Ok realtors I need some advice

Devin Haertling · 2017-06-21T20:19:50-07:00

@zane belden and I have been working on a deal to buy a 4 plex. This process started 6 months ago. We made contact with our realtor through Zillow and she showed us 3 properties one day and we put an offer on one of them. The deal never went through so 5 months later we offered on the same property and still no luck. Now the seller has contacted me through facebook and wants to sell at our asking price of 160K (list price 200K) but wants to leave realtors out of the equation. (He doesn't want to pay the commissions). How he is getting out of his current listing with his realtor is a whole other discussion.In a nut shell for those out there that will ask: He is transferring the title to his daughter so the current listing contract is void with his realtor. (I know it sounds super shady) We are probably going to move forward with the deal but we feel bad about snubbing our realtor after the time she put in it. but if we closed the traditional way then the cost would have been bore by the seller.My question is this: If we give her $1000 in amazon gift cards or something else of equal value that she would use (so she doesn't have to claim it) would that be sufficient? Would you appreciate a gesture like that or be upset you were left out?Let us know what you thinkThanks for the input.

Andrew Herrig

Rental Property Investor · Dallas, TX · Member since 2012 · 502 posts · 263 votes

9y

@Devin Haertling Relationships are everything in this business. Take care of your realtor. Take care of the seller's realtor. If you can't or don't want to pay the 6%, make the seller pay it or don't do the deal.

2 Reply

Steve Vaughan

Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes

9y

Here we have a shady seller and a stupid one to boot. Ethical arguments aside, transferring title to his daughter will cause all kind of problems. To avoid doing the right thing and paying the realtors less than $10k, he is opening himself up to gift taxes (at 55%) and title problems for you.

Don't tell me- a QuitClaim Deed to the daughter? What will she offer you? Another quitclaim. She will quit her claim (which is weak and shady) to you and you'll be left with bupkis.

As many others have said - what length will this guy go to save a buck? Be prepared for him to stab you in the back somehow as well @Devin Haertling! Starting with a weak deed.

3 Reply

Bill F.

Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes

9y

@Devin HaertlingA boss of mine had a saying “If there is doubt, there is no doubt” and this is possible the perfect example. By having the smallest sliver of doubt about this deal tells you it’s not the right course of action.

You can ask him to honor his commitment and do FSBO when his contract is up, but I bet he'd try to find another buyer. The real question is should you even do business with this guy? Don't get caught up with how good of a deal it is. Other great deals will come along.

2 Reply

Robert Afra

Investor · Solana Beach, CA · Member since 2016 · 25 posts · 17 votes

9y

we all agree how the seller is handling the realtors is wrong......a different but maybe more important question is what does the seller have up his sleeve that he may not be disclosing to you??? if after all this time, he still hasn't sold in this market.....my concerns would be:

1. did this property fall out of escrow with another buyer? if so, why?

2. is there something about this property that you didn't notice?

3. are you paying too much?

just my thoughts....

0 Reply

Devin Haertling

OP

Investor · Nashville, IL · Member since 2016 · 79 posts · 51 votes

9y

Ross Ayesh and Robert Afra The property is top notch as far a finishes. Granite countertops and stainless steel appliances. From the looks of things in the basement it has all new electric and plumbing total rehab 7 years ago. New HVAC within last 7 years and new roof in 2010. The building itself is very old. I would guess 1920s but he has exposed brink in the downstairs units and 15 foot ceilings. A very industrial/loft feel. It has to pass city occupancy inspections with new renters and he has passed inspection each time. The knocks on this place: Close to a rough neighborhood-on the edge of the nice area creeping into the sketchy area (A class property in a B area) Units are 2- 1 bed/1 bath 2-2 bed/ 1 bath His total rents are 3000 per month which is on the high side of the market. I know these rents are accurate. When we looked at the place I talked to the tenant and confirmed what they pay. Property managers in the area said I would have a hard time replicating the rents in the future. I think this is why he is having trouble selling at 200k but at 160k its a good deal at 10% cap rate after we did our calculations.

