Not paying a realtor?

Buying & Selling Real Estate
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Not paying a realtor?

Justin SilverioPro Member
Developer · Andover, MA · Member since 2008 · 1k+ posts · 489 votes

I got a call yesterday from a homeowner who wants to sell their home. He owns the property free and clear and is willing to sell it to me for $60k. Unfortunately, the property is currently listed with a RE agent (listed for $150k) and the contract doesn't expire until the end of March. Since the homeowner would prefer not to pay the commission because he actually found me, not the realtor, what are my options? I would think I have 2:
1) Wait until the contract expires, or
2) Increase the purchase price by the RE agent commission.

Do I have any other options that are both ethical/legal to get around either or us paying the commission?

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Jim S
Real Estate Investor · Virginia, DC &, MD · Member since 2008 · 261 posts · 71 votes
14y

I would be more concerned by the list price of $150,000 but the homeowner is willing to sell it for $60,000. That is very unlike homeowners to take that serious of a price reduction. Makes me wonder if there is something seriously wrong.

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  • Ibrahim Hughes
    Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
    14y

    3) Get the Realtor to reduce their commission by (at least 1/2) since they didn't find the buyer. As a negotiating tactic I'd first try hard to get them to waive their comm. all together. Then I'd settle on 1/2. Does the price make sense with their full commission factored in?

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  • Jim S
    Real Estate Investor · Virginia, DC &, MD · Member since 2008 · 261 posts · 71 votes
    14y

    I would be more concerned by the list price of $150,000 but the homeowner is willing to sell it for $60,000. That is very unlike homeowners to take that serious of a price reduction. Makes me wonder if there is something seriously wrong.

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  • Justin SilverioPro Member
    OP
    Developer · Andover, MA · Member since 2008 · 1k+ posts · 489 votes
    14y

    Great suggestion!!

    I haven't taken a look at the property yet, but from discussing the property and looking at the pictures on the MLS, I would think that the price he's asking would allow me to pay the commission. However, I haven't given him my price yet so I'm hoping I can get it for a bit less and still come out ahead after paying the commission. Thanks.

    I am a bit skeptical about the significant price drop, but he's owned the place for 60+ years and it's free and clear. He and his wife live on the 2nd floor apt (its a 2 family) and they are getting too old to climb the stairs. It's been on the market for >100 days so I think they are getting desparate to move.

    I plan to call him today to give him an estimated price of $45k. If he's willing to entertain it, I'll take a look at it this weekend with my contractor and hopefully have it under agreement.

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  • Tod R.
    Investor · Southlake, TX · Member since 2009 · 950 posts · 338 votes
    14y

    I agree with Ibrahim S You should definitely negotiate the commission down. I would caution that if you are going to continue to be investing in this area, I would not be too agressive with the agent. RE a small community and bad news travels fast.

    Jim S makes a valid point. Something doesn't sound right that the seller will accept an offer at 40% of list price.

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  • Ibrahim Hughes
    Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
    14y
    Originally posted by Jim S:
    I would be more concerned by the list price of $150,000 but the homeowner is willing to sell it for $60,000. That is very unlike homeowners to take that serious of a price reduction. Makes me wonder if there is something seriously wrong.

    I personally wouldn't be too concerned. The $150k could have been a figment of the listing agent's imagination from the beginning. Something the sellers never fully brought into. They could be desperate to the point where they are ready to get it sold NOW. When a seller has had enough with a property you'd be suprised at how low in price they're willing to go.

    I once made an offer to buy a property that had been taken over by the state in an estate NIGHTMARE. By the time the Exec. got the property back from the state it was $40k behind in back taxes, rat infested and TOTALLY trashed. I made an offer of $140k and the seller came back and said she would rather me list for $350k (I'm also an agent), more than twice the amount. I'm ready to put it on the MLS when suddenly she gets 1 more nasty letter from a neighbor (she had been receiving several over the years the house was in the state's control and vacant) who wasn't too happy about the rats the house was attracting and she simply had enough. Called me the next day and took my $140k offer. She simply had enough and didn't want to deal with it anymore. And the crazy thing was that it took her 3 mos. to come to her attorney's office and pick up her check (about $60k). It simply wasn't about the money with her. It was about getting rid of the house.

