Agent asking for $5000 upfront compensation. That normal??

70 Replies

Hi I really need some feedback on this. I was looking to buy some out-of-state rental properties and got introduced to this agent in August when I did a field trip. Since then he has been sending me some off market properties and market analysis, which was very helpful. I was on vacation for the entire month of Sep so we lost contact for a while, but in early October I came back to the state and was ready to do some business again with him. 

Long story short, we've made so far 5 offers together (2 are for properties he sent me and the other 3 are ones I found on MLS myself). They were all multifamily homes and my initial offers were at about 80%-90% of the asking price but i told him i am open for negotiation. He wasn't quite happy about that and told me there is no chance if I keep low balling (i later noticed 3 out of the 5 properties I offered are still sitting on the market unsold as of today, meaning my offers weren't that low actually as the units were either overpriced or the sellers were just being greedy). The agent told me this is not how they normally do business here and suggested me go under contract first and get the inspection started. I can negotiate again in the inspection phase or just back out if I don't like the results. I started to agree with him as most multifamily here don't even let people view inside unless it's under contract and that seems a good strategy to at least have the ball rolling. So one day he sent me an off-market deal (it's in another city 1 hr from his town) and told me it's in a high demand area and this is a great opportunity; however he said the seller is quite firm on the price (he is a dual agent in this deal btw). I trusted his words, offered full asking price and scheduled inspection the following week. This place is about 5 hr drive from my home but I still decided to take a trip as this is going to be my first large investment out-of-state and don't want to take it lightly. When I got there I was quite shocked by its below-average condition and being in the worst part of town - totally unlike what the seller had disclosed before. My wife wanted to cancel the deal right away but I said let's just wait til the inspection done before making the final decision. A few days later the inspection report came out as expected. All roofs need to be redone; hvac needs complete overhaul; one unit has serious termite issue; another unit might have problem in sewer line- just to name a few major ones. I think this is enough reasons to back out of this deal so I told the agent we'd like to cancel. Now all of a sudden he was like changed to another person and started saying negative things about me- he texted me something like new investors like me will never be able to buy anything and he felt disrespected as my realtor bec I didn't discuss the report with him. I apologized and offered him a thorough explanation of why I think it won't work but he still wants me to order a separate termite and sewer inspection to better evaluate even though there are already plenty of issues to worry about... Anyways, I cancelled the deal but told him we have other things in the pipeline because I am constantly searching for new deals and let's just move on.

Today he asked me to sign an exclusive buyer-broker agreement with $5000 non-refundable compensation exp. Jan 2018.  (future commission can be credited against it). I dont mind signing the exclusive buyer-broker but the $5k thing bothers me. The market we are looking at has an average home price of $50- $100k per unit so it means I will need to buy at least 3-5 units within the next 2 months in order to get the credit back otherwise it's for him to keep. I never heard of such thing but I'd like to ask for feedback here in the forum. Does this sound normal? I know he's frustrated by the fact that the deal didn't go through, but I am also frustrated being mis-informed at the first place and wasted time/money on the inspection etc. I treated that as a learning process and didn't want to blame anybody, but he's apparently not happy about it. Today we had a phone conversation and he said he has kids to feed and is not working for free. We are currently in negotiation for another deal but sounds like he's not working on it unless I sign the agreement... What should I do?  I don't feel this kind of relationship will benefit anybody down the road. Should I switch agent at this point? 

Run , do not walk to the nearest exit .   

Definitely find another agent.

Agreed! I totally get him wanting to sign an exclusive (I tend to think of them as implied, but w/es) but the 5k? Fishy, fishy.

(817) 366-3928

Find a new agent asap. I'd be shocked if the agent's broker actually allowed him to do that.

Agents who are broke tend to have one thing on their mind (It starts with a "C", and rhymes with "omission").

I am a realtor myself, so I'm not knocking agents (broke or otherwise) by any means...I'm saying find one who puts your interests above their own. That's supposed to be a central tenet of the job.

Jeff Copeland, Broker in FL (#BK3326487)
727-235-7988

@Jeff Copeland I first thought it's illegal as it's against the definition of fiduciary duty. But maybe it's okay in some states I just don't know. Still sounds fishy though. Thank you for your input!

Basically what that agent is thinking is that he does not believe you are going to close a deal. So he doesnt want to waste a bunch of his time for nothing.  I take a different angle when I dont think someone will close...I just get rid of them as a client, either by telling them I dont think we are a good fit, or I just stop sending them properties and hope they dont contact me.

Also if you are looking 5 hours away, housing stock conditions could be drastically different than what you are use to. I do business in both the Boston area and the DC area.  I doubt anyone in the DC suburbs would ever buy a house in the Boston area suburbs due to what a DC area person would consider the Boston properties to be in very bad condition property, when in Boston they view the same property as being in great condition.

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635

Lots of bad agents, dont stress it.  take this as an opportunity to interview and get good at hiring new agents, filtering the bad ones, while trying to be as respectful as possible for their time.

No, that’s not normal.

