REISkill - When Buying With Agents - Realtors

Real Estate Agents

Before we talk about working with real estate agents, let's first define what the difference is between being a Realtor®, and just being a regular real estate agent.  

A Real Estate Agent vs. A Realtor®

Most people think that if you have a real estate license that you are automatically a Realtor®. However, simply having a real estate license does not give a person the right to use the "Realtor®" trademark. To be a Realtor®, the agent must sign up as a member with the National Association of Realtors® and pay membership dues.  

In today's world, most people use the term Realtor® when referring to real estate agents without any regard to whether or not the agent is actually a member of the Association of Realtors®.  

A Buyer's Broker vs. A Seller's Broker

When dealing with real estate agents, it is also important to understand who is working for whom.

Most of the time, you will be dealing with a "Seller's Broker" or what we commonly refer to as the "Listing Agent". This is an agent who is representing the seller's interests such as in the case where an agent is listing a property for a bank. Because the agent represents the seller, you won't always be able to get any personal guidance you might need. Nor will the agent be able to assist you in determining how much you should offer.  

A "Buyer's Broker" is an agent who represents the buyer and is assisting the buyer in purchasing the property. For instance, this would be an agent who is providing you listings to look at and is assisting you in submitting your offers to the seller's agent. This agent is commonly referred to as the "Selling Agent" because they are the agent wh9 is creating the sale.

There is a third type of agency relationship called a "Transaction Broker". This type of agent does not represent the seller or the buyer, but rather is there simply to handle the transaction. This type of agency relationship has become more and more popular because it limits the liability for the agent and also allows the agent to deal more evenly with all the parties involved in the sale.  

Understanding Brokerage Commissions

A brokerage commission is the fee the agents charge to sell a property. This brokerage fee is usually calculated as a percentage of the sales price which is normally around six percent or so. The fee is usually paid by the seller at closing out of the seller's proceeds from the sale.

Real estate commissions normally get split about 50/50 between the selling agent and the listing agent. These agents then must split their half of the commission with their head broker they work under. If a listing agent is also the selling agent they will not have to split their commission with another agent, but must still split the commission with their head broker.  

The Commission Splits Can Affect Your Offers

As a real estate investor, when you make offers it is important to consider how the agents split their commissions. For instance, let's assume you are making an offer on a property that is listed. Rather than making the offer through the listing agent, you have your Buyer's Broker submit the offer. Under such an offer, the seller's agent would have to split their commission with your Buyer's Broker.  

Now, let's say this is a very good deal that just went on the market and there is another offer coming in at the same time for the same amount and the same terms.  

However, because the offer is being submitted directly to the listing agent (with no buyer's agent involved), the listing agent would not have to split their commission. It is obvious that the listing agent would want the other offer to get accepted because the agent would make more money than if your offer got accepted.  

Even though the listing agent is supposed to submit both offers to the seller at the same time, that agent is going to try and find anything they can to make your offer look bad and the other offer look good. This could be as simple as telling the seller that they recommend the other offer because the buyer is more reputable. Is this fair? Of course not, but it happens every day. It all comes down to money and the listing agent wants to make as much as they can.  

The point is, as an investor you want to submit your offers directly to the listing agent . and never have a Buyer's Agent in the middle if you can avoid it. The listing agent won't have to split their commission check and you have a better chance of getting your offer accepted.  

If you are a real estate agent yourself, you'll never want to touch the commission. You'll want to let the other agent know that even though you are licensed yourself, you won't be collecting any of the commission on any of the deals they send you. This way, the agent will keep you at the top of their buyers list and won't be afraid to call you because they think you may take part of their commission.  

You'll also never want to try and negotiate with an agent for a discounted commission for the same reason. The commission is small dollars compared to the actual deal and you always want to make sure that agent never has a reason not to call you with a deal.  

What Is The MLS

Real Estate agents have what is usually called a "Multiple Listing Service" which is commonly referred to as the MLS. This MLS service is normally controlled in one way or another by the local Realtor® Association and is only accessible by Realtors®.  

The MLS is basically a database of property listings. Each listing contains various information about a property that is for sale. Such information would include the properties address, number of bedrooms, square footage, amenities, and so on, along with the listing agent's contact information.