    So when you tell me that someone suddenly comes down $90k, yeah it doesn't make sense to us. But it makes all the sense in the world to a seller who is just too emtionally distraught to deal with the property for the duration of a 6 mos. listing agreement.

    2Reply
  • Justin SilverioPro Member
    OP
    Developer · Andover, MA · Member since 2008 · 1k+ posts · 489 votes
    14y

    Thanks for all the comments. My intention is to make sure that all parties are satisfied. I understand that the RE market is small (I actually know some agents at the listing broker's office) so I'm not going to push too hard to reduce/remove the commission. If I can get the price down to an acceptable range where paying the commission doesn't break the deal, I'll pay and be happy that I still got a great deal.

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  • Kevin Yeats
    Lender · Fort Pierce, FL · Member since 2009 · 825 posts · 486 votes
    14y

    I'm no expert and certainly not an attorney but my understanding is that most Realtor listing contracts stipulate that the Realtor earn his/her commission when the seller sells the house even if the realtor did not find the buyer.

    Justin, be careful here because if you buy this house for $60,000, the realtor may claim that the seller then owes a 6% commission not just on $60,000 but on the $150,000 listing price. The realtor could file a lien against the property. That equals one more hassle for you.

    Have the seller check the listing contract or wait until the contract expires.

    NOT LEGAL ADVICE

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  • Justin SilverioPro Member
    OP
    Developer · Andover, MA · Member since 2008 · 1k+ posts · 489 votes
    14y

    I agree with you on paying the realtor the fee. That's usually how the contracts are written, however, my intent is to discuss to option of them reducing their commission since they didn't make the sale.

    If the seller accepts the $60,000, I'm confused why you think I would be held responsible to pay the RE agent a commission based on the $150k listing price. Commissions are paid on selling price, not listing price. Am I missing something?

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    14y

    Here's the thing I would be concerned about (though I certainly hope I'm wrong and Justin can get this deal done quickly) -- any good listing agent would suggest to the buyer that if he's willing to accept 40% of list price, before doing so, he should lower the list price to try to get multiple offers as a price somewhere between the current list and the willing to sell price.

    For example, perhaps the seller can get a lot of interest at $100K? Or $90K? Or $80K? In any of those situations, he makes more than the $60K you're offering, and it wouldn't take too much time or energy to find out.

    So, you're biggest concern here should be if the listing agent actually does his/her job pretty well, in which case she'll convince the seller not to sell to you just yet...and try to get a little more...

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  • Justin SilverioPro Member
    OP
    Developer · Andover, MA · Member since 2008 · 1k+ posts · 489 votes
    14y

    J Scott - That's a great point and I was actually thinking about that after I made my last post. My thought is to talk to the broker, who I have spoke with before, instead of the agent and tell him my situation. He knows that I am an investor in the area and hopefully will have less biase as to what the property actually sells for and would be more interested in future business.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    14y

    Just doesn't make sense to me.

    Point number 1 if the market value is not 150,000 then don't list it at that as a broker/agent.

    Point 2 if the seller demands to list higher their motivation changes over time.So it's okay to list a little higher in price but then have weekly to bi-weekly price drops in small increments to find the market value at which multiple parties will compete for it.

    The sellers could be desperate and need money today.If you can give them cash in 7 days versus waiting 60 to 90 days for a finance offer at a higher price they might accept it.

    If you are offering cash but want a long wait time I would counsel to seller to not accept your offer and instead systematically reduce until it sold at a higher price.

    If they reduced to 110,000 and paid 6% in commission and 4,000 in closing costs the seller would still net 99,400. Almost 40k more than your offer and 55k more if you offered 45,000.

    It's all about the frustration level of the seller and time value of money.

    I will say shame on the broker/agent if they did not counsel their seller correctly and get the necessary price reductions.The sellers always believe brokers/agents are there to get them a pie in the sky price.Brokers/agents are there to expose the property to as many prospects as possible at market value to give the most net to the seller and get the contract to closing.

    If the seller is really willing to sell that low the last thing I would be trying to do is screw the broker/agent.That will just make them more motivated to stick it to you and convince the seller to wait for a better offer.

    Investors never seem to grasp this concept.Do you think the next time this broker/agent has a possible deal they will call you the one who tried to cut down the commission??

    I believe as an investor if you start burning brokers/agents it will come back to bite you in the end.Whether you deem a commission to be excessive in your mind for the work performed should be irrelevant.If the numbers work you should work fast to close the deal and be happy about it.

