There’s a BiggerPockets forum thread going on this week that addresses the issue of realtors, and whether they are worth their fee when selling your investment property. While I’m not going to address that particular issue in this post (suffice it to say, I believe great agents are worth every penny and not-so-great agents will lose you lots of pennies), I do want to review the criteria that I use to differentiate the great agents, especially when it comes to working with investors.
First, let me break down the three main areas that I use to evaluate an agent:
- Listing and Marketing
- Getting to the Table
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Listing and Marketing
Here are some of the things you should be looking for from your agent when it comes to Listing and Marketing your property:
- Accurate Pricing: Perhaps one of the most important aspects of being a Listing Agent (someone who represents the seller) is the ability to accurately determine how much a property will sell for. If you overestimate, you run the risk of not getting any offers, letting the listing get “stale” and ultimately keeping the seller from making his profit. If you underestimate, you’re leaving money on the table that should be going into the seller’s pocket. Great agents know how to accurately price a property; even better agents can tell you how much longer or shorter the property will sit if you adjust your price, allowing you to do your own cost-benefit analysis on the pricing decision.
- Great Listing: Anyone can write a few grandiose words about your property and throw up a half-dozen average pictures. A great agent recognizes that the listing is the last opportunity to make a first impression on your buyers. The goal is to get them excited about seeing the property just from looking at the listing. If they’re excited about seeing the property, and have a day or two to look forward to it, they start building up an emotional attachment in their head. So, while they may be out looking at a number of properties before yours, yours is the one they’re looking forward to. A great agent knows how to write listing copy to really connect with buyers and knows how to take pictures (or hire someone to take pictures) that present a WOW factor in the listing.
- Getting Showings: For $300, you can list your property on the MLS using a flat-fee listing service. So, don’t fool yourself into believing that you need an agent to get you onto the MLS, or that an agent is good just because they get you showings based on your MLS listing. Great agents have a network of other agents that they turn to after each listing to market the property, find targeted buyers, etc. If you can expect to get 5-10 showings the first weekend just from listing the property on the MLS, you should expect 20-30 showings if you have a great agent.
- Preparing For Showings: Great agents don’t leave things to chance. For example, in our business (where my wife is the agent for our properties), we keep each house on a portable alarm system. One reason we do this is to protect our investment. But the bigger reason is that we want to ensure that buyer’s agents HAVE to call us and let us know BEFORE they show the property (our listing asks for 30 minutes notice so we can turn off the alarm). This gives us time to send one of our employees over to the property to turn on the lights, open the blinds, verify the temperature, refill the scented air-fresheners, make sure there are flyers and blank contracts on the counter, make sure there is no trash in the yard, etc. This ensures that every single showing makes the best possible first impression on the buyer.
- Soliciting Offers and Getting Feedback: Any agent can tell you that you had 10 showings over the past week. A great agent knows how each of the showings went, what the buyer (and the agent) liked and didn’t like, whether an offer is forthcoming or not, and any other information pertinent to the sale. How does the agent do this? Simple…they pick up the phone and call the buyer’s agent for feedback a couple hours after the showing. A can’t tell you the number of investors I speak with who say they can’t get an offer, and when I ask what negative things the buyers have noticed, they say, “How would I know?”
- Evaluating Progress: Not every showing is going to result in an offer. Hopefully, if the property is priced correctly, you’ll get an offer within the first 3 or 5 showings, but sometimes, even that doesn’t happen. When that (doesn’t) happen, the important point is to know why. A great agent will be able to use the market data and feedback they’ve gotten to determine why. Does the property need a price drop? Does it need a fence around the back yard to shield the trash in the neighbors yard? Does it just need more time and a couple more showings?
Negotiating is the second major area where I’ll evaluate an agent. While there are a lot of areas of selling real estate that require strong negotiation, I’m going to focus on two.
First, negotiating an initial contract with a buyer. I know a lot of investors who think they are great negotiators and who insist on doing offer negotiation themselves (I’m one of them). But, in reality, as the seller, you are probably not as well suited to negotiating your own property as someone who is less emotionally connected and vested in the property (again, I’m in this category as well :)). There are two risks that an emotionally invested person faces when negotiating their own deals:
Overvaluing the Deal
By overvaluing the deal, I mean that many sellers believe their properties are worth more than they actually are or are too emotionally invested in the property to recognize a fair offer.
For example, it’s the first weekend on the market for your newly rehabbed property, and you’re just waiting for that full-priced offer from the first person that walks through. Surprise, the first buyer makes an offer $20K below the list price. You’re positive the house is worth full-price, so you counter with full-price. The buyer increases his offer to $10K below list. Again you counter with full-price. The buyer — annoyed that you’re not willing to even budge — walks away.
Perhaps this was a good move on your part, and you’ll be getting that full-priced offer on the next showing. Or, perhaps you lost the only offer you’ll end up getting for the next 6 weeks. A great agent would be able to put that specific offer into perspective for you, and may have been able to save you that deal.