What is great about most MLS services is that it can be searched using various parameters. For instance, as an investor you might be interested in a search for vacant properties listed at a low price in an area you know other investors tend to buy in.  

Identifying The Right Real Estate Agents

Because you want to make your offers directly to the listing agent, you must know how to find the agents that are listing the deals you want to make offers on. You'll also want to have an agent who has access to the MLS and is willing to work with you to find deals.

 

Most professional real estate investors actually deal with several agents at one time. Some of the agents they deal with specialize in listing bank properties, while another agent may constantly monitor the MLS for listings that meet the investor's criteria. As a beginner, you too will want to deal with several agents at once; therefore, you must understand how to work with each of them properly.  

Agents Who Deal In Bank Foreclosures

There are real estate agents who only list bank owned properties and it's important for you to know all those agents. The best way to figure out which agents deal solely in bank properties is to get a list of properties off the MLS that have the words "bank owned" somewhere in the listing. If an agent has more than one bank property listed on the MLS, this is a clear indication that they may have a regular inventory corning in. In any case, you'll want to stay in constant contact with all the agents that have the bank listings. Usually, the agent's contact information is on the MLS printout. If it is not, you can visit the property and get the contact information off of the sign, if there is one.  

Once you get on their good side, many of these agents will even tell you of upcoming listings. You will want to look at these listing before the agent has a price. As soon as the agent has a price, you can immediately make the bank an offer. Because many agents let their best investors know about upcoming listings in advance, many of these properties sell within a matter of days.  

Agent's Farm Areas

You'll also want to keep an eye out for real estate agents who deal primarily in the neighborhoods in which you plan to buy properties. These neighborhoods are what agents refer to as their "farm area".

A "farm area" simply means the area in which the agent works in. By working within certain neighborhoods, the real estate agent can better know the property values, schools, shopping centers and so on, which gives them an edge over other real estate agents in the area. Therefore, you'll want to identify and work with the agents who "farm" the neighborhoods in which you plan to invest in.  

Things To Say When Talking To Agents

When you locate an agent and talk to them for the first time, there are certain things they like to hear.

First, let them know that you will put up a reasonable earnest money deposit. If you have a cash partner or have access to hard money, let the agent know that you have access to money, that your offers will have no contingencies, and that you can close quickly.  

If you have already bought a property through another agent, let the current agent you . are talking to know that you have another agent as a reference.

Things Not To Say When Talking To Agents

Of course, there are also things many real estate agents don't like to hear as well.  

Calling Yourself A Real Estate Investor

First, it's not always a good idea to tell a real estate agent that you are a real estate investor. Some agents do not like investors and there are several reasons why. One reason could be that they have been burned by an investor who said they could pay all cash and then didn't close on a deal. Also, real estate agents hear people say that they are a real estate investor all the time. Therefore, it may be to your advantage to simply say you are looking to buy some investment property and not refer to yourself specifically as a real estate investor.  

Never tell a real estate agent that you are trying to buy real estate using no down payment. Most agents do not know or understand the creative techniques used by most investors and have been conditioned to do real estate transactions a certain way. So, if an agent feels you are trying to do something "off the wall", they'll think it won't work. Agents are looking for people who can close deals and get things done. So you don't want to look like a seminar graduate who cannot close.  

Saying You Have Cash

It is not necessarily a good idea to tell real estate agents you are a cash buyer unless y ou have cash in the bank to back it up. It is better to let them know you have cash partners. That way the cash liability shifts to someone else.  

If the agent asks you how much money you have to invest, tell them that you have partners with cash and it really depends on the actual deal. Rather than telling them how much money you have (or have access to), tell them a certain price range you are looking to invest in.  

Offering A Note As Payment For The Commission

You should also not be asking real estate agents to take part of their commission as a note. As a real estate investor you will probably never hear of (or even meet) an agent who has taken back their commission in a note. Agents just don't want to be bothered with such an offer. So, if you've heard of this technique somewhere, don't try it.  

Questions To Ask

Here are a few questions you should ask when talking to a real estate agent:

1. "How often do you get bank property listings?"

2. "What areas do you usually list properties in?"

3. "How often do you deal with investment buyers?"

4. "Do you have any listings which might be a good deal that I could look at?"