No matter if you are a first time investor, or a grizzled real estate veteran, you should still use a buyer’s agent to help you locate and buy property — despite the misconception that you can get a 3 percent discount if you don’t. Buyer’s agents offer many valuable services that can help you acquire valuable information, find the best deal and reduce hassle. See the following article from REIClub for more on this.
One of the biggest mistakes new and veteran real estate investors make is to purchase a listed property without the use of a buyers agent who is experienced in working with real estate investors. Now any agent can be a buyers agent but unless they understand how we buy and sell property they will not be able to guide you through the many pitfalls and will cause unnecessary paperwork and hassle.
Many investors incorrectly believe that if they don’t use a buyers’ agent they can get the seller to give “them” a 3% discount in-lieu of paying the full 6% to the listing agent. This is almost always wrong. A seller enters into a listing agreement with the listing broker for an agreed upon amount or percentage. Once the property is listed in MLS that fee is shared with the agent, if any, that sells the property. If the listing agent sells the property…they keep 100%. That means not only do you not get a discount equal to the shared fee, but you also are letting the seller have an advantage in the negotiations.
What Exactly is a Real Estate Investors Buyer Agent?
Buyers’ agents are agents who are experienced in and often times specialize in working on investment related transactions and retained by real estate investors to help them find the perfect house and are paid by the sellers / builders / listing agents.
Here’s an example. Lets say that you are in the market to buy a very specific car (i.e. a Black Chevrolet Suburban 4×4 with tan leather interior) and walk into a local Chevrolet dealership to find one. Guess who those “friendly” sales people work for? The dealer, of course. They’re all trying to get you to buy using every pressure tactic in the book. Do you feel comfortable? Of course not.
Now, what if you could hire an independent vehicle consultant to find you that exact vehicle from amongst all the regional Chevrolet dealerships. Someone to handle all of the negotiation, at your direction. Someone who knows the market and the costs associated with buying this vehicle as well as how long a dealer typically takes to sell this car. All of this info is vital to you getting the best deal To get all of this at no cost to you, you simply sign an agreement with that individual that outlines the following obligations:
- That the consultant is to look out for your best interest (The are legally bound to do so).
- You agree to allow your consultant to paid a pre determined finders fee from the dealer from whom you decide to buy.
- That the consultant will help you find the best deal. Performance based compensation. If they don’t find you what you want…they don’t get paid.
- You agree to work exclusively with that consultant. (This helps ensure that there is no pressure on you to buy because that consultant knows that he / she will eventually be rewarded for their effort to help you).
- You agree to only buy from dealerships that will pay your sales person a finders fee.
Now substitute the car for a house and the consultant person for a real estate investors buyer’s agent and you’ve accomplished the same thing, which in real estate is known as buyer agency.
Services That Buyers’ Agents Offer to Their Clients:
- Reliable advice and information is perhaps the key factor in making a “good decision”. As your buyer agent, they will provide you info such as, but not necessarily limited to the following:
- The original purchase price of the house.
- Evaluating improvements that the sellers may have made to the house.
- Comparative market analysis for similar houses in the neighborhood.
- The average closing help paid by sellers of other similar houses in the neighborhood.
- The average drop from list price to sold price.
- How many days the property has been on the market for sale.
- The co-relation between tax assessed value and market value.
- Computerized what if scenarios on spreadsheets to allow you to make sound financial decisions.
- Introduction to reliable mortgage lenders, home inspectors, settlement attorneys etc.
- You worry about finding the perfect house – they will help you take care of all the small details.
How Exactly Does a Real Estate Investors Buyers’ Agent Get Compensated?
Whenever a house is listed with a brokerage firm, the seller of that house (whether it is a new house or an existing resale house) agrees to pay the listing firm a set fee. The listing firm then enters that listing into the MLS database and agrees to pay a percentage of the final sales price to any other realtor from any other listing firm should they produce a buyer for that house. This way, brokerages get to share one another’s listings and can cross sell thus making it easier to sell the property. Only a very small portion of homes on the marketplace do not want to pay realtors. These include small or not so reputable builders who do not want realtors advising their buyer clients and for sale by owners (who’re typically priced too high). I can highly recommend the use of a real estate investors buyer’s agent for real estate investors of all experience levels. Be sure that you select one with experience in real estate investment transactions. There are many of these folks out there.
Rob Barney, President of DHLC Investments, Inc. bought his first investment property in 1998. DHLC Investments, Inc. provides Real Estate Investors access to Hard Asset Capital. Hard Asset Capital loans are those loans funded to the borrower based solely upon adequately collateralizing the loan with purchased real estate property.
This article has been republished from REIClub. You can also view this article at REIClub, a real estate investment education site.