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  • Jessica B.
    Investor · Phoenix, AZ · Member since 2011 · 36 posts · 9 votes
    14y

    It depends on what type of listing agreement the seller signed with the broker. Exclusive Agency or Exclusive Right. With one of them, the seller has the right to sell their house to a buyer THEY find, without paying the Realtor.

    Ask to take a look at the listing agreement first imo, THEN talk to the Realtor about lowering their percentage. This will tell you how much the Realtor is expecting currently, and if the buyer is allowed to find their own seller without paying the Realtor.

    If it's been on the market for a while and the Realtor's hungry, you might be able to get away with paying something small for a "fast close with no work from you".

    As for the sudden drop in price, who knows. Maybe it's a job transfer and they just want it done, maybe they really need the money for something *shrugs*. So long as price is good for the condition and comps.

    3Reply
  • Keith Lutz
    Real Estate Agent · Hackettstown, NJ · Member since 2011 · 206 posts · 62 votes
    14y

    Forgive me if I mis-read something and I am not connecting some dots, I am assuming certain things.

    What is the ARV on this home? (assuming the agent is somewhat in the ball park with the as-is price - 30k off maybe?)

    Seems like a good deal at 60k, a great deal at 45k, why are you sweating a RE fee of $6,600 to $2,700 @6%, never mind if you talk them down to 3 or 4%?

    So my advice, either fork over the money and get an ally (because word will spread about you as a REI, paying 6%) or just chance it and wait for the listing to expire. One word...

    KARMA!

    1Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    14y

    Yep some investors just don't get it.

    I work with a lot. As soon as the words come out of their mouth with anything to do with my money they go to the bottom of the list.

    My best investors tell me make all the money you want I just want the deal.In fact if the seller has no money and they need to throw in 500 more to close it they don't care.They get the deal done and make their money and move onto the next deal.

    Had an investor a few months ago that kept splitting hairs on a commercial short sale with the bank over a few thousand.It was very frustrating dealing with this person.They wasted a bunch of time.Another investor came in and had cash and closed in 7 days.

    Said the deal was great enough for them and didn't care.

    Investors can try to screw brokers and agents on one or two deals but if you will be in this game for any length of time it will cost you much,much more in the long run.

    I control my money by controlling the deals.If you feel I am getting overpaid you will lose out on the deal.I have tons of investors waiting to purchase.

    If you have a broker/agent that will allow themselves to be ran over by people they aren't worth much anyways.

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  • John S.
    Chicago, IL · Member since 2012 · 24 posts · 6 votes
    14y

    Cut the agent out if you can, I recommend consult the listing agreement and an attorney first. But here are some options

    Try having the seller quit claiming the property to an LLC and then buying the property from a company. If the agent wants to sue the seller's LLC, there will be nothing to take. Do some background on the agent, they might not have the firepower (aka $$) to hire a lawyer to sue and weather the bills. If lawyer costs > commission or outcome from case they will not sue.

    I assume the offer is cash? Make a contract for $1000 on it and give the owner the other $59000 on a side payment for his appliances or something. This will effectively cut out the broker.

    Buy an option on the property for $1000 now to purchase it the day after the contract expires. Just make sure you get it recorded.

    Bring your own broker in for a small payment to save half the commission. Be sure to negotiate this with your broker/agent just before signing. There are tons of broke brokers out there who will put there name on a contract they had no business with for a couple fast dollars.

    These are just the few I can think of before hopping my flight home. I'm working on deal now where I called the agent to setup a showing and she didn't even show up to the showings and lied to her client about attempting to contact me afterwards. The result? I squeezed seller for their lowest possible price, and signed them up on a contract with my favorite terms dated two weeks after the agents listing agreement expiration.

    The only brokers who make it have, protect their commissions (by showing up for example) or have a solid base of good deals to shop to buyers or a solid base of sucker buyers for the properties they sell.

    10% of brokers are solid and good business people and have a good network/know what they are doing/will protect their commission.

    The other 90% are disposable.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    14y
    Originally posted by John S.:
    I squeezed seller for their lowest possible price, and signed them up on a contract with my favorite terms dated two weeks after the agents listing agreement expiration.

    So, what happens when the agent sees that the property was sold two weeks after the listing expiration to someone who the agent had spoken with during the listing period (you)? I assume the listing agreement has a protected period (probably at least 90 days if the agent is decent), at which point the agent will demand their commission from the seller.

