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4 Reasons You Shouldn’t Blindly Take Advice from a Realtor

by Sharon Vornholt on July 22, 2014 · 17 comments

  
Don't Take Advice From Realtors

Don’t be fooled by the title.

Let me start out by saying I love working with Realtors in my business; that is certain Realtors.  What do I mean by that?   I like working with those agents that have also done some investing themselves.

Before you take advice from a Realtor in your investing business, you should know that all Realtors are not created equally. Like folks in any other profession, some are better than others.  When it comes to working with seasoned real estate investors, I have found that the great majority of them have no real understanding of what we do and why we make those annoying low offers.

The 4 Reasons to Use Caution When Taking Advice From a Realtor

Here are 4 reasons to use caution before you take any advice from a Realtor when buying investment property.

1. Most of Them Only Have “One Hat”

In most states, there are strict laws about what Realtors can and cannot do.

They have to attend some type of training then take (and pass) a test.  They learn about the law and how they must conduct themselves in the course of doing business.

It’s all laid out for them; their method of doing business.  Then along comes a real estate investor and asks them to do things they have never been schooled on.  What is likely to happen is that they will “fly by the seat of their pants” and you will pay the price later down the road.

Related: The Real Estate Agent’s Ultimate Guide to Working with Investors

2. You are Likely to Pay Too Much for Your First Few Properties if Your Agent isn’t Also an Investor Themselves.

This is an important point of distinction.

A Realtor that is not also an investor probably has no clue how to put together an offer based on the formulas we need to use.  They don’t know what a good deal even looks like (for us).  It’s not their fault. They weren’t trained to do this.

I will take this one step further.  In most cases that low-ball offer you need to make will be something they really won’t want to do.   I have actually had agents tell me they weren’t wasting the listing agent’s time by presenting a lowball offer.  I’m pretty sure they are obligated to present every offer.  This is a sure sign you don’t have the right agent.

They might have the best of intentions, but they simply lack the knowledge they need to give us good advice in our business.  When you are a new real estate investor, you simply assume they have the skills and knowledge to help you which is almost always a mistake.

3. Just Because They Belong to Your Local REIA, Doesn’t Mean They Are Qualified to Advise You!

Don’t assume they know what they are doing just because they are a regular at your local REIA. This was a big “Ah ha moment” for me when I finally figured this out.

When I was just starting out, I became friends with another woman who was a licensed Realtor and a member of my local REIA.  I was aware that she was fairly new in the business, but I assumed (incorrectly) that she has certain knowledge and skills that she simply didn’t have. After all, she was at every REIA meeting networking with other investors that were doing deals.  She spoke the language of real estate investors.

Our combined inexperience really cost me down the line. I paid too much for my first couple of houses she found for me.  Being a complete newbie, I didn’t know what “I didn’t know”.  Sure the houses were cheaper than retail, but it was a while before I realized I had made a big mistake the day I signed on the dotted line.

 4. Don’t Assume They Are Qualified To Advise You On Good Neighborhoods

Your Realtor isn’t going to have “any skin” in your investing business.  It won’t be coming out of their pocket if you make a bad decision and lose money on a deal.  In the end, these decisions are all up to you.

However it’s vital that your Realtor be knowledgeable about the demographics of the specific neighborhoods you look at when you are just getting started.  After all, that’s why you have them on your team.

They should be able to answer some simple questions about the area such as:

  • If I buy in this area, is it likely that my property will continue to grow in value?  Has it show a slow and steady growth pattern over time?
  • Is this an area that is clearly declining in value?
  • Is this near a war zone or something else that would negatively affect the value of this property now or down the road?

If you have the right Realtor, they will be able to tell you that a particular area is mostly rental property or it is mostly homeowners.

They will be quick to point out that an area has a high crime rate or that the schools are just “so-so”.  All of these factors will have an effect on your property values, and in some cases the types of tenants you ultimately attract.

Related: Make Agents Your Seller Financing Allies

Final Thoughts

Choosing the right team members is a critical piece of the puzzle when you have a business.  So there you have it; 4 reasons to carefully choose a Realtor to work with in your business.

Weigh in; do you have anything to add?  What has been your experience when working with Realtors?

 Be sure to leave your comments below!

