Services Portal account profile.

    Attorneys admitted to practice law pursuant to Illinois Supreme Court rule are exempt from the continuing education requirement. You will, however, need to certify your full compliance with the CE requirements on your renewal application. [16]


  • What are the continuing education requirements for an Illinois real estate agent renewing for the first time?

    To renew a real estate license in Illinois, continuing education courses are required for broker license holders on a two-year renewal cycle set by the IDFPR. Before you renew your broker license for the first time, it’s required by the IDFPR that you successfully complete 45 hours of approved continuing education (CE). This must include the following broker post-license CE courses:

    • One course in transactional issues (15 hours)
    • One course in risk management/ discipline (15 hours)
    • One course in applied broker principles (15 hours) [17]

    After completing each required CE course, you will have to take a 50-question final exam. According to state law, you must pass all 3 final exams with a score of 75% or higher in order to satisfy the requirement and receive credit for the courses.

    As a renewal applicant, you must certify full compliance with the CE requirements on your renewal application. Should the department request proof, it is your responsibility to retain and provide evidence of compliance.

    DID YOU KNOW?

    After you complete the risk management/ discipline course, you will have satisfied the required 1-hour of sexual harassment prevention training.


  • Where and when can I take continuing education classes?

    Your CE and post-license education must be completed through the Illinois Department of Financial and Professional Regulation-approved real estate education provider. When it comes to your Illinois real estate continuing education courses, there are an array of approved providers to choose from.

    IDFPR-approved providers of continuing education courses can be found here:
    Illinois Approved Pre and Post-License Courses and Schools

    Real estate schools and real estate education course providers typically offer various renewal packages, with prices ranging from $150 for an individual course to over $300 for different
    45-hour post-licensing bundles. Depending on the CE provider, there are several delivery methods available, from in-person learning classroom to online distance learning, webinars, and home studies.


  • Does Illinois have real estate license reciprocity with any other state?

    Currently, Illinois has reciprocity with the following states under the Real Estate License Act of 2000: [18]

    • Colorado
    • Connecticut
    • Florida
    • Georgia
    • Indiana
    • Iowa
    • Kentucky
    • Nebraska
    • Wisconsin

    Checklist for reciprocity qualifications for an Illinois real estate broker license

    • Be at least 18 years old
    • Have an active broker’s license, or equivalent by exam, in a state that has a reciprocal agreement with the IDFPR

    Real estate agents in Illinois: By the numbers

    50,015
    licensed and active real estate brokers in Illinois [19]


  • How much money does an Illinois real estate salesperson make?

    According to ZipRecruiter, a real estate agent working in Illinois earns $76,653 per year on average, as of Sep 27, 2023. This is the equivalent of $36.85 per hour, $1,474 per week, or $6,387 per month. [20]

    While ZipRecruiter is seeing broker salaries as low as $27,544, they can be as high as $141,653. And the majority of real estate brokers’ salaries is currently between $63,900 and $98,400, with top earners making $122,962 annually in Illinois. Of course, this salary average can vary based on your employment setting, level of education, years of experience, and the property market.

    ZipRecruiter scanned a database of millions of active jobs published locally across the nation to determine that Illinois is ranked number 32 out of 50 states for real estate agent salaries. ZipRecruiter also reports that the top 5 area/cities where the typical salary for a real estate agent is above average in Illinois are:

    • #5 Malta, $89,401 annual salary
    • #4 Tower Lakes, $91,884 annual salary
    • #3 Hinsdale, $94,883 annual salary
    • #2 Rockford, $95,171 annual salary
    • #1 Winnetka, $95,242 annual salary

  • What’s the real estate agent commission rate in Illinois?

    Based on several recent surveys, the average real estate agent commission rate in Illinois is around 5.2%. This average reflects the total for both the listing agent and the buyer’s agent, and is typically split between the listing broker (2.5 to 3%) and buyer’s broker (2.5 to 3%). [21] [22]

     


  • Illinois housing prices: By the numbers

    $252,134 is the value of the average Illinois home, which is a 2.5% increase over the past year

    7 days is the average time it takes for an Illinois home to become pending (yes, that fast)! [23]

The bottom line

From tips on getting your real estate broker license in Illinois to news about the housing market across the nation, HousingWire is here for you for every step of your real estate journey. We provide you with the most up-to-date information and insights into the latest home trends, changes in real estate, and more.

