Why do seasoned flippers need to pay a sellers agent today?

30 Replies

I invest in Houston, Texas. After a few flips and being forced each time to pay the, lets be honest, VERY expensive brokerage fees to gain assess to the local MLS service and for preparation of a few standard (and freely available) contract forms...in addition to the warm and fuzzy feeling you get from knowing the transaction is being executed uniformly and professionally. But come on, 6%? I understand there usually is no way around paying a buyer's agent...which can be the subject of a future post. My question is, in this modern era where MLS offers so much direct information to consumers, services for flat fee MLS listings for as low as $500, why would a seasoned flipper who knows the process and needed forms pay 3, 2, or even 1% of their investment profit to a listing agent? My last project sold for almost $600,000. At 1% the listing agent would make $6,000 to put on an open house, fill out a few forms, and post the house on MLS. No offense to agents out there, but this seriously feels like a unnecessarily expensive service for most standard real estate deals. It feels like we're all trapped in an antiquated mode of "this is how its always been done so this is how we have to do it." Has technology and services moved on enough to say that the legacy fees of realtors should be amended. 6% of a transaction for the actual services provided to the seller seems to me very unfair.

On our current two flips I was going to use a flat rate $500 shop to get the listings on MLS. I would handle all calls, contracts and showings. Then a friend and fellow investor offered to represent us for the flat rate but the situation is basically the same. This will result in a net savings of $5,500-17,500...I mean, if we aren't concerned with saving that type of money, how can we call ourselves investors? Please agents don't take this as an attack. I'm concerned with value for dollars spent. To be honest, when I read posts about the importance of hiring an agent I'm reminded of Mugatu in Zoolander, "I feel like I'm taking crazy pills!" Am I the only one that sees it this way?

Most agents for volume customers don't charge 6%, many flippers do get their license, and some flippers prefer to spend their time on deal flow and project management.

On a side note, when you have an excellent agent bringing you deals, commissions on either side of a sale are a small price to pay. REI with any scale is a team sport.

I know several flippers who sell their own properties to save the agent commissions.

I think it just boils down to your goals and what type of investor you ultimately are.

If you just do a couple flips a year then by all means you can sell your own deals and save money.

If you're looking to eventually scale your business then that's another story and you'll want a team in place.

@Scott Byer I think this is a great question and one worth discussing. I have never used a flat fee service but have heard good and bad about it. The same can be said for agents in the commission based system also.

Quite honestly, if your seller’s agent is simply taking a few pictures with a smartphone or a cheap camera and uploading to the MLS and not much else then you need to find a different agent.

I have done multiple real estate deals with a couple different agents and consider myself fortunate to have found an agent who is well worth every penny of that 6% when it comes time to sell.

A great agent has costs too and often only gets half of that 6%. My agent does several things which make him stand out. He hires a professional photographer who understands how to shoot houses for maximum effect. He pays to advertise on multiple listing platforms. He does more research than competing agents to gain a better understanding of true market value. Lastly, he is extremely honest. As a result, if you take his advice, you will often sell quickly at top dollar.

One major advantage I see of a commission based system over a flat fee is incentive. You want a property to have the maximum exposure and you want agents to WANT to show your property. Agents often spend a significant amount of time with potential buyers before the buyers make a commitment. I have talked to agents who have showed buyers 40-100+ houses before they bought.

$500 might buy you a professional photo shoot and a little advertising but it won’t get you anything else. If agents won’t show your property then what good does it do you? Do you think a buyer is really going to protest too loudly when they discover that buying your flat fee property might potentially cost them thousands more in representation than a similar commission based property? Also, agents often carry insurance to protect against errors and omissions. Do you want the liability of a mistake you make on a contract coming back to you in court?

I’m not saying that there isn’t a time and place for saving on realtor’s fees but remember, time is money. Is it worth potentially paying extra in holding costs to save on commissions?

One more thing. If you are that tight on a deal that you can’t afford to pay a good agent, was it really a good deal to begin with? Just food for thought.

