Realtor vs Real Estate License for Making Offers

12 Replies

Hello, am just getting in to the realm of Real Estate Investing in the Denver, Colorado area and I'm here to ask a question about a particular aspect of finding a good deal...

Currently, I have a W-2 job in sales that yields a healthy income - I am 100% commission so I don't have a cap on how much I can (and can't) earn and in this roll. I work from my home/the road and have tremendous flexibility so I'm thinking that this bodes well for a BRRRR or flip style of engagement since I can be more available to refurb the property than someone who has to report to an office. On top of this, I have two sons that are 20 and 22 that I'm trying to teach the value of passive income to that I can use as "employees" on the refurb - both of whom have money of their own to potentially put down on a deal as a "partner".

My question is centered on how to make an offer on a potential property... I have found a few that I think would be good but it seems crazy to offer so far below their asking price in order to make the math work - ([.7 x ARV] - repair costs). We have a good friend that is an agent in the area who also works with investors... but I have been hesitant on approaching her prior to knowing a bit more about the process so as to not waste her time.

In addition, my wife does not work so we have ample time to invest in research and education but when we find a potential deal, we are a bit stumped on how to proceed which brings me to my actual questions (finally):

If we find a potential deal, can we approach the owners of the property to make a low ball offer directly or do we need to go through an agent?  If we need to go through an agent, should either my wife or I invest in getting our Real Estate License (most likely my wife)? 

I have been listening to the BP podcast in chronological order from #1 so that I can learn in an organic matter and so far I have heard a lot of anecdotes about, "knocking on the door and asking if they want to sell their house" and, "buying on the courtroom steps", but what I don't understand is how these offers are actually made?  Do buyers/investors simply interface with the current owners and make a deal that in turn is brought to an agent, or is it all through agents from start to finish?  

I want to start making offers on some properties but I don't want to do so in a way that is going to guarantee failure, so perhaps obtaining a license is best - for practical and educational purposes?  Any assistance is appreciated!  

If the property is listed for sale with an agent, you have to at least work with that agent.  They will have a contract with the owner to sell the house.

If the property is "off-market," you can just deal with the owner.

You will need a contract.  The best advice is to use one written by an attorney.  You can google and use your state's Real Estate board's approved contract -- that has been written by attorneys.

After initial negotiation, you will need a closing attorney or title company to do a lien search and verify clear title and to hold escrowed funds.  

It's a few grand a year (at minimum) to maintain a license -- the usual advice is if you're not either 1. selling as a full time job, or 2. doing enough volume to justify holding a license, then it's probably best to just hire a great agent that does it all full-time -- you'll get better negotiation and a better knowledge base.  

You also do NOT need a license to buy or sell your own Real Estate -- a license is needed when buying or selling for a third party.  Many people just use their own contracts and deal directly with buyers and sellers.  Most people do not like this and are not good at it.  I CAN work on my own car, but I would rather pay an expert to handle it for me.

And an aside for mindset -- don't think of offers as "lowballs," they are just offers at the price that makes sense for you.  You will get a lot more pushback if YOU think it's a lowball offer.  You will get more compliance if you see it as a reasonable offer for your needs.

@Weston Bovee

Where specifically are you looking at in and around Denver? There are some places in East Arvada that may still have potential upside as well as a few pockets in Thorton. I believe Brighton is a big up and coming area and has a lot of flip potential.

Are either of your sons handy by chance? I’m and electrician and flipper and agent looking for workers periodically.

Also, my opinion is that context is key when it comes to deciding to get your RE license. And also knowing what kind of flip you want to do and where at is also super important. My first flip was a duplex which had its perks buts also downfalls.

If its on MLS you call the listing agent (or have your agent call the listing agent). If its off MLS then you approach the seller directly. Courthouse foreclosures are a different animal and, quite frankly, as a new investor I wouldn't go that route until you have more experience.

Good luck!

Wow, this site moves FAST!!  

First, thank you all so much for your timely responses, I can't wait until I'm in a position to reciprocate/pay it forward!

@Steve W. - we found these by driving the area, I don't have access to the MLS... in fact that was one of the reasons the Real Estate license was intriguing - access to the MLS and being able to walk potential properties without having to contact an actual agent.

@Dan Maciejewski - thanks for the wealth of feedback... your point about the property being listed with an agent makes perfect sense for integrity purposes, I was inquiring more for the "off market" kind of opportunity. 

- Thanks for the link to the approved contract, I will definitely be going over that in the very near future

- Based on your feedback about the Real Estate License, I was unaware of the annual fees... our friend pays a ton of money every year for mentors, assistants, company legal coverage, etc. - all of which I thought was silly until now.  Perhaps the best course of action is to finally make contact with her and explore our options.  I just have Rockefeller's quote in my mind: "A friendship built on business is far greater than a business built on friendship" or something like that.

- I love the advice regarding the lowball... consider that one stored in the memory banks for good

@Kent Lord - East Arvada is EXACTLY where I found these... I live in North Arvada so in the interest of starting local, I have just been driving the areas that I feel I can afford an investment property.  

- Unfortunately, my sons are NOT handy at all, but this will be a great reason for them to become so.  We recently redid our entire primary residence and I did all the work with them assisting (using this term loosely) and it is fair to say that they have A LOT to learn but they are a cheap (and strong) resource.  Maybe once they get some experience under their belt? 

@Weston Bovee How do you plan on funding your deals? Are you going to be offering cash purchases? Do you plan on using hard money or private money lenders? Or do you plan on just looking for easy cosmetic rehabs and getting conventional financing? Depending on how big of a rehab project it is, you may not be able to get conventional financing so the funding will also be something you'll need to figure out as you start making lots of offers. 

@Joe Norman - thanks for confirming my gut... I'm a bit apprehensive about the "court house steps" method, so I'll work on understand that as I advance with my business.

@Stuart Grazier - I think I'm leaning towards a HELOC - I found a credit union that allows me to borrow 90% of my Primary Residence loan to Value (not that I would do that) of which I have $300k in equity, lock in a rate for 3, 5, or 7 years, unlock and relock as needed, no carrying fees, no prepayment penalty, etc. This is why I'm interested in the BRRRR, I feel I could be competitive with that kind of financing?

Either way, I think there are plenty of posts regarding HELOCs for Flips/BRRRR that I need to read, but I'm thinking that my question has been answered on this post - I will now contact my Real Estate Agent friend and we will refrain from getting a license for the time being.

@Weston Bovee as many others have said if you are looking for properties on 'realtor' 'zillow' or other sites, most often than not, an agent is representing the seller and you will have to discuss details with them directly. If not there should be a contact section for FOSB. Counter to what some people believe a listing agent will be more than happy to help you out especially if you are 'unrepresented' because it means a higher payout for them. Perhaps you can get a better deal because of this. On the other side you don't have anyone fighting for you and if you have never negotiated a deal before, there is a lot of moving parts... nonetheless not rocket science. You'll definitely want to hire a real estate attorney to do the contract work for you and closing. 

Only get your license if you plan to be actively 'selling' properties either your own or on behalf of people. There are many fees associated with being a realtor, probably $2,500-3k a year. My partner and I do direct mail campaigns once a month through Dealmachine and it has yielding tremendous results. That is something you may want to consider for finding off market properties. 

Lowballing in this market is a waste of everyone's time. Hire an agent to work on your behalf if you want a remote chance. I know wholesalers offering 85% of ARV and aren't even getting calls back.