First, here is some background on this deal. My wife and I are new investors located in Houston. This is the second home that we have rehabbed. I thought we made every mistake in the book on the first house, but after living through this second project, I now realize we hadn't even scratched the surface of stupid. I intend to write a detailed post mortem regarding this deal to help other newbies from making the same mistakes, but for the sake of brevity, here is the short list:
1) We bought a +$400K ARV house in a $275K neigborhood. This was an REO, and we paid $170K with a rehab budget of $82K and an initial ARV of $315K. Based on these numbers, we paid too much. However, after the lender's appraisal, it was discovered that the house was almost 1,000 sq ft larger than what was recorded, boosting the ARV to $415K. We were already under contract, so this may turn out to be our only saving grace.
2) Extensive work was needed, over $100K in rehab in all, much more than we should have taken on as inexperienced investors.
3) We took the wholesaler's recommendation on a general contractor. The pitch went something like this: "We have a long list of vetted, quality contractors that work exclusively for our investors. They know that if they don't perform, we will stop giving them work". As it turns out, the guy they recommended had never worked for them before, this was his first job for them. And we trusted him. After the dust settled, we were eight months into what was originally a two month project and were $40K over budget. We fired the contractor in month four and it took us another four months to complete the project and correct all the mistakes, shortcuts, and bad workmanship.
4) We over-improved for the area, believing that luxurious touches would hypnotize that perfect buyer with deep pockets who just couldn't live without this house. After all, who could walk away from a six-burner Italian gas range and an apron sink?
5) Oh, did I mention that we took out a hard money loan to buy and rehab the property? Nothing like writing a $3,000 check every month for almost a year.
Like I said, this is the short list. I want to make it clear that I don't blame the wholesaler, or even the contractor. We simply didn't do enough homework and due diligence, and that's our fault. We didn't seek enough advice from other investors, and we let our emotions overrule the numbers. The good news is that we learned some priceless lessons that we had to learn in order to succeed in this business, and we are very thankful for them.
So, we finally put this house on the market two months ago, opting for a FSBO approach that included an additional fee for listing on the MLS (HAR, Trulia, etc.) and also a contract negotion add-on from the broker who physically listed the property and manages the listing, e.g. price changes. All in we paid about $1,200 for the package. We offered a 3% commision to the buyers agent. We listed the price at around $480K, and had lots of showings the first month but no offers. At this point we have dropped the price by over $50K, and the showings have dried up. We went with FSBO to save on the commission because we don't think that a listing agent is going to be able to anything more to market this house than an MLS listing. At this high price point, I'm not sure how frutiful other marketing efforts would be, e.g. open houses, flyers, Craigslist etc. Not too many buyers want to pay this much for a house, plus this house is almost 5000 sq ft, further narrowing the field.
So my question (finally!) is, should we go with a listing agent to market and move this property? Will they do anything besides list it on the MLS, which we have already done? Or am I better off keeping the FSBO and continue to drop the price until it sells and just take our lumps?
I am looking forward to your thoughts. Thanks for taking the time to read through this!
My thoughts are that agents if they are serious in what they do have the leverage ability of Using HAR and their list of investors.
We keep a list of about 5000 investors and such that have found us and are in that business, normally when we blast out a property one of our agents is selling for an investor it gets pretty good traction because we do this before it goes on mls
You may want to try it and just make sure they are legit, check their online reviews and talk with references before Commiting
Thank you for sharing your story. We all need a reality check once in a while. It's not always flipping show success and easy money. Sorry you are in the soup a bit on this house.
I would at least call a quality agent/agency and get a BPO or CMA on your house. Get actual comps to verify your price. A good agent should be able to give you a 30-day price and a term price.
What I did in once is called a bunch of agencies and asked if there was a new and hungry agent that would take a listing for 1%. Found my agent on call #6. I also offered an extra few hundred in marketing expenses for them and a buyer's agent bonus of 1% if under contract within the first 30 days. I did get it under contract within 30 days and the house was 3 states. I'm sure the buyer's agent bonus played a large part of that.
