How much to pay someone for finding a buyer for your house

Question

I am about to buy my second house to flip. My contractor says that he knows somebody who will probably buy it from me once the rehab is finished. How much should I pay him for bringing me a buyer?

Account Closed · Answer

What's the real question?  You can get away with paying nothing and a gift card.  You can pay 10% or more.  I had an agent bring me a buyer on an unlisted property last year.  His investor buyer paid him for finding the deal, but I did all the paperwork, so it wasn't a typical agent deal.  I still regret not paying him something for making MY deal happen.  I made up for it by letting him list my next property, manage the rehab for a fee plus a bonus.

The quality of the buyer does matter, at least to me.  A buyer able to pay your price and on your terms is worth the 6% listing fee sellers have to pay even though the buyer's agent only gets 3%. I've done several flat fee listings where there is no one representing me, and the buyer's agent gets 3%....for making my deal happen.  That is such a bargain.

I was once paid $25K by a buyer for a property where I was the tenant at the time.  The only thing I did was I tell the buyer that the landlord wanted to sell and was thinking of listing. (He knew the LL from years ago and had previously lived on the property.)  The minute I told him about it he said:  If I buy it, a bonus/finder's fee is yours.   A few months later, I got a call from escrow to come pick up the check for $25K.  I thought that was a class act.  And I'm still trying to remember to think and act like that!

I'm with J though. Contractors (and neighbors) always say they know someone who wants the house.  Those someones never have money or a loan.  Go figure.

Mike B. · Answer

True. I guess it was an irresponsible answer considering I sell my own properties.

Glenn Espinosa · Answer

Mike Baker - I like the way you think. Remember, however, that there are other things of considerable value that aren't necessarily monetary. A lot of times you only realize these things only after you've invested up front.

Karen Margrave · Answer

It depends on the laws in the state you are in. In California unless you are licensed you aren't allowed to even tell someone the price of a house. If you do anything that a real estate license is required for, you are subject to being charged with practicing real estate without a license and huge fines.

On the other hand, if they just make the 'introduction' and you do all the negotiating, that's another story. Maybe half a point to 1% would be fair. Remember... real estate agents handle everything with the sale, escrow, financing, etc, plus pay for belonging to MLS, E&O Insurance, and their brokers share of the commission, they don't get the full 2-3% of the selling side of the commission.

Mike B. · Answer

You are probably right, although I never claimed to be generous. I never expected a percentage of any of the work I've referred my contractors so I don't know why this is considered different. In Melissa's situation, I don't think the contractor showing appreciation for keeping him working through 2 rehabs is out of line.
To each his own...

Glenn Espinosa · Answer

Mike Baker - A $200 gift card seems kind of cheap for someone bringing you a buyer that actually closes on a deal.

I've given realtors bigger gifts than that just for doing me a favor or two (saving me thousands in the long run).

Now Im in the same boat as J  Scott. I've had contractors tell me all sorts of hot air to include

1) I know someone who will buy this house
2) Im a closet millionaire who can lend you money for your next deal (but im cleaning out your crawlspace cause I love this kinda work)

List it on MLS, but if they are serious about bringing a friend down to see the house, entertain them. If they end up buying it and the process is relatively easy, I think a strong thank you in the form of 1.5% - 2% could go a long way in establishing a strong working relationship. This is a people biz, after all.

Then again, maybe Im still too naive to no any better. :)

Mike B. · Answer

Personally, I wouldn't give him more than a $200 gift card to take his wife out to dinner...and I would give it to him after closing.

The only discount I would give is ARV - 5% (which would have been real estate commissions you would've paid if it was on the market).

I don't agree with not talking to the potential buyer. It doesn't make much sense to me to disqualify any buyer, especially if it gets the property sold quick (less holding costs for you). In the same breath, I wouldn't delay marketing the property waiting for this specific buyer ala putting all of your eggs in one basket.

Timothy Leong · Answer

Did the contractor ask for some type of compensation for the referral? It could be a family member or friend of his that has been looking in the market for a while and cant find something he likes and he is really trying to help them out. If that is the case then he might tell them about how much money you put into the rehab (the buyer can always find out how much you spent of the house) which would give the buyer an unfair advantage. As good as this sounds, i think i would just stick with putting it on the MLS

J Scott · Answer

I have contractors tell me that all the time...don't get your hopes up...

Maurice Reese · Answer

That's up too you! Depends on the deal!