0 Reply

Robert Afra

Investor · Solana Beach, CA · Member since 2016 · 25 posts · 17 votes

9y

what are your assumptions to have arrived at a 10% cap rate? are you using market rents or the contracts that are difficult to replicate?

is there a possibility he "inappropriately" inflated the rent but instead gave the tenants a "month of free rent"? that inflated rent then can pay him back in multiples, knowing that it will impact his sales price.

1 Reply

Mike CumbieBusiness Member

REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes

9y

@Devin Haertling,

"What about going about it this way. I tell him to continue listing with his agent until the contract is up. If he hasn't sold then he could get back with me about selling it to us "for sale by owner"?"

I can't speak to your contract or the one he signed. However ours has a section where we add verbiage if sold to someone that was introduced by realtor within X days of listing then commission is still owed (I usually double the listing contract IE 180 extra days)

If it happened to me and I was the buyers agent. I would wait until the property sold (Letting you guys do all the work and getting all wrapped up in all the inspections and city issues and appraisals and fighting over leases etc). I would then go to the listing agents broker and file for my commissions. The listing agents broker would look at it and go "oooof" and pay my broker (then I would be paid). Then they would sue the seller for a breach of contract and get their portion plus court fees.

It actually happens more often than you think. You and him may believe that there are simple little ways out of contracts but they are not just handshakes anymore (Too many people worked around just a handshake and hosed the other party like his intention). In my area there is plenty of case law to support the buyers agent and sellers agent in this case. Believe it or not ours actually has verbiage about transferring it to an LLC in an effort to avoid commissions.

As far as giving her Amazon gift cards or something you are now trying to drag her down with you into an unethical place. She would then be accepting some form of commission (about 25% of what she was owed) for the purpose of skipping on taxes and skipping on her broker. I understand you are asking and trying to do somewhat of the right thing and I am by no means judging you. But you have to decide how your business is ran, that is totally up to you.

Good luck in whatever you decide!

5 Reply

Account Closed

Rental Property Investor · North Conway, NH · Member since 2016 · 69 posts · 16 votes

9y

I've encountered a similar situation. My suggestion would be to maybe just pay the realtor the commission they would've taken home. They'll be happy because they got paid their full commission plus they don't have to do any work.

What are your other options? Overpay for the property? Ignore the agent? Not do the deal?

Seems like neither way is a win.

0 Reply

Tim Reavis

Real Estate Agent · Wilmington, NC · Member since 2017 · 11 posts · 7 votes

9y

With a Seller like that, you should probably have a Realtor represent you.

3 Reply

Deke Belden

Investor · Olathe, KS · Member since 2016 · 11 posts · 5 votes

9y

My concern wasn't you short changing your realtor, but rather risking your name being "sullied by association" by the seller short changing his realtor. It may not be fair, but sometimes your name can be tarnished by another's actions simply because you have done business with him. Unfair (and unfounded) accusations can be difficult to overcome. I think your realtor would probably be ok with walking if it was explained to her, but realty is a small world, you never know how the seller's agent could react. Ask yourselves "if I were the seller would I be ethically ok doing this?" If not, is this a guy you want to do business with?

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Dovid Staples

Rental Property Investor · Chandler, AZ · Member since 2011 · 145 posts · 79 votes

9y

If he's doing that to his realtor imagine what he'd try to pull on you

1 Reply

Lesley Resnick

Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes

9y

The seller is probably legally ok to do what they are doing. Pulled it off the market, transfer ownership, let the contract expire, etc.

However, if the agent introduced you to the seller via Zillow, they should be compensated. It seems like the right thing to do. There are plenty of people that spend a career screwing others over and this is one of those opportunities. This is way to small of an industry and the investment time line to long to develop a reputation as a shady person. I would be concerned that given the opportunity, the seller is looking to do the same thing to you

There is enough money to be made that everyone eats. There will be a moment when you are going to need something from an agent and doing the right thing will be met in kind.

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Christine Kankowski

Real Estate Broker · Temecula, CA · Member since 2014 · 994 posts · 783 votes

9y

I would tell the seller that you are not comfortable doing this deal without the agents, since they were the ones that got the initial deal together. (Did your agent show you the property? Did your agent write up the offer? How many phone calls about this property did the agent have with you or the sellers agent?

