Real Estate Agent Fee

Real Estate Broker · Austell, GA · Member since 2013 · 72 posts · 24 votes

I've been searching for an RE agent to make an offer on my first investment property. I found a great agent that says he works with investors exclusively. After talking on the phone once, we meet at a 4plex I picked out to make an offer on. We view the property and I decide to make an offer of $55,000 (asking price $129,900). Here's the email that followed:

I think that a $55000 offer is OK. If you intend to occupy as a primary resident, then FNMA likes that.

Cool?

If so, then I will draft a brokerage agreement and write up the offer, OK?

Now, I'm a newbie in both investing and purchasing a home in general, but for multi-family homes that range from $150,000 - 50,000 a $3,000 agent fee aside from other closing costs seems a bit outrageous. Could I get a word of advice from experienced investors?

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Elizabeth Colegrove

Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes

12y

@Derek Caffe

Personally I would find another realtor. If all you he is doing is writing the offer after you have found the properties and vetted them. Than no,no other value is offered.

That being said, with the relationships I have with my realtor I would think about it, if that is there request. To date, I have never had this request. The arrange has simply been to refer them any business and use them exclusively.

My realtors use their mls connection, networking and area knowledge to find and close the deals. I have gotten many deals simply because they knew the sellers agents and were able to either find a "pocket listing" or write the strongest offer because we knew the what motivated the seller. I have found houses/put offers on a house because my realtor (who has become my friend) was over having dinner/drinking wine and a house I had been watching came up. I mentioned it was over price and she mentioned the local "trick". If I get the house at the price I want (its still a process) it would be because of the dinner/wine. We have also spent a day looking at houses and never found anything.

In your particular situation for this one house, I recommend you just use the listing agent in this case. I recommend you keep looking for an agent that wants to create a "relationship". With 2 out of 3 of our realtors we have bought 2+ houses. The other one we have referred a bunch of people. If all goes right, by the end one of our agents will have help my family and I close on 6 houses. Yes your buying a cheap house now, but if all goes right you will continue to invest with them overall and it will even out.

Just my 2 cents

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Arjun K.
Real Estate Investor · New York, NY · Member since 2012 · 210 posts · 15 votes
12y
what value add is the agent providing you? Do you trust him to find you leads, vet the quality of a house you are purchasing, and advice you astutely on purchase price? I trust my agent 70% on opining on house quality, and rely on him post-purchase for rehab.. thus he adds value to me.
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Thomas Quinn
Residential Real Estate Agent · Uxbridge, MA · Member since 2012 · 123 posts · 13 votes
12y
I asume he means that with low priced properties if he gets 1500 from the seller you make up the difference not that he is charging you $3000.
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Derek Caffe
OP
Real Estate Broker · Austell, GA · Member since 2013 · 72 posts · 24 votes
12y
@Arjun K. I'm not sure his added value, since I'm the one finding leads, vetting the quality of the house and choosing my purchase price based on my property analysis. I'm not saying he hasn't offered some info that I didn't know, but not $3000 dollars worth. At this point, I just needed him to make an offer on my behalf.

I'm all for paying for $3000 if his counsel would save me $10,000 elsewhere, but I'm just not seeing the added value. I wanted to know if this seemed common practice.

@Thomas Quinn he stated, if they seller doesn't pay his their portion of the $1500, I'd cover theirs plus mine ($3000 total).
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Elizabeth Colegrove
Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
12y
@Derek Caffe

Personally I would find another realtor. If all you he is doing is writing the offer after you have found the properties and vetted them. Than no,no other value is offered.

That being said, with the relationships I have with my realtor I would think about it, if that is there request. To date, I have never had this request. The arrange has simply been to refer them any business and use them exclusively.

My realtors use their mls connection, networking and area knowledge to find and close the deals. I have gotten many deals simply because they knew the sellers agents and were able to either find a "pocket listing" or write the strongest offer because we knew the what motivated the seller. I have found houses/put offers on a house because my realtor (who has become my friend) was over having dinner/drinking wine and a house I had been watching came up. I mentioned it was over price and she mentioned the local "trick". If I get the house at the price I want (its still a process) it would be because of the dinner/wine. We have also spent a day looking at houses and never found anything.

In your particular situation for this one house, I recommend you just use the listing agent in this case. I recommend you keep looking for an agent that wants to create a "relationship". With 2 out of 3 of our realtors we have bought 2+ houses. The other one we have referred a bunch of people. If all goes right, by the end one of our agents will have help my family and I close on 6 houses. Yes your buying a cheap house now, but if all goes right you will continue to invest with them overall and it will even out.

Just my 2 cents

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Lolita Ellis
Real Estate Broker · Fort Washington, MD · Member since 2012 · 83 posts · 9 votes
12y
I think that he should have disclosed all of this before even showing the property. A true novice lays all on the line and again I feel their Word is their Worth.