I've bought all 3 properties through the same agent and never had to sign an exclusive buyer/broker agreement, but she's retiring soon.  How common is this?  What if I have to sign one, then decide I don't like my agent?  I'm not comfortable with this idea, personally.

Originally posted by @Jody Schnurrenberger :

I've bought all 3 properties through the same agent and never had to sign an exclusive buyer/broker agreement, but she's retiring soon.  How common is this?  What if I have to sign one, then decide I don't like my agent?  I'm not comfortable with this idea, personally.

 Actually in a number of states its actually the law, an agent cant show properties without one signed. 2 of the 4 states Im licensed in this is the case.

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635

@Russell Brazil , thanks for answering so promptly.  I wonder why it's required in some states.  That would REALLY suck if you sign, then don't like your agent.  It seems like it gives them an opportunity to be lazy if they so choose and I'm stuck.

agents don't have a fiduciary standard...our standards are of Agency. Wealth managers like myself have a fiduciary standard. That being said...

It's not illegal, is it right? NO. Non-refundable? Get out fast. 

No way! Agents are paid when they deliver. Give him your property criteria, he has to deliver property to fit. It’s your money, you decide if it works for you or not. Show this agent the door.

Find a new agent immediately.

@Sean Yang You said one thing that might give me concern if I were your agent.  You said that your initial offers were "80% - 90% of asking price".

I don't know whether your market conditions are like mine, but I just ran the numbers on MFRs sold in my town (Plymouth, MA) and Boston over the last 6 months to look at the percentage of sale price to list price.

Results: 

Plymouth MFRs sold in a range of 96.5% to 111.1% of asking (average 101.1%).

Boston MFRs sold in a range of 58% to 143% of asking (average 99.6%)

If the markets you're looking at are similar to mine, I can't blame the agent for thinking that you're going to burn up a lot of his time and gas and never get an offer accepted, which is most likely the reason he's looking for the $5,000 "retainer".

That's not standard practice around here, but I do understand his reasoning.

It's always useful to try to put yourself in another person's shoes.  Agents get paid only when a deal closes.  Nobody pays us a salary and we cover all of our own expenses.  That's not just the obvious wear and tear on vehicles, but also the opportunity costs of working with clients.

I'm more than willing to work with retail buyers who are properly qualified (solid, not fake pre-approval) and will invest whatever time and effort it takes to get them the home they want.

I'm happy to work with investors as long as they're not asking me to send out a flood of lowball offers.  In a seller's market like we have now, that's just a waste of everybody's time and 80% - 90% of asking price definitely meets the lowball threshold.  There are exceptions of course, as in that "58% of asking" deal in Boston.  I handle these on a case by case basis.

Bottom line is that every moment I spend working with a lowball investor is a moment I can't spend working with a buyer (investor or retail) who will actually close.  

Charlie MacPherson, Real Estate Agent in MA (#9532146)
781-412-4151

Personally, I don't think that 80%-90% is lowball, especially 90%.  If that's what you need to make the numbers work, that's what you need.  (Don't just make up a % to discount every property.  You could still lose money in the end because it might not give you the cash on cash or cash flow you need.)  If you're not ensuring you'll make money, you're just a buyer, not an investor. 

Now, admittedly, not all places are easy to get a 20% discount in.  And (obviously) not all agents are willing to do the work.  And perhaps you should look at what other folks are paying in your area, but there are plenty of stories on the BP podcasts about folks paying less than 80% and Brandon has openly talked about a deal where he paid something like 50%. 

Now, to get deals like that, you are usually shopping for fixer uppers, but perhaps you should first start by interviewing new agents.  Let them know what you plan to do.  (Explain that it's based on how the numbers work, not that you are just randomly asking for a certain percentage off.)  Find a good fit for you. 

Brandon admits that a lot of his offers are turned down, but it's worth it to him.  But he says it's only like 15 minutes of work to put in an offer, so his agent doesn't mind because he knows Brandon is a serious buyer.

Good luck!

Originally posted by @Jody Schnurrenberger :

@Russell Brazil , thanks for answering so promptly.  I wonder why it's required in some states.  That would REALLY suck if you sign, then don't like your agent.  It seems like it gives them an opportunity to be lazy if they so choose and I'm stuck.

 Just because you sign doesn't mean you can't fire them. If not happy find a new one and sign with them. Simply send the first agent an email stating you are terminating the relationship. 

John Thedford, Real Estate Agent in FL (#BK3098153)
239-200-5600

I don't see that your offers are "low ball".  They are strategically placed offers.  You offer a price based on your figures that are profitable on paper.   Making offers based just on the asking price is not a very good strategy.  

So, it would be wise to not ever use that term.

In reality I low ball when I can what can it hurt. I understand the realtor not wanting to waste their time but at the same time if they get 3-4% of the sale then they get repeat business they should take your offers and run with it. That's what they are getting paid to do.  My last deal I went to the listing agent because I was not happy with my pervious agent. That went well they still got a 30k check and I got a deal 5000$ lower because the agent took it out of their share. May not always work out but Its my money I'll low ball if I want to. The worst they can say is NO!

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