All Forum Posts by: Russell Holmes

@Michael K McClafferty you'll need to hang your license with a broker to be able to 'be your own agent'.  But after that point, you can use the offered buyer's commission toward your purchase if you write it into the contract as such.  Use the commission toward closing costs or offer not to take it to get a better price.  Check with whichever brokerage you use, they will typically waive any company split or fees (or have a minimal flat fee) for personal transactions.  

FHA and VA loans typically have 3% limits to seller concessions so if commission happens to be higher you may need to take the rest as commission or state it as a discount to purchase price. Conventional loans under 10% down would also be capped to 3% concession while higher down payment conventional will be more (6% cap at 10-25% down, 9% at 25%+ down). Crediting your commission to the purchase will typically fall under the same category as a seller credit since it's a concession from an interested party (IPC or interested party concession).

Aside from the financial benefit of putting commission toward the purchase, you can go show yourself as many houses as you like requesting your own appointments.  

@Shaye Steele I'd recommend checking out several brokerages both national names and small local companies.  Interview and ask questions.  I chose EXP due to the cloud based training and support as well as local mentorship I received through my first few deals.  When I started I was still running a service business that took up a lot of my daytime hours and I needed to utilize nights, weekends, and other off times to learn.  I interviewed with a KW brokerage near me and felt that they offered a great training program but it simply wouldn't work with my schedule.  I interviewed with some smaller brokerages and they seemed better suited to those with experience. Some brokerages charge for training and others include it in monthly fees and commission splits.  Make sure you're clear on how the fees work, but it's not the only detail that is important. Ultimately I made the right choice and I'm happy with where I ended up. It really depends on your personality, schedule, and what you feel is right for you.

One thing I would recommend is not to put a whole lot of weight on the commission split up front. It's important, but not nearly the most important factor to your success.  EXP has a better split and lower cap than many and that was a factor in my decision but not the ultimate deciding factor.  As I got into the career, I realized that I had a lot to learn and it didn't matter what split there was if I didn't sell anything. I got A LOT of training before I paid in my first 'company dollar' from commission split on my first closed transaction.  By the time I did, I looked back at all the training I received and realized it was a heck of a deal.

  In other words, if you find a brokerage that you feel is a better fit for environment, training, schedule, etc, don't let a 10% higher split make you write them off before considering the bigger picture.  By the same respect, it would likely be a good idea to seek out some successful teams in your area with various brokerages.  Team splits can often be 50/50 which would have turned me off from the start, but with a team you jump right into an active career with that team. Also, teams can often offer perks compared to being independent with the same brokerage such as lower caps, free leads, etc.  The team leader knows what they are doing and you'll have the ability to work open houses, help out on active transactions, be present at inspections etc.  Down the road you could leave the team to be an independent agent with the brokerage, but many successful agents started their careers in entry level team positions.

I'm very happy with the brokerage I'm with, many love KW, Remax, or their small local independent office. There's no one size fits all, but it's best to consider several options!   

Many seasoned Realtors, especially on these forums, likely already know what I'm going to share and use escalations all the time. I didn't break any new ground or invent anything new. I've simply put things I've learned from BP folks to good use and wanted to share for others who may not have heard the specific podcasts or read the threads I did but who find this post instead. It may help newer investors and/or newer Realtors who may not know these exist.

In my local market the inventory is extremely low and good properties often have multiple offers quickly. I'm surprised by the overall lack of awareness that many Realtors in my market seem to have in the power of an escalation clause used properly. I've seen several mentions by other successful Realtors on these forums of using them and heard them mentioned in podcasts, but when I've presented them locally, I often get met with surprise and sometimes have to explain to list agents what they are. These list agents have often been in the industry much longer than I have been so it must not be as common among strictly retail transaction realtors.

