Hi BP family,
Please help me understand, why using an agent in the deal makes sense?
I have been flipping apartments for the past few years. Now I got a job as a real estate agent in a small local real estate company and I will be starting in 2012.
The main reason I have decided to become an agent again, is to have a cheaper access to the advertisement of my own flips, to get more leads, and find more properties to flip while I serve as an agent helping to advertise and sell properties, that have rejected "the offer from our partner to buy for flipping", but need to sell at market value. A commission from a deal every now and then is welcome :)
So it's all money.
I personally have sold my flips as FSBO-s, and I have avoided using an agent, because the % seems to be unjustified. Unless the agent has come to me with a client, who ended up buying the property from me.
Please help me see the other side of the coin, how does the customer win from using an agent?
What makes the service worth the price (5-6% from the selling price) to you?
I've written about this before on the BiggerPockets blog, but as a licensed agent and an investor (along with my wife) who sells a decent amount of houses (about 15 of my own per year and about 25 for other investors per year), here is what I consider to be by-far the biggest value we provide when selling properties:
We have a strong reputation and a strong network of agents who we work with.
Our average DOM for the houses we sell is 17, and if you take out the two properties that took the longest to sell, it's closer to 12; the reason this number is so low is that my wife and I know most of the successful buyers agents in our area, and all those buyers agents know us and our reputation.
When an agent in our area has a buyer in our price range, they call us first. They want to get into our houses, for several reasons -- quality of rehab, value, and ease of working with us. We often get competing offers the first weekend, and we often have a list of buyers waiting for our houses to finish up so they can have "first dibs."
Don't get me wrong -- getting your listing on the MLS is important; I'd venture to guess that 95% of our traffic that doesn't come from direct correspondence with our network comes from the MLS. But, the MLS (and any FSBO marketing) pales in comparison to working with an agent who has a strong network, a great reputation and the ability to market your properties.
In my opinion, you have two choices:
1. Find a great agent who has the ability to market and sell your property quickly and pay him/her the 3% (or whatever they want); or
2. Use a flat-fee broker and list on the MLS for $400.
I don't see any reason to pay 3% to a typical agent who is just going to list on the MLS and maybe send an email or two.
If you've been in this business for years and are consistently selling retail FSBOs "just as easily" as MLS listed properties, then you should write a book about how you're doing it. I've never, ever, ever seen anyone consistently sell FSBOs as easily as if the property were on the MLS, if only because you're cutting out 90% of your potential buyers by not marketing to buyers agents via MLS.
Sorry, I just don't buy it. And clearly you don't really buy it either, as you claim you've now become an agent for better access to network and leads. Why become an agent if FSBO is just as effective?
If you've been in this business for years and are consistently selling retail FSBOs "just as easily" as MLS listed properties, then you should write a book about how you're doing it. I've never, ever, ever seen anyone consistently sell FSBOs as easily as if the property were on the MLS, if only because you're cutting out 90% of your potential buyers by not marketing to buyers agents via MLS.
Sorry, I just don't buy it. [b]And clearly you don't really buy it either, as you claim you've now become an agent for better access to network and leads. Why become an agent if FSBO is just as effective?
A couple of things are different over here, in Estonia.
- MLS as such is widely accessible for everyone. For a small fee everyone, an agent or an owner, can list their property for sale there. There are smaller databases in different real estate companies, only accessible for the employees of the company, and most of the listings there are also available for everyone on the MLS.
- At least 4/5ths of the agents with something listed on the MLS are sellers agents. The seller has agreed to sell the property through them, they list it and show it, sell it. Buyers agents are rare.
- There are no exams or tests to become a realtor. There is a small regulated union of real estate agents, joining which requires passing an exam. Only 3-4% of active real estate agents, if that many.. are members.
Basically you can walk in from the street and present yourself as a real estate agent and plenty of them are doing just that. You can find/bring a client who wants to buy the property and you ask for $2000 USD from the seller because it's your client. After that the agent has to book the time for the sale at public notary, the buyer transfer the money to the escrow, and bang, t's sold.
The difference with an agent like that and the agent presenting a real estate company with good reputation, is that the latter usually goes for an exclusive contract with the owner and advises on selling price, process and sales strategy before listing their property.
Anyway, all the info, regarding statistics of deals and prices, about previous owners of the properties, is available for everyone, for free or for a very small fee. Just on different databases.
I joined a company again as an agent because of the networking opportunities inside the company, if that makes sense.
