Working the Realtor System
There are two issues that involve realtors and investors. Should I become a Realtor or licensed? (and) How can I work with Realtors?
Working with Realtors:
Many investors think that real estate agents don’t have the best deals, or they have all been picked over by the time they actually hit the market. I believe that some of the sweetest deals are sitting on the market. We automatically think that Realtors or their clients will snatch up the best deals before they hit the market. It is true that some of the best deals do get snatched up before they hit the market, but ……there are many other deals left behind that no one sees. The reason that no one sees them is because they are looking for ‘traditional’ or what I call ‘retail’ homes, not ‘lease option’ homes. These are two very different markets. The retail market is what 90+% of the people and investors understand. The Lease Option market takes up a portion of the remaining 10% of the market.
I look to work with Realtors that understand the concept of lease options and can help their sellers understand lease options. This understanding can take time. Your job is to assist Realtors to understand lease options. I do this by using several techniques. First, I have a letter that I send to a listing agent explaining the concept, second, I have a presentation that I do for my local real estate offices, and third I network and continually tell Realtors what I do. I hear investors tell me all the time that Realtors just don’t understand or want to understand what they do. I can only say that patience and persistence pays off. Realtors aren’t trained in unique selling techniques, they are trained in the ‘Retail Market’ which is 90+% of what is out there. As investors, it is our job to continue to help those around us understand what we do so they know when to call us.
The type of home I am looking for through a Realtor is one that the seller:
1) Doesn’t need their equity out
2) Doesn’t have any equity in their home
When a Realtor hears a seller say, “If my home doesn’t sell soon I might have to RENT it!”, then the Realtor should think of you. (assuming you have continued to remind them of what you do)
All you need is 2-4 good listing Realtors. They work directly with the sellers and know which sellers are in trouble, which ones can rent, and which homes are vacant. Once a Realtor knows what you do and has a seller that can accept your terms – viola! You are the proud new owner of a lease option.
One of the most important things for anyone is that they get paid for what they do. Realtors are just like everyone else in this regard. When I am taking on an option, I am asking the seller to wait 2-3 years to get cashed out. I don’t want to make the Realtor wait that long. If I do, they won’t even tell the seller about what I can offer. Why should they? It might not do them any good. They are doing all the work now to get the deal done and want to get paid for it. So I give them the listing agent portion of the commission up front. This is my option fee and is applied to the purchase price when I get my mortgage or when I sell the home. The agent is therefore paid on what they do just as if they sold it conventionally to another buyer. However, if you are in a strong buyer’s market, you might want to consider giving them 1% at the start of the contract, and the remainder at the closing, or something where the payment is spread out. Be creative, but don’t loose your allies. When you sell the home you will be asking for 3-5% down from your tenant/buyer, therefore, you are still minimal or zero down/out-of-pocket. If you aren’t a licensed agent/broker and entitled to ½ of the commission, then let the Realtor “Double-Dip”. They can get the listing agent portion down upfront from you and the selling agent portion when the home closes in 2-3 years. They will wait for the second half if the first half is paid up front. The second half would just be a bonus that most agents wouldn’t expect anyway.
Becoming a Realtor:
Investors tend to be adamant one way or the other about being a licensed Realtor. I am on the side of being licensed. Being licensed has been one of the best tools that I have as an investor. Being licensed allows you access to your database of ‘comps’ or comparables. This is the data you need to buy and sell real estate. If you have a great Realtor and you don’t want to be licensed, fine, but I still think it is better to be licensed than not.
Some investors say it gives you more liability to be licensed. I have two answers to that:
1) What are you doing to create liability?
2) Don’t you think a judge is going to know you are an ‘expert’ anyway when they find that you do real estate investments?
Some investors say that sellers won’t sell to you if you are licensed. I find the opposite is true. Most sellers are happy that I am licensed and ‘know what I am doing’.
My recommendation is to GET LICENSED!!!
I disagree with you.
I took the r.e. cl***** and exam.
all we were taught was how to not get sued.
Then I went for the trainning with one of the big 3 companies in town.
We were then taught to get the listing at any cost., and then we went into great detail about how we would get paid, and how to get extra $$ by passing any good deal to brokers.
Sorry, I just had to comment.
Nothing personal.
Maybe I had just found a bad school, and 2 bad r.e.companies. ( maybe)
Good investing-
You are right that realtors are taught how to reducet their liability and their brokers. They are also only taught traditional ways of listing, selling and marketing. All true, but we as investors have a prime opportunity to 'educate' realtors on how to work with us. Investors and investment deals are a small portion of their business - if any. We, therefore, need to teach them when to call us. If you are the only investor teaching them when to call you - on their nice pretty homes.....hmmm...think about it......I get 95-98% of my deals directly from realtors. I call it "Getting Realtors Begging you to Buy their Listings"
Ms. Patton,
You say that most investors believe strongly one way are the other about becoming a licensed agent, and you'll correct. Personally, I believe that you have to look at your investment strategy, both buying and selling and decide for yourself IF being a RE agent would be a benefit or not. I do think that you're in the minority on your beliefs as I have personally met several investors that CHOOSE to give up their agent license because of the conflicts that it caused.
A more simple answer is that you can't both be a good agent and a good investor. One area will suffer for the other to benefit.
As you said, any decent agent can pull comps or listing for you. If you are a serious investor, most know it's not a waste of their time. As far as getting MLS access, there are other ways to do that without becoming an agent.