An escalation clause basically states "The offer is for $XXX,XXX but if another verifiable offer nets the seller more, this offer will increase to beat net by $XXXX up to a cap price of $XXX,XXX". Every state and broker is different, so I won't share the legalese that I use since it may not apply. Mine is nearly a full page and covers how to prove the 'other offer', how to go about using the escalation, and covers disclosures of what could happen with multiple escalation offers. It also ends the escalation at the ratification of contract, a later higher offer can't open up the clause again. I found the legal wording to use by asking around within my brokerage, but there's no standard form through the Realtors Association for it so many Realtors don't know to ask their broker or have an attorney draft one. I'd be happy to share the terms I use privately with anyone in FL with the understanding that I'm not an attorney, I didn't write it, and your mileage may vary. But I don't want to post that publicly since I'm not an attorney and it could be legal garbage in another state. The premise of escalation is the point of this post, I'm sure there are many variations on the specific terms.

It's not smart to use an escalation when making an initial offer since the seller could simply counter offer back at the cap amount knowing what the buyer will pay. It's also best practice, in my opinion, to make the 'base' purchase price offer a reasonably high amount that should be acceptable as is, rather than low balling and having a huge range for escalation. The final escalation amount should be a "I don't want to lose it over this amount" not a large range to cover huge swing in price. I often won't even bring it up as an option to a buyer when making the initial offer. However, when a 'highest and best' request is made with a definite deadline for offers, I'll explain how escalations work and why they are helpful rather than blindly throwing more money at a deal when it may not be necessary. I'll then prepare the best offer with escalation and 'schedule send' it to hit the list agent's inbox within an hour of the deadline. List agents shouldn't give a heads up to anyone of escalation, but this way it limits that risk. There's always the risk still that the seller could counter back at the cap, but it's much less likely when a seller is considering multiple offers on the table and has given a deadline, doing so could expire their other offers while waiting on counter response.

I've used an escalation clause several times recently, oftentimes not being necessary when the 'base' number is highest offer anyways and it gets accepted without escalating. However, I have one under contract now that was very satisfying. My client's offer matched another Realtor's offer from my brokerage. Four offers on the table, two with matching numbers on the purchase price line. Without an escalation it could have easily lead to round two of blindly shooting for highest and best. My buyers were already up to their comfortable max, but didn't want to lose the deal over a few thousand, so we put a $3000 escalation with a $500 escalation factor.

I've been licensed two years, on BP for a little longer. I feel I've learned more about creative negotiations here than I would have through only traditional realtor training. The listing agent/owner on this particular property has been licensed 10 years longer than I've been alive and 43 years longer than I've been licensed. They did a beautiful job of rehab and listed it for a fair price. All offers were below list and he was aiming to get them closer. He called me just after the deadline and said

"Well I'll be damned, a young realtor that knows how to use an escalation! Your client has now beat out the three other offers and we'll only need to use $500 of the clause. I can't tell you how many times I've used an escalation in my career and had to explain it to the list agent. I don't even care about $500 net, we'll call it $500 gross increase and it's your deal. Sending the competing offer and pre-qual now".

When I received the other offer and realized they were with the same brokerage, had the same access to escalation legalese as I did, but didn't use one, I realized how important Bigger Pockets has been to my success and growth. When this other Realtor sees the sales data hit the MLS next month, it'll appear that their buyer lost by $500.

While there's a chance that sharing this could result in somebody in my local market going head to head with one of my buyers on an escalation, I think the chances of that are slim compared to the benefit of more BP folks being better prepared to get deals. And as always, best offer always wins....and it's not always price that is top priority.

My hope is that this helps somebody somewhere get a deal for a better price than blindly throwing more money at it!

oops, posted this in the wrong forum and can only edit rather than delete......moderators please remove this one!

@Sean Canada there's a great meetup the first Saturday of every month from 9:00-12:00 in Winter Park at 1133 Louisiana Ave #101, Winter Park.  @Shawn G. and @Bernadeau C. can give more info.  The next one will be 2/1.  Bring lots of business cards if you have them too.  Quite a few in the group are working on projects or looking for their next... contractors are always good to know! 

@Takeo Kingi you're welcome! Its been almost two years and I still remember the feeling like it was yesterday of "woohoo, I'm licensed let's do this!....oh crap, now what?"

