How much should I share with the buying agent?

Question

We are starting to grow our buying agent network to BRRRR in our selected geo. I'm on the fence whether to let them know we are looking to purchase 20 to 30% under market value. Buying under market vale it's important to us, but is it a turn-off to the agent in regards to their willingness to work with us or search for us?

What is your experience with sharing or omitting this?

Charlie MacPherson · Answer

@Rosalynn Enfield  Be upfront with your Realtor.  They'll know your strategy with the first lowball offer anyway - but don't be surprised if they decline to work with you.  I know I would.

If your market conditions are like most others, there is a shortage of properties available for sale.  There are a very few exceptions, like where the town's one major employer has closed, but that's probably not a good place to invest.

In my local market, selling prices run from 92% to 98% of list price.  If you want me to submit offers at 70% to 80% of actual market value (not necessarily list price, which could be higher), I know in advance that it's a colossal waste of time and effort.

Realtors almost universally work on 100% commission.  We eat only what we kill.  That means that if I'm burning up my limited time with an investor who wants to lowball offers that have a 1 in 500 chance of success, I've lost that time that I could have spent with clients who will actually buy or sell real estate.

You might find a desperate rookie or semi-retired part-timer  who will be happy for the "opportunity", but you're not going to get a good, professional Realtor.

You may be better off getting your own real estate license and writing your own offers.

Jonathan Greene · Answer

The agent isn't the problem in your deal-making philosophy, it's your hard number of 20-30%. You are working on a calculator philosophy when each deal, each property is a different deal and is market dependent. As mentioned above, if you are in a hot investors market there won't be one agent who will work with you to make lowballs because they know they will never win. Real estate investment isn't a hard number and you are basing it on ARV, but how? How are you determining the ARV without access to MLS comps? The way that you get deals at the prices that you want is to spend your own money developing an off-market farm based on direct marketing, call catching, VA response, and in-person assistance. You can't count on realtors to get you good deals when all they have is what is on the market.

You should always share what your goal is and the metrics you are using, but I don't think these are tried and true formulas you are using. They sound like forum advice or mentor speak. How many properties do you own and manage? How many deals have you done? How many properties have you looked at to be able to say that no matter the property or market, you will only do deals at 20-30% off of ARV which also makes no sense because why would ARV factor into your offer price in that way? The only thing that matters is the asking price and your offer price, the ARV is something you use to calculate to see how much money you can make and you can work backwards to get to an offer price, but again, how are you computing these ARVs and how much experience do you have in assessing repair budgets.

I don't mean to be harsh, but holding a firm line on a percentage like that will not get you far in a time where everyone and their cousin wants to invest in real estate and is willing to overpay for it.

Charlie MacPherson · Answer

@Rosalynn Enfield  Well 20% - 30% below ARV is quite a bit different from your initial statement of 20% - 30% below market value. Maybe it's not what you meant, but that implied "current market value", which is what an MLS-listed property should sell for.

20% - 30% below ARV might be reasonable, depending on the deal.  If a house with a $100,000 ARV that needs $20,000 in rehab, an offer of $80,000 and maybe even $70,000 is realistic.  If it needs $500 worth of rehab, it's probably not.

However, the typical formula you see here on BP is that your maximum offer should be (ARV X 0.7) - rehab cost.  So in the previous example, offer = ($100,000 X 0.7) - $20,000, or $70,000-$20,000 = $50,000 maximum offer.

That's not usually going to be successful in the current seller's market unless the property or seller is in some sort of distress and willing to take a haircut on the sale price.  Most often a home like that will sell for $75,000 +/- to a retail buyer who is trying to save some money by buying a fixer upper.

Those buyers are your main competition for acquisitions.  They've seen too many episodes of Tarek & Christina, Flip This House, etc.  They know for a stone cold fact that they can rehab the house and make a ton of money in 30 minutes, including commercials.  And as @Jonathan Greene said, they will cheerfully overpay.

Simcha Davidman · Answer

@Rosalynn Enfield welcome to BP! It's probably a better idea to share that with them. It's not really private information - you want a good deal! But it's in your best interest if they know up front so that they can a) send you the right stuff and not waste your time, or b) not waste their own time.

Good luck!

Roz Enfield · Answer

@Jonathan Greene

Thanks for the input, perhaps I should have worded my question differently. The 20-30% is not a hard number, but an aspiration and an idea we were thinking of trying in a new area. For our current portfolio, we’ve checked comps via recently sold on Zillow initially and asked our realtor for comps before purchasing.

We’ve always been upfront with the realtors we’ve worked with (that we’re looking for below market or distressed properties) and have seen excellent responses. Honesty has been our go-to policy, and it’s worked so far. I’m glad to hear that sentiment in everyone’s responses (thanks BP).

What I am reading in a few of the responses from realtors is that being firm on a percentage is a turnoff, which was my suspicion. We haven’t made any lowball offers on the properties we currently have, which is likely why we haven’t heard this type of response so far. You can’t keep ally’s without a win-win mindset.

Takeaway - keep any “hard and firm” percentages to the leads we source and stick with our current policy regarding our realtor team.

Lien Vuong · Answer

Always have to count on @Charlie MacPherson to give you brutal honesty. To start off, you should always always share what you want your real estate goal to be before starting a buying relationship with your real estate professional. How else would they know how to find what you're looking for? Additionally, they will start to really ponder after the second or third offer why you've chosen x amount for your offer number.

I completely understand your mindset in getting properties for 20-30% under market value and I respect the thought process. Now what is that figure based off? Just the list price bc you don't want to pay what the seller is asking or based off of the projected value (ARV) of the property. If you're working with the ARV that would be a more educated way of positioning offers for your BRRRR or rehab strategies. Then you can articulate to your agent I am only able to pay x because that's what my calculation is allowing for. Listing prices are wrong all the time, sometimes they're under sometimes they're over, but the market will dictate what it's worth.

If you do find a rookie agent that's going to make blind low ball offers for you off the bat it probably is not going to be a good use of their time and they will unlikely have the expertise to critique your investment choice.

Whitney Hutten · Answer

@Rosalynn Enfield I feel you understand by now that sharing your exact wishes with your realtor is best.  This is primarily to understand if you two are a good fit to work together.  Not all realtors are good at sourcing BRRRR deals or writing multiple offers below value.  Time is your most precious non-renewable asset... cut to the chase on what you exactly expect from them and if they choose not to work with you, it's best for you and your business to know that now!

Roz Enfield · Answer

@Lien Vuong

Thanks for advice. We have told our agent we are looking to purchase under market value but we haven’t been specific about the %.   We want to buy 20-30% below the ARV. We don’t care about whether we pay sellers asking price or not as long it fits our number.

Karen Margrave · Answer

@Rosalynn Enfield unless they know what you're looking for, they can't find it. Is what you're looking for possible in your market? If so, they'll be happy yo help you find it. At the same time, agents work to earn commissions, it's not a game, so don't waste their time chasing rainbows.

Roz Enfield · Answer

Thanks to everyone for your input, this has been a very helpful icebreaker post.

How much should I share with the buying agent?

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