Does anyone work with a Buyer’s Agent that actually would share his / her commission with you on a house that you would want to purchase?
I’m not sure this will be the answer you’re looking for, but at least it’ll be real world:
What kind of Agent do you want to work with?
Do you want to work with an experienced, knowledgeable Agent, or one who feels the need to give away a portion of their income to get the job?
It’s our experience that those looking for a portion of our commissions turn out to be high maintenance clients, and commonly exhibit less respect for our profession.
I’m often amused by those outside the Real Estate profession who advise negotiating the Agents commission.
There’s another side of the coin here, and that’s; how does the Agent feel about the individual(s) trying to get a portion of their income?
Again…does the proven, knowlegeable Agent have a need to negotiate their commission? Will such an Agent form a negative opinion of you for asking for some of their income?
Food for thought.
-Infowell
1st, I’m not aware of any state where a licensed RE agent can actually “share” their commission with an unlicensed individual.
2nd, if you are trying to invest in RE and the 1% or so that you can shave off of an agent’s commission is going to make or break the deal, then it’s not a true deal. Not even close.
3rd, in a quick recap of infowell’s post, if you find an agent that would be willing to do this, would you actually want them? I wouldn’t.
As an aside, if you are an investor and choose to use an agent, once you find a good one (and you never will if you constantly try to get commission reductions), pay them what they should be paid. Heck, pay them MORE if they can consistently bring you good deals. You want them to think of YOU, not the other investors (and a good investing RE agent will have other investors).
Raj
i was told that you can get a buyers broker and say his commission is 3%…you will get a credit at closing…
ex. # 1 you go on the MLS and find a property and you call the listing agent. If you buy the property and the commission is 6% the listing broker will get 6% .
ex #2 you are working with a real estate broker and HE finds you a property…so he ( my broker)gets 3% and the listing broker gets 3%.
MY example…
I find some properties and call MY broker (buyer broker) and say Hey I found a property for sale that i am interested in on the MLS…If i go directly to the Lisitng agent he will get the 6%…but if you act as my broker throught the transaction are you willing to cut your commission to say 2% and give me 1% back at closing?
so basically since i found the property and the broker has not done any work i am saving 1% of the sales price and my broker either has the option to make 2% of the price or zero because either way i am going to buy that property with or without him…
i was told that it could be done and that i could get that money as a credit to my closing costs at closing.
Isnt this just like getting a sellers concession…the commission get reduced to 5% and i get 1% back at closing…
Again though i am talking about multiple properties…if i go out and find 10 properties this broker could get a piece of all 10 properties at 2%…this broker would not just be used for just one deal …but every deal i do…he did not do any work for this 2%. I found the property myself.
Here is a search i found on the internet
Cash back at close:
The property seller and his agent negotiate a commission in advance, and the agreed-upon amount becomes part of the purchase price. If the buyer agrees to dual agency, then the seller’s agent keeps the entire commission. If the buyer has his own agent, the seller’s representative customarily splits his commission with the buyer’s agent. In neither case does the buyer generally get any sort of credit from the commission he pays as a part of the purchase price.
Under the Buyer’s Agent Credit Program, the buyer gets credit for half of any commission earned by his representative. The funds can be collected as cash at close or used to cover closing costs.
How much cash can get?
The amount depends upon the purchase price and the commission amount. The following is a typical example:
Purchase Price: $200,000
Total commission negotiated between the seller and his agent:
$12,000 (6% of the purchase price).
Amount earned by buyer’s agent: $6,000 (50% of total commission).
Less 10% service fee to selling broker:
-$600 ($5,400 net commission to buyer’s agent).
Amount of credit to buyer:
$2,800 (50% of net commission to buyer’s agent).
A few more points then:
i was told that you can get a buyers broker and say his commission is 3%…you will get a credit at closing…
By whom exactly? And how successful was this person as a real estate investor? Does this person buy one property or one hundred properties at a time?
And the basic breakdown of a RE commission. 2 agents split a 6% commission on a $100K house, or $6K. The agencies (not the agents) each get $3K. Now, assuming that both are Mom and Pop’s (no franchises), then they don’t have to give any of that $$$ up as franchise fees. Now each $3K is divided on some sort of agent/company split. The average is 60/40 so we’ll use that. That means that the agent gets $1800 in their pocket for their share. That’s what they use to run their business, pay their bills and eat with. Now, if you want to get 1% of the commission as a credit, in most instances, the company would allow the agent to give this if they want, but it will NOT come out of the company’s side. That means that you’re asking an agent to give up 55% of their gross income to have the privilege of working with you. Now, this may work for some newbie agents that need some closings (but they’ll also be under a more watchful eye by company management), but I seriously doubt that it’ll fly with any agent that has any experience in the business.