@Takeo Kingi Congrats on getting licensed! I got my license in February 2018 and very quickly discovered that the pre-licensing course is all about what NOT to do in order to stay within the law. It doesn't give you hardly anything about the 'how' of actually being a successful agent.

Does your brokerage offer any sort of training or mentorship? That can be extremely helpful in learning the basics and networking with those in your office and vendors they use that will be extremely helpful (Title companies, home inspectors, attorneys, property managers, lenders, etc)

I wouldn't recommend any sort of paid 3rd party coaching/training until you've built up some momentum and the income to cover the cost directly from sales commission. Also steer clear of "We'll run your social media for $80/mo" type gigs. Lots of companies target new agents since they are hungry to buy their way to launching their career, but a $2500 coaching course when you haven't written an offer or closed a sale is a waste of money. A bunch of bogus generic Facebook page posts won't bring in business. Most of those coaching programs are primarily designed to help scale a business up and put systems in place but can be a little too much too soon when just starting out. The brokerage-level training is more geared towards the nuts and bolts of what to do first and how to grow organically with sphere of influence and other lead sources you may already have on hand without knowing it.

Network network network.  Always keep your eyes open for opportunities to connect and offer value to clients and colleagues.

Learn your state's most commonly used listing agreement and purchase offer contracts inside and out, they will be the most commonly used forms. There are often several versions, so ask experienced agents in your brokerage which are the 'bread and butter' docs used on most transactions.  Also learn about common addenda used in your market. 

See if you can shadow a successful agent along with buyers, to listing appointments, host open houses, go see vacant houses to practice the use of your lock box access (I say vacant since you really shouldn't displace tenants/owners without a buyer interested).

One thing that I wish I had a better grasp of early on is that there are far more ways to be successful than what any one agent will need or use.  Finding what works for you and what niche in the market you wish to focus on will take some time.  Think of it like spokes on a wheel.  There are likely 200 different strategies for lead gen and growing your sales volume.  A wheel with 200 spokes is pretty ridiculous.  Likewise, a wheel with one spoke won't work either.  The market is always changing, your niche and focus may shift in time and you want to keep the door open to adapting with the market.  You don't want to hyper focus on one single lead gen method or one single isolated niche because in time it may come to a dead end.  Focus on 10 different methods and you won't do any of them with purpose or consistency.  Instead, find 2-3 methods of finding leads that work for you, and work on mastering those before adding one or two more.  Most successful agents only have a handful of lead gen methods that they are rock stars at. There are rock star agents who cold call and rock star agents who never do. Consistency is key to success, but sometimes it takes a little 'doing' to realize what is or isn't fit for your personality.

You'll meet successful agents with vastly different lead gen methods and strategies and the risk is to get 'shiny object syndrome' trying to do too many things at once every time you meet a new rock star agent with a different approach. They all seem like the key to success, but none of those agents do all things, they each have a handful of strategies that work for them and the next successful agent may have completely different strategies. Just because cold calling and door knocking works incredibly well for one agent, doesn't mean it'll be what's right for you.

Lastly, aim to be active on Bigger Pockets. And not in a lame "hire me, I'm the best agent ever" kind of way, that will get your posts removed. Ask questions on things you don't know. Answer questions for others you do know. Engage in conversation, vote on good responses, send colleague requests to those you would like to know more about. Research and post interesting market or development information on your local market and keep up with responses you get to keep the threads alive when possible. Give solid helpful knowledge and time to the BP community as a whole and in time it will pay off. I have closed 6 transactions this past year with clients that came directly or indirectly from them finding me on Bigger Pockets and reaching out to me. I've got two flip listings active on the MLS currently from BP folks and I'm working on negotiations on two offers for two new buyers who have found me here and live out of town and state but want to invest in my market. One of those active listings I have is with a client-turned-JV partner. I got to jump in an help manage the flip to earn some potential profit and we're looking forward to our next deal with an official JV structure. The business I get from BP is not me lurking the forums and waiting to jump on someone in my market. It's me putting myself out there on the forums to offer quality honest content and then people reach out who appreciate my input.