Articles Sources & Helpful Links

  1. Chicago Real Estate School. “There Is No Such Thing As A Real Estate Agent in Illinois”
    https://realestateschoolchicago.com/there-is-no-such-thing-as-an-agent-in-illinois/
  1. Illinois General Assembly. “PROFESSIONS, OCCUPATIONS, AND BUSINESS OPERATIONS (225 ILCS 454/) Real Estate License Act of 2000”
    https://www.ilga.gov/legislation/ilcs/ilcs5.asp?ActID=1364&ChapterID=24
  1. Illinois Real Estate Examination Program. “Candidate Handbook”  http://documents.goamp.com/Publications/candidateHandbooks/ILREP-handbook-Dec2019.pdf
  1. Chicago Real Estate Institute. “Frequently Asked Questions” https://chicagorealestateinstitute.com/
  1. Illinois Realtors, Start Your Career in Real Estate. “Applying for a Real Estate License”
    https://www.illinoisrealtors.org/wp-content/uploads/2019/01/Illinois-REALTORS-Pre-License-Handbook.pdf
  1. Illinois Department of Financial and Professional Regulation. “2022 Real Estate Broker Renewal Application”
    https://idfpr.illinois.gov/content/dam/soi/en/web/idfpr/forms/online/2022%20Real%20Estate%20Broker%20Renewal%20Application.pdf
  1. Illinois Realtors, Start Your Career in Real Estate. “Scheduling the Licensing Exam”
    https://www.illinoisrealtors.org/wp-content/uploads/2019/01/Illinois-REALTORS-Pre-License-Handbook.pdf
  1. Illinois Realtors, Start Your Career in Real Estate. “Pre-License Education Requirements”
    https://www.illinoisrealtors.org/wp-content/uploads/2019/01/Illinois-REALTORS-Pre-License-Handbook.pdf
  1. Illinois Real Estate Examination Program. “Candidate Handbook”
    http://documents.goamp.com/Publications/candidateHandbooks/ILREP-handbook-Dec2019.pdf
  1. Illinois Realtors, Start Your Career in Real Estate. “Pre-License Education Requirements”
    https://www.illinoisrealtors.org/wp-content/uploads/2019/01/Illinois-REALTORS-Pre-License-Handbook.pdf
  1. Illinois Real Estate Examination Program. “Candidate Handbook”
    http://documents.goamp.com/Publications/candidateHandbooks/ILREP-handbook.pdf
  1. Illinois Real Estate Examination Program. “Candidate Handbook”
    http://documents.goamp.com/Publications/candidateHandbooks/ILREP-handbook.pdf
  1. Illinois Department of Financial and Professional Regulation. “Requirements for Real Estate License Renewals in 2022.”
    https://idfpr.illinois.gov/content/dam/soi/en/web/idfpr/faq/realestate/2022-1-6-dre-real-estate-brokerage-real-estate-license-renewal-2022-faq-1-22.pdf
  1. Illinois Department of Financial and Professional Regulation. “2023 Real Estate License Renewal Information and Assistance” 
    https://idfpr.illinois.gov/dre.html
  1. Illinois Department of Financial and Professional Regulation. “Requirements for Real Estate License Renewals in 2022”
  1. Illinois Department of Financial and Professional Regulation. “CONTINUING EDUCATION (CE) FACT SHEET FOR 2024”
    https://idfpr.illinois.gov/content/dam/soi/en/web/idfpr/forms/dre/2024cefactsheet-realestatebroker.pdf
  1. Chicago Association of Realtors. “45 HOUR POST LICENSE REQUIREMENT”
    https://chicagorealtor.com/realtors-real-estate-school/continuing-education/45-hour-post-license-requirement/#:~:text=About%20the%2045%20Hour%20Course,the%20course%20per%20state%20law
  1. Illinois Department of Financial and Professional Regulation. “Real Estate License Reciprocity”
    https://idfpr.illinois.gov/dre/reciprocity2000.html
  1. HooQuest.com. “Number of Realtors in the USA by State | 2023”
    https://hooquest.com/how-many-realtors
  1. ZipRecruiter.com. “Real Estate Agent Salary in Illinois”
    https://www.ziprecruiter.com/Salaries/Real-Estate-Agent-Salary–in-Illinois
  1. Clever. “What’s The Average Illinois Real Estate Commission?”
    https://listwithclever.com/average-real-estate-commission-rate/illinois/
  1. FastExpert.com. “2022 Survey Results: Real Estate Agent Commissions by State”
    https://www.fastexpert.com/blog/real-estate-agent-commissions-by-state/
  1. Zillow.com. “Illinois Home Values”
    https://www.zillow.com/home-values/21/il/