Congrats on trying a FSBO on your own. I would have done the same. Network with folks in your area for good agent recommendations. A few phone calls were worth my time finding a lower commission listing agent. If you will have future business for them, it may even be easier. Good luck @Michael O'Byrne .
Another thing a Realtor can help you with is forms such as purchase agreement, seller disclosures, etc. While most Realtors are not lawyers, they are usually part of a local association of Realtors that has had their forms reviewed by lawyers.
You have it, in effect, listed. And you are offering the full 3% buyer's agent commission. My guess is your price is too high, or - in this limited inventory environment - you'd be getting showings and ultimately offer(s) via your current listing on HAR/MLS.
Hey @Michael O'Byrne . I always tell my clients (whose homes are listed on the MLS) there are four reasons why homes don't sell:
2. Doesn't Show Well
3. Doesn't Show Easy (no lockbox, weird showing hours, etc.)
4. Poor photos or lack of photos on MLS
In your case, I would have to say number one is your biggest hurdle. Having said that, according to NAR, "The typical FSBO home sold in 2013 for $184,000 compared to $230,000 for agent-assisted home sales."
Yes, a good realtor will absolutely do more than just put your home on the MLS and keep their fingers crossed. We don't get paid until you sell, so we have a vested interest in seeing it to completion as well. In addition to my entire marketing plan, my clients get the benefit of my staging advice, pricing tools, ability to negotiate the highest and best price with a highly qualified buyer (not the bargain hunters that target FSBOs), and professional expertise at running an escrow. An agent's brand, and the amount of advertising it does, as well as their personal and professional network cannot be underestimated either.
There's a old saying and that's "you get what you pay for." Unfortunately, you are experiencing the result of that adage. Thanks for the candid story too, btw - takes guts!
SOME Realtors actually do a lot behind the scenes. Have you had any open houses, etc? Interview a few of them about listing your property and see what they say.
Did you use a Realtor with your purchase, or did you just take the advice of the wholesaler?
Sorry to hear about your situation, sounds like many things went in unexpected directions resulting in a sticky situation. I agree with @Sharon Tzib, as price sounds like it could be your Number 1 problem. Even if a house seems like it is listed at market based on $/sq ft, the larger a house is the less $/sq ft it will bring in, if it is in a neighborhood with smaller homes. Therefore, it may look like you have a good price, but you may still be overpriced. Additionally, over-improving the house is always a bad idea. You should view comparable properties and look for the finishes they are using to blend in with the community. While the occasional additional upgrade helps sell a home, over-improvements generally result in no return for your investment and sometimes turn buyers off that may be otherwise interested.
Anyhow, to answer your question, a good realtor will do more than just dump the property on the MLS, they can assist you with pricing, advertising, open houses, design, etc. Make sure you do your research to find one, good realtors are few and far between. It would also help greatly to have an impartial opinion on the true value of the home, so you can get an idea of what it will realistically move at.
I always recommend people take or set up real estate investing in a systematic, methodical approach. Start out small so that you learn all that is involved especially for fix and flips. There is a whole world you have to learn about when it comes to dealing with, working with, and selecting contractors.
You obviously started with way too big of a project. 5000 sq. ft is for those that have plenty of experience and will be working with contractors that have a history of good performance and doing projects within budgets and within schedules on their personal projects and they know them well.
At this stage I would have a sit down with and interview several or a least a few real estate agents and listen to them about what they recommend you do in order to get your house sold. Your hard money lender is very happy because you made money for them other than pay them off for their loan yet. Probably if anyone one were to make money off this deal they will be the only ones. You unfortunately will probably have to live with the lessons and the loss. It still sounds to me like you are financially well enough to keep on going and hopefully this deal does not kill your ambition to be a real estate investor.
You want to be right in the middle of the market you are in not be the white elephant in the room.
I imagine the hard money you borrowed is probably eating you alive. Sell your house whatever it takes and settle that loan.
By continuously dropping the price you in effect spend or lose the same or more money that you would by paying for the professional services of a good real estate agency. They really do have allot or needed resources to effectively market your property.
Fact: You need help selling the house.
The only other consideration I might suggest is if it make sense to rent the house. You are in a very tough situation now.
