Newbie investor pitfall: buyer vs seller agent
My business partner @Christina Coleman and I are very fortunate to have a real estate agent who is also our fix & flip mentor. She's experienced in this area, and has sort of adopted us like another mom. :) She's got practical knowledge, and has done so much for us while we've been stepping into REI. Plus she's hilarious and sweet and we love her.
Our agent had been making a number of unsuccessful "low ball" offers on properties on our behalf, maybe too low (I'm admitted the super-conservative math nerd of the partnership), when Christina noticed a property on her way to work that had a real estate agency sign in the yard, so she makes the call (yay, another offer!)
The agent is in a meeting and promises to get back to us, and she doesn't. Hmm.
We check the MLS and it's not there. A week or two later it's still not there. Hmmmmm.
Eventually, we notice that the sign has two agents on it. One on each side. We call the new number, and it's got a terrible connection. We finally get the agent and she's out of the country, and gives us a local agent to show us the property. Great! We're finally getting somewhere.
Christina calls the agent, says she wants to see the property, and asks if we need to bring our agent. She says "No, I can let you in to see the property."
We show up at the appointment, and tell her we are business partners. She lets us in and we do a room by room set of pictures and extensive notes about what we see that need rehabbing. It's old, full of books, papers and old food, but otherwise it seems really solid.
When we finish our inspection, the agent says that if we are ready to make an offer we can sign it on the seat of her car.
Frankly, my internal alarm was raised. I'm a newbie, but I respond very negatively to subtle or obvious pressures to buy. Don't get me wrong, she was nice, but she wasn't really looking me in the eye, her speech delivery wasn't smooth, and there were already enough small red flags about this place that I wasn't ready to sign.
Also, I asked her outright, "Aren't I going around my real estate agent if I do this?" She said yes, I was, but since we were real estate investors (something she assumed, because we never said it out loud) it was "ok".
It didn't feel "ok". It felt shifty, and dishonest, and disloyal. Plus, I was getting a hairs on the back of the neck feeling about this whole deal. I couldn't put it into words, but I wanted to prove to myself that this was legitimate. After all, it's not on the MLS, the official agent is in another country, and the selling agent was basically encouraging me to cut my agent out of the deal.
We went back to home base, and I got on the Jefferson county website and did a little searching. I felt like this house and this purchase might be legitimate, but I wanted to talk to my real estate agent.
I told her the story, and she really appreciated my loyalty and honesty. After calling the local agent about submitting my offer, she told me that the local agent got hostile with her. She lied, said that we told her we were investors, said that we never told her we had an agent, and said that we had looked at this property a year ago (no idea why, she said we new about her cats... it was the cat litter and cat food that told us that). None of that was true.
Our agent gave up on the local agent and called the out of the country agent, and it soon became clear that the "selling agent" was actually acting as the "buyer's agent" in this contract. Essentially, she was going to earn the commission my agent would have earned, while the other agent would earn the selling commission.
If I hadn't listened to my gut, then I would have cheated a trusted friend and mentor out of FINALLY earning something for all her valiant effort and care, and I wouldn't have saved ANY money on the deal.
Frankly, getting both the buyer and seller commission isn't unethical. It happens, and for agents it's really awesome.
But my agent said that a lot of fishy stuff was going on here, and I was wise to smell it out. In Alabama, real estate agents are not supposed to put a sign in the yard if its not on the MLS. They're supposed to clearly represent themselves to the seller and the purchaser. They're also, perhaps just as a professional courtesy, supposed to respect other agents who have signed agreements to represent their client.
This local agent really had zero stake in this sale, except to split the commission the seller would get from this deal. I don't personally fault her for trying to get more, but it opened my eyes a little wider about the swashbuckling game of real estate.
Either way, the moral of the story is, be true to those people who are your friends and colleagues. Even if I could have saved 3% on the purchase price of this house, the damage I would have done with the relationship we have with our friend and mentor would have been awful.