Good Realty Agents Don’t Cost You Money—They Help You Make It
A skilled real estate agent can be a valuable asset to every investor. And, much like building a strong and successful marriage, you will need to spend some time and effort finding exactly the right agent who fits your style. Chances are you won’t find Mr. or Ms. Right on the very first date, so don’t be hesitant to dump a few along the way. That’s how it works for everyone during the hunt.
The worst part is always breaking the ice, introducing yourself to complete strangers who you think might be able to help you. There’s no way to shortcut this process, so it’s best to simply charge ahead and do it. When you eventually find an agent who can appreciate your goals and is willing to spend time helping you achieve them, you’ll suddenly realize you’ve added a powerful new tool to your “wealth builder’s kit.”
Real estate agents are the eyes and ears of the real estate business. Approximately 96% of all sales and trades involve licensed salespeople and their brokers. It would be very foolish, indeed, to harbor any serious notions about excluding them from your investment plans. The best thing you can do for yourself is to begin diligently searching for a good one Before I get started on the hows and whys of selecting the agent who’s right for you, let me first discuss the issue of commissions. Those are what agents earn when they help you buy and sell real estate. You must first understand there is no such thing as a standard one-size-fits-all commission. They come in different sizes and are often negotiated.
For example, most agents in my town charge about a 6% commission for selling houses. However, that’s not the market I’m a part of. House buyers generally represent one-time transactions for most agents. I’m a buyer and sometimes a seller whenever the opportunity arises. Unlike the folks who buy a house and that’s it, I’m good for many transactions. Naturally, I represent a greater source of income for my agent.
Understandably, agents can work for smaller-percentage commissions when multiple transactions are anticipated. To give you an idea of what I’m saying here, I’ll share my own experience.
The average commission I’ve paid out for all my transactions during the past several years is slightly less than 3% of the purchase price. That’s roughly half of the so-called going rate. I find it best to negotiate the commission in advance of every deal I make. Just remember: it must be fair for the amount of work involved.
How to Find an Agent Who’s Right for You
The first thing is to visit the local real estate offices in the area where you plan to invest. Ask the receptionist if he or she knows which agent sells the most apartment buildings or income properties. Get yourself introduced and tell the agent exactly what you’re trying to accomplish. The interview will be your opportunity to learn what the agent thinks he or she can do for you. But remember: the agent must know exactly what you want done in order to respond in a meaningful way.
Once you’re face to face with the agent, be as specific as you can. In my situation, I might tell him or her the following:
I’m interested in “fixer-type,” rundown properties. I prefer detached houses on a single lot. For example, 10 or 12 older houses on an acre of land would be something I’m very interested in. I’m also looking for properties with owner financing. I’m particularly interested in properties that have several private notes or mortgages that I can assume. Deferred maintenance (rundown), problem tenants, and properties that need major cleanup are my specialty. I wish to avoid new bank financing whenever possible and I’m trying to purchase properties with 10% cash down. I can also add notes or other properties in trade.
This description of what I’m looking for and my special preferences should be enough to give most any agent a fairly decent idea of what I’m in the market for. Naturally, the price will have to fit the deal, but don’t ever forget that the asking price seldom has much to do with the final purchase price, particularly in the fixer business.
Look for Experience and Likeability
Just like a budding romance, the chemistry has to work. It will do you no good in the long run to force yourself to work with an agent who disgusts you, no matter how good you think he or she may be. Obnoxious agents are best left to service obnoxious home buyers, since there’s no shortage of either one out there. I mention this because it’s very important to develop a relationship that can last a long time. A lasting relationship is much easier when you like each other. I’ve had just two agents in the last 20 years or so.
Additionally, if you’re relatively new to investing, you will need a more experienced person to help you. You also need to seek out an agent whose specialty is income property or investment sales. In the larger brokerages, you’ll find more specialists. But, then, larger firms always have a ton of new agents cycling through to get experience. In the smaller offices, sales people take on everything that comes through the door. On the other hand, many times you’ll find the more experienced agents working by themselves or in smaller offices.
What About Agents Who Shop for Themselves?
I often hear seminar leaders tell investors to seek out real estate agents who buy and sell properties for their personal investment accounts. This advice is akin to leaving your fiancée at an all-night bachelor party, hoping your friends will always do what’s right for her.
I can see no advantage to having my own agent competing with me to acquire bargain properties. I once accused my current agent, Fred, of doing exactly that. We were both looking at the numbers on a small, subsidized (HUD) apartment building for sale, when I unexpectedly had to leave town for a week. When I returned, Fred had purchased the building. He said that since I hadn’t advised him that I was interested, he assumed that I wasn’t. What he couldn’t explain very well was why he didn’t wait until I returned before he made the purchase. Fred started treating me extra nice and bought me many lunches for a year or so trying to make me forget. Finally, I did and it’s never happened again.
Five Important Benefits an Agent Provides
Once you find an agent who seems to talk your language and, of course, demonstrates some honest action, like jumping right in and finding a few properties that seem to fit your search instructions, you’ll be off to a running start.
