Is it a must to sign a contract with a realtor ?
Rental Property Investor · norfolk va · Member since 2018 · 26 posts · 10 votes
Is it a must to sign a contract with a realtor ?
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Jeff CopelandBusiness Member
Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votesMany real estate agents are taught to "never show properties to a prospective buyer without 1) a preapproval letter or proof of funds showing the buyer is qualified to purchase a property in this price range, an 2) an exclusive buyer's agency agreement that ensures the buyer won't go around you and cost you your commission". In some cases, the agreement may even be required by their broker.
The reasons for this are pretty obvious if you think about it.
1) As an agent, you cannot and should not take any schmuck off the street into peoples' homes. (If you were selling your primary residence, would you want agents bringing unqualified buyers on tours of your master bedroom when you're not home?), and
2) Agents only get paid after the sale. So they won't stay in business very long if they show every buyer that walks in 20 homes, and then the buyer goes around them and buys the home directly via the listing agent, with a different buyer's agent, or without representation.
So don't be scared off by an agent asking for an exclusive buyer's agency agreement, and never say never. There are very sound business reasons for them asking for it, and you don't want to walk away from a potentially great real estate agent over this relatively simple matter.
When they ask for one, why not just explain "I completely understand why you need this, but I'm not willing to commit to anything long term until we've done a few deals and know each other a little better. Why don't we make the agreement good for [anywhere from 10 to 90 days] and renewable? That way, you're protected on any properties you show us this week, but we're not committed to anything long term if either of us decides to go in a different direction."
Needless to say, this requires you to work with one buyer's agent (per market) at a time. But there really is no need to do otherwise.
Win-Win. Problem solved.
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80 Replies
- Rental Property Investor · norfolk va · Member since 2018 · 26 posts · 10 votes8y
Originally posted by @Dennis Tierney:
I have been primarily a buyer over the years and have never signed a buyer's agreement with an agent. They are more likely to bring you a property if they get both sides of a deal and don't have to split the comission. The only time I've signed an agrement is as a seller.
Thank you!
Consider getting your RE license if you are going to be doing a lot of investing. It may be worth the time and expense. That way you can let yourself in and out of properties at your convenience and have full MLS access.
- Lender · Newark, NJ · Member since 2016 · 695 posts · 252 votes8y
It is not necessary, don't sign the contract. If a realtor tries to trick you into signing then find another realtor as they are not doing what is best for you. Best of luck.
- Real Estate Broker · Hugo, MN · Member since 2016 · 688 posts · 596 votes8y@Lakeisha Baker let me ask you, as a Multifamily realtor, if I have 10 clients that are under contract and then I have one that isn’t who do you think will see my best deals first? I know that all kind of gurus say to have 5 different realtors, but you will be better off if you use one good one and if you get a deal out of a group of five, most likely you missed out on a better deal since you were only getting the scraps that no one else wanted. Ask for a short term contrat to start, then extend If thIngs work well.
- 8yStephanie MedellinBusiness MemberMortgage Broker · CA · Member since 2014 · 1k+ posts · 644 votes
Originally posted by @Lakeisha Baker:
Originally posted by @Colleen F.:
You can always call the listing realtor to show properties. You don't need to sign an agreement for a long time like 6 months. You can sign for a shorter length of time and you can exclude deals you find yourself offline.
Thank you, I was wondering if I did sign a contract with a realtor and I found a deal off market would the realtor I’m on contract with get a commission?
Yes, this is precisely why many Realtors want an exclusive contract. If they dedicate their time to someone over several months, they don't want that person to turn around and buy something without them because they are not paid at all for that time they spent.
Stephanie Medellin, Loan Factory58 Reviews - Realtor · Charleston, SC · Member since 2018 · 84 posts · 51 votes8y
To me it's a personal decision. I have some folks who never want to sign anything, and that's fine, they are more than welcome to find deals on their own and handle their own transactions. Some seasoned folks out there who've been through the ringer a few times and are educated will not mind doing this. Others require more personal service and will be good candidates to use a Realtor. I never ask a potential client to sign an agency agreement until we've met in person at least once. I am interviewing you and vice versa. I certainly don't want to work with folks who are going to be a waste of time, too difficult, or have unreasonable expectations (like offering a dollar on every property on the MLS). If you're not a good client, I'm honest and open and will let you know I don't think it's a good fit.