My other transactions, both buyer and listing sides, have come from my sphere of influence (people I knew before being licensed), networking at local meetups, word of mouth from previous clients, setting up a referral agreement with a licensed flipper/wholesaler I know to list the not-quite-off-market level houses, and some limited direct marketing.  I don't cold call, I don't spend thousands on blanket mailing my entire Zip code.  I'm still relatively new coming up on my second anniversary of being licensed next month.  Other veteran agents may chime in with tools, strategies, or processes that worked for them. What works for me may not work for you. I can say that putting myself out there and being 'in the trenches' finding deals and meeting everyone I can has taught me more and cost me less than any paid coaching I could have done.

@Alla Minchenkov so I know every state is different, but...

In FL we almost exclusively use as-is purchase contracts because they are very straight forward. I have negotiated credits for repairs several times for my buyers and had  my sellers agree to reasonable credit requests as well when unknown things were found. My biggest rule of thumb for both my buyers and considering requests from buyers on listings is that you should never go try to get a credit for something that should have been obvious on walk through.  But if the repair needed wasn't obvious on walk through, it wouldn't have been taken into consideration on the offer and therefore is fair game to bring up for negotiation.  The ball is in your court if the inspection contingency is still in play.

Yes, the inspection contingency simply gives the right to exit if unhappy. But the seller would often prefer to sell a house than have you walk. Nowhere in the as-is purchase agreement does it say the seller has to negotiate.  When flaws are found that we couldn't have seen on showing, I'll send the pages from the inspection report showing hidden defects we found on inspection to the list agent, remind the list agent to tell the seller of the need to disclose to future buyers, and say my buyer is going to walk unless they get a $XXXX credit for repairs.

Sometimes they seller says no, and if buyer was bluffing about walking and we get to closing. Sometimes they say no and it really was a big deal, so the buyer walks with their EMD. Sometimes they agree and we get the credit. When buyer can walk with EMD, there's a very valid reason seller will at least consider a credit. Most recently I got my buyers $4500 credit for about $3500 in repairs needed (hidden termite damage, filthy AC ducts and Coil, and we threw in the Federal Pacific panel we already noticed since most Realtors wouldn't notice that). Since we had several days of inspection left and thought they'd come back lower, we added $1,000 to our estimated repairs and the seller went for it. That deal we had also used an escalation clause to be sure to beat other offers in a multi-offer situation, but there weren't any to exercise the additional $2500. So my buyers came out $7k better than they would have at max escalation and no credit. Did the seller have to give my buyer $4500? Nope. They probably would have still bought the house having offered and lost out on four others and toured 20+....but the list agent didn't know that. The facts that mattered were that my buyer was legally allowed to exit if they didn't meet the credit request and I made that known as well as their need to disclose the (minor) termite damage we found in the attic that they now know about. The dirty AC ducts and breaker panel were additional items for negotiation sake that ended up sticking since seller likely didn't know they were issues.

Obligation to disclose known defects and your ability to exit are both on your side as the buyer, even if the contract doesn't explicitly state that they must negotiate. It does state that you may exit, that is in black and white. Share pictures and inspection and they will now have to disclose the issue to future buyers. An exit clause and the 'generous sharing' of an inspection report with reminders of need to disclose are powerful negotiation tools. Everything is negotiable when you can walk with EMD.

@Josh Page you're welcome! I can't take credit for the meetup I attend, but I'm definitely glad it exists. I look forward to it every month!

@Tj Quinn are you going to occupy one of the units when it's complete? If so, look into an FHA 203k or a Fannie Mae HomeStyle Renovation loan. Both are low down payment loans that cover purchase and rehab with down payment on the total. There's some additional paperwork and effort on the front end before you get to closing and the rehab has to be done by licensed contractors paid by the rehab funds held in escrow by the bank, but it's a great program for owner-occupied rehabs.

If you aren't going to occupy the property as a primary residence, you'll likely be looking at hard money/private funding which will often require a larger down payment.  Traditional banks don't typically like to lend on properties in very poor condition.