I feel your pain. I have known of a few people who have done the very same thing as you so you are not alone. If you get out of this somewhat ok start out more modestly.
If you have $10 spend $3 working to make your money grow. Do not spend the $10 thinking you will make your money grow that way because there are many risks.
As always, I am loving the honest and candid feedback here. Based on all of your responses so far, I will research some highly recommended listing agents in the area and conduct interviews.
I did order an appraisal a couple of weeks ago, so I should have the report back within a few days - this will serve the dual purpose of a pricing reality check as well as suppporting evidence at the upcoming ARB property tax review. The HCAD tax appraisal was almost $490K, which I consider to be way out of line.
If we don't receive any offers in the next few days, and the interviews go well, we will likely hire a realtor. If the appraisal shows we are overpriced for the area, we may try another price drop first.
Thanks again, BP community!!
Good luck with the listing Michael. Thanks for sharing your experience.
Sorry you had such a terrible experience. We do alot more as real estate agents than what people think. First you need to know the FMV. I'm not sure how you did valuation on this property. Have an agent do a BPO or CMA. The amount you spend on rehabbing does not translate into value. Did you have the property inspected before purchasing it? Were the contractors licensed to perform the work? As agents we don't like to get into the middle of a mess like this. As agents we guide you through the home buying and selling process from start to finish.
Most investors under utilize our skills or just want us to look for properties with no real committment. That is why agents don't like working with investors. I have investors that I work with. I have them sign a buyer representation form or I keep it moving. No time for games. My investors don't look for other agents because we have a mutual understanding and loyalty to each other. My point is find a good agent.
I have sold three times with FSBO. but the next time I sell I will list with an agent While I agree with you that it seems outrageous to pay thousands of dollars for somebody to do a few basic tasks, there are some realities to the business of selling houses that you cannot get around at least in my area, that is that realtors are A tightknit group once I saw that houses with no improvements were selling for more money than I was getting I realized it is Pennywise and dollar stupid to try to sell it myself you just don't get as much money without a realtor realtors will assume you're stupid and lowball you, try to run up lists of repairs or just not show the house. What I recommend is to find the top performing agents in your area there are a handful of people around me who sell several hundred homes per year These guys and gals usually try to sell their own listings first and they tend to be the better sales people I noticed when I was for selling by owner not one time did these heavy hitters show my houses. they sell their own listings List with one of them and you will sell
find a good agent, and a unicorn that farts rainbows while your at it. Sorry agents, but the vast majority are not "good". Hence the universal bad reputation of re agents. Continue with your self promotion and hit social media with that 3% to ANYONE who brings a buyer. Besides that make sure price reductions make it to the mls
A good agent can help you - but in my opinion, they won't help in the way you think they will. A listing in the higher price range needs certain marketing tools: professional photography (no - your iPhone or even that DSLR your sister got you do NOT count), professional staging, BROKER's open houses - not regular open houses. These will sell your house. I would add the fourth thing of a meaty BAC, but you already have that at 3%.
First, call the contract agent company you used to list on MLS - see if they will publish broker's open houses. These are usually on some sort of schedule based on your neighborhood - its not like public open houses that you have on sundays! If they can do that, then the next thing you need is a stager. No one likes paying for staging - but in my area, when we go over the 500k mark, we get professional staging. Smaller houses we stage ourselves, but for the higher end market, they need to see it filled with the type of furnishings they WANT INSIDE THEIR HOUSE - not the stuff their cheap friends have from ikea. Once that is in place, hire a professional real estate photographer - someone who knows how to shoot a house, and make it look like everything you know it is.
Now see, a good agent will line all of that up for you. And then sell your house. Get a good agent, and make sure to get business cards from their photographer and stager - so perhaps you can do it yourself next time.
OH - one more thing - if you don't already have a lock box on the front, get one. Get one and have the agent add "Text 123-456-7890 for combo" with your cell phone. This will allow you to keep tabs on who is showing, and makes it easy to call back for feed back. Did I mention that you should always get feedback from the showing AGENT after each showing? Not the buyers - they don't even know what they don't like. Ask the agents.
And no, I'm not an agent.
Free eBook from BiggerPockets!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing