Working With Realtors As An Investor
There are many ways to find your next deal be it as a result of marketing, advertising or word of mouth. But one of the most efficient ways to find new deals is to work with those that are knee-deep in real estate for sale every day: Real estate agents.
Real estate agents are licensed agents that specialize in the buying and selling of real estate of all types. Real estate agents can sell land, apartment buildings, condos, single family homes…anything that has “real estate” as part of its description is fair territory.
And it’s a popular industry with few entry barriers. The agent needs to study the material, take the tests and keeps their license current by taking and passing continuing education courses. Today for example, there are 3 million licensed homeowners, give or take, depending upon who’s counting them. Still, that’s a lot.
Even in your neighborhood does it seem that nearly everyone is a homeowner? Real estate is a hyper-competitive industry. Homeowner advertisements appear in newspapers, refrigerator magnets, calendars, post cards…the possibilities are seemingly endless.
And what do they all say? Something like:
Outstanding Customer Service
We Put You First
We Get Top Dollar
We Sell Your Home Fast
We’re # 1
So can they all be? Can they all offer the same services? What if the ads were turned around and looked like this:
Lousy Customer Service
We Put Your Last
We Get the Worst Price
We Take Our Time Selling Your Home
We’re Probably in the Top 100 Somewhere
The point here is that no agent is going to proclaim that they’re a bad agent. But if there are so many of them how can you find a solid agent? Or do you even need one?
Why You Need a Real Estate Agent
Unless you’re a homeowner yourself with years of experience you need to work with an agent. Agents have access to the local Multiple Listing Service (MLS), the central database where all homeowners list their real estate for sale on behalf of their clients.
Agents can list their homes on their websites or other advertising venues but all agents must list their homes for sale initially via the MLS. When you see a real estate company’s website and they have an area that shows homes for sale and all the homes pop up on their screen, what is really happening is that information is taken directly from the local MLS.
Agents can also be members of multiple listing services in other areas or even have cooperative agreements with others that allow them to pull real estate information from other cities.
But the moment a seller and an agent agree to sell a home the MLS is the first place the property will be displayed. And agents log into this system every day to see what’s new on the market. Their access to this huge database is the first reason you need to work with a homeowner.
Homeowners can also “specialize” in specific types of real estate. Agents will often advertise that they specialize in first-time homebuyers or luxury real estate. But the fact is that no agent will turn you away. If you’ll look a little closer at an agent that advertises their specialties you’ll likely see something that reads like this:
“We specialize in first time homebuyers, luxury homes, land, condominiums, duplexes, manufactured housing and other real estate!”
That’s a lot of specialties, no? But when you begin searching for an agent you’ll find this more than you won’t.
So with all that how do you find the best agent that will help you find the types of property you’re looking for?
You first find the most successful agents.
Top agents have been in the business for several years. This isn’t to say that there are some sharp agents out there that are relatively new to the market but finding those hidden gems should be a side effort and not a primary one when looking for an agent.
Top agents have the most listings. Think about that for a moment and put yourself in a seller’s shoes. You want to sell your house so you begin to interview three homeowners. You get a couple of referrals from friends and you also do some research yourself.
In a few days you’ve set up three appointments, all for the same day. The first agent provides you with their listing presentation and you see that she has been in the business for five years and has sold $2 million in real estate with two homes currently listed.
The second agent shows up and says that he also has been in the business for two years and currently has no homes listed but he has a terrific marketing plan.
The third and final agent arrives and you see that she has been in the industry for twenty years, has three assistants that work with her, has sold $50 million in real estate over the years and currently has 18 homes listed in the MLS.
Who do you think has the most experience? Of course, it’s agent number three.
That’s how you can find a top agent…you find those with experience and a nice collection of listings, tons of clients and referrals and a full time professional in the industry.
Now let’s take that advice one step further; you need a professional homeowner with tons of experience that is a literal bloodhound in finding ideal properties that fit your purchase profile.
Do you want to invest primarily in 2-4 units? Then find those agents that list those properties on their websites. Remember, a homeowner’s website will have access or display every listing in the local MLS whether or not it’s the agent’s own listing. This is called the Internet Data Exchange, or IDX. This is simply a method by which other agent’s listings appear on other agent’s websites. IDX allows an agent to show a property and if you’re interested in that property you contact the agent, who will want to act as your buyer’s agent and make an offer to the original listing agent.