Don't look at it as a confrontation, we are not here to pigeon hole you into a contract so that you're stuck with us and you are limited with options. There are agents who still use those tactics in my market, but most agents will let you walk away scott free if it's not a good fit, if they try to have you penalized in some way by leaving them, then it's probably not going to be a good fit for you anyways.
Ask your potential Realtor what they policy to walk away from agency is. Some like me will say, put it in an email (writing) and nothing else needed, and some will say if you buy a home within six months that they're entitlied to the commission. Make sure you get this explained before signing.
As far as the value of a Realtor, find one that's a market expert on the type homes you're personally interested in researching. If your looking for REI homes, make sure you don't find a newbie without any REI experience.
- Ann Arbor, MI · Member since 2014 · 1k+ posts · 997 votes8y
@Lakeisha Baker if the realtor is new, they will want you to sign something. If realtor is experienced, they won't.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes8y
Originally posted by @Lakeisha Baker:
I don’t want to sign a contract with one realtor because I’m not quite sure how the relationship will work. I don’t want to be roped into a situation where I need to see a property right away and they may not be available or they don’t understand why I’m not paying full price for a property. I would like to try out different realtors and make sure they will be a right fit for me. Is it necessary that I sign a contract to use a realtor?Depends on what you are looking for. Lot of variable here. Let's break things down.
- The real estate industry is a very high income business for the ultra talented & successful agents. Making six or even seven figures is not unheard of.
- Very few agents are ultra talented & successful. There is a 90% turnover rate in this business. This means that 9 out of every 10 agents you work with or talk to is not good or talented enough to last in this business. 9 out of 10 agents will never have an income that sniffs six or seven figures.
- Ultra talented & successful agents know that working with buyers is a low dollar activity. Working with sellers is much more profitable. Obviously the more talented an agent is the more money they make so naturally their business will gravitate towards working with the more profitable sellers and you as a buyer become less valuable to them. Note that the ultra successful agents won't even work with a buyer in a traditional buyer's agent capacity.
- Real estate investors are just as high turnover if not higher than real estate agents. 9 out of every 10 agents will fail. I'd estimate that more than 9 out of 10 prospective investors won't actually purchase an investment property in the 1st 60 days of looking at that 1st property.
So with the above in mind what do you want from the experience? If you are looking to keep your options open & your primary purpose of hiring an agent is to be let in the door of a house you want to buy as quickly as possible then keeping your options open seems like a fine idea. Just remember the type of talent you will attract. The only agents who would show up to work with a client like this have nothing going on. You've got a 1 in 10 shot that the agent is pretty savvy but just getting started. So you'll get semi decent service until the agent's business matures to the point that they want more money. They'll be making mistakes and learning the business while doing your deals so you'll need to keep a close eye on what is going on. You've also got a 9 out of 10 shot that the agent is wholly unqualified, terrible at their job & will be out of the industry in 12 months or less. Some investors don't need talent they just need a warm body to open the door so plowing through inadequate agent after agent is fine for them. None of the above is going to be an issue.
If you are expecting a higher level of service you'll need to not only think about how working with the agent can benefit you but how working with you can you benefit the agent. Just like you, agents are business people looking to make money. Nobody is selling real estate to investors for the good conversation. It's about the money, plain & simple. Highly talented agents are just like any other highly talented professional. High powered attorney's don't work with just anyone. Same thing here. A highly qualified agent can pick & choose who they work with. Highly qualified agents turn down much more business than they accept.
So you being a new investor we already know that you, just like a new agent have a high failure rate. You've got more than a 90% chance of being a waste of time for this agent who turns down low income business in exchange for high income business most of the time so you're in an uphill battle. If you'd like to get the benefits of the highly talented agent's service you'll need to make them see the benefits of working with you. You'll need to make them see that you are a path to income. Signing an exclusive agreement is one way to do that.
