How much should an investor pay agent to sell flip properties

Rehabbing & House Flipping
6yFollow

How much should an investor pay agent to sell flip properties

Cliff Orphe
Investor · Member since 2017 · 14 posts · 5 votes

I am an investor and flip houses, I know the margin on deals aren’t always the greatest. How much should an investor who is bringing an agent repeat business pay to sell there properties?

1Reply
45 views

Most Popular Reply

Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
6y

Agree with @Jonathan Greene - I see the agents in my office who negotiate their commission; they know on some level that they don't bring that much value and are willing to give up some of their money. How do you think they will work and negotiate for your money?

The job of an agent is to make you the most on your bottom line. 1% on a typical flip is $2,500, which when taken out of an agents paycheck (after splitting it 4 ways with buyers agent and brokerage) is a big chunk. 

I can think of ten different ways how your net will go up or down depending on the agents performance by $2,500.

PS: when I was managing a business unit at corporate through the 2010 depression, the first thing the board wanted me to cut was marekting and sales people to combat declining revenue. I lost my respect for their business acumen that day. Talk about shooting yourself in the foot...!

1Reply
See this reply in the discussion

21 Replies

Jump to latestLatest
  • Sean McDonnell
    Real Estate Agent · Surf City, NC · Member since 2017 · 648 posts · 597 votes
    6y

    I would start with a 3% commission to show your agent that you will provide for them.  Maybe after a few deals, your agent will be more comfortable with the fact that you will bring them repeat business so you can talk about lowering it half a percent.  It is all about building a trust between you and your agent.  If you provide consistently for them, I assure you, they will do their best work and get the top price for your flips.  You definitely do not want to skimp on the sales side. 

    If you are wanting to save the commissions, you could just get your real estate license and sell your properties yourself. 

    1Reply
  • Eric M.
    Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
    6y

    A lot is local custom. Here, 5% (2.5 each) is very common. Some places 6% is sacrosanct. Before I had my license, I often paid listing 2.5 and buyers' 2...even 1.5 a few times. Never heard a complaint. Depends on the price point. 

    1Reply
  • Cliff Orphe
    OP
    Investor · Member since 2017 · 14 posts · 5 votes
    6y

    @Sean McDonnell

    Thank you for that info, I have people offering me 3 percent. 2.5 would help a lot also, I want my agent to make money also but sometimes margins are low. Thank you for quick response.

    0Reply
  • Cliff Orphe
    OP
    Investor · Member since 2017 · 14 posts · 5 votes
    6y

    @Eric M.

    Thank you Eric I’m ok with the 3 percent. I’ll run that by them and see what they say. I appreciate your quick response thank you.

    0Reply
  • Brian Pulaski
    Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
    6y

    3% split or 3% each agent (6% total)? As much as you say “repeat business”, unless you have a track record of a lot of deals, you don’t have the ability to promise this and should treat the first deals as standard sales. Once you have done multiple deals over shorter periods discussing reduced rates makes sense. 

    1Reply
  • Charlene Garrison
    Investor · Detroit, MI · Member since 2015 · 32 posts · 12 votes
    6y

    @Cliff Orphe

    Hi Cliff, this is a question I share with you. My idea was to do the rehab work, then willing pay the agents commission. The house stays safe and protected while on the market. If you take the same agent repeat business, I too say that the commission should be negotiated. I will see what I can find and return. Talk soon...

    0Reply
  • Anthony Dadlani
    Investor · New York City, NY · Member since 2013 · 1k+ posts · 269 votes
    6y

    I would say 3-5% is fair for repeat regular business to the agent. 

    Best of luck in all your endeavors.  

    0Reply
  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    6y

    The biggest failures for flippers come in shortcuts. Shortcuts on the renovation and shortcuts on using a seasoned agent who knows how to market and sell a flipped property. If you have the right agent you will never worry about their cut because they will earn their money by marketing the property the right way, if your flip is done the right way.

    A commission is two parts of course so I don't know what the 3% is. You have to pay out the buyer's agent 2.5% on a flip because when you have 2% they will find other properties to sell unless yours is that good. It also looks cheap. So that's 2.5% already for the buyer's agent. 5% is fair - 2.5% for your listing agent and 2.5% for the buyer's agent. Personally, I would never take a listing of any kind for less than 2.5% on my side (unless it was an REO assignment) and when many agents take the listing for less they will skimp on the photos, video, floor plans, and marketing because you are squeezing their commission.

    Don't forget that most agents aren't at 100% share so they don't get the commission. The commission goes to the brokerage who then gives them their cut. I list my own properties and many for flippers. If I list for a flipper who is also licensed I cut them back 50% as a referral since they could list if they wanted to. 

    [email protected]Podcast Guest on Show BiggerPockets Daily 667: 5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t) by Gino Barbaro
    Zen and the Art of Real Estate Investing59 Reviews
    WebsiteView Page
    1Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    6y

    Agree with @Jonathan Greene - I see the agents in my office who negotiate their commission; they know on some level that they don't bring that much value and are willing to give up some of their money. How do you think they will work and negotiate for your money?