Your points on liability are flawed. Simply by becoming a RE agent you create more liability for yourself, whether you invest or not. A doubt that E&O insurance is "just for the heck of it." Add to that the fact that, by default, an agent works for the seller, and you've created a conflict. Even if you get past this, there are certain things that an agent must do (like give an opinion of FMV) that an investor doesn't.
A judge's OPINION of whether you know more than the other person cannot legally be used to rule against you. Whether you've done one or one hundred deals, you still must be considered a private seller. There is also few ways for the judge to know that you are a professional investor, unless you tell them or you visit them often, but that is another matter altogether.
As an agent you are a licensed professional, so anytime that you appear before the court, you will be held to a higher standard, whether right or wrong.
Roger Johnson
I'm intrigued by your comment "So I give them the listing agent portion of the commission up front. This is my option fee and is applied to the purchase price when I get my mortgage or when I sell the home."
What would be the seller's motivation to go along with this?
I gave up my real estate license many years ago when I figured out it kept me from doing what I really wanted to do and that was to be an investor and not an agent.
Having a license hindered me in the fact I had to make all those stupid disclosures warning people I might take advantage of them because I had a license to do so and that was ridiculous.
When I lost the use of the MLS I thought maybe I just cut my throat on finding deals and then I realized there are a lot of other sources and ways of finding deals out there. And of course with the advent of the Demographic Marking System, who needs the MLS.
Educate yourself absolutely!!! I recommend maybe even taking the courses to become an agent, just to get the basic knowledge…but you don’t have to take the state licensing exam to become an agent unless this is what you want. Your choice.
And why would anyone BUY on a lease option; you are not the owner and have no control until you have the deed in hand…Sell, maybe but BUY??? I don’t think so.
John (LV)
Wendy Patton,
For a monthly fee, everyone can get an access to dataquick.com which allow syou information far more superior in scope and quality then any local MLS. I am in fact speaking for Los Angeles aria MLS's which still uses poorly design navigation and retarded technology so take MLS away from me and I'll be fine. As far as added creditability, I would agree with you if not so many zoo-man did become RE agents in the past few years, further devaluating profession. The most important part of being in REI business is time invested in finding deals. It's a game of numbers before anything else.
Tank you for posting this nice article !
I think that the industry as a whole is being more creative. I am licensed. I do disclose. I am not afraid of being sued by a seller. When we buy properties their is some reason for use being there. Sure it maybe under market value. Sure we will let them know.
Being licensed has not hindered me one bit. It does have credibility of what I am doing. As far as serving two masters?
I buy not list.
Wendy,
do u put all these deals thru your office or r u a broker/owner or do u just have the listing office/agent/seller give you credit for your brokerage
Couple of questions/examples on realtor's commissions:
Example 1) I'm marketing an UNlisted property to buyer's agents. If they double as listing agents, I realize that they are less than enthusiastic about me, since I bucked the system and didn't hire an agent to sell my property.
That said, will the buyer's agent be entitled to the full 6%, since they are the only agent involved? If they respond to a 'rent to own' sign, but have a ready buyer, they only get 3%, right?
Example 2) If I'm NOT licensed... I'm given a 'heads up' by a realtor, regarding a seller that may resort to renting. If I purchase the property outright, that agent is entited to 3 or 6%? Because I have no buyer agent, they would typically get 3%, right? (This is the part that confuses me.)
Now, let's say that I'm going to assume the home through a lease option. I'm only collecting 3-4% from my tenant/buyer. Cash is tight & I need to cover my own behind with their option fee.
This is a property that has a stressed out seller that is about to resort to renting their home. If that happens, the agent would get nothing, right? Can I offer 1% upfront, agreeing that the remaining 2%, as well as a 3% selling commission, be paid on the back end of the transaction?
In your courses, you advocate paying the agent upfont. I know that my example above is not as attractive as their typical scenario but, wouldn't that beat losing the commission entirely?
If I could cover the 3% upfront, I would. I'm just trying to figure out a creative way to maximize opportunities with no-equity homes.
Thanks for the advice. And, guys, Wendy's coursework/material is great. I've been 'fine tuning' different aspects/approaches & am beginning to analyze the realtor market. My partner & I purchased her 'Unlocking the Secrets of Lease Options' package. It absolutely put the 'details' of the transaction into place for me. No fluff, live calls and Q & A. Worth every penny.
I hesitated at first to post a comment here because of my lack of experience, but felt compelled to do so because of my lack of restraint.
I posted a couple of times when I first discovered this site asking whether it was a good idea to become a realtor or not and frankly, received no replies from any of you. I then sent private messages to a few people here and got answers. These led to a few personal phone calls. In most cases, of course, these people were trying to sell their REI courses, but there were a couple of people who gave me some excellent feedback.
The long and short of it: I chose to get a license. I am not afraid of lawsuits or disclosures because I am not in the habit of trying to rip people off. I feel that as long as I perform whatever I do with integrity and simple courtesy, I have nothing to fear.
I have a used car dealership back in NY (I am now in WA) and have operated that way for years. As a result, I am now pretty much impossible to compete with in my particular market in that area. I do "buy here, pay here" and as many of you may know, those types of car lots don't exactly deal with the cream of society. As a result, we are often visited by our local Dept. of Motor Vehicles Inspector regarding customer complaints. Sometimes we lose because of paperwork gliches, but seldom because of our having taken advantage of people.
I now hold myself accountable to the same standard regarding the RE industry and personal investing. The result is that I feel no fear of reprisal. If you are entering a deal with an attitude of fear, perhaps it is time to investigate why. Try a little introspection.
Just my two cents(or three, or four...)
Jeff