This deal came about because you saw it. You saw it because it was posted online by the agent. The agent (Listing) deserves to get paid)

Also, this seller seems shady, What will he be hiding from you? if the daughter never lived there , she would not have to disclose as much as the seller who actually knows more about the property. You want full disclosure.
I would pass. I prefer to deal with honest , upstanding people in all aspects of my life.

0 Reply

Ariel Smith

Rental Property Investor · San Diego, CA · Member since 2016 · 306 posts · 205 votes

9y

@Devin Haertling I would be more concerned about transacting with this person unrepresented more than the commission side. A Realtor offers each of you a certain level of protection in the transaction and I would never want to go into a transaction with someone like you just described if we did not each have representation.

0 Reply

Account Closed

Investor · Boca Raton, FL · Member since 2017 · 108 posts · 18 votes

9y

a little off topic lets say the realtor was close relative...can she waive the commission on his/her end? if they chose to and wanted to

0 Reply

Joel OwensBusiness Member

Moderator

Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

9y

Devin so this is a 4 unit? Landlord pays water?

Property manager says 3,000 a month is high for all units with market rates.

So if you use 2,500 X 12 = 30,000 gross expected income

If landlord pays water generally lop off 55% of gross income for property management, turnover, repairs,etc.

30,000 X .45 (55% costs) = 13,500 NOI before any debt service if not paying cash.

13,500/160,000 = 8.4% cap rate going in

Now since the building is from the 1920's there could be all kinds of deferred maintenance that needs to be a credit from the seller or a reduction off of the price. 4 units are not typically valued on cap rate but the comparable sales method used with appraisals.

How much capital do you have for investing? If you go for this property is it a starting off point or could you buy ten other properties if this property had an issue after purchase? Are all the other 4 units in the area selling at 6 caps and this is the only 8 cap?

If you have much more capital and something goes wrong then the affects tend to not be as amplified. If this is your only property to start then it is critical that the first property is very solid as a positive base of cash flow for more properties. I have seen other investors on here where they buy what they thought was a good first deal and turned out to be mediocre. They then had to wait years saddled with crappy mortgage debt for the asset and minimal cash flow to try and buy something else.

If this is not the only property in the market it seems like you might come out better searching for a property with (less hair on the deal) as we say in the business.

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Shelly Doris Milburn

Property Manager · De Soto, KS · Member since 2017 · 58 posts · 30 votes

9y

I may be repeating what others have said, but, here goes.

1. Your Realtor will bet on you like you bet on them. See, Golden Rule.

2. Read your contract. Buyer agency in my area states that an agent is owed a commission if they have procured cause. Additionally, our local contract calls for a certain number of days after the agreement expires that if a deal is reached on a property your agent showed you they are owed a commission.

3. Talk to your Realtor. They are in this game for the long run, repeat business, referrals, etc. They cannot afford to work with clients that snub them. They also cannot afford to be a hothead. So, they know circumstances change.

4. Buyer beware. If a seller is willing to take short cuts to save money on a listing after they entered into a contract they may be willing to take short cuts and potentially deceive you.

5. I got very sound advice from a mentor - Never jump over dollars to pick up pennies.

Good luck with your deal! As an agent I have walked away from deals where I procured cause because it was best for my buyers. I have also ended relationships with customers who I felt were not treating me w/respect in business deals. Somewhere in this deal there is a win-win...you just have to find it.

1 Reply

Sharon Marquart-Glasshof

Real Estate Broker · Bartlett, IL · Member since 2014 · 2 posts · 1 vote

9y

I would feel bad about doing the deal and know that if the agents do find out that you may not have a lot of Realtors willing to help you in the future, for fear that they will work for you for nothing. How would you like to have your commission or paycheck cut just so your boss could get a better deal leaving you out of it? You must think not about the now but about the future if you are going to continue to invest.

0 Reply

Jade Henderson

Real Estate Agent · Sterling, VA · Member since 2011 · 6 posts · 3 votes

9y

Hi, All. I am a licensed real estate agent in Northern Virginia. Simply put, if you are struggling this much with the decision as to how to handle this, your gut is probably telling you not to do this deal. There are so many deals out there. When you do the right thing, great things will happen for you...every time. Doing things the wrong way (i.e. deeding the property to the daughter to get out of the agreement; paying the agent "on the side") will cause problems down every avenue for everyone. Good luck!