I am one of the small time 2-3 flips a year guy. I have listed all of my flips and my own house myself with a flat fee service. If your business has you chasing deals and you have no time for it, hiring a selling agent is the way to go. If your business allows you to sell the house yourself, then you can save a bit of money. Personally I had the ability to sell them. All of the sales went smooth, no real hiccups, and not a lot of time out of my day. 95% of buyers have their own agent, and so long as you allow them access and have seen a few standard contracts, then you most likely can do it yourself.

With that said I do/did have a solid RE attorney who I could count on in case of any questions. I believe two times I did call and ask a question. I would also do my homework on the buyer. As soon as we had a prequal or preapproval letter I spoke with the bank and got a feel for the buyers. Knock on wood, they all sold to the only buyer, never lost one.

I am a big proponent of these services. I am also a big proponent of if you don't want, don't think you can handle it, get that agent. If your business is growing and your time is spent elsewhere all the time, hire that agent. I'm in the process of landing a deal in NY. My plan is to use my agent for the sale. He's been awesome to deal with me during the process and I want him to reap the benefits as well as keep that relationship going.

I say if your confident, give it a whirl. It's very doable, if you feel confident, can read contracts, have the time to do the homework, field the calls, schedule the showings, appraisal, inspection etc... 

Fees are always negotiable.

This question is debated a lot on biggerpockets.  I see a post on it once or twice a quarter and always find the discussions enlightening as it is reflective of what we are seeing in the market today with many brokerages offering flat fee commissions and paying a salary to agents (check out the brokerage Door in Dallas for an example).  I think we will continue to see more and more of these brokerages develop as time goes by for all the reasons you mention in your post.   

At Integrity 1st Real Estate, we work with both traditional clients and investors.   @Mike Dymski is right that we can charge less to investors because of the volume we realize via multiple investor deals during the year.   For example, we have a Flip Worthy program where if the investor buys a house through us, we reduce our commission on the sell side by up to 33%.  We know investors need to get as much as they can on the sell side so we work with them.   

I agree with everyone else is that it depends on what you want to do yourself versus what you want to hire out to do.  If the agent you are working with does not provide that value-add service you require, I would look for one that does.   

Good luck! 

Well first of all commissions are always negotiable. Secondly, the listing agent doesn't get that 6% commission. Half of it goes to the buyer's agent.

I will negotiate smaller commissions for volume clients. For instance, if I'm the buyer's agent and then list the property when it's ready to flip, I will give the client a break on the selling side. I don't give them a break on the buying side because they're not paying that anyway. 

Being the listing agent involves much more than just taking pretty pictures and waiting for the offers to come pouring in. The listing agent is the one person who is looking out for you in the transaction. His job is to make sure everything goes smoothly through closing and make sure your interests are protected.

I was the buyer's agent on a multi-family in Humble earlier this year. The seller used one of those flat fee brokers, which meant that I had to deal directly with the seller and there was no one looking out for his interests. It actually made me feel a little uncomfortable for him. 

@Scott Byer    

Every situation is different....but I think often an agent can help you sell it faster, for more money and with less headaches. If all your deals have been smooth that's great, but the one that is trouble can make you want to go back to an agent. To me it's not just about getting it in the MLS, but getting it in front of other agents who might have buyers. A great agent can use reverse prospecting for example. Getting your property out to other agents who have set up searches in the MLS specifically for the area or features that your property has. A great agent also networks with their office, with realtors from other companies, at sales meetings, at MLS meetings, at trainings, and at other events. They'll be trying to get your property info into the hands of an agent that has a buyer for you. You may be hitting a handful of those people on your own, and more by getting it in MLS, but they should be getting it in front of even more people. They could be sending it out to people who leased a year ago or two years ago, that might be ready to buy now. Anyone probably leasing for $5000/month or in that range might be ready to buy. There's just almost no good way to reach those people without a great realtor.

Some realtors don't like to show the flat fee broker listings, even if you're offering the standard buyer agent commission.  Too often they know the deal will be more difficult or they're now working both sides of the deal for 1/2 the commission.