Again, legally speaking, I do not know of any state that allows an agent to give up any portion of their commission as cash to a non-licensed individual. Yes, they could use their commission to pay some of your costs if they so desired.
Again, don’t understand why anyone would want to work that hard at getting a 1% discount. All you will be doing is burning alot of bridges with RE agents, possibly losing tons of deals in the future, and if 1% will make or break the deal, then it’s not a deal, period.
If the agent that you’re trying to get discount a commission has done NO work for you, then why offer it anyway? Again, this is merely complicating an already bad idea. If you’re trying to work a commission discount, then you’ll do much better dealing with the listing agent directly, then involving another. Heck, you could ask for 2% discount on commission from the listing agent and they would still be making more commission, using your examples.
Unless you are a very experienced investor (?) or you are independently weathly (?), then it’s HIGHLY unlikely that you will be buying properties in multiples of 10 any time soon. If either was the case, then you’d have no reason to be here asking the question. Getting a 1% discount wouldn’t be an issue to you either.
Unlike Infowell, I have no great love for RE agents. In general, the majority are very poor representatives for their customers, and fewer still are versed in the services that an investor needs/wants. That’s exactly why it is so important an investor, that if you use an RE agent, that you treat them with the upmost respect, both personally and financially.
Let’s put this “discount the commission” in another context and see what you think of it then.
You grab some dinner at this great little eatery. Good food, but the waitress is exceptional at her job. So do you tip her extra? No, you say, “hey, I like this place and you’re a great waitress. I only want you to wait on me everytime I come in here and I’ll be eating here 3 days a week. I know that 15% is normal for a tip, and I’m sure that someone that is good as you probably gets 20% more often than not , but since I’m going to be coming in so often, I’m only going to be tipping you 8%. How does that sound to you? Oh yeah, I almost forgot. If you’re service declines at all, then I’ll drop you like a bad egg.”
Real estate is about the dollars. Stop worrying about the pennies.
Raj
Check with a CPA, but I was told that you have to report the rebate as income on your tax return.
If a buyer asked me to rebate, I’d tell them to go talk to an inexperienced or desparate agent. I don’t get a rebate from my lawyer or doctor and wouldn’t see a reason why I’d rebate a buyer if I’m doing my job (finding buyers, research, analysis, site selection, advice on finish-outs, etc). I think most good agents are flexible, but you’re going to need to offer some sort of win-win deal or have a good reason as to why they’d want to work with you.
I was trying to offset the closing costs and trying to purchase the property with no money down as i do not have a lot of money… and i have been able to find properties that i can close on but i am about 1% short of doing this…isnt this all about leverage?Okay ill stop worrying about the pennies…($2500 each home)…Maybe $2500 isnt a lot of money to you…but it is to me…
Real estate is about the dollars. Stop worrying about the pennies.- Raj
Every million dollars is made up of pennies. Start saving the pennies and the millions will follow.- Donald Trump
Take a penny, double it everyday and at the end of the month you’ll be a millionaire. Great if it works, but somewhere down the line, you’ll have trouble doubling the funds.
If $2500 is alot of money to you, then don’t bother with RE investing, especially if you’re dealing with $350K and above retail sales. If $2500 bothers you, then $50K-100K + is going to put you in the crazy ward.
If you’re buying at $250K, then you should be able to retail it at about $360K, assuming NO repairs (repair cost should be deducted from you buy figure after all).
So is $2500 that big of a deal when you should be expecting to net $75K or so on resell?
Once again, if 1% is making or breaking the deal, then you really, really need to review the deal.
However, so as not to seem too negative, here’s a suggestion to try which may possibly work to help you out of your problem. Forget trying to get 1% discount. Offer a note to the agent in exchange for ALL of their portion (not their company’s) of the commission. For example, if they give up (or credit, whatever) their portion of the commission (let’s say $5K), then you’ll pay them $8K when you sell/refinance.
Raj
Thanks Raj…
$2500 can be a lot for new investors, but it sounds like you need better deals, better financing, to work as a bird dog to save up money, or think creatively about your situation. You can negotiate closing costs into the purchase price, but trying to take it out of your agent’s pocket may not be the best solution.
