MLS question

6 Replies

I plan on getting a real estate license to post on the MLS. So If i am an investor, that also happens to be an agent. And i post my own deals on the MLS in order to move them faster. Will i have to pay like a broker to close the deal?? Where would i lose money utilizing a strategy like this?

Since you're posting this in the rent to own forum I'll assume that you plan on listing your rent to own deals on the MLS. I would suggest doing it as a flat fee listing and not offering the selling agent anything, just use it as another place online for tenant/buyers to find you. It's extremely unlikely another agent would have any idea what you're offering and trying to explain that to their client and negotiate on their behalf would be a nightmare. You're far better off working with tenant/buyers directly.

As for costs, that all depends on the rules of your local MLS and your broker.

not sure in Canada as @Doug Pretorius mentions, but in all MLS systems in the U.S., you MUST offer a compensation for the buyer (tenant) agent...that is the nature of the MLS. By definition it is an offer of compensation in exchange for a suitable ready willing and able buyer (tenant). By having your own license, you will need to be under a Broker who will charge you something for this (some charge a flat fee per deal, some charge a flat fee per month, but most charge a % of the transaction (AKA split). In my opinion it is cheaper for you to list your properties through a broker that offers Flat Fee MLS listings services. Service ranges all the way from $99 to $450. You will still need to offer a buyer agent some sort of compensation, but you are saving the listing side of the transaction.

Hey Xavier, is your plan to list rent to own (lease option/lease purchase) type deals on the MLS that you have an assignable interest in, and not representing the seller/buyer in the transaction?

If so, then posting lease option deals on the MLS is not a good idea, for the following three reasons:

1. It's a waste of money

2. It's a waste of time

3. It's a serious, serious waste of time and money (I'm being redundant here, I know)

I've assigned slightly over 75 lease option deals in 10 different states, and not once have I ever spent a dime of money marketing my deals (okay, this might be a bit of a stretch, because I've spent money on local proxy IP's and local phone numbers to create a new craigslist phone verified account, in order to keep my deals live on craigslist without getting ghosted by them, but that's a much deeper discussion).

It is incredibly easy to find lease option buyers. I usually create both a rental ad and a sale ad, both advertising the home as a lease option type of deal, in zillow rental manager (used to be postlets), which then syndicates to zillow, trulia, hotpads, aol, etc. I also post a rental and a sale ad with my fresh craigslist account in the local craigslist section where the deal is located. 

Like I said, finding buyers are easy - they're a dime a dozen. But finding GOOD lease option buyers to assign to is a much more difficult task, because the reality is that 70% of people who call me on my ads are not a good fit, and likely wouldn't be able to actually exercise their "first right of purchase" on the home after I assign to them before the expiration date. Hence, I politely tell them that this won't be a good fit, and move on to the next call. People appreciate honesty. And you'll appreciate not getting sued (as often) and having your reputation tarnished by doing bad deals.

Having your license is a good idea for one major reason: not getting investigated for unlicensed broker activity. I don't have a license and I've been investigated in three different states. I won in all three investigations, but it can be an incredibly scary and lengthy process to go through (especially in Oregon). But having your license can sometimes be a bad thing if (and more likely, when) a deal falls apart long after you assigned, and the seller/buyer get "lawyered" up to try to get the assignment fee that they paid you a long time ago (even though your one and only obligation in the deal was to assign your option to them, and you have no further liability/obligation after you assign. Heck, you're not even a party to the lease option agreement between the seller and the buyer after you assign, unless you structure a sandwich lease option instead of assigning). An investor friend of mine had this happen to him (who's also licensed) when he collected a $15k assignment fee, and the buyer ended up trashing the house to the tune of approx. $15k. The seller wanted to sue the investor/realtor for assigning the home to someone who ended up causing $15k damage, and the buyer wanted to sue the investor/realtor for the $15k assignment fee they paid about a year before the deal fell apart, even though they failed in their obligation to the seller and trashed the house.

Long story short, both the seller and the buyer's attorney's ended up threatening the managing broker of the investor with a lawsuit after they both tried "legally extorting" a collective $30k from the investor/realtor unsuccessfully, and the managing broker started to panic as well, which also had a negative impact on the investor/realtor too.

So here's the moral of the story:

1. Don't pay to market a lease option deal

2. Don't list it on the MLS

3. Being a LO investor while a realtor is good

4. Being a LO investor while a realtor can also be bad

P.S. One more tip of the day... Never ever ever market your lease option deals with signs, or bandit signs. If you want a flood of phone calls that usually end up being bad leads (and takes you hours and hours and hours to go through and call them back), then signs are good. I prefer to work smarter, not harder, and advertise exactly what I'm looking for, which usually cuts down on the "dud lead" calls I get.

Thank you Casey. So sandwiching is probably my safest route. And having a license would benefit me in that case, cause if i sandwich, any transactions done represent myself and not the seller but I'm still protected if people get sue happy. 

With that being said, how do you know when buyers that call aren't a good fit?

I personally absolutely despise sandwich deals, but that's just me. In a perfect world, all lease option buyers buy, and they all pay rent in the meantime prior to exercising. But the reality is that you'll occasionally come across bad apples, despite them looking good on paper. 

If your sandwich buyer stops paying rent, you're left holding the bag with the seller while you're personally evicting the end buyer (costing you missed rent, and eviction fees). I find that most people who go this route are doing it for cash flow primarily, and an up front option fee, rather than trying to get an actual pay day upon exercising the option.

If you sandwich, you're representing yourself. If you assign, you're also representing yourself - there is no difference. 

If your goal is cash flow (in my opinion) you're better off trying to buy with owner financing (contract for deed - land contract, installment sale, mortgage wrap, promissory note with a first lien holder position on the trust deed for the seller (if they own it free and clear), or sub2. Some people love the sandwich deal, but be prepared to potentially deal with headaches, because they do happen every once in a while.

At the end of the day, which strategy you go with is entirely dependent on how much risk you're willing to tolerate, and whether or not the potential reward justifies the risk.

My thought process was that posting on the MLS would allow for me to attract clients that are a bit more serious about buying. For a fee of first months rent to the agent of the buyer.