Need Help! Question for Realtors

7 Replies

I want to fix and flip a home. Specifically add-a-level to a single family and upgrade the initial first floor. If the home purchase price is 300k and the ARV is 450k, would a realtor agree to waive the 3% buy commission if we draft a contract that I would sell with them at 3% for the higher ARV value five to six months later? That works out to be $9,000 for the initial 3% commission waived, instead for the $13,500 commission on the sell later. That's $4,500 more that would be guaranteed I would sell with them. What about the same contract above, but this time if I decided to hold onto the property for 2 years to avoid capital gains tax. This time the commission might be even higher with appreciation. Is this something reasonable? What are your thoughts and how else could I structure this? Thank you

Hi @Josh Koett

Everything is negotiable in real estate. That being said, I personally would not go with that myself. It sounds like "I would gladly pay you Tuesday.... or 6 months or up to two years possibly... maybe.... for a hamburger today". I have people I deal with often that buy a low end property (300K is not low end here) and I pull in a couple hundred dollars total. Then when they sell I pull in a couple thousand (plenty of work between point A and point B). We work in volume and I don't make a killing by any means. If someone I never met said "Help lock in this place in and hopefully later it may be worth something and if so I'll pay market rates for the second part..... unless I wait longer and something happens, in which case I may take a better offer". I would politely decline.  

You are saying buy initially is: $9,000 Commission (-broker fees, - taxes, minus time) just waived... agent takes all insurance/time/risk and writes it off for 6 months to 2 years.

Sell is: $13,500 (- broker fees, - taxes, minus time, minus advertising, minus equipment, pictures, lockboxes, posts... fees) if you actually get the property up there and the value holds in 6 months to 2 years. Hope there is no real time in inspections, resets, contractors, building inspectors, showings etc.

So reversed it would be. Would you perform $9,000 worth of work today (absorb all fees/taxes/splits/expenses)  and if things all go well I will give you the opportunity to make $13,500 in 2 years (minus all fees/taxes/splits/expenses) ?

Not saying it can't happen, I would just be surprised to see that agent around in 2 years.

Yep, not likely, I know I wouldn’t. You’re asking the agent to do the work of two transactions and only getting paid, maybe, for one......Not a reasonable request.

@Josh Koett As an agent I would never agree to that. If your agent is good you'll likely use him for both transactions anyways and it'll only help you build a stronger team. Pay your guys.  

For the rest of the nuts and bolts explanations @Mike Cumbie already summed it up perfectly. 

@Josh Koett

It’s not very practical.

The buy side agent doesn’t control the commission. They get whatever is already decided by the listing agent and the seller.

So, there really isn’t a way to lock in a rate going in. It could be 3% or 0.5% on the buy side. Technically, it can even be 0% if the property turns out to be an office exclusive with another company.

Ultimately, the seller usually pays the commission when selling a property. What that commission is for the agent isn't controlled by the buyer or the buyer's agent. I say usually, because some for sale by owners might refuse to pay a commission and then expects the buyer to pay their own agent. Now, if that's your scenario, then it's negotiable. If it's not your scenario, then it doesn't matter because the seller will pay it.

I might if my dentist agrees to my proposal. I am going to ask for a free root canal in return for a promise of a dental implant 

@Josh Koett  Any agent that's willing to give away his rightfully earned commission isn't one you should have any respect for - and he sure as heck isn't someone you want negotiating on your behalf when it comes time to sell your flip.

BTW - that agent also has an obligation to his broker, who would have to approve his request to work for you for free.

If one of my agent asked me, we'd have a long talk about what it means to be in this business.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here