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{ 17 comments… read them below or add one }

mark ferguson July 22, 2014 at 12:42 pm

Hi Sharon, I agree with most of your points. I am a Realtor and most agents have no idea about investors needs or what works for them. I think many investors don’t know their own needs or what works for them. I have investors who want 60% of value and others who will pay close to full value. It is tough for an agent to tell an investor what a good deal is unless an investor is very specific on what they want and what they want to pay.

On your last point, I can’t legally do what you are suggesting an agent should do. We are under very strict laws about redlining or steering. I can’t say a neighborhood is good or bad, because that is based on my views. It may be good for some and bad for others. I can’t say there is high crime here, because that is again my opinion. I could give a fact like the crime rate is “2.9%” and it is up to the buyer to decide if that is high or low. I cannot say this is in a warzone either. Same for schools. If I were to say any of these things it would be a violation and I could be fined or even have my license taken away.

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Sharon Vornholt July 22, 2014 at 5:28 pm

Hey Mark –

I appreciate your input. I probably should have phrased that last part differently.

Investors should ask specific questions that Realtors are able to answer (legally). I have always said Realtors are your friend in this business; they know the areas, the home values and so much more. Together you can make money, and they can often help prevent an investor from making costly mistakes. I just think you need to find the right Realtor.

I completely understand why they think most investors are a pain in the butt, and I agree that they should interview investors before they waste their time with them. There are a lot of investors especially new ones that will never buy a house no matter how good the agent is. Thanks again.

Sharon

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Ken Bryant July 22, 2014 at 12:56 pm

Sharon I agree with your theory. A good realtor can be a great asset to the business of a RE investor. I am a real estate broker. I partner with a team of investors. First let me say, any serious RE investor should have a realtor on their team.
Regarding the quality of the realtor… As a general rule, I believe all realtors want to do a good job for their client. As an investor you should find the realtor that fits your needs. A good realtor will interview you as well. They will want to know what you are looking for in your property search, I.E. Any particular areas of interest, is your strategy to buy and flip, buy to hold etc. There are areas you would buy and flip, but would not buy and hold.
Finally, an investor agent should know that your will be submitting a lot of offers that will not get accepted. Some offer may be totally ignored by the listing agent. That is part of the business for a investor agent. To me that is one of the biggest differences. An agent that is not fully aware of what your are doing will get frustrated with the nature of an investor offer.

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Sharon Vornholt July 22, 2014 at 5:33 pm

Ken –

I agree completely. It’s a two way street and no one wins if everyone is not on the same page. I think the problem is in many cases especially with new investors, they don’t know what they don’t know. The same is true of agents that aren’t used to working with investors.There is a learning curve on both ends.

I was lucky along the way that I aligned myself (eventually) with the right agents. We were able to educate each other so we were both better at holding up our end of the deal. I am truly grateful for all the agents that were there to support me and help me learn when I was new. Thanks for your comments.

Sharon

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dorothy smith July 22, 2014 at 6:00 pm

We trusted a realtor once, that was quite the wealthy investor. He was a realtor and an investor that owned land, single fam homes and then moved on to huge apartment complexes. He told us that he would help us find properties, and he was able to purchase his properties by going to the bank for funding. We found out later that the properties we were bringing to his attention as good deals, he was offering them to his investors and purchasing the properties himself. We were too new and trusting to know that this could easily happen. After all he was our realtor and he told us he was going to help us make money. The realtor even knew some of my partners friends!!! We thought we had a special connection. We were his free bird dogs as long as we wanted to be. Not all are like this realtor, but of course IM sure he is still doing quite well without us. We are working with a realtor now, that is also an investor. We are hoping we are not his free bird dogs for awhile, and hope he doesnt just snatch up all the deals, that we bring to his attention. Just be careful somehow.

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Sharon Vornholt July 23, 2014 at 6:37 am

Dorothy –

You should not be finding deals for a Realtor; it should be the other way around in that relationship.

When you find a deal yourself, you keep it for yourself. There is no Realtor involved. I think there must have been some confusion there.

Sharon

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Jonna Weber July 23, 2014 at 7:23 am

Thanks Sharon! I’ll also add that it is important to communicate with your agent what your end goal is for the property. A good property to flip can have very different criteria than a buy and hold. Be extra scrupulous in your purchase and securing strong current comps if you intend to flip.

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Sharon Vornholt July 23, 2014 at 3:39 pm

Jonna –

That is so true. A good property for a landlord might be totally different than one for a flip. Your exit strategy is really important. Thanks for your comments.