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AI-generated image of two lawyers scrutinizing title insurance joint venture agreements
AI-generated image of two lawyers scrutinizing title insurance joint venture agreements. Image was created using MidJourney.

In 1983 Jim Campbell launched what is believed to be the first joint venture experiment between a real estate brokerage and a title and settlement firm.

It was the genesis of a several things, Campbell said, but primarily that real estate brokers and lenders in Pennsylvania were looking for a more effective way to control the process of buying and selling homes. Things went wrong more often when using unfamiliar title and escrow companies, Campbell and his business partners reasoned. Why not create one entity to ensure a smoother process?

Campbell is now something of a JV guru, having completed over 80 joint ventures with real estate or lending firms. In fact, it’s all his Pennsylvania-based company Title Alliance does.

Mike LaRosa, the chief operation officer of Florida Agency Network, also follows the JV playbook.

“I know the one-stop-shop thing is cliché, but if you do it right, that can be a major benefit not only to the Realtor and the title company as ancillary income, but to the consumer who it is benefiting from efficiencies and better pricing through economies of scale,” LaRosa said.

But the joint venture model may soon be on the way out.

In February 2023, law firm McGuireWoods released a white paper claiming that the joint venture business model between title insurance firms and real estate brokerages “drives up costs, stifles competition” and violates the 1974 Real Estate Settlement Procedures Act (RESPA) and the 2010 Consumer Financial Protection Act (CFPA). 

The paper’s authors, which include Jeff Ehrlich, the former deputy enforcement director at the Consumer Financial Protection Bureau (CFPB), urged the CFPB and state regulators to look into title and real estate joint ventures for potential RESPA, CFPA, and state regulation violations.

“To qualify for the safe harbor, an affiliated-business arrangement must meet three statutory conditions,” the authors argue. “First, certain disclosures must be made to the consumers who are being referred. Second, consumers must not be required to use any particular settlement-services provider. And third, the only thing of value that the referring party may receive is a return on an ownership interest. The JVs do not qualify for the safe harbor because they fail to satisfy (at least) this third condition.”

According to the paper, when a joint venture is set up the real estate agents or brokerage involved “contribute nominal or even no capital in exchange for their ownership interests in the JV,” and the title company “makes almost no investment, either, leaving the JV grossly undercapitalized for the amount of settlement services that it purports to provide.”

The authors also claim that the profit dividends received by the title company and the real estate brokerage are “wildly disproportionate” to their respective investments.

Frances Riley, an attorney who focuses on RESPA issues at Saul Ewing LLP, says that while these claims may be true of a handful of title joint ventures, but it’s not the norm.

“They are asking how an investor only invested $2,000, but is getting a $5,000 dividend last quarter, and you could say the same thing about the early investors in Microsoft or Facebook who bought shares for $100 that are now worth thousands of dollars,” Riley said. “I think it is being pushed by competitors who don’t like the business model of going out and getting investors who are your referral sources.”