So every buyer you're cutting out to me means less money for you in many cases.  While it only takes one buyer to close on the house, I'd rather have a 100 buyers looking at it, than 1.  Chances are it will sell for more.

On the headache factor....sometimes it all goes smoothly, but if you ever have to pay a lawyer for basic questions or have a buyer sue you, chances are you'll loose all those savings.    Hopefully that is a pretty rare occurrence, but a great agent should have 2-3-4 board certified real estate attorneys in their phone and able to get questions answered quickly at no charge.   That's probably pretty rare for most investors.  If you need language drafted for the contract, will they do it for free or what will they charge you.

While they don't always tell you all the small things they're doing, that could be really big things........I think a great agent is making you money....not costing you money, even if it feels like it sometimes.

Just as I pay someone to drywall and lay tile, I pay people to do the work I can't do or don't want to do, so I can focus on what I'm good at or what I enjoy. If you enjoy being your own "listing agent" it's crazy for you to pay someone to do it. I would not enjoy that so I build it into my analysis.

If a broker/agent brought me a deal I would pay them MORE.

That way when they have 10 people asking for the same thing WHO do you think they will remember the best! lol

Flippers are only a small part of the market. There are those who are self sufficient and want to do things on their own whether a benefit or detriment to themselves.

There is a LARGE part of the market that wants service and expertise.

The flat fee stuff and paying people partial salaries that has been tried for decades and decades and it FAILS. Very few companies operating that way make it through a complete economic cycle of 7 to 10 years. There are a few that do it with volume and have stayed the course.

The consumers wanting to become clients only based on cost and price I do not want in commercial real estate.

My clients come to me for expertise and my connections to properties for commercial real estate.

There will always be someone willing to do something for cheaper. It takes much more skill to show and demonstrate value to your clients through expertise and knowledge.

When buyers come to me I put them through an analysis. If they are difficult or think they know it all immediately it's a NO working with them.

If you want someone residential to sell your properties and be cheap then use flat fee and offer a higher co-op on the sell side.

Example 1,000 flat fee and then co-op of 3.5% to the buyer broker. 

All great responses guys. Thank you. Bigger pockets is such a fantastic resource. And it’s because all of us take time to help each other with ideas and experience.

I have in the past used agents. A couple of them left me feeling as though they were super heroes. Others left me feeling like I got ran over. The more I learn in my investing career the more I realize how much more I have to learn. Thus, this discussion forum...

Perhaps my question isn’t so much “do agents provide a valuable service” as its “does the old relationship structure and pay scale make sense today?” Sounds like a few comments point out that a lot of brokerage houses are adapting for volume customers/investors. This is a great thing and I’m going to have deeper discussions with a couple realtors I like about a special arrangement.

Couple other thoughts:
1. The idea that I would have to pay many many thousands more to sell a $600,000 home than a $225,000 just seems unfair to an investor. Flat fee (not necessarily $500) seems better.

2. The argument I hear often, “if the fees are too much for your deal your deal must be bad” is a poor one in my opinion. We’re investors. We are looking for ways to maximize our returns on every deal. I try and always pay fairly for the service provided. This is subjective I know but I will say this. If the listing agent thing wasn’t a historically standard practice, and a broker pitched me what he would do for me, I don’t think the current “% of sales price” pay structure would ever be entertained...by any of us. Payment should be for services rendered. Not size of the investors risk/profit margin.

Im no way seasoned, shoot I haven't even flipped a house yet, however my business plan specifically states I will not get my license and become the agent, I will leave the selling aspect up to the agent, I also will not hire a newbie agent, I will only have seasoned agents doing the sales. Heres why, for the small fee it would cost for them to complete my transactions, I can be more focused on what Im good at, acting as the contractor making sure all construction is being handled correctly and efficiency, finding more deals, negotiating more deals ETC, my philosophy is let the agent do what there good at buying and selling. I also plan on flipping and holding in different areas, that would take years for me to acquire all the licenses i need, let the agent that knows the area to there work. Eventually however I would like to partner with agents when I become big enough.