That’s a mouthful but it’s important to understand the difference. An agent’s website will typically show all the listings from the local MLS and the individual agent’s own listings will be listed separately, most often called “Featured Properties” or “My Listings” or some such moniker.
When you find an agent that lists investment properties on their website, take note and find an additional agent. Do this several times until you have two or three agents that specialize in investment property that you’d like to pursue.
Your next step is to contact these agents and pick a primary agent and a secondary one. There’s no real formula at this stage but more of a personality match and their understanding of your business process.
You want a partner, formal or otherwise, that will search for properties on your behalf. The agent will make money when they bring you, the buyer, to the closing table, paid by the seller. And you don’t have to use just one agent, you can use two. Or three. But when you do use more than one agent let all parties know that you don’t intend to use any of them exclusively.
If that’s your strategy, go ahead. Just consider you may get a more loyal agent on your team if that agent knows he’s your only guy. That way, when a property comes up that you might be interested in; you’ll be the first potential buyer he’ll call. Loyalty works both ways.
By having a loyal agent partner they will constantly be on the lookout for you. Successful agents also have access to many “pocket” or “secret” listings. These are listings that are not yet ready to be listed but the listing agent has let his agent friends know about the soon-to-appear property. The term “pocket” listing is literally taken from the practice of an agent keeping a listing in his pocket until it’s time to formally place the property in the MLS.
REO stands for Real Estate Owned. And it’s a term that banks wish they’d never known about. REO properties are properties that the bank has had to foreclose on and now they own them and are trying to sell them.
These banks have an internal REO department that is dedicated to getting rid of their portfolio of homes. This department typically includes a team that secures the home, makes needed repairs and prepares the home for sale to the public.
The REO department employs homeowners to negotiate on the bank’s behalf to sell the foreclosed homes. You need to find those agents at the bank. How do you do that?
The larger national banks have huge REO departments located at regional or national headquarters. It may be difficult to establish a personal relationship with an individual REO officer but you’ll need to try. Just remember that once you begin working with an individual at the big bank, always get their name, number and extension and work with them exclusively to establish your credibility and trust.
You can simply do a Google search for “find REO departments at banks” and you’ll get a list of companies that offer these lists for a fee and you can find websites that give you the direct link for the REO department at a variety of state, regional and national banks.
If you do subscribe to an alert service that provides you with REO listings from various banks remember that you won’t be the only one that receives that lead. There will hundreds of other potential investors that receive the very same list.
The best practice is to establish individual relationships with the REO agents at local bank. This is essentially done by picking up the phone and making some phone calls to the different banks in your area and search for the agent you need to know. Find that person, take them to lunch and get to know them. Let them know what you do, what you’re looking for and your price range.
If you play your cards correctly, that agent may soon call you directly as soon as a new property turns into an REO without your having to search the REO database yourself or have your agent partner search for you.
Your partner agents also understand the benefit of working hard for you: they will ultimately get your listing when you decide to sell one of your investment properties. An agent will earn commissions when they act as your buyer’s agent when you buy a piece of real estate. They will also earn commissions when they list your property to be sold.
And when you have an exclusive agent it’s also easier to negotiate their commissions with you, leaving you more profit at the closing table. If for example, a common real estate commission is 6 percent, you might say to your agent “I will have, over time, XX number of properties and they could be sold at any one time. If I use you exclusively as my agent, what sort of commission discount can I expect?”
By offering to make the agent an exclusive, you’ll save money on the sale of the property and the agent will work all the harder finding properties for you to buy. And the benefits don’t stop there.
By listing your property they will do what agents do best: prepare the home to sell at its absolute maximum. What are some of those things?
The first is establishing the price of the home based upon similar sales in the area compared to your home. If you want to hold out longer for a higher price, the agent will set the list price to reflect that wish. If you want to move it in 45 days the agent will again list accordingly. The agent can give you an idea of how much you can sell the home for, how long it will likely take and how much you can expect at the closing table.
The next is establishing an attractive curb appeal. Curb appeal is how a home looks from the street. Is the lawn manicured? How about flowers and shrubbery? Is the roof in good shape and the house freshly painted? Are there oil stains on the driveway?
As a potential buyer begins to step out of their car and walk up the sidewalk to inspect the home the first impression is the most important. A good agent will enhance the curb appeal so the buyer gets a positive first look when they see the home.