Riley added: “They’ve made these allegations about how it is terrible and they are not compliant. What the investigators are finding — not in every case, but in a majority of the cases — is that the investment is proper and they are paying fair market value for the investment.”

Regulators are bearing down

The stakes are high for title insurance firms that have joint ventures operating in the gray areas of the law.

“The environment we are in right now is probably the most enforcement heavy that I’ve seen in probably 20 years, certainly on the state side,” Marx Sterbcow, a RESPA attorney at Sterbcow Law Group, said in an interview with HousingWire. “There are companies that really do things by the book — they are uber compliant. They don’t want to have any misconceptions that their company is doing, and they want everything to be straight and narrow. But then you have a competitor in the marketplace that is doing everything completely illegal.”

Besides RESPA, the McGuireWoods paper also claims the JVs violate the CFPA, which prohibits abusive acts and practices between “covered persons” and “service providers.”

“A joint-venture partner is a ‘related person,’ and thus deemed to be a ‘covered person,’ when they ‘materially participate in the conduct of the affairs” of a covered person,” the paper reads. “Here, the real-estate agents are ‘related persons’ because they materially participate, by referring their customers to the JV for title services, in the affairs of the JV, which is itself a ‘covered person’ because it offers real- estate-settlement services. Accordingly, the real-estate agents could be deemed to be ‘covered persons,’ subject to the CFPA.”

Ehrlich said that in some states the potential violations don’t end there.

“Many states have their own laws that prohibit kickbacks for referrals, like RESPA does. Most of those state laws, like RESPA, make an exception for lawful joint ventures. But a handful of jurisdictions ban kickbacks without exception,” Ehrlich said. “Section 31-5031.15 of the D.C. Code, for example, makes it illegal for any person to ‘give or receive, directly or indirectly, any consideration for the referral of title insurance business or escrow or other service provided by a title insurer.’ And it makes no exception for JVs—even those that would be okay under RESPA. This provision basically outlaws all title-company JVs in D.C.”

Ehrlich attributes the increased scrutiny of joint ventures to a proliferation of JVs over the past few years and the rising home affordability challenges

“Prices are up; rates are up; and closing costs are up. Sham JVs distort competition and cause consumers to pay more for settlement services,” Ehrlich wrote in an email. “So, to the extent that the CFPB or a state attorney general wants to address this housing problem, one place to start would be dealing with sham JVs.”

While Sterbcow acknowledges that housing affordability is a challenge for many, he sees some additional factors at play. Sterbcow believes the lull in CFPB RESPA enforcement action between 2017 and 2023 gave real estate and title professionals the impression that RESPA was no longer a priority. That, combined with the housing market slowdown, created a perfect storm for some questionable business practices to arise, piquing the interest of regulators.

“What happens, is when the market state is declining and revenues start decreasing, you start seeing people becoming very panicked and they start putting together all sorts of crazy, cockamamie schemes to facilitate business coming in and that delegitimizes and impacts the market in which those companies are operating in,” Sterbcow said.

Arizona in particular has been scrutinizing joint ventures between title insurers and real estate brokerages.

“We are looking at how those are structured and that they are bona fide joint ventures and also that they are not just sham organizations created to give kickbacks to agents,” James Knupp, the deputy director of the Arizona Department of Real Estate, said. “We want to ensure that our agents, as well as title companies, are operating within the statutory confines of what they are able to do, and it all comes back to consumer protection and affordable housing.”

Knupp said they are also looking into the neutrality of the escrow agent and the disclosures real estate agents are making to their clients about the nature of their relationship with the title joint venture.

To conduct the investigation, Knupp’s department is teaming up with the Arizona Department of Insurance and Financial Institutions (DIFI).

“We want consumers to be fully aware of the choices they are making — buying a house may be the biggest transaction that a consumer makes in their entire life — and we don’t want these joint ventures working together to diminish that choice for consumers,” said James McGuffin, a spokesperson for Arizona DIFI.

It’s not known how many joint ventures between real estate brokerages and title insurance companies exist across the United States. No single authority tracks such entities, experts told HousingWire.