Thanks for bringing  this subject up @Scott Byer. I've thought for a long time the current model is very antiquated. Hasnt really changed since the mls was a big book agencies had in their office. You said it much more eloquently than I could!

I sold 3 this year. First one was listed with a full service broker. The house was retail ready, vacant and staged. The experience  was a 4 month horror show and very expensive at 6% plus staging costs & carrying costs. I had to go over 4x a week to shut doors left wide open, turn lights off, turn the a/c down, etc.

The other 2 I did by owner without staging. Faster, safer without random 'professionals' leaving my house unsecured with lights on and a/c up full blast. No staging, lower carrying costs.

If you know how to price properly and are familiar with the standard contracts, I say go for it on your own for a week or 2. I used a $15 sign, zilliow and craigslist to save $18k with no additional work or effort. Matter of fact, it was much less. Didn't  have to ask my agent to ask their agent to ask them and vice versa.

Why do seasoned flippers need to pay a sellers agent today? Horrible question.

Better question. Why don't seasoned flippers just obtain their own Real Estate license?

If you are going to be a do it yourselfer, why not do it yourself while putting in the maximum effort & obtaining the biggest possible edge over your competition?

The current fee structure is never going to change. There are many that do not have the desire to do it themselves. For those that want to do it themselves, that's cool. Knock yourself out. Like I said above if you are going to do it yourself do it to the maximum.

 No reason agents are ever going to start working for less though. The market has proven it can and will continue to support the current fee structure. Many people are happy to pay for service. Same reason I pay more to eat at a steakhouse than I do to grill in my backyard.

You could always try your hand at marketing the home yourself first. It's pretty easy to sell a QUALITY FLIP on Facebook with $100-250 in FB ads. 

Have professional pics taken during the Golden Hour. 

Boost the ad to your targeted demographic and use quality copy highlighting what your buyers actually want. 

There are plenty of ways to do business out there. The key is one persons way is NOT the only way. People tend to think ( I do it this way and get results so why isn't everyone doing what I am doing ?)

It is simply everyone is different.

Some people get extreme joy out of detailing there car. Others can't stand it and pay someone to do something they have no interest in handling or figuring out.

Different flavors of the world for all of us to find enjoyment in.

We have cheapo's in commercial as well. I don't work with them because I do not have to. I can do 10 sales a year at 100k commission per transaction as an example and life is great. I keep it all as it is my company. The cheapo's out there do not phase me in the least and I wish them well on doing things themselves if it brings them joy and satisfaction.    

If an investor wants a hustler with some experience then agents working for a firm 2 to 3 years in might do the trick. They have had some success but are still hungry to live on the next deal. People in the industry a long time have made it already and want business but under THEIR terms. They have earned it with decades in the business.

Just  like an investor over the years has tried to develop a well oiled machine so has the broker/agent with their business model.   

People if they want to save money need to do it themselves. The worst thing I have heard from brokers and agents that they can't stand is to hear from a potential client ( I believe you are overpaid and wish I could do it myself but I need to use you ). 

That is like going to a restaurant to eat steak and not leave a tip. If you can't tip or do not want to but want to eat a steak then drive yourself to the grocery store, come back home and cook one, and then do the dishes.

This whole discussion sounds simple to me. The person wants to use a flat fee service and that is their right or they can get licensed and do it all themselves.

I used to try do things myself to save money. I found I am really amazing at a few things and okay to good at others. I get better results paying others that are amazing with the things I am just okay at. That gives me more time to do what I do best.

@bruce lynn

Your post about all the little things great agents do reminded me of something my agent has been doing for me in the process of selling a property I currently own. When my agent encounters a newer agent with a buyer, rather than simply hoping they figure it out, he reaches out and offers a hand in making sure the contract is correct so that both sides win. Seasoned investors may have the ability to do the same things themselves but if you are inexperienced with the intricacies of contracts it may not be advisable to risk mistakes in the hopes of saving money.