Its your first time so take a moment, pick up the phone and reach out to other agents that work with investors and meet with them face to face..... in the meantime like everyone else says consider getting your own lisc. Then this wont be a problem at all.

Each agent/Broker is different.
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Joe Delia
Involved In Real Estate · Rochester Hills, MI · Member since 2010 · 812 posts · 178 votes
12y
A minimum of 3K is what the minimum commission coming back to him/her. You'd owe the difference. This person isn't alone in this. I think it all depends on what this agent is providing. Most people will likely say move onto the next agent.
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
12y
"I have a minimum commission requirement - it's $3000. I set that back in 2009, when I started working, and working and working, many deals under $90000, and my clients only won maybe 1 out every 5 offers."

This is why many brokers and agents do not work in those spaces. Too much churning and burning for a low fee.

What this agent hasn't figured out yet is how to improve their knowledge to start working on and closing million dollar deals. This agent if they are generating the business should get their own brokers license and keep it all. I understand about the minimum as the agent is just valuing their time.

129,900 wanting to pay 55,000 is only 42% of asking price. I honestly do not think there is even a remote chance the bank or institution would accept that. They have a systematized process usually reducing in small amount every 2 to 4 weeks until they get an offer. Having that said that with years end approaching they might get more motivated.

If that agent is going to work in that low price space they need to become the lister and control the inventory. If a hot property gets 10 offers and one is accepted the listing broker gets paid and so does the buyers broker. The other 9 agents start all over again with more properties.

At least this agent is communicating in a direct way. If all you want is an "offer chucker" with no guidance or knowledge then there are plenty of those out there. You could say you really do not have those kinds of funds and see what he says.
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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
12y
Derek, to clarify: he is telling you the minimum commission to his side will be $3,000, not $3,000 extra. In this case, 3% of $55k would be $1650, meaning he would expect an additional $1350. It's not unreasonable, especially if you're going to be offering less than half of list price on everything, you'd be lucky to get 1 out of 50-100 offers. . Nothing personal, but I'd just ask you to find a different agent.
1 Reply
Derek Caffe
OP
Real Estate Broker · Austell, GA · Member since 2013 · 72 posts · 24 votes
12y
Thank you all for your feedback. I had already decided to pursue another agent prior to posting. I was interested in hearing your insights because of how green I am to R.E. investing.

My offer on the property was below 50% of asking price as stated. This is due to the fact that in this apartment community (all quadplex) in the past year, the highest selling price on a quad was $90,000.

That 90K represents the top of the market, as the selling price according to public record ranged on average from 40 - 90K. That being said, I felt 55K was a good offer considering the properties were grossly overpriced and had been on the market since July.
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Derek Caffe
OP
Real Estate Broker · Austell, GA · Member since 2013 · 72 posts · 24 votes
12y
@Wayne Brooks
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Lolita Ellis
Real Estate Broker · Fort Washington, MD · Member since 2012 · 83 posts · 9 votes
12y
When you are making contacts with agents also ask them to suggest title companies. You will def need for title searches and then you can start to compare their fees and learn line items of the HUD 1 and average of what to expect. Im sure someone has a link on here they can refer you too.
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Arjun K.
Real Estate Investor · New York, NY · Member since 2012 · 210 posts · 15 votes
12y
Make sure you can use another agent, and that you haven't already entered into a representation agreement with that broker (and if you did, it should explicitly say what his fees are -- and if he doesn't release you from the agreement, you can hold him to his original fee structure). I too suggest just using the listing agent.. might also get them to work the seller down in price.
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Derek Caffe
OP
Real Estate Broker · Austell, GA · Member since 2013 · 72 posts · 24 votes
12y
Thanks @Lolita Ellis . Will do.

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Xing Zhu
Durham, NC · Member since 2012 · 498 posts · 48 votes
12y
If you just talk to the listing agent, his broker may even give you a credit on HUD-1.

Of course, buyer's agent may also offer you a credit if you found your own deal.
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Derek Caffe
OP
Real Estate Broker · Austell, GA · Member since 2013 · 72 posts · 24 votes
12y
Sorry to sound new, but what's HUD-1 @Xing Zhu ?
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Lolita Ellis
Real Estate Broker · Fort Washington, MD · Member since 2012 · 83 posts · 9 votes
12y
Wait A sec.........

Itemized form showing who money goes to and services. Also known as settlement statement

http://www.hud.gov/offices/adm/hudclips/forms/files/1.pdf

http://www.karensperspective.com/hud-1-settlement-statement/
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Xing Zhu
Durham, NC · Member since 2012 · 498 posts · 48 votes
12y
Originally posted by Derek Caffe:
Sorry to sound new, but what's HUD-1 @Xing Zhu ?

I meant your Settlement Statement.
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
12y
Derek there is a saying that you pay for experience and knowledge.

Some of the basic questions you are asking you need to make sure you understand your exits on this property and how to correctly calculate cash flow with expenses.

