Obviously, real estate agents find buyers and sellers all the time, after all, that’s the only way they make a living. But can they help real estate investors who have a different mindset about buying and selling? Surprisingly, the answer is not a simple “Yes” because a better answer is actually “Possibly.”
Let’s first look at the differences between real estate investors and real estate agents: state-licensed professionals who must maintain high ethical standards but not always, take continuing education courses, are or should be trained in sales, spend money to advertise, and maintain an office; but in the final analysis they have no direct money invested in the properties they sell. They benefit most by getting the highest possible price for a property for which they receive a higher commission. They earn a modest living in most cases if the market helps them.
Investors, on the other hand, have some similarities but not many. Investors only need a driver’s license to do business, must maintain high ethical standards but not always, take continuing education courses because they want to, are generally not sales trained since they are buyers, have overhead and expenses, but don’t they have to maintain an office and ultimately bear the risk and burden of owning property for profit. Investors must pay the lowest possible price for a property to make a profit, they are not guaranteed a commission like a real estate agent gets on a sale. The only guarantee for an investor is a learning experience, good, bad or ugly. Investors can make a lot of money even in the worst market conditions.
Having set the stage for the differences between investors and real estate agents, let’s look at specific examples of properties where investors are generally involved:
1. Bank-Owned Properties (REOs): Banks want a real estate agent to list these properties and handle the resulting investor inquiries and offers. Agents have a field day with new listings while investors who are rehabbers or newbies swarm to get these deals and bid against themselves in a mad frenzy. WARNING: If you use a buyer’s agent to make offers on REO, it is highly unlikely that you will get the offers. Simply put, the listing agent will not split the seller’s commission. This may offend buyers’ agents, “but even stipulating that you won’t get the buyer’s commission on the seller’s side doesn’t work most of the time.” Do yourself and your investor clients a favor and don’t bid on them. Have the investor pay you a buyer’s fee on the HUD-1 Statement. I suggest you only tell the closing agent after the seller (Bank Asset Manager) has signed a contract. Also, the last listed price on MLS becomes a glass ceiling for the investor if they want to wholesale it, so don’t think you can relist it unless you make substantial repairs to it.
2. What about a property listed on the MLS in general? If you’ve been listed in MLS for more than five days, you become “price tainted” as the days on market (“DOM”) get bigger and bigger. Ultimately, it’s only for a retail buyer to buy it with conventional financing, not what your investor has in mind unless you bought it substantially lower. If the property has a price reduction it can be a buying opportunity, if the seller is really motivated. However, as always, any real estate agent can also view this update and engage with a retail buyer. As a real estate agent, you are better off becoming an investor or partnering with an investor to earn more money on deals that are “pocket listings” or direct sales contracts with motivated sellers. Personally, I think pocket listings are unethical because the seller could probably fetch a higher price on the open market, and in some states, they are a third degree felony for the buyer and realtor.
3. When it comes to real estate agents looking for buyers for investor properties, there’s no question that the MLS is the place for many retail buyers to find their dream home. As investors who sell wholesale properties, the benefit of the MLS is exposure to other investors who are looking for bargains. Usually these are newbies who believe what a real estate agent has told them about finding deals there. Frustration for the real estate agent arises when the investor doesn’t believe it’s a deal and doesn’t buy it. Worse still is when it is not a deal and the investor buys it just to find out how much money can be lost in a single deal. If it’s such a deal, “Why don’t real estate agents buy them?”, basically because they don’t have the money (they’re not successful enough or don’t understand doing “no money” deals) or they won’t. take market risk: both are opposite to investor thinking.
You may have had the idea that I am against real estate agents, but that is not true at all. Some of my best friends are real estate agents because they are also investors. It is best for any investor to spend some time before engaging with a real estate agent so that both parties understand how they will operate and what is expected of both parties. If the real estate agent “gets it” he won’t want to search for listed properties for the investor, if the investor “gets it” he will realize that the real estate agent doesn’t have any special skills that he doesn’t have and that the real estate agent is at a disadvantage because of his license. .
These comments and analysis represent my opinions only and are based solely on 34 years of investment experience and working with hundreds of realtors®. In general, real estate agents are hard-working people but disrespected because their commissions are fully disclosed to the buyer/seller. Few other industries have this burden to answer with the salesperson’s question of “What am I paying for?” Realtors® have the ability to become great investors, but the few that do usually abandon their licenses due to unrealistic legal restrictions. This is not a reflection of the opinions of other investors.