One thing to remember here: both you and your agent are new to each other. Don’t make your agent do all the work. You should help in every way you can, especially in the “getting acquainted” phase. For example, if the agent is showing you properties in good condition and you have told him or her you want junkers, reiterate your instructions so you get what you want. By helping your agent, who is trying to help you, you’ll end up the big winner.
The benefits you’ll receive by taking the time to develop this relationship will be worth big bucks to you in the long term. Here are five of the most important benefits:
Your agent has immediate “pipeline” knowledge of when a bargain property is listed for sale, either as a member of the multiple-listing service or by networking through associates and contacts. You’ll get the information quickly, so you can write an offer fast if the property is right for you. Being first, or near first, is very important in this business.
A good agent will automatically “weed out” properties for you once he or she becomes accustomed with what you really want. My agent Fred always brings me everything I need for making an educated evaluation on each deal. The information provided is normally a property profile, copies of existing promissory notes, and either a filled-out income property analysis form (see the last page of Chapter 10) or at least the necessary data to fill one out. This is valuable, time-saving work for an investor, needed before any intelligent buying decision can be made. Obviously, it puts Fred closer to a commission if his help results in an offer to purchase.
My agent provides an intermediary “buffer” between the buyer (me) and the seller. This is a valuable service to me. Mom-and-pop real estate owners (the kind I buy most properties from) often feel intimidated negotiating with me one on one. They seem to feel that because I own so many properties and I’m successful, they’ll automatically end up on the short end of the stick. It’s a perception that’s hard to overcome, regardless of whether it’s true or not. Fred can generally reduce this problem for me in his capacity as a neutral third party. Sellers often feel that a licensed person will be more sensitive to their needs, as opposed to direct, face-to-face negotiating with a savvy real estate investor who owns multiple properties.
A good agent will never let the commission block a sale. The good ones are creative and will take a fraction of what they have coming in order to close the sale. They’ll let you pay the balance later on, perhaps in monthly payments. My first agent, Merv, allowed me to pay 50% of his commission at closing and then agreed to take a promissory note for the balance, with monthly payments anywhere from $50 to $250, depending on my projected cash flow. At one point, I was paying monthly commissions of $1,250 to Merv. The arrangement helped me and Merv was very happy to have the steady monthly income plus 8% interest.A good agent can put you in contact with moneylenders, both private “hard money” guys and institutional lenders with programs that fit what you’re doing. Lenders shop real estate offices looking for qualified buyers among their clients. This is a valuable benefit to investors who are always in need of funds for upgrading and acquisitions. Naturally, you and your project must qualify in order to take advantage of this opportunity. Nonetheless, money is always the ammunition that keeps investors in the hunt.
No-No’s to Avoid If You Expect Loyalty
As you might guess, the benefits must flow both ways between the agent and investor. Here’s what you should not do if you want to develop a profitable relationship.
Don’t jump from agent to agent. Use your agent for all your transactions, unless the two of you have previously agreed upon special exceptions. Loyalty will move mountains.
Don’t try to squeeze the commissions. If you’re like me—that is, you negotiate commissions—do it before the agent goes to work, not after the deal is written up and in escrow.
Don’t send agents on “wild goose” chases. The veterans will dump you if you try, but don’t even do it to the inexperienced dummies. They will soon catch on and will have nothing more to do with you. I’ve heard so-called real estate experts tell novices to instruct their agents to draft up and present dozens of lowball shotgun offers to purchase properties from the multiple-listing book. Ask any respectable agent what he or she thinks of that advice. Take it from me: don’t waste your agent’s time with such nonsense.
Don’t make a ton of offers without ever closing anything. No agent can survive without paydays any more than you can. Take better aim so you’ll hit the target and close the deals.
Don’t deal directly with just any agent who calls you. Always refer them to your agent. Also, some sellers will insist on dealing directly with potential buyers and they don’t want to involve an agent. That’s fine, but tell your agent about the exception. Sometimes, I pay Fred a small fee, say $500 to $1,000, to help me do the legwork in the background. If you take good care of your agent, you’ll benefit in the long run, believe me.
Your Real Estate Agent Can Help You Build Wealth
Real estate agents are the eyes and ears of the real estate business. A sales commission is peanuts compared with the value of having a good agent working to help you achieve your financial goals. I’ve heard seminar instructors tell their participants, “It’s best to avoid agents whenever you can, to save commissions. Use them only for free appraisals and advice or to write up dozens of offers from the multiple-listing book for a mass mailing.” In general, the suggestion is to get free service, but avoid commissions. I must tell you, friend, this is poor advice. If you think it’s right, pretend you’re the agent for a moment. Would this treatment seem satisfactory to you?
Here’s the deal: try to find an agent who shows some interest in working with you. Take your time: you don’t have to choose the first one you meet. But when you find one that clicks, you’ll both likely know it. Clearly explain in detail what you will buy if the agent finds it for you. And remember: no agent can work for you very long without a payday
Read Fixer-Uppers part 8
Tags: Fixer-Uppers, real estate, real estate book
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