- Realtor · Medford, OR · Member since 2016 · 26 posts · 14 votes8y@Lakeisha Baker I’m a Realtor and make some buyers sign a contract. I also put in the contract they can fire at any time up ubtIl we are in escrow. I have too much specialized knowledge, propierarty processes and tech I’ve created to not have a client 100% committed to me. I also realize the client deserves a similar level of commitment, which is why they can fire me at any time. It’s not wrong for an agent to ask for exclusivity. They just need to be able to justify it.
- Attorney, CPA, Broker & Author · Scottsdale, AZ · Member since 2018 · 532 posts · 488 votes8y
To me, the question is not whether or not you should sign an agreement with a realtor. Yes, you should.
The major question is whether or not that agreement is exclusive or non-exclusive.
If you plan on talking to and working with multiple agents, then make sure the agreement you sign is non-exclusive.
If a party is unwilling to sign an agreement with me, that is a red flag.
With some clients I require an exclusive, usually for at least 6 months or even a year. If for some reason the client winds up being unhappy, I will typically release them from the agreement. You don't want to be working for an unhappy client.
The main thing you want is to have a contractual agreement for you to get paid your commission (typically from the Seller), in the event your client winds up doing a deal on a property you presented to them.
- If I find the right realtor I would sign a contract but not until then. Most simply arent that good so odds are not in my favor of getting the right one for me. I'm looking for the person I can be that but until then I will freelance it
- China, ME · Member since 2014 · 3k+ posts · 4k+ votes8y
@Jonathan Soto There's no "trickery" necessary and that's a grossly unfair implication.
An agent is well within his rights to ask a buyer who can burn up time and gas and take advantage of a Realtor's expertise to sign an agreement that says something as simple as "If you buy something that I show you, you'll buy it through me".
People think we don't earn our income because a good Realtor makes it look easy.
It's like the guy who brings his car to the mechanic to fix an odd rattle under the hood.
The mechanic lifts the hood, takes a hammer, taps the engine and the rattle stops. He hands a bill for $100 to the driver, who is outraged and demands that the mechanic itemize the bill.
Tapping the engine with a hammer: $1.00
Knowing WHERE to tap the engine with a hammer: $99.00Sometimes expertise costs money - even if it looks easy.
- Rental Property Investor · norfolk va · Member since 2018 · 26 posts · 10 votes8y@Stephanie Irto that’s understandable
- Member since 2018 · 12 posts · 3 votes8y
I've talked to REAs and asked if they would enter short-term (30-60 day), per-transaction, and non-exclusive buyer representation agreements. Often it's a matter of company policy or what their broker will permit, rather than their personal choice. I've also approached listing agents directly, only to find out that their broker requires any buyer to sign a buyer rep agreement with another agent within their company in order to accept an offer. This makes listed properties tough, even when they're listed at favorable prices.
- Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes8y
Full disclosure....I am a Realtor. So, I will not minimize the bias I may have. However, I am also an investor, and have a unique insight on your perspective. Additionally, I always try to provide objective feedback, so here are my thoughts....
In AZ (where I am), the contract is called a Buyer Broker agreement. It ensures that the Buyer will utilize the agent for their RE purchase, and that if no co-broke is offered, the Buyer will pay the commission. It's basically an employment agreement. However, it also can be limited. It can be written to apply to only homes within a certain area, or within a specific time frame, or even a specific property. So, there are ways to have a contract in place that YOU, as the investor can control, and not be limited by a contract with a Realtor you don't feel is a good fit for you. My suggestion would be to sign an agreement ONLY if you have to, and only if you can limit it to 1 area, or a short time period as a "Probationary period" to test out the fit.
I personally don't use a Buyer-Broker agreement as a standard practice....only in rare and unique circumstances. As an agent, I provide a great value to my clients, and most of them know that when they contact me to start a working relationship. So, I don't really have an issue with client loyalty.
It comes down to loyalty, and it goes both ways. If you want the Realtor to send you all the good deals (wholesalers, off market stuff, etc), then you have to commit to the relationship. Otherwise, why should the Realtor send YOU a good deal over one of their other investors if there is a fear of you taking the deal to another Realtor?