1 Reply

Will BarnardPro Member

Moderator

Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

9y

If my estimation of the consensus here is correct, none of your ideas/plans should move forward. Paying an agent on the side violates the agent's contract with broker and they risk losing their license. Hardly worth it for a few dollars. Having the seller deed thevproperty over to daughter then sell to you to avoid agent fees could easily be proven in a court of law as intent to defraud the listing agent or selling agent (or both).

You should never consider moving forward with this deal based on those terms.

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1 Reply

Jay Dean

Investor · Manvel, TX · Member since 2016 · 133 posts · 54 votes

9y

If it looks like a duck and quacks like a duck, it's a duck.

If it seems wrong, it's probably wrong.

I am in the camp that chooses to do the right thing and avoid shady deals / shady people. The are plenty of ways to make money without doing this kind of deal.

0 Reply

Joseph ODonovanPro Member

Property Manager · Ridley, PA · Member since 2017 · 427 posts · 449 votes

9y

I would run from this deal for all the above reasons. I'm no lawyer but here is another reason; if the sellers agent gets wind of exactly what happened, he could engage legal counsel and file suit against the seller AND you for "tortious interference". Run, don't walk.

0 Reply

Richard Keeperman

Real Estate Agent · Boca Raton, FL · Member since 2016 · 2 posts · 0 votes

9y

It sounds like the listing expired. However on most listing contracts if the listing broker showed you the property 180 days after expiration she is still entitled to commission. It depends on the State, I am using my state Florida as an example.

0 Reply

Devin Haertling

OP

Investor · Nashville, IL · Member since 2016 · 79 posts · 51 votes

9y

Ok BP. This is why I love this sight. So much useful info in the last 24 hours. Thank you all for your input.

This is how we moved forward.

First I contacted my agent and let her know exactly what had transpired over the last 24 hours. She was very appreciative and almost sounded surprised I clued her in to what was going on.

Then I contacted the seller and told him the deal could not move forward without the realtors involved. He was very understanding and said that was not a problem but he would not be paying the commissions. That cost will have to be bore by us if we move forward.

The selling price would be 160K. His current contract is a 5% commission and he is stuck on the fact he absolutely wants to walk out of closing with 160K in pocket. He will not concede anything else because he came down 40K on the list price. I have a feeling based on the condition and the fact the last tax bill fair market value was 176K that it will appraise close to 180K (hoping for something really nice in the 200's but that is probably dreaming) If it does come in at over 200K then my bank will let me purchase with no money down. (If thats the case then its a definite no brainer)

This means we pay his closing costs, both commisions, and we pick up the tab for all of 2017 taxes. He is still paying 2016 taxes.

So there it is. We have to decide if the above terms are a good enough deal to move forward.

I'm thinking we will still proceed with the deal. Running the numbers it seems like a good deal. I know some others have mentioned deferred maintenance but the whole building was completely renovated 7 years ago from the HVAC down to the plumbing and wiring. The roof is 6 years old so shouldn't be too much maintenance or cap ex but I know there is always the unknown.

Again thank you all for your input and I feel at peace moving forward with the deal if we so choose.

1 Reply

Jason Kudo

Real Estate Agent · Pasadena, CA · Member since 2017 · 276 posts · 255 votes

9y

Devin Haertling , just my opinion but it sounds like you are focusing so much on the numbers that you are overlooking the intangibles: the guy is shady, period. Moving forward with a deal knowing that the guy is shady would put you in the same circle as him. Whether you believe this to be true or not is irrelevant because others will perceive it this way as already stated in numerous previous responses. I'm already questioning your ethics from this one thread. Shady deals with shady. So the question is this: are you shady? If not then prove it. Is this one deal so important to you that you would compromise your reputation? You have already attached your name to this situation by posting on BP and now this thread will pop up with a simple google search of your name. Your career, your choice but your choice will have lasting repercussions, good or bad. Is short term gain worth long term damage?

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Ok realtors I need some advice

Ok realtors I need some advice

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