Cheap doesn't always mean the property will be a winner. Before you put up your hard earned cash the more you can get educated the better as it minimizes mistakes.
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Lolita Ellis
Real Estate Broker · Fort Washington, MD · Member since 2012 · 83 posts · 9 votes
12y
I strongly agree with Joel Owens. If you have not purchased a property or it has simply been a while take a moment to get an idea on the general process. To learn the basics take a Home Buyer class through a counseling agency or with the county, some offer them for free. This can equip you with some handouts etc that provide everyday real estate terms. There are even little classes online through lenders websites, bank rate.com, mtgprofessor. Search through BP for exit strategies and write it down, or store it on your MAC, Ipad, Pod, Phone whatever. You want to get your feet wet, but if anything try to gurd yourself as much as you can so you wont be victim and know whats going on. There are some who say you trust them, but when you are dealing with your money, credit whatever don't just throw it all into someone else's hands.

It may be a lot to digest Im not saying try to learn it all, because we are all still learning everyday. It helps to have a least a little pocket dictionary you jumped into and studied."Did a lil bit mo' homework."- My older brothers line to me.
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Derek Caffe
OP
Real Estate Broker · Austell, GA · Member since 2013 · 72 posts · 24 votes
12y
Thank you again @Lolita Ellis !

Thank you for mentioning the HUD-1 sheet @Xing Zhu . Learned something new today.

Thanks, for the insight Joel. I am new at real estate, but have a background in finance (bachelors) and analysis (job). I've spent several years thinking about it, and feel the only way left to learn more is to actually purchase my first property.

I don't and won't know everything, but I'll know a lot more than when I started. I believe in calculated risks, but am always in a learning mode to help minimize risks further. I'll pay for quality, but don't want to throw money around frivolously.
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Patrick Connell
REALTOR® · Bastrop, TX · Member since 2013 · 324 posts · 191 votes
12y
Derek,

I can't comment on your particular state (GA) but if you haven't even signed a brokerage/representation agreement then you SHOULD be free to just walk away and find someone else.

You should interview your Realtor, ask questions, ask follow-up questions, and get to where you're comfortable with them.

That being said, your Realtor's email seems to indicate that there will be a good amount of work needed for the particular property you picked out which may legitimize some, but not all, of their request. However, if a conversation like that needs to be had, I should have been done in person, in a non-confrontational way, and with your best interest at heart. That's obviously no what happened.

I agree with everything in Elizabeth's post except that I wouldn't recommend using the listing agent. Maybe someone under the same Broker would work but you need someone on your side, who will be honest with you, and keep you from making a mistake; that should be your agent.

But, just my 2 cents as well.
1 Reply
Patrick Connell
REALTOR® · Bastrop, TX · Member since 2013 · 324 posts · 191 votes
12y
Apparently my computer isn't loading all posts today, I second everything everyone after Elizabeth said (since I couldn't see any of them before LOL).
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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
12y
People have the right to charge whatever they want for their services...and this agent is charging what he thinks he worth. While there's nothing wrong with that, he was absolutely wrong to not disclose this information upfront. He wasted your time (and his own) but misrepresenting the cost of his services.

Personally, I'd find another agent, unless this guy has some specialized knowledge/expertise that you think will help you get offers accepted. While he doesn't seem like the big agents who are doing 100-300 deals per year, clearly they are finding deals for their buyers and getting those deals done. And they're doing it for less money...maybe you should be talking to them.

Also, for someone doing 30 deals/year, having 3 part-time assistants seems a bit unnecessary... :-)
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Micki M.
Flipper/Rehabber · York, UK · Member since 2013 · 895 posts · 453 votes
12y
I'll just chime in one more voice as a broker myself. It is important for a broker to value their time and effort appropriately. However, it's not my buyers' problem if my commission is low because the purchase price is low. I will work just as hard on a $50k property as a $500k property and that's my choice. I never know where a relationship with a buyer will lead in future business or referrals and my job is to help them achieve their real estate goal. That broker is perfectly fine in setting a minimum fee for himself but if that's his target he needs to cultivate business that meets it. If he chooses to work with investors he needs to be prepared to do volume versus higher price points.
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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
12y
Originally posted by Micki McNie:
I never know where a relationship with a buyer will lead in future business or referrals and my job is to help them achieve their real estate goal.

That's an excellent point...

Just a personal anecdote: when we started investing, we had an agent help us buy and sell our first deal. After that deal, she decided that the low-priced properties we were offering on weren't worth her time, and she started to pawn us off to her assistant to make offers and keep us updated. This annoyed us, so my wife decided to just get her real estate license.

In retrospect, had this agent stuck with us and treated us fairly, she likely would have gotten much of our business over the past 5 years, which has accounted for over $370K in commissions. In other words, if this agent would have had your attitude, it would have added up to $75/year in income for her.
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