Agent Commission Deal when Flipping

12 Replies

Hi all,

Wondering what your thoughts and experiences are on the following:

I'm a flipper, and as an 'incentive' for agents/brokers, I generally agree for them to be the listing agent of a property that they originally refer and complete with me as the buyer's agent. For example:

John, a realtor in one of my target areas, will call me as soon as a great flip opportunity hits the market. If I end up going after the deal, he'll represent me as the buyer's agent as he brought the opportunity to me. At the same time, I'd have him be the listing agent on this property once I completed the rehab on it.

Therefore, John is 'incentivized' to call me up if he comes across great flip opportunities as he's getting two commissions without any additional 'hustle' (and as part of one original deal).

When I purchase the property, the commission is paid by the seller (and let's just assume that's 3% for my agent - as the buyer's agent). However, what's your thought/experience in regards to what the commission could/should be for my agent when selling the property again? I certainly want to ensure that John is still incentivized but I also want to make sure not to pay 'too much' as he's getting two commissions for presumably less work/time than two seperate deals.

Thanks in advance

This is common practice, builders often buy the lot, build and relist, same in flipping.

3% buyer's side and 2% listing would probably be acceptable. There are expenses and more liability on the listing side than the buying side as the listing agent is responsible for settlements. You can work it the other way around too, 2 on buy, 3 to list.

You need to take title to list the property offering it for sale, that may be up to your local BOR and the MLS. Good luck :)

Perfect @Bill Gulley That's exactly what I'm thinking is fair - 3 and 2 or 2 and 3. It would probably make the most sense to do 3 and 2, 3 being buyer's side and 2 being seller's side as the agent would get a higher % on the lower price and the lower % on the higher price. That seems to be better for the flipper but still great for the agent. Would you agree?

@Sven Simon

I hate bringing bad news but this quote "When I purchase the property, the commission is paid by the seller" is not completely accurate...

Commissions are an expense that is subtracted from the sellers proceeds on the HUD1. Those proceeds are given to the closing company in most cases by the buyer thus the buyer is actually paying the cost of commissions.

You would be better off requesting that the seller on your purchase reduce their sales price by the 3% which would be given to your agent and ask the agent to waive their sellers side commission and then increase the commission to them as the listing agent on your resale.

I'd think they would get that as quickly as you suggested it. Depends on the price too, agents have leeway in what they can do, some brokers have minimum amounts too. If they are advertising, might consider the additional expense as the listing agent, again the price matters.

Many will consider a flat fee as well, you might add that to the mix to work out the compensation. You really need to know the Realtor as ethically, you are making a commitment to do future business, don't beat them down and then take business to another agent on your next deal. That's not saying you can't have the similar deal with other agents, if they bring the deal, but be loyal too.

You can agree to almost anything. Understand that if your agent isn't a broker they have to answer to a broker. I would not agree, as a broker to take nothing at either end, the place could burn down or blow away, my client could drop dead, there are expenses to both sides. But, if they agree, you can do whatever. :)

@Michael Q. and @Bill Gulley Thanks for the info and great thoughts!

Doing a flat fee listing is a great way to go, but not all brokerages allow it. Look for an investment savvy independent broker as they will be more likely to want to help. I do this for my flipper clients and must say that it is a win-win for both of us.

Thanks, @Jarrod Weaver Would you mind sharing a few examples (even as a PM, if you'd prefer) in regards to how much this flat fee is at different price points?

@Sven Simon First, keep in mind that every broker has the right to negotiate their own fee/commission structure. If one wants to charge 24% of a watermelon and another 4 oranges - it is up to them and market forces in the area.

For my multi-opportunity clients (builders and investors) in both, Austin and Orlando, my most basic Fee-For-Service offering is $795 to list the house on the MLS, provide a multi-source market estimate, sign, lockbox and weekly showing reports. The seller chooses what commission he/she wants to offer a buyers agent. Most of my clients choose my $1,495 service that adds professional pics, web syndication, and contract support. Clients are encouraged to actively sell the property themselves - if successful they pay ZERO buyer's agent fee.

If they decide to lease the house instead of sell, they can add this service for $100.

@Sven Simon

I will give you my opinion from an agent that works with multiple investors. If the flip is a good deal, I always have at least 3-4 investors that will buy it. If I present the property to the investor, I expect to get a commission on the purchase, and I expect to get a full 3% commission on the listing. I always present the deal to the investor that is most likely going to close the deal, will re-list with me, and will not challenge me on the commission.

You should NEVER attempt to negotiate the listing commission with an agent that brought you the deal. You are probably not the only investor that they are working with. When the next deal comes up, you want them to send it to you first, right?

I have a very small handful of A+ investor clients that I continuously present deals to. They never challenge me on my commission, and they always see the best deals first. One of them will be making over $1,000,000 this year on properties that I presented to him in Austin, so he has no problems paying my commission.

On the other hand, if YOU find the deal, then you definitely would have some room to negotiate a commission and I would even recommend looking for a flat fee type listing.

Good answers by everyone. @Sven Simon I would charge 4.5% total...3% on the purchase side and 1.5% on the listing side. I also like to incentivize people to work with me. I feel that since you're an investor that there is the likelihood of a volume-type relationship...In other words, i'd hope to be doing multiple transactions with you over an extended time period. I also think that working with investors is generally easier than normal residential deals...less drama and stress for me as the agent. Of course if the investor wants me to do extra activities, such as making lots of offers on multiple properties, etc, I would probably want to charge more than this. Hope this helps.

I agree with Jeff.

If any investor buyer approaches me on the commercial side saying if I buy so and so will you cut me in on the action for your commission they go to the bottom of the pile where I contact them if I have nothing else going on.

I have plenty of business so always have something going on...:) In fact sometimes clients will throw in extra commission just to bring them the first look at a deal. Smart investors know the money is made on the purchase. Treat the sources of your deals well and you will make more than enough money and reach your goals.

Are there buyers out there that fixate on a brokers/agent commission and put more energy on that than running their business?? There sure are.

Are there brokers/agents who will do anything to make a sale?? There sure are.

I don't subscribe to either of those philosophies.

Everyone has their own business model which I can respect that. Most experienced brokers/agents would never take a residential arrangement for reduced commission going in for a future promise of a larger payday. The time value of money comes into play. That flip could become a FLOP. The flip could take much longer to do and not sell for as much money as anticipated. The investor could not honor their agreement.

A flat fee broker sounds like they might be the best fit for you. As a broker/ agent you don't want clients choosing you because you are the cheapest. There will always be someone willing to do it cheaper. You want them choosing you because you are the best at what you do and are in demand.

@Jarrod Weaver @Jeff Clawson @Scott Hearne @Joel Owens Thank you so much for all of your feedback. Really appreciate reading different takes on the situation. I definitely see a lot of different sides here and it totally depends on the circumstances.

There are agents that I don't work with much and most often only talk to when they reach out because they have a deal. In that case, I agree that I want to keep the commission around 3% as I'm probably part of an investor short-list and don't want to be put to the bottom. However, when working closely with brokers (close to on a daily basis) and reviewing properties myself all the time as well as providing continuous business, then it makes sense to come up with a slight alternative.

Thank you, all!

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