You need the MLS market exposure. Listing agents used to have a monopoly but with Zillow, Redfin, And now flat fee services offering MLS exposure for $500 the market is slowly changing. If you can price your property and plan to work with an industry standard contract that you are willing to read and understand, I do not see what substantial value a listing agent can bring other than negotiation skills and a gut feeling based on experience....like Malcom Gladwell talks about. Both are worth something, but not all agents can offer much in that area and most transactions should be pretty average anyway, which is why many mediocre agents can stay in the business.

There are lots of agents who'll work for investors for 1-1.5% on the sell side. Just ask around in your market. When you're newer, having an agent involved can be really helpful. But let's be honest....there are a ton of idiot real estate agents out there. It's a super-easy license to get, and it's been a hot market for awhile, so it attracts a lot of people looking for easy money. (When I was a software development manager in the tech boom, the same thing happened with recruiters. It looked like easy money, so suddenly there were all these brand new headhunters out there over-promising and under-delivering. Happens in any hot market.) The whole point of paying an agent when you're new is to help you handle situations you don't know how to handle yourself...if you get one who doesn't know how to do that, what's the point? So if you're going to pay a listing agent, make sure you're getting a good one.

As you get more seasoned, you can easily do it yourself, particularly in a hot market. I use a $500 flat fee broker. I get practically no service from her. That's fine. I do my own photos, handle my own staging, and negotiate my own deals. It's not particularly time consuming. (In fact, I'm scratching my head a little at the responses saying as you get busy, you'll need a team to handle all this for you. I run three multi-million-dollar businesses and have 40 people working for me, so I can delegate a little bit to my full-time employees, but my girlfriend and I do most of the work to handle selling 10-15 houses/year and it's not particularly time consuming.)

No, having a listing agent doesn't make your houses sell faster in our current market. That's rah-rah stuff agents tell themselves when they compare their work to the worst FSBO listings out there. There's a shortage of housing in most markets right now. If you make it desirable, price it right and get it on MLS, it'll sell. In our market, despite a little slowing, everything is still multiple offer situations. (Your market may vary. Real estate is very, very local.)

Yes, technology will eventually change real estate dramatically. RE agents are telling themselves it won't. That's the same thing insurance agents and financial advisers said. There's still a market for those people for consumers who want high service, but listing a house is pretty simple, and the agents who don't add much to the process will get disintermediated over the next few years. That'll be good for investors, but it's not here yet.

I wouldn't recommend the flat-fee broker to someone just starting out, but after you've got plenty of experience, it's a great way to go. Most of my sales go between $150-200K, so 10 sales a year where I'd pay 1.5% vs. $500 is a difference of $20K or more.

This should go without saying, but never, ever cut buyer's agent commission. It frankly ticks me off when I see listing agents doing 2 or 2.5% commission for the buyer's agent and keeping more for themselves, when I know the BA works a hell of a lot harder than the LA. I wouldn't wanna schlep buyers around to house after house, waiting until they find one they like, then try to convince them to make a competitive offer, knowing that they may have to write offers on 5 or 10 houses before they finally get one accepted. Those guys deserve every penny they get, and I want them to want to bring buyers to my properties.

Originally posted by @Marian Smith :

You need the MLS market exposure. Listing agents used to have a monopoly but with Zillow, Redfin, And now flat fee services offering MLS exposure for $500 the market is slowly changing. If you can price your property and plan to work with an industry standard contract that you are willing to read and understand, I do not see what substantial value a listing agent can bring other than negotiation skills and a gut feeling based on experience....like Malcom Gladwell talks about. Both are worth something, but not all agents can offer much in that area and most transactions should be pretty average anyway, which is why many mediocre agents can stay in the business.