An agent will also “stage” your home. This can mean a variety of things from removing family photos and personal effects from the home. It can mean moving furniture out of the home to make it appear bigger. Perhaps the carpet needs to be shampooed or even replaced and the walls could use a fresh coat of paint.
Finally the agent will negotiate for you with the buyers, the agents and let you get about what you do best: invest in real estate.
If you’ve found the perfect agent partner then you’ve also found someone who will make money for you. But it’s not a one-way street.
Once an agent finds a client whose sole business is to invest in real estate either to buy and hold or to fix and flip, they will treat you like royalty.
Besides the obvious fact that the agent will make money by representing you remember that most people will buy a home to live in for several years, maybe buy another and maybe buy another in which to retire over the course of thirty or forty years.
You however, could buy four, five or six properties per YEAR. AND you not only buy but you also sell. You are at the top of every professional agent’s wish list.
Why Stop There?
Let’s expand your team and make you even more money.
Do you remember the first piece of property you bought? Maybe it was your first home? In all likelihood you needed to do some repairs, paint or remodel. So you pick up the phone and call some friends for referrals for a:
Your agent partner likely has a list because homeowners are always asking for the very same referrals. And while you certainly want to contact these individuals you also want to find some on your own.
For example, you knew that the back deck needed some work when you bought the property so you called a carpenter who specializes in wooden decks. He comes out to the property, completes the work and gets paid. End of story, right?
Actually, no. Now the carpenter comes to your home and you tell him that you’re a real estate investor and you buy four or five similar properties over the course of a year or two and now you’ve got his attention. Now, instead of just repairing the deck and collecting his check he’s doing his absolute best work…hoping to be your ‘carpenter of choice’ when you buy your next property. He even gives you a discount on the price due to your being a “volume” customer.
The very same goes with the painter, the electrician, the plumber and the roofer. In fact, any trade that is real-estate related can become a partner of yours. And now not only do they provide you with good work at a competitive price they are now also on the lookout for future investment opportunities for you.
Most often when a home is being prepared for sale there are a variety of things that need to be addressed. A new coat of paint is needed or the fence needs to be repaired. Perhaps the roof needs some work. So the homeowner calls the painter and says, “We’re getting ready to sell our house soon and we need our house painted.”
In this innocent conversation the homeowner has let it be known that her home will be put up for sale long before anyone else will know because it might be weeks before it’s ready to be listed. (Remember curb appeal?)
If that painter is one of your partners, the painter will be on the job and say something to the effect of, “So you’re getting ready to sell, huh? I know of someone who invests in real estate on homes like yours and he always has cash on hand and sometimes he can close in a week or two if he likes the property. Want me to contact him for you?”
Now you have not just a painter but someone who is out there generating business for you. If you have a carpenter, an electrician, a plumber and a roofer doing the exact same thing then how many more leads on properties do you think you might get? 10? 20? 30?
And the beauty of this dynamic is that you will typically get first shot at the deal, maybe even before it ever goes on the market.
How do you find reliable, trustworthy partners? First, begin with the list your agent partner provided you. The contractors and service providers that the agent feels confident enough in to refer have more than likely gone through their own vetting by the agent.
A successful agent has achieved their level of success not by accident. It took a lot of hard, dedicated work to get where they are today. As previously mentioned, real estate is very, very competitive. There are a lot of agents out there and if your agent is one of the best they got that way by being better than the others.
And one way an agent stays successful is referring people she can count on. She won’t refer a plumber without having seen the plumbers work and reviewed his past. Can you imagine the agent referring a plumber to one of her new home buyers and the plumber proceeded to accidentally flood the basement through shoddy work? The home buyer will tell all her friends something like:
“Don’t EVER use Sally Agent for anything! I asked her for a simple referral for a plumber and she sent me this buffoon who totally flooded my basement and ruined all our flooring and furniture!” says the home buyer.
That’s the scary scenario an agent wants to avoid and you can be assured that if you receive a referral from your agent partner that referral got on that referral list by hard work, effort and stellar customer service.
That’s the beauty of a partnership. You can have other people out there working for you and you don’t have to pay them a dime. Of course they’re working for themselves, they have to in order to earn a living, but they’re also part of your investment team as a referral source.
As a real estate investor, you have many plates to spin at the same time. Some of those plates you can hand off to others and some you have to spin yourself. But when partnering with professionals in your area from your homeowner to your general contractor you’ll find the path to success a much easier one. And you’ll soon have more business than you could ever imagine.