    Are you going to pony up the commission on behalf of the seller? Or just let him deal with situation you created?

    I don't know you personally, but from reading two of your posts so far, my take is that you're one of those people that tends to give investors a bad reputation; this, in turn, makes it more difficult for all of us to profit. So, while you think your tactics are making your money, in the long run, they're just costing you (and the rest of us).

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  • Rich Weese
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    14y

    The Original thread makes very little sense to me also. I think you may need a little bit more research on this before you jump into something that might be a mistake. Rich

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    14y

    I make sure I have a commitment from the seller and an understanding before I list anything for sale.

    I tell the seller upfront in Georgia as a broker I can lien a commercial property and stop a sale for money I am owed.

    If they are out to something underhanded I will learn it then before I lift a finger marketing the property.If not then we have an understanding of what will happen.I don't take listings where seller do it out of necessity but believe the broker has no value.

    People need to stop playing games and conduct business.I don't have time for flaky buyers and sellers.

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  • Justin SilverioPro Member
    OP
    Developer · Andover, MA · Member since 2008 · 1k+ posts · 489 votes
    14y

    I called the seller earlier and he said he wants $160k, not the $60k he originally said. Kind of frustrating because I asked him to repeat the price and I then repeated it back. Oh well.

    The reason I was going to counter at $45k is to find his floor. Also, some negotiation is healthy and makes people feel like they got the highest (seller) or lowest (buyer) price possible. Also, the property is way overpriced for the area. It needs a decent amount of work and is not in a great area. I think the FMV in its as-is condition is more likely to be $100k.

    John S. - Thanks for the suggestions, but I wouldn't go down that path. As others have mentioned, screwing over a RE agent would KILL my reputation. I made it clear that I want to do the ethical/legal thing but just wanted some insight on my options.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    14y

    Hey Justin is parts of Massachusetts that cheap up there?? My father in law and and sister in law live next to Boston and a 4 bed 3 bath house up there can go for 400k in some areas or more.

    I didn't know they had some cheap property up there.

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  • Justin SilverioPro Member
    OP
    Developer · Andover, MA · Member since 2008 · 1k+ posts · 489 votes
    14y

    While the market in and around Boston has been pretty stable, many towns outside of the city have had some pretty steep declines. I'm not sure where your family lives, but I'm north of Boston in the Merrimack Valley. You can pick up a distressed 3/2 in some areas for around $80-110k. Median sale price up here is about $240k. Central and Western Mass have some pretty cheap houses as well.

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  • Sam Sagor
    Residential Landlord · Kailua-Kona, HI · Member since 2012 · 111 posts · 15 votes
    14y

    This is not a reason not to pay. Absolute incompetence may be. For theoretical situations where it makes no sense to pay the agent i.e they didn't show, etc is there any way of doing that legally? Does the option to purchase work is what I'm wondering... wouldn't that fall in the agent's 6 months contract? It would have been signed while the contact was in effect so I think you'd still be on the hook for a commission, correct? Just want to know.

    1Reply
  • John S.
    Chicago, IL · Member since 2012 · 24 posts · 6 votes
    14y

    @ JScott

    This isn't about me, its about giving the poster options to deal with his situation.

    A brokers job is to protect their commission and sell property, Darwinism exists in real estate too.

    Since only 10% of brokers are competent and hardworking, the other 90% are disposable, and if this burned realtor is out of the game with the next few years the story of this situation would die along with her career. How does this cost an investor deals in the long run?

    Every investment situation is unique and should be analyzed for maximum capitalization.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    14y
    Originally posted by John S.:

    A brokers job is to protect their commission and sell property, Darwinism exists in real estate too.

    Actually, that's *NOT* a broker's job at all.

    It's very clear what a broker's job is, and it's spelled out in very detailed legal terms in your state's listing agreement and in your state's license laws.

    Get familiar with your state's license laws and listing contracts and then you'll start to understand what a broker's job is.

    And, of course, if you have any questions, there are plenty of people here who are familiar with license laws and would be happy to help explain!

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  • John S.
    Chicago, IL · Member since 2012 · 24 posts · 6 votes
    14y

    I haven't met a broker who stays in business not protecting their commission and not selling property. Reading legal documents isn't required to understand that.

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