According to Riley, local regulators in Pennsylvania, Maryland and Washington, D.C., have also begun looking into title JVs. (None of the local regulators returned requests for an interview.)

Despite Ehrlich’s assertions and the suspicions of state regulators, industry professionals maintain that joint ventures are consumer friendly.

“Having these joint ventures or affiliated businesses creates more of a closed loop,” Aaron Davis, the CEO of Florida Agency Network, said. “Any time a buyer exits the loop there is an opportunity for poor service. If I am a buyer and I go to a real estate office that has a joint venture title company, the businesses are tied together and the brokerage has more of an ability to better control the overall experience for the buyer.”

LaRosa added: “When you create that closed loop environment, you have a better ability to integrate systems and allow the transaction to flow much more naturally and it is less clunky from order entry to close.”

Gretchen Pearson, the broker-owner of Berkshire Hathaway HomeServices Drysdale Properties, is part of an affiliated business agreement with Orange Coast Title, which also has similar deals with two of her largest brokerage competitors in the area.

“The main core of why you would set up a JV is to create a better experience for the consumer,” Pearson said. “It is awful when something does come up on title and you are trying to complete the transaction with the buyer and it is taking forever, but if the title company is your business partner, they might be willing to issue the title policy early while still undergoing curative action so your buyer can close.”

In addition to increased interest from state regulators, the CFPB issuing its first RESPA enforcement action in six years earlier this year, making it clear to the real estate industry that RESPA is coming more into focus. But, for LaRosa, at least for the moment, this isn’t too much of a concern.

“I welcome the scrutiny,” LaRosa said. “I think anybody who operates the way that we do welcomes it because we are not out there looking to tattletale on anybody, but there are bad actors and I’ve been waiting for more enforcement. I don’t think they are necessarily looking to bust people. I think they are looking to provide some guidance and make sure that there is a level playing field.”



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A mortgage lender isn’t the first place most people would turn to for yoga, meditation or personal wellness. However, Guaranteed Rate hopes to change that with the launch of its new consumer-focused Rate App.

The free app, which officially launches Tuesday, allows users to price out mortgages, personal loans and other finance products that Guaranteed Rate offers, but there’s a twist: users can also access financial, physical and mental health resources to help them “live their best lives.”

The Rate App is a personal passion project more than two years in the making for Guaranteed Rate CEO Victor Ciardelli, he told HousingWire in a rare and exclusive interview ahead of the app’s launch. The app was born from the belief that financial, physical and mental wellness are interconnected.

Ciardelli said his own personal wellness journey inspired him to look for new ways to help others better manage stress and their overall well-being.

After years of working crazy hours and focusing on growing his business, Ciardelli saw the impact his hard-driving lifestyle was having on his health and close relationships. He knew he needed to make changes.

“I started focusing on all sorts of stuff: reading books, meditation, eating healthy, exercising consistently. I literally became a different person; it shifted everything.” Ciardelli told HousingWire.

Ultimately, this newfound peace and clarity led to an “ah-ha” moment for Ciardelli.

What if he could help other people find personal fulfillment and reduce stress while providing something of value that might lead them to work with Guaranteed Rate in the future? The result would be a win-win for the business and for customers, he said.

More than a mortgage app

Developed by the company’s in-house technology team, the Rate App took two-and-a-half years to bring to market and an investment of “millions of dollars,” Ciardelli said, though he declined to provide a specific figure.

The app offers users the standard fare you’d expect in a mortgage app from a major fintech lender. Users can compare current mortgage rates, and use a mortgage payment calculator, a home-value estimator and online loan applications.

Users can also find local loan officers when they are ready to buy a home or inquire about another financial product that Guaranteed Rate offers. The app features general financial and budgeting education, videos and articles.

While other mortgage lenders offer their own brand of budgeting and financial education apps, so far, Guaranteed Rate appears to be the first in the space to offer access to meditation, nutrition, fitness and yoga classes.

There’s also exclusive well-being content from leading meditation and wellness guru Deepak Chopra, whom Ciardelli said he met with personally to forge a partnership.