    The job of an agent is to make you the most on your bottom line. 1% on a typical flip is $2,500, which when taken out of an agents paycheck (after splitting it 4 ways with buyers agent and brokerage) is a big chunk. 

    I can think of ten different ways how your net will go up or down depending on the agents performance by $2,500.

    PS: when I was managing a business unit at corporate through the 2010 depression, the first thing the board wanted me to cut was marekting and sales people to combat declining revenue. I lost my respect for their business acumen that day. Talk about shooting yourself in the foot...!

    1Reply
  • Eric M.
    Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Jonathan Greene:

     You have to pay out the buyer's agent 2.5% on a flip because when you have 2% they will find other properties to sell unless yours is that good. It also looks cheap. So that's 2.5% already for the buyer's agent. 

    This is very commonly said and I believed it for a while too. (this was well before I had my own license). Then I actually tried it and listed houses paying only 2 or 1.5% to the buyers agent and I learned it wasn't true at all.

    What I learned was my houses sold just as fast with lower buyers commission rates, and that was the case back when it was a buyers market as well as more recently in a sellers market. When I spoke to the agents about it, I learned that most of them never looked at how much the buyers agent split was before closing. Literally the first time most buyer's agents even knew about the commission split was at the closing table and some didn't even realize the percentage then...only the dollar amount. It's a transaction. They are going to do the transaction no matter what it pays. Do they prefer more? Sure. Are they going to not sell the house for less? Hell no. And cutting the buyer's agent by 1% only means their fee is reduced by .5% for most of them. No one is going to not do a transaction over .5%.

    And this has held true for me after I got my license. I have never once even checked what the split was when searching the MLS for a home for my buyers....let alone steer them away if it is .5% too low. I am going to find the best property for my buyers regardless of how much it pays me. I have even helped buyers buy FSBO property that paid me nothing. I wouldn't do that if that was every time but this is business. Sometimes a job/deal/trade/contract is more lucrative and sometimes less.

    First of all, discounting is far too common now. So being in denial about it and refusing to work unless it is full price is silly for all but the very busiest agents.

    Second, it is a violation of Realtor ethics and of your fiduciary duty to your clients to steer your clients away from houses with lower commission rate or not show them houses which don't pay you enough. It certainly breaks the spirit of the buyer broker contract, if not the letter.

    Third, this is not really possible given how most RE transactions work now. In the old days, an agent could theoretically just ignore a house with lower commission and not tell your buyers about it. But buyers search on their own now. You can't keep listed houses secret from a buyer. The buyer is often sending listings to the agent saying....can we see this one? When you are hiding a low commission property from your buyer and your buyer finds it and says why didn't you show me this one....what do you say?

    And as far as the buyer's agent thinking that the property seller is cheap. Who frickin cares?.  When I negotiate with my contractor, I don't care if they think I am cheap. When I buy supplies on sale or with a discount, I don't care if the store thinks I am cheap.  When I negotiate price to buy the property, I don't care if the agents think I am cheap. So why should I care if the buyer's agent, who doesn't work for me, thinks I am cheap? 

    0Reply
  • David Masciangelo
    Specialist · NJ · Member since 2019 · 43 posts · 14 votes
    6y

    Eric M. hit the nail on the head.  If 6 (3&3%) is standard... start with 5.  Whatever the Selling Agent works with a possible buyers agent is up to your agreement with them.  If it's just the selling Agent... 2.5 and never try to lower from there.  They give you a 1/2% discount which shows believing in you but do your homework and if you do not have a history with that realtor be sure he/she is a producer.

    Again.... Never lower than 2.5%.  Biting the hand that feeds you is something we learn is dumb to do as kids and is true until the day we die.  Good luck!

    0Reply
  • Anthony Hosea
    Real Estate Agent · Beckley, WV · Member since 2018 · 51 posts · 42 votes
    6y
    Originally posted by @Jonathan Greene:

    The biggest failures for flippers come in shortcuts. Shortcuts on the renovation and shortcuts on using a seasoned agent who knows how to market and sell a flipped property. If you have the right agent you will never worry about their cut because they will earn their money by marketing the property the right way, if your flip is done the right way.

    A commission is two parts of course so I don't know what the 3% is. You have to pay out the buyer's agent 2.5% on a flip because when you have 2% they will find other properties to sell unless yours is that good. It also looks cheap. So that's 2.5% already for the buyer's agent. 5% is fair - 2.5% for your listing agent and 2.5% for the buyer's agent. Personally, I would never take a listing of any kind for less than 2.5% on my side (unless it was an REO assignment) and when many agents take the listing for less they will skimp on the photos, video, floor plans, and marketing because you are squeezing their commission.

