Purchase Property Myself or Through Agent

14 Replies

I'm currently in the process of purchasing a property for myself. I began working with an agent a few weeks ago, but I found this property on my own. He has helped verify that the property was priced under market value by doing a quick CMA for me and he has introduced me to a colleague of his that is going to handle all of the renovations I intend to make to the property if I purchase it.

We currently have an offer out to the seller, but it is quite a bit lower than asking price and I'm expecting them to counter. I'm scheduled to take the real estate exam in about 10 days and already have a broker lined up for when I pass the exam.

My question is, if the seller counters our offer, should I continue to pursue this property through the agent I'm currently working with? Or should I wait another week or so and purchase the property as my own agent? I would stand to make around $12k commission from the purchase of the property. My concerns are that being this would be my very first property I've overseen as the buying agent, I would need guidance throughout the process. Also, I do feel some obligation to compensate the agent I've been working with since he's spent some of his time looking a this property with me, as well as introducing me to a few key people I will utilize in the future. 

Has anyone been in a similar situation and can offer some advice?

@Kyle Houlahan  I split my commission with an agent/investor for my first flip. but he was quite knowledgeable and introduced me to some great subs.  

offer a 50/50 split to the agent and in exchange, he will guide you through the process. Your broker should also guide you through the process as well. Alternatively, you can offer to pay him an hourly rate. 

This is more of an ethical question than anything. You began working with this agent under the implied assumption that he would get paid when you ultimately bought something - whether or not he actually found the specific property you end up buying. It's called an exclusive buyer's agreement in Illinois. To change the rules at this point in the game would be unethical.

I agree with @Gary Lucido . Did you discuss your license and a possible commission split when you first met with this agent? If not, I would stick with your original agreement. To switch in the middle of a transaction is unethical and you don't want to ruin your reputation as an agent right out of the gate. Reputation is everything as an agent.

Have them walk you through the buying process during the deal and consider your payment to be in education.

I did mention possibly splitting the commission when we first started this process, but we didn't talk much about it. I agree that just dropping the transaction and pursuing it on my own isn't the route to go, for multiple reasons. I think I'm going to propose that we follow through with the purchase of this property, with all commission going to him, but in return he teaches me the ins and outs of the buying process and he agrees to help me sell this property for a minimal flat fee, say $1k, instead of the typical 2.5%-3% commission. This would save me about $15-$20k at the time of sale.

From what I've been told, listing your own property for sale as an agent can make it a little harder to get full asking price for it since buyers will look at the fact that you're saving about 3% in commission. Anyone have any experience selling their own property?

I haven't had that issues with that when selling my own property. The buyers often don't know and don't care about what commission you're getting. Things may be different here in the Denver market though.

I personally wouldn't take your 1K offer to walk you through your first listing, but every agent is different and there's no harm in trying to go that route. If they're walking you through the process step by step I'd 30%-50% of the commission would be fair.

You are not licensed yet. The property came to your attention while working with this agent.  If you were to wait til you were licensed and buy it and receive a commission, he can file a claim with your local realtor board, who would likely find in his favor and order you to pay the agent a commission.  Your broker would then take back the commission from you and send it to the other agents brokerage.

I’ve sold my own property and got $40k over our list price- but the Southern California market is a different beast. I’m not sure why buyers would know or care who’s the owner/listing agent as long as you do a good job.

I agree with Sara, I wouldn’t return a phone call for $1k to help walk you through the process - my time is too valuable - and there is far too much liability.

Seems like your agent has taken good care of you, I’d recommend doing the same. In the long run, there is a lot more money to be made if you do this in a way where everyone wins. Don’t risk burning bridges, they’ll come in handy down the road!

The agent is a friend of a friend. Our relationship is a bit different than a client that walks through the doors. This is the second property I've purchased and from my experience selling my last house, I personally felt like the agent did not do a whole lot to earn the $6k she made. In this case, you're talking almost $20k in commission when I go to sell this property. Regardless of what the "norm" is, I can't justify paying an agent $20k to list my house on the MLS, send over the lock box code to a half dozen agents so that they can show the property, and then go through the standard paperwork involved for closing. I understand there is risk involved and some situations require much more time and effort than others, but almost $40k in commission to the buyer and seller's agents is a bit much. I'm very surprised that the commission rates don't drastically decrease as the sales price of properties get up to the $500k+ range.

Sounds like a lot of other's haven't had an issue with selling their own property, so I'll go that route. This will be months down the road, so by that time I should be comfortable selling it on my own anyways. I can always go to my broker for advice on a specific situation if need be.

@Sara Tremeear We will be working for the same brokerage when it comes time to sell the property, and he is somewhat of a friend of mine, so I wouldn't expect him to ask for a whole lot considering I will be paying it directly from my pocket. Now if I was purchasing a property, then the commission split would be a different story.

If a colleague/friend of yours was helping guide you through the sale of your own personal property, would you offer to pay them $10k? That's kind of how I look at it.

One item on this thread I didn't see--DISCLOSURE.

If you are a licensed real estate agent, that information MUST be disclosed to the seller.  The question I see is how would the fact that you received your actual license just prior to closing affect your responsibility to disclose?  Not sure, however that to me, is hairy.

My advice--follow what your gut tells you. Mine always told me that this business is a long term, marathon run. Cut somebody for a few grand and risk a relationship or future deal with them? I guess worth it to some folks. Risk a bad reputation? No problem for some. (I've often though about registering the DBA of "Karmic Realty", slogan: get what you deserve.)

Do the right thing (according to your own moral compass) and you can make money AND sleep at night.  

Ignore your compass at your own peril and bouts of insomnia.  

Good luck.

Kyle, if you are friends there even more reason to offer them a fair cut for taking on the risk of helping you. Don't burn that bridge, and there is a lot of knowledge that comes into play. You may not have seen much work done, but experience and knowledge is worth it's weight in gold. Especially if you find yourself in court later. That's just my two cents. I work on a win-win basis and pay everyone a fair amount (or more) in my dealings because I'm in business for the long haul and friends are everything in this industry. 100% of $0 is $0.

That being said, your employing broker should be able to help you just fine throughout listing your house and they already take a cut so the rest of the saved commission is yours to keep.

@Kyle Houlahan sounds like you are very close to being an agent, so I assume you have gone through training on contracts. I am surprised the purchase contract you signed didn't include some type of clause indicating your realtor is representing you and assigning commission to him. Usually this protects the agent from situations like this.

Beyond the paperwork, you need to decide what kind of reputation you want in the real estate business. If you screw this guy out of his commission, word will get around to other agents. Agent relationships make a big difference in getting deals done. If you screw this agent over, I assure you any offers your clients make on his listings will go to the bottom of the list. Sure, he will present the offers, but he will talk them down as much as possible. My guess is the agent will tell anyone who listens what you did to him.

3 things pretty much for sure here:

It is very short-sighted to screw this agent, especially since he helped you value the property and leveraged his relationships for you.

If your offer had a lot of zeros in it, it will be countered.

The licensing training and test teach you nothing about buying right.

@Steve Vaughan I completely agree. He most certainly helped solidify my decision that this property was a good purchase and the property manager he introduced me to is going to oversee the entire rehab being done, which may provide to be a very valuable relationship regarding future projects.

I'm just going to continue to pursue this property through him, learning as much as I can along the way. When it comes time to sell the property, he and I can work something out to make it worth his time. Ultimately I want to sell it in my name and handle majority of the work, just to gain the experience.