It makes sense that you would want to qualify a Realtor before committing. So, if it is required in your area, don't be afraid to commit to a contract for a limited period of time, or with specific criteria. This will help you qualify the agent while not being tied down to them forever.
Also keep in mind, as they are employment agreements, you can fire your agent if they aren't doing the job you hired them for. ;)
Best of luck to you!
- @Charlie MacPherson I would bet most people dont complain about paying for a good realtor, I know I wouldnt. But most really arent that good. Most I have dealt with know far less than I do and really are a hindrance to the deal. Good ones are a great tool they are just hard to come by. That being said the good ones get a bad wrap because of the ones out there that really arent putting in that much effort. On a positive side for the good ones there is alot of room to separate themselves from the crowd for sure
- Real Estate Broker · Oakland, CA · Member since 2015 · 36 posts · 26 votes8y
@Lakeisha Baker Just my $.02...The question you want to ask is whether the Agent is licensed as a Salesperson or Broker to which the person has to answer honestly. I am a Broker but have several agents that have been actively selling real estate & licensed longer than I have (22 years) but never decided to get their broker's license. The better question, in my opinion, is whether the agent has experience and/or references working specifically with investors.
Find out whether your state requires you to sign an agreement simply to work with an agent or if it is required only at the time an offer is presented. All of the states I am or have been licensed in (4 states) require the Agent to provide a disclosure of Agency relationships but do not specifically require a Brokerage/Buyer Engagement Agreement.
I personally do not require my investor clients to sign an agreement upfront because I work with a number of investors. Fortunately most of the investors are not looking for the same type of deals so I rarely run into a situation where I need to present a deal to more than one investor. I would caution against using the listing agent as a newbie agent because the listing agent already has an agreement in place to represent the seller. It is difficult to truly represent 2-3 different interests (seller, buyer, and agent).
Finally, the only time an Agent is entitled to a commission on an off-market deal would be if the agent brought the deal to you and/or you used the agent to prepare the contract, terms, comps, negotiations, etc.
- Real Estate Broker · Stoughton, MA · Member since 2012 · 109 posts · 96 votes8y
No. Comfortable with a Realtor? Sign an agreement. Why? The Realtor will shop for properties that are "off market". You may have to pay a higher commission percentage if the property your Realtor finds is off market, there may be more costs and time involved, but it should definitely be worth the added cost.
- Realtor · New York, NY · Member since 2018 · 27 posts · 21 votes8y@Lakeisha Baker there is not really a big difference between brokers and agents as per what they do. The only thing is to become a broker an agent must accumulate some points or have to be an agent for a certain period of times. The broker can own his/her own real estate firm while the agent cannot own a firm until he/she becomes an agent. There are agents who are more experienced than brokers or vice versa. So dealing with an agent vs a broker does not mean you are in better hands or vice versa. Good luck!
- Realtor · New York, NY · Member since 2018 · 27 posts · 21 votes8y@James Mercure he/she becomes a broker
- Rental Property Investor · Winona, MN · Member since 2018 · 87 posts · 90 votes8y@Lakeisha Baker I have had several different experiences with this — it seems in WI and MN that it is up to the individual realtor. I had one realtor that wouldn’t give me ANY info until I met with them in their office (which I’m guessing would have resulted in me signing a contract), I’ve had a realtor that just had me sign a contract that coveted her up until the end of the month that we anticipated closing in, and I’ve actually done a deal start to finish without a contract at all (other than the actual property sale, of course).
