Home Buying and Financial Security: Why an LLC-Operated Brokerage Matters
Go Back To Previous PageFor homebuyers, there are always several considerations to make. Naturally, you think about location, price, and the physical condition of the property you’re investing in. In addition, it’s essential to consider the person or the entity you’re buying from, ensuring you’re doing business with someone reputable and trustworthy. For your security and peace of mind, choosing a real estate brokerage registered as a limited liability company or LLC is best. But what makes LLC-operated brokerages so
beneficial for buyers? Let’s take a closer look.
What is an LLC?
First, it may be helpful to define the term. When we reference an LLC, precisely what are we talking about?
An LLC is a legal structure available to business owners worldwide. It is the most popular small business structure in the United States and is especially beloved among real estate companies.
The LLC is popular because it creates a new business entity, allowing for a clean separation between the company and the owner(s). In short, the structure distinguishes between personal assets and liabilities and business assets and liabilities. So, if the business gets sued, the owner’s personal bank account can’t be targeted.
Registering an LLC is generally considered easy, another reason for its popularity. With that said, there are some filing requirements that LLC owners must comply with to ensure their legality. For one thing, every LLC must have a registered agent to receive legal documents on the company’s behalf; this is often a third-party company, like Northwest Registered Agent, though some states will allow the business owner to serve as their agent.
Why LLC-Backed Brokerages are Best for Buyers
There are countless reasons why the LLC structure benefits business owners, but what about the end consumer? Consider a few reasons why the format is advantageous for home buyers.
Fraud Protection
The LLC structure is designed to provide certain protections for the business owner, specifically by limiting their exposure to lawsuits. However, there are also some built-in protections for consumers, specifically safeguards against fraud.
Generally speaking, clear evidence of fraud will cause the LLC to forfeit some of its liability protections. Given such evidence, a court may decide that the LLC owner’s legal protections have been surrendered, meaning lawsuits and creditors can go after the owner’s assets.
Naturally, LLC owners wish to avoid this, which means they tend to steer clear of anything that has even a whiff of fraud. This doesn’t mean that all real estate LLCs are guaranteed to be 100 percent honest, but it certainly provides buyers with confidence and peace of mind.
Legitimacy
It’s also important to note that any business legally registered as an LLC has a certain level of legitimacy. Again, launching an LLC is generally considered straightforward, but some steps are required. These include:
- Create an operating agreement and file it with the government.
- Providing an annual report to the state.
- Ensuring a valid tax ID number from the Internal Revenue Service.
- Staying up-to-date with LLC filing fees.
The bottom line? To maintain LLC status, owners must comply with certain honesty, integrity, and transparency standards. They must conduct themselves with a certain level of organization and professionalism, which advantages home buyers (along with sellers, investors, and professional colleagues) in abundant ways.
Flexibility
Here’s one more thing for buyers to know about LLC-backed brokerages. When you launch one, you have plenty of options for bringing on partners to help you manage your business, elect different tax structures, and more. None of this is true of other types of business structure, such as the Sole Proprietorship.
Why is this important for buyers? When you do business with a company legally classified as a sole proprietorship, you do business with just one person who decided to set up a shop. Nothing is wrong with that, but if you’re looking for a company with a more built-in structure and accountability, the LLC format should provide you with greater assurance.
LLCs Protect Everyone
None of this suggests that doing business with an LLC is foolproof; there can be bad actors in any industry and with any legal structure. However, the LLC is a severe business classification with several built-in accountability checkpoints. This protects the owner, but it can also protect customers, including home buyers.
Again, the LLC has long been a popular designation among real estate brokerages. When seeking a reputable and trustworthy real estate brokerage to buy from, it never hurts to verify LLC status.
Author Bio
Amanda E. Clark is a contributing writer to LLC University. She graduated from Eastern Michigan University with Journalism, Political Science, and English degrees. Amanda became a professional writer in 2008 and has led marketing and advertising initiatives for several Fortune 500 companies. She has appeared as a subject matter expert on panels about content and social media marketing and regularly leads seminars and training sessions on trends and tactics in professional writing.
Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.