    Don't forget that most agents aren't at 100% share so they don't get the commission. The commission goes to the brokerage who then gives them their cut. I list my own properties and many for flippers. If I list for a flipper who is also licensed I cut them back 50% as a referral since they could list if they wanted to. 

    Excellent Response, I agree 100%

    1Reply
  • Cliff Orphe
    OP
    Investor · Member since 2017 · 14 posts · 5 votes
    6y

    @Brian Pulaski

    I have few deals I’ve done with this agent and we’ve worked together few times. This is not our first deal we’ve done together and I’m talking about 3% for seller and buyers agent to split. The average home sales 200k to 400k. First time home buyers work with you once every 30 years I’m bringing you more the 3 deals a year is strong argument for 3 percent. Thank you for your quick response.

    0Reply
  • Cliff Orphe
    OP
    Investor · Member since 2017 · 14 posts · 5 votes
    6y

    @Charlene Garrison

    I hear you this is a serious question we have to ask because we take a lot of risk and sometime doesn’t always go the way we hope. I hope this helps you as much as it’s helping me. Hearing from people around agents and investors alike will give me a better idea what the rates are.

    0Reply
  • Cliff Orphe
    OP
    Investor · Member since 2017 · 14 posts · 5 votes
    6y

    @Anthony Dadlani

    Thank you very much i agree with you, that sounds fair.

    0Reply
  • Cliff Orphe
    OP
    Investor · Member since 2017 · 14 posts · 5 votes
    6y

    @Jonathan Greene

    I completely understand where you coming from. I’ve been doing this for while so I do have some experience, my quality of work speaks for its self also. My properties are well rehabbed, I can understand you not take long less then a 5 percent but from an investor point of you, it may not be beneficial to pay 5 when someone with same experience is offering me 3 percent. That helps my margins a lot more and gives me a lot of wiggle room. I would rather sell 3 to 5 houses a year between200 to 400k, and I’m buying these properties through same agent so that’s like double. I always want my agents to make money, we both just have to have an understanding. Thank you for your quick response.

    0Reply
  • Cliff Orphe
    OP
    Investor · Member since 2017 · 14 posts · 5 votes
    6y

    @Marcus Auerbach

    I hear your argument also, but as invested it’s different then a regular home buyer. I know 3% for some is really low but the amount of business bringing buying and selling same properties with the same person every year is great business. I’ve had guys offer me 3 just so they can get my business I’ve stuck with the same person for years at higher rate. Glad to hear you opinion on the matter thank you for quick response.

    0Reply
  • Cliff Orphe
    OP
    Investor · Member since 2017 · 14 posts · 5 votes
    6y

    @Eric M.

    Thank you, I couldn’t agree more with you. That’s not going to stop an agent or buyer from purchasing house if everything is done nice. If anything it makes agent look good for bringing them to see a beautiful well done home. If the same person put 10 of these homes on the market a year and you sell at least 5 that’s a good amount of money to make. Agent will make there money and houses that are great shape make your job easier,clients will say you know what your doing and refer you to other buyers. When your steering people because the percentage is not in you favor your denying someone there dream home, that’s not fair let the buyer make that judgement call. Thank you for taking the time to give me your opinion Eric.

    0Reply
  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    6y

    @Cliff Orphe @Eric M. I am not saying I would ever steer someone away from a low percentage to the buyer's agent. What I am saying is that when I see that I think the flipper is cheap and to be honest, most of the times that is correct whether cheap in the right ways or the wrong ways. When I see a flip that gives 1% on the buyer's side to the agent I assume they overspent and used this tactic with all of their providers and that they used discount contractors to do the job. It may not be true with you, Cliff, but is true with many. The trickle-down effect of discounting isn't just noticed on the percentage, it can be assumed throughout the process. So it's not about not doing the job for the buyer, I will help them get what they want no matter what I get. It's more about the expected nature of a chronic discounter and how it applies to the whole project when they cut the listing agent to a stump and offer garbage to a buyer's agent when they want to sell the property. By discounting the buyer's side and saying they don't even look (and much less don't care), you aren't being a good agent to other agents, you are just worried about yourself. Buyer's agents only work on commission. I am happy to give someone who buys my flips 2.5% for running the transaction and bringing me a good buyer.

    [email protected]Podcast Guest on Show BiggerPockets Daily 667: 5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t) by Gino Barbaro
    Zen and the Art of Real Estate Investing59 Reviews
    WebsiteView Page
    1Reply
  • Cliff Orphe
    OP
    Investor · Member since 2017 · 14 posts · 5 votes
    6y

    @David Masciangelo

    I hear you on that, my goal is to keep you busy so you don’t have to rely on first time home buyers, keep your productivity going so you have no time your not selling home.

    1Reply
  • David Masciangelo
    Specialist · NJ · Member since 2019 · 43 posts · 14 votes
    6y

    @Cliff Orphe exactly. 1/2% is fair if your passing repeat business. Again, it all comes back to the solution provided for the amount of money exchanged and value to you as the consumer in this case.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free