During that meeting, Ciardelli recalled Chopra was keen on seeing more businesses and executive leaders put the issue of personal well-being front and center.

And there’s plenty of research out there underscoring the need for it.

Americans are reporting feeling significant stress — especially when it comes to money and the economy. According to the 2022 Stress in America survey from the American Psychological Association, 83% of American adults said inflation was a major source of stress, followed closely by the economy (69%) and money (66%).

An April 2023 survey from Bankrate found that 82% of American adults said money negatively impacts their mental health due to economic concerns. A majority (56%) of survey respondents said having insufficient emergency savings was the top issue hurting their mental health.

Delivering value to stay relevant

So what is the new app’s business benefit for loan officers?

Users are “cookied” to the loan officer who shares the app with them, Ciardelli explained. The same is true if a Realtor partner shares the app on the LO’s behalf.

“So let’s say someone or even their kid was using [the app] who was a customer of ours, and the customer says, ‘Hey, kids, I want to show you this; download this app. And they’re using it for yoga and things like that.”

Many fitness and wellness apps require monthly subscriptions. But having free access to the Rate App for personal wellness plants a long-term seed with younger potential borrowers who will likely need to buy their first home or take out a personal loan one day, Ciardelli pointed out.

When a user transacts, the loan officer retains the lead and is paid when the loan closes, Ciardelli said. As of Oct. 8, 2,094 mortgage loan officers are licensed with Guaranteed Rate’s primary mortgage businesses, according to data from the Nationwide Multistate Licensing System (NMLS).

“From a lead-funnel standpoint, it provides stickiness and a kind of optionality to all these different people where the loan officer would not have normally been relevant,” Ciardelli said.

“We really shifted the business into a whole new dimension and being more relevant to consumers, providing value on a day-to-day basis than just a traditional mortgage company where customers are working with you once every three or five years,” he said.

“I love the direction that we’re moving in and what we’re doing. It feels good.”

Investing in tech, products to meet borrowers’ needs

It’s no secret the current mortgage market is brutal for lenders across the board. Guaranteed Rate’s production volume in the first half of this year totaled $17.6 billion, down about 47% from the same period in 2022, according to data from Inside Mortgage Finance.

However, the company is making investments in its technology and products to help address borrowers’ biggest pain points amid ongoing market volatility.

In late September, the lender launched a new mobile app, PowerVP, for loan officers to connect with customers and manage loans digitally, 24/7.

Ciardelli revealed the company is also building “a lot of different technology on the app that is advantageous for Realtor partners. This includes a Realtor partner network.

The lender is beefing up its product offerings to help more borrowers who are feeling the pain of higher rates and home prices.

The Chicago-headquartered lender announced in July it was joining other major lenders to offer a 1% down-payment assistance program called OneDown. The conventional loan program requires 3% down but allows borrowers to contribute 1%. Guaranteed Rate pays the other 2% or up to $2,000 (whichever is lower).

Ciardelli credits the product team, led by Kate Amor, senior vice president and head of enterprise products, with adding multiple, new non-QM products to the lender’s roster, including bank statement loans and buy-down programs. He called the new additions “really, really powerful” in the current market.

“The thing is … today you have to be creative and work with the consumers that are out there, helping them as much as [you] can,” Ciardelli said.

Pivoting and preparing for a comeback

As mortgage and real estate professionals brace for a long winter in the business, Ciardelli’s main message to his people right now is to “engage and provide value everywhere” they can.

“I’m telling them to go on the offense, build relationships, utilize the technology and the speed to promote buyer certainty,” Ciardelli said.

He’s also taking the company’s consumer-facing wellness mission in house, encouraging employees to focus on their health and well-being during the current “grind” right now, he said.

“Because the market is going to come back, right? There’s no doubt about it. It’s just a matter of time before it does. It might be a little longer than everybody would want it to be,” Ciardelli said.

“But it is going to come back, and people who are positive, healthy and forward-thinking, and are driven and focusing on providing value to their customers and Realtor partners are the ones that are going to win.”



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