Sharon

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Rachel July 23, 2014 at 10:13 pm

Great tips, Sharon!

Most folks I know who are successful working with real estate agents already know what they want. Usually, they have a set criteria for neighborhoods, type of property, etc. Those who are not so successful do not seem to know what they want – they ask the real estate agent to bring them a “good deal.”

Unfortunately, it is not the agent’s job to analyze a deal – it’s the investor’s job. The real estate agent will bring opportunities and leads based on the criteria given. Though, that’s about it. They are not investors. Too many people think they are which causes misunderstandings ultimately ending in frustration.

I enjoy the “humor” you add to your posts. So many experiences here to relate, thanks for sharing! :)

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Sharon Vornholt July 24, 2014 at 8:44 am

Hey Rachel –

Experienced investors learn how to work with agents so that it is a “win-win” for both of them. I think it’s the new investor that has most of the problems. That certainly was the case with me when I was new, and the agent was also new. Double trouble so to speak..

Sharon

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Jeff Sielicky July 24, 2014 at 7:56 pm

All Realtors are real estate agents or brokers but not all real estate agents and brokers are Realtors. Surprised no agents are mentioning that designation. There is suppose to be a code of ethics when you are a designated Realtor that other agents aren’t held to. At least that was how it used to be. In other words calling all agents Realtors is technically incorrect IMO but everyone knows what you mean.

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Sharon Vornholt July 25, 2014 at 8:15 am

Thanks for the clarification Jeff. I’m sure not everyone knows that.

Sharon

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Shaun July 27, 2014 at 12:58 pm

Yes NAR does have a code that all of their members are supposed to follow that is not necessarily what a non-Realtor agent has to follow.

That being said there will be responsibilities under that law and generally a code of ethics your sate and/or local real estate commissions/boards will have as well.
Also like anything else a Realtor can ignore these codes and a non-Realtor can personally hold themselves to standards above anything that is codified any place.

In my general opinion the major difference between a Realtor and non-Realtor agent is that the Realtor pays NAR money and can use the big “R” in their marketing.
(Disclaimer: I am a non-Realtor licensed agent)

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Michael July 27, 2014 at 9:06 am

Great points Sharon. There is nothing worse than when you get an ARV from a Realtor but you find out way to late when you go to sell it they were way off. So important to have good realtors on your side
And to Marks point he is correct a lot of investors don’t really know what they want and just ask for “good deals”. This is why you have to educate yourself to be a great investor to be able to work with great realtors.
Great Post!!!

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Sharon Vornholt July 27, 2014 at 2:15 pm

Michael –

It is definitely a two way street. It can be a great relationship for everyone when it works. I have always worked with agents in my businesses. Thanks for your comments.

Sharon

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Shaun July 27, 2014 at 1:10 pm

Lot so great points Sharon.
The biggest thing people should realize is that you learn NOTHING about how to actually evaluate a property (even at retail) or anything about the physical properties of a house to become an agent.

So your agent might have no idea how to run comps at all, forget about trying to figure out an ARV for a flip based on some future condition.

They also do not have any knowledge about the condition of anything or how to determine what repairs might be needed (This is an assumption I see sometimes assuming they pick up this knowledge over time, maybe they do to some extent but don’t assume that!).

If you are going to buy a rental there is no training on how to evaluate the merits of a cash flow property. I think you get more cash flow = rent – PITI than you get from newbie investors.

Also don’t assume they have any idea what market rents are unless they do rentals regularly, and at that only if they work that neighborhood a lot. If not they will have less idea than they do for ARV as noted above. At least for an ARV most houses for SALE are actually on the MLS so they just have to have some common sense but most places for rent are not on MLS is most markets I have seen so they need that intimate knowledge of actually working it.

All that being said I think agents can bring you a lot of value and are an important part of your REI team. Just temper your expectations on what they are inherently capable of just because they passed a test on subject matter totally unrelated to what you are doing. :)

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Sharon Vornholt July 27, 2014 at 2:23 pm

Shaun – I agree completely.

The main point I was making here was my inexperience led me to assume my agent knew certain things (which she didn’t.know) and hadn’t been trained to do. That was entirely my fault. Heck – neither one of us had any idea about the gaps in our knowledge. We were both newbies.

I think as investors, we first need to learn how to do these things ourselves. Then when we get an agent on our team we can communicate clearly what we are looking for in a property. We can help them help us. Thanks for your comments.

Sharon

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