This is factually incorrect. In reality it's exactly the opposite. Here is an exert from Inman.com

FSBO and discount-broker sales at record lows

You might think that the internet and today's seller's market is coaxing an unusually large share of homeowners into selling without an agent. And for those homesellers who list with agents, you might guess that they're favoring the limited-service variety -- commonly referred to as "discount agents" -- more than ever. But you'd be dead wrong on both counts, according to figures released by the National Association of Realtors (NAR). Source: NAR The share of recent homesellers who sold with an agent remained at a record high of 89 percent in the last year, and a record-high share of those professionals provided a broad range of services, rather than a more limited set, NAR reported in the 2016 edition of its annual "Profile of Home Buyers and Sellers." As agent popularity soared, for-sale-by-owner (FSBO) sales scraped along at an all-time low of 8 percent of all sales. That's the same level NAR reported in 2015, down from 12 percent in 2006

FULL ARTICLE

The same for any profession licensed or not. They need to make a living. A gardener probably makes $70K in Sugarland provided he has customers nearby. A handy man has to charge $35-40 an hour to replace something with his unique tools. A realtor will have to pay several $1000s dollars a year for his lockbox(tool) with a brokerage. The realtors have a network of investors who will quickly snatch up your property while help her to sell will depend use luck to find a buyer.

Everyone knows majority flips are cosmetic and hackers are not too interested to renovate the guts to make it better. There can be hidden problems. Getting cited or sued in certainly a reality.  A realtor carries million dollar error and omission insurance to make sure things are done correctly. 

I know in Sugarland, Missouri City etc many realtors are discounted realtors and are flexible on commission. If you feel 1% listing fee is too much you can hang a sign FSBO- I followed 70% rule but want 30% more.

I have seen this debated for decades now literally over the years.

When cycles are hot everyone thinks properties will sell themselves especially for residential. I remember Foxton's and a bunch of others last cycle in 2004 - 2007 that took a dive in the U.S. Same thing technology is going to change the world blah,blah,blah.

Heard and seen it all before. Reality is some new things will come out and be integrated but not a 100% shift.

Most residential sellers make a move once every 5 years. So many things change by then they are out of the loop with the process and want help. Investors that transact every month or week those are the small percentile of the market and with the help of their attorneys likely do not need the help.

Having said that big value is in the broker or agent bringing the client properties with their network and connections. 

Generalists do not make much money it is the specialist. Dabblers as I call them get mediocre results. They try to do whatever transaction comes their way. They have no clear cut specialty or vision for their business.

Brokers and agents get FOCUSED. Define what clients you want and do not take the rest. If you are not generating the business you want then ramp up specific marketing and lead generating activities to create a funnel. It's a numbers game just like investors buying properties. You create a large funnel and only take the few ones that meet your criteria. The others you throw away or work on them to conform to your business model.

There are certain parts with technology that can be automated in the future but a majority want a human component with service.

Maybe in 20 to 30 years those generations will want to do everything on their own. Even if that is the case it is not something affecting me. I could retire today if I wanted to but I truly love commercial real estate and what I do is more specialized.

If you are a generalist people do not see much value in you. If you specialize they are coming to you for a specific purpose. My clients tend to invest millions of dollars buying a property so do not want some discounter or fly by night type agent. It's a  different world from residential.

@James Wise I reread my post and the only statements I made that could be construed as "facts" are 1) there used to be a monopoly (realtors and the mls) and that 2) the market was slowly changing. I stand by both as factually correct. I made no mention of how many sellers or buyers use realtors. You may not have read my comment closely. The original poster was wondering if anyone else thought the 3% paid to listing agents was crazy. I believe I said negotiation skills and experience in general might be worth some cash but many agents will not deliver in those areas and the majority of transactions are pretty average...implying not worth it. Anyone smart enough to profitable flip a house and who is willing to spend the time, is in control of their emotions and is in possession of adequate data, can price and negotiate their own real estate sale...on the sell side using the MLS via flat fee or discount, etc. Bringing a buyer is where a 3% commission is undeniably earned.

To offer flat fee or discount brokerage services on the MLS one must subscribe to the MLS, and as such would be counted by Inman as having used a real estate agent. I bet they even count a seller posting a sign in the yard but selling to a buyer who was using a realtor as a "agent transaction" if the seller paid anything to the buyers agent. We all know how easily statistics can be massaged to illustrate any point a person would like to make. The market is changing. You wouldn't be protesting if it were not.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.