- Real Estate Agent · Clarksville, TN · Member since 2017 · 26 posts · 13 votes8yAs a realtor who works predominately with investors, I have some conflicting thoughts on this. Since it’s my livelihood, I appreciate that someone is willing to work with me and make that clear; however, I also understand that they want to find a good fit and keep options open. It‘s been my observation that sometimes agents work harder for people who do sign something because there‘s some professional respect there, but I could see the argument that they don’t, I suppose. Personally, I like to not push anything until we know I’m the agent they‘re working with. I’ve of the mindset that being a professional and respected resource will help everyone more, as will open and honest communication about expectations. Some realtors seem to get shy when investors say they are shopping for an agent; I prefer to make it clear I won’t steal business from another agent, but I will work with them if they choose to work with me and haven’t chosen one yet. Until then, I just provide the most info I can and provide the best service I can. I feel this was a passionate rant. In short, I would say the old rule applies of don’t sign anything if you’re uncomfortable about it, but I think at a certain point, personally, it can help professional relationships grow when you have found the right agent for you. Definitely not something to be pushed into
- Realtor / Investor · Vienna, VA · Member since 2014 · 133 posts · 114 votes8y
I am a Realtor in VA. My colleague @Russell Brazil is correct. In VA an agent does need to document who they are representing in a transaction and do so in writing. I also agree with my friend @Jeff Copeland that if you want a great agent, you will need to sign an agreement. But there are ways around this.
Know there are many real estate brokerage models out there. Some companies send out an agent who is available to show you the home. Today it is Jim and tomorrow it is Sally. That works for some. But most investors want someone they can cansult with on an ongoing basis. They want someone they can trust and someone to develop a relationship with. If that is you let me explain how I handle it and give you some ideas on how to proceed.
First if you are a wholesaler, I will pass. I have yet to find how a wholesaler and an experienced agent can work together in a mutually beneficial way.
If you are a buy and hold investor, I will pretty much insist you sign an exclusive buyer agency agreement. It is likely your deal will come off the MLS and we all have the same info, I don't want to find you went off and worked exclusively with the listing agent or some other agent showed you the home and wrote the contract. However, I have no problem limiting our agreement to MLS properties so if someone presents you with an off market deal, you can decide how to proceed.
If you are a flipper, I will encourage you to not sign an all encompassing buyer agency. In our market, most likely your deal will not be a MLS deal but off market. I will have you sign something that states if I show you the home you work with me. I expect and understand that you will be searching far and wide for a great deal. No one agent can know all off market deals.
In fact sometimes with off market deals, I tell the investor to contact the seller directly without me with the understanding that if they get it, they will list it with me on the back end. If you violate that hanshake agreement, goodbye. I have yet to have someone go behind my back on that. Sure you may find an off market buyer in the end but you had better remember me or that is our last conversation.
Bottom line, requirements for agency agreements are dictated by state law but there is no requirement in any state I am aware of that the agreement be exclusive in all situations. Exclusive to a home shown yes but every investor must be free to work any and all options in an optimal way
Hope that helps.
- Yuma, AZ · Member since 2015 · 140 posts · 137 votes8y@Lakeisha Baker i sign a contract but when i want to be releases i do. I take care of my agent. She always makes money when I do a deal. She knows I like to keep money moving. Mostly into my pocket. When you find a agent you can work well with you will know. I do contract all my properties sales with her exclusively. I also will look at deals from any agent or individuals who bring me a deal. Its hard to find a great agent that understands what investors want. The smart ones learn to start investing also..
- Lender · Newark, NJ · Member since 2016 · 695 posts · 252 votes8y
Originally posted by @Charlie MacPherson:
@Jonathan Soto There's no "trickery" necessary and that's a grossly unfair implication.
An agent is well within his rights to ask a buyer who can burn up time and gas and take advantage of a Realtor's expertise to sign an agreement that says something as simple as "If you buy something that I show you, you'll buy it through me".
People think we don't earn our income because a good Realtor makes it look easy.
It's like the guy who brings his car to the mechanic to fix an odd rattle under the hood.
The mechanic lifts the hood, takes a hammer, taps the engine and the rattle stops. He hands a bill for $100 to the driver, who is outraged and demands that the mechanic itemize the bill.
Tapping the engine with a hammer: $1.00
Knowing WHERE to tap the engine with a hammer: $99.00Sometimes expertise costs money - even if it looks easy.
I'm not knocking any Realtor or preventing them to eat. We are investors and things are different. If someone isn't helping me grow my portfolio with the criteria's I need, then I will go to another realtor. Same as the realtor needs to eat, us investors need to find properties to eat. Not all realtors can work with investors, it is better to cut early before both people waste their time.
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