For example, perhaps $10K less than list was still a great offer, and you just couldn’t see it because you were blinded by excitement. Or perhaps the agent would have seen some aspect of the deal — other than price — that you could have conceded to the buyer without dropping the price. Regardless, the fact that you were so excited about the first weekend on the market and a potential sale may have clouded your judgment when it came to negotiating that offer. A great agent wouldn’t let that happen.
Undervaluing the Deal
On the opposite end of the spectrum are those investors who are willing to give up too much in the negotiation because they don’t recognize the value of their property (I often fall into this trap myself). These are the seller who get an offer the first weekend at $20K below list price and want to jump on it. Perhaps they don’t even want to counter-offer for fear of losing the buyer.
While these sellers will often get their houses sold quickly, they tend to leave a lot of money on the table that could have gone right into their pockets. A great agent will let you know when you’re selling yourself short, and will push you to get more, even if it adds a little risk. In fact, many investors overestimate the risk of losing a deal by doing a little bit of negotiation, so in many cases, the agent really isn’t adding any risk — the buyer is expecting a counter-offer, and if you accept without making one, he may wonder what’s wrong with the property if you’re willing to give it up some easily!
So, when it comes to negotiating an offer, a great agent is invaluable. Not only is a great agent a strong negotiator, but a great agent is also able to convince you when you’re not thinking clearly when it comes to your negotiating tactics.
The second piece of the negotiating puzzle that great agents help with is after the inspection and at the end of the due diligence period. Oftentimes, the buyers will come back with a list of “demands” — perhaps repairs, additions (like a new fence), or even a decrease in the agreed upon price of the house. A great agent has been through this process many times and knows when a buyer is just fishing for concessions and when a buyer is seriously at risk of walking away from the deal if he doesn’t get what he wants.
Getting to the Table
Getting your property under contract is one thing, and actually getting to the closing table is another. Especially in this market where lending is tight, buyers are flaky, and good real estate professionals are in short supply, a high percentage of deals are at risk of falling out of escrow if the agents don’t do their jobs very well.
Here are some things we do in our business to ensure that property gets to the closing table. Even the best agents may not be as persistent as this (and that’s not necessarily a bad thing), but the best agents will do as much of this as necessary to get the deal closed:
- Getting Appraisals Ordered: A great agent will get in touch with the buyer’s broker/lender within a couple days of a getting contract. The first order of business is getting an appraisal ordered, and great agents will make sure that gets done quickly. If it takes 2 weeks to get the appraisal, and then the appraisal comes in low, that’s 2 weeks wasted. I make sure an appraisal is ordered within 48 of the contract being signed…if it takes longer than that, I know that the broker or the buyers is lying about how qualified they are to buy (and need more time before they want to pay for that appraisal).
- Be Present for the Appraisal: This may be the most important aspect of a deal these days — getting the appraisal to come in at the contract price. A great agent will either be present for the appraisal or arrange for you to be (with comps in your hand). In our case, we take the agent lockbox off the door so that if the appraiser shows up without anyone telling us, he needs to call us to get in (most appraisers use the same lockbox key as agents). When an appraiser calls us from the property, we tell him we have the key and we’ll run right over. Luckily, we’re generally informed beforehand so we can be there with comps in hand, renovation lists, etc. Appraisals can make or break a deal, and again, a great agent leaves nothing to chance.
- Be Present for the Inspection: I would never expect my agent to be present for a buyer’s inspection (and neither should you), but a great agent will recommend that you be and will do everything she can to get the buyer to agree to it. This way, you will know beforehand what the buyer is likely to come back with when requesting repairs. More importantly, if the inspector brings up something that you think may be confusing to the buyer (and that you think might freak the buyer out unnecessarily), you can ask leading questions right then and there to get the inspector to clarify and make the buyer feel more comfortable. Of course, if the buyer really doesn’t want you there, you should respect his wishes and not go.
- Getting the Closing Scheduled: Sure, this seems like an easy item. But, in reality, it’s a BIG ONE. The average agent will schedule the closing a few days or a week before it’s to take place. A great agent recognizes that a firm date will help everyone stay on schedule. Our process is, within 48 hours of the contract being finalized, we call the closing attorney and get the closing put on the calendar. While this date may change (hopefully get pulled in sooner!), when you have something actually scheduled, it makes people focusing on hitting that date. Trust me, you’ll get much more cooperation from the lender when you say, “Are we still on-schedule for August 18 at 3:30pm?” then if you say, “Are we still going hit mid-August for this closing?”
- Communicating: Great agents over-communicate. There shouldn’t be more than 72 (preferably 48) hours that go by while you’re under contract that your agent doesn’t call or email you. Even if it’s only to say, “Nothing new…everything on track.” If your agent knows that she is going to have to give you a status every couple days, it means she also knows that she has to get the status at least every couple days. Whether that means calling the broker, the processor, the buyer’s agent, the closing attorney, etc. A great agent keeps in touch with everyone, all the time.
These are my basic criteria for a real estate agent, and like I said above, those that do most or all of these things well are worth every penny they make. Not only do they ultimately make you more money on each deal (perhaps even enough to cover the cost of using them), but they will save you countless hours, countless headaches, and countless sleepless nights.