I am a Realtor so I have a definite bias on whether an investor should work with one dedicated agent or work with multiple agents. I also can give the Realtor’s perspective on how we work and how an investor can make a Realtor/Realtor’s work best for them.
I have made over 24% cash on cash returns on my long term investment properties and much of my success is due to being a Realtor. I think the best plan of action for a serious Real Estate investor is to become a Realtor or Real Estate agent. If you don’t think being an agent is for you, this article is my opinion on how to best use an agent.
Be sure to check out my complete guide to investing in long term investment properties to see mortgage options, where to find deals and detailed figures on my properties.
How Realtors get paid
There are many different scenarios for how agents get paid and there are no standard commissions or structures used. I am going to outline the most common scenario I see in my area.
In most Real Estate transactions there are two Real Estate agents involved, one for the buyer and one for the seller. Usually the seller pays the commissions for both agents. We will use the HUD commission structure for this example which is 3% for the buyer side and 3% for seller side. That can seem like a lot of money for one deal, but Realtors have a lot of expenses.
- Realtors must carry a lot of insurance. I carry E and O, general liability and umbrella insurance policies.
- Realtors have to pay fees for their license, MLS and office expenses as well as office space.
- Most Realtors don’t keep their entire commission, they pay a percentage to their broker. In turn he pays for staff, advertising or other expenses. Commission splits can range from 50/50 to 90/10 depending on what the office pays for and the number of transactions the Realtor closes.
- Realtors get no benefits! They pay all their health insurance costs, have no matching 401ks or other benefits of a corporate job.
After factoring in all of these expenses Real Estate agents don’t make as much as most people think. A Realtor usually only gets paid when they sell a house. They may make $5,000 on one sale, but they may have also spent 20 hours with a client who never bought a house and they earned nothing for their time.
The reason I am outlining the way agents get paid is to show you that agents want to make sure the people they work with are serious and they aren’t working for free. As an investor this can determine whether an agent sends you good deals or sends them to someone else.
Using multiple agents to buy investment properties
Many investors like to use multiple agents to find properties for them. They feel the more agents looking for properties for them the better chance they have of getting a good deal. They will talk to many agents all over town, tell them they are a serious investor and looking to make some purchases. This strategy can work in some cases, but it can also backfire. Most agents can sense when an investor or buyer is working with multiple agents and a good agent will flat out ask any buyer if they are working with another Realtor. Realtors are taught in ethics class not to steal other Realtor’s buyers or sellers. It is drilled into our heads that it is very bad to “step on another agent’s toes” by showing houses or writing contracts for a buyer that has already looked at homes with another agent.
Because of this training most agents will naturally shy away from any buyer that says they have seen houses with other agents, are receiving listings from other agents, don’t have one agent but are working with whoever has the best deal, etc. This doesn’t mean agents won’t help out investors working with multiple agents, but they probably won’t put a lot of effort into it.
Realtors are usually able to show a buyer any homes listed in MLS, but if they have no connection to a buyer or feel the buyer is not committed to them they don’t have much motivation. They will usually call up the investor if their own listing might meet the investors needs, but that’s about it.
Some investors also feel they may be able to get a better deal on a property if they work with the listing agent instead of their own agent. They feel if there is no buyer’s agent involved the listing agent will take a smaller commission and the seller can net the same amount with a lower sales price.
This strategy can work on some homes, but many times the agents still charge the full commission. The buyer also is risking not having proper representation when taking this route. Most states allow the listing agent to represent both sides or act as a transaction broker. However, if the agent has known the sellers for years and just met you, whose interests does the agent really have in mind?
Using one agent to represent you when buying investment deals
Realtors are taught the best way to do business is to let a buyer choose an agent and then that agent will work exclusively with the buyer. There are a couple of huge positives for a Realtor to use this technique.
- Realtors know if the buyer makes a purchase they buyer will use them and they will get paid
- Realtors know if the buyer decides to sell a home the client will use them and they will get paid
An agent that knows they have a loyal buyer will work hard to send them new listings, search aged listings and other possible deals. They know if they find the right house they will get rewarded with a commission check. They have much more motivation because they have no worry the investor will use another agent on houses they send the buyer.
It can work to use multiple agents, but usually the investor making these techniques work is doing the property searches himself. He is not relying on an agent to send him listings or leads. He finds a good deal and then approaches the listing agent to try to make a better deal.
If you are new to Real Estate investing I suggest you find a hard-working agent to work for you. In my experience a young agent can be the best, because they are hungry for deals and willing to work hard. The most experienced and successful agents may not have the time to hunt down properties for a new investor and they may already have a list of investors ahead of you that they will contact first.