So here's the question:
Once you have a great wholesale deal under contract, I've hear that it's a great strategy to find realtors who have sold property in the immediate area to cash buyers, and to contact those realtors and ask them if their cash buyer would be interested in the property you're looking to wholesale. To me, this sounds like a great way to leverage local realtors to get deals done.
Being that I'm an agent and have access to the MLS, I can easily find these realtors and their contact information. But, I also know that realtors/brokers will only use the state contracts for transactions.
So exactly how would the realtor who brings the buyer in get paid? Would this be a referral fee? I can't imagine it being a standard buyer's agent commission since the contract would not be a broker-approved contract. Has anyone done this type of transaction, and if so, what are the details of the paperwork?
Thanks for your time and consideration fellow BP'ers!
I have wondered this same thing, thanks for posting. I'll be following this thread.
I agree contacting agents is a great strategy to advertise your properties. Of course this adds to the expenses of the overall project to your end buyer. The numbers just have to work out for the investor utilizing the realtor's services to make financial sense. I would always market the properties to the agents and not assume the numbers don't work. Allow the agent and buyer to make that decision.
You will have to ask the agent if the typical 3% fee will be charged. In Texas the agent doesn't normally have the ability to adjust the percentage of the fee as this is negotiated by the broker. So the broker will have to give input on adjusting the fee amount. Sometimes when it comes to investors the broker may allow a flat fee since the buyer might have a special arrangement based of past business.
When the fee is finalized you can add the fee to the sales price and you can pay the agents fee through the transaction. The agent's fee is not coming out of your pocket directly since investor is still paying the agents fee through the sales price adjustment. (i.e. add 3% to the sales price). Or the agent and buyer can establish a buyers representation agreement for the transaction and the buyer can simply pay the agents fee.
If you have mls access, why not just find the buyer's name from tax records and contact them directly?
It seems like there would be way too much red tape involved by using the buyers agent.
@Jeremy S. I would have gone with your idea in the past, but at this point I am working to systemize my business. It would create more work to track down the buyers - not less. Additionally, one agent may have several cash buyers that they work with in the area, so if the one buyer you're asking them about doesn't pan out they may have others in their database that will.
I suppose it all depends on where you're at with your business. At this point, I'm okay giving up part of the profits if I can simplify things by leveraging other people's contacts/database.
One last point, it's not a bad idea to let agents know that you're an investor. Even if they don't bring a buyer, they may at some point bring us a deal.
From what I'm gathering so far, this is something that is worked out between the buyer and the agent/broker. I've been told by another investor that I shouldn't really concern myself with the details, to just let them work it out. But... I'm a curious guy... what can I say
Couple of choices;
1) buyer agent gets paid by the buyer
2) use your state approved contract. Why not? The old excuse that's it's too complicated for the average seller, verses an investors "simple" contract, is BS. The reason wholesalers like their "simple" contracts is because they are slanted toward the buyer, and don't offer the normal protections for the seller that the standard contract does. Always assume that at some point you'll be standing in front of a judge, or the real estate commission, and you'll need to justify why you used the contract you did, verses the state contract, being that you are a licensed, knowledgable individual.
Good points @Wayne Brooks . We like to use our own contract because we believe that sellers like one thing about wholesalers: Ease of doing business. They just want a quick, easy sale, and they are willing to discount the price drastically for this convenience.
A simple contract that bullet points all the main stipulations, in my mind, equals ease of doing business. Our state contract is long and complicated in my opinion, not to mention having a lot of clauses that are not even applicable to our transactions - Financing contingency information, Condo association clauses, etc.
I've paid agents for finding buyers. Its usually been $1500-$12000 depending on the spread I made.
Its sort of a last resort thing but if they provide value and find a buyer they deserve it. Its entirely negotiable between you and them.
Thanks @Tim G. !
buyers agent can get paid many different ways within the contract. Think of the agents as a co-wholesalers fee. Its really up to you on how much they get paid.
In a typical real estate transaction the seller(which is you) decides how much the selling agent/ buyer agent may earn including any PRE-determined bonuses. Typically Fees very based on area deal type, and listing agents ability to negotiate a commission. Commissions typically rang from 2-4% Per agent.
With there being no listing agent is up to you determine how much you want to give them. Most buyers agents are going to look for 3% of the contract sales price, if that's too small ie: $75k or below, you may do a pre-determined flat fee amount Generally $2,500-5k in higher priced point markets you may want to increase that amount. It all really just depends on how much your spread is.
i will be writing an article on this very issue in the near future:
"Why I believe its crazy to ask agents to negotiate their own commissions when wholesaling"
Long title, i know im still working on that part.
In my experience i have found that paying agents commissions with in my sales price has concluded in more closed deals then asking an agent to negotiate with their buyer to pay the agents commission. And more repeat business.
in short: 2 reasons.
1. If an agent cant fight to get their buyer to pay commission upfront before taking that buyer to see unlisted properties, then they arent going to do it when your deal comes along. Causing the deal to fall apeart because the buyer doesn't want to pay on the back end of the deal. which will ultimately increase their purchase price, which may cause your deal to be a bad deal for them. Agents are like contractors 90% of them suck so if they cant negotiate for themselves they wont be able to negotiate to get theis type of deal done On your terms.
2. Spoon feed the agent and they will always come back. If the agent doesnt have to fight to get a commission on your deals, who do you think they will keep coming back to? I have found that buyers with agents tend to pay a little more then buyers without. Agents will be come your extended sales staff they will reach out to there client base 1 because it's a good deal 2 because they know they don't have to fight for a commissions.
@Delon Hall How about the title: "How to successfully work with agents on wholesale transactions."