I also highlighted the main question in your text, Scott, that still remains. I understand things work differently in The States, but I would like to sell the idea to myself this time, that an agent can still be a valuable part of the deal. Maybe BP members can help me with re-framing that idea? :)
Silver -
I apologize -- I incorrectly assumed you were in the US, and everything I said was based on that incorrect assumption. Feel free to ignore everything I said, as I have no idea how the RE market works in Estonia (though it still remains one of my favorite countries to visit :).
Hi, Craig, since you are a broker yourself, so I think you can do all these works yourself and most likely you can provide better services to yourself than the agent did. So why don't you do all these yourself, and represent yourself's best interest?
Oh, you wanna free yourself from the work, now I see......
I got my broker's license when many of my clients whom I had done financing for started to ask me to represent them with sellers. That way I acted as their broker too and got a piece of that commission. It was a smart and profitable play.
But for my own investments I always used a broker. Here's why it worked for me in my MF properties:
The broker was also an investor himself and had both owned and managed a few properties. he knew how to analyze deals and talk with sellers. He knew how to write a good contract and practically did all the work for me up to the point where i needed to do a final analysis and sign the offer docs. He also acted as manager for a few smaller properties and was all around a helpful guy.
If you can find an agent/broker like that, you will find alot of your time is freed up to do better things. Well worth the commission split.
i hate when i keep seeing the word "flip" used (flipping is illegal if you did not know), flipping means putting a property under agreement and then selling it to another party without closing on it yourself first.
at any rate, if you became an agent thinking it will better enable you to obtain better deals for yourself in most states it would not be prudent for a few reasons involving liability as well as the costs to maintain a lic., ins., mls/board dues, C.ed classes, etc,etc,etc.
You would have been better of building a pro relationship to a local agent with experience whereby both of you could have reaped the rewards without jeopardizing yourself in the process.
besides the fact that nobody likes a HOG (including banks and asset managers)
Flipping is not illegal. Assignments of contract are standard in contract law -- not just real estate -- and there are plenty of other ways to buy and resell property quickly that are generally referred to as flipping. Non-investors, especially those who come from the banking and mortgage industry, have this notion that being a middleman in a real estate transaction is illegal, but in most cases it is not.
If you disagree, please cite some specific legislation that supports your belief...
I got my real estate license to allow me to obtain better deals, and it was the best decision I've made in this business. The extra liability is negligible, the costs are trivial compared to the tens of thousands of dollars I earn/save each year in commissions, and the continuing education classes aren't at all a big deal.
Again, it sounds like you are basing your comments off the beliefs of inexperienced investors and those outside the industry.
I'm not really sure what this means. Though I disagree that asset managers and banks don't like big players -- that's the whole point of bulk REO deals and packaging of assets by the big banks.
The most recent NAR stats state that REALTOR assisted home sales net an average of 30% more on price than FSBO home sales. This is counter productive to saving the 5 or 6% commission don't you think?
I take all NAR statistics with a grain (and sometimes a shaker) of salt...
They are a for-profit organization that has a vested interest in promoting their brand and their services, and as such, any statistics they generate should be met with major skepticism.
While common sense and my experience tells me that having a great agent (or even having your property just listed on the MLS) will greatly reduce your DOM, I'm not at all convinced that having a REALTOR representing you is more advantageous than have an non-REALTOR agent representing you.
Tend to side with J Scott on this one... NAR is many things, but a source of unbiased housing data it is not.
What's more, comparing FSBO sales (inexperienced market participants with limited ability to market their product) to Realtor sales is comparing apples and garden hoses. Not even in the same ball park.
What would be a terrific comparison for NAR to never do would be the comparison between Investor owned and marketed sales and Realtor sales, because that comparison might not show the numbers NAR is looking for.
If time to sell isn't a factor, you have the skills to market the property properly, and you're knowledgeable in negotiating and contract requirements, who could blame you? However, an experienced agent with a large pool of buyers and aggressively markets the property is probably going to get your home sold more quickly and for more money.
Supply & demand seem to indicate that the more buyers your property is exposed to the more quickly it will sell & the more money it should sell for. As an investor, if you can get the property in front of 1000's of potential buyers, then you should go it alone. If you only have a handfull of prospects, maybe you should consider letting an agent handle it for you. Also, as mentioned above, most buyers looking at FSBO's are doing so to save the commission, so you may be paying part of all of that as a concession to a buyer anyway???