I think what the other responder is trying to say is that, if you can’t afford to pay your own closing costs or finance them into the home, you may have other issues that you should focus on. The solution of getting a buyer agent rebate will lead you to working with an agent who may cause you to lose money. Any professional who will accept a win-lose proposition is usually inexperienced and does not specialize in working with investors.
The short answer is that there are agents who will do anything for money, so yes, you can get a rebate. You just need to ask yourself if this is the type of person you want working on your behalf. Also talk to a CPA about tax reporting requirements.
“Unlike Infowell, I have no great love for RE agents.”
Love for RE Agents?..I guess that would depend on the Agent Raj!
There’s some I won’t give the time of day, and others I’d risk my life for.
Investors are best advised to seek out seasoned Agents who specialize in working with Investors. With the very high turn over rate in the RE industry…an Investor can be relatively sure they’ve a knowledgeable Agent if that Agent has attained what most Agents never do quite achieve: staying power (they’re successful for a reason).
In our office there are some 55 Agents at any given time, and only a handful work with Investors with regularity. Also, there’s a wide variety if Investors as well. I’d venture to say, Investors experience and personalities ranges as much as RE Agents.
For example; What do you think the likelyhood is that a seasoned, successful Agent–with an established clientele–will work for a novice Investor who wants a portion of the Agents commission so they can purchase with no money down?
I mean…where’s the incentive for the Agent?
Is the Agents liability and responsibilities any less?
Is working with an Investor less work than finding a home for someone who intends to live in it? Not in my experience!
Investors (smart Investors) want realistic Operating Income Statements, Rent Schedules, and the like. Working with (some) Investors is far more work based on my experience (especially if someone’s filled their head full of nonsence regarding the value, and worth of Real Estate Agents).
I’m lucky in a lot of respects…I can afford to choose who’ll I’ll cut my commission for, and that right’s reserved for family & friends…unless I get to share in the Investor’s profits???
-Infowell
I am an agent and a investor but I still jump back and forth on the idea of commission cutting. If I werent an agent and was a new investor I would not try to get my realtor to cut their commission because as most of the posts state you get what you pay for in many instances (but not always). I would also not seek a commission cut from any agent who has investors that would be buying the same properties as myself. If push comes to shove and an agent knows of a great property deal who is he going to call; the guy who cuts commission, or the person that does not ask them to take a paycut. I wouldnt want to miss out on any great property deals because I didnt want to pay my agent what the next guy would.
I would be comfortable asking my agent to take a commission cut in the case that I found the property and they didnt. The commission cut question serves 2 purposes in this instance because 1. It will encourage your agent to find properties before you do. 2. If your agent isnt finding homes and you are then you will save. I would only do this if I were an experienced investor and the only thing that I only needed the agent for was to turn in the offer.
From the insiders perspective, like I said earlier people who feel that my services are worth every penny get to priority when it comes to deals that I find. Do I want to call Joe who I will make $1000 with or Frank who I will make $1500 with? Bottom line is that I will call Joe everytime before Frank gets a call. So essentially Frank would be missing $10,000 deals so he could save $500.
If on the other hand Frank calls me out of the blue and says “Hey I got this house that I drove by and I want to get in, I pulled comps and it looks like a good one. Could you write up an offer for me for $1000” I would say yes because 1. All I had to do was show the home and turn in the offer, and I would be $1000 richer because Frank found a house and did his own research. Essentially I would be getting $1000 for 30 mins worth of work.
As far as getting credit back at closing, most lenders will not allow credits back directly from the realtor on the HUD statement. Sellers are typically only concerned with how much they will leave closing with. So the smartest way to do a credit transaction is to work it out with your realtor ahead of time as to how much you are paying them (being sure to take into account their office split) then when you write the offer write in that the agents commission is to be reduced from _________ to __________. Then write in your closing costs as you normally would. There are some selling agents that could fuss over this, but most wont as they just want to sell the house.
Since the seller is only worried about their NET profit then every penny that an agent reduces their commission by could be applied as either savings to sales price or seller paid closing costs. This can be done perfectly legally, agents do it all the time. If a relative of an agent buys a home, many times agents will take off part of their commission to get the purchase price lowered.
Agent commission splits vary quite widely depending on the area. I keep 100% of my commission and pay a small $200/mo fee. Most agents who keeps 100% of their commission generally will have very high monthly fees (some pay over $2000/mo), but they keep all or most of their money. An agent who is on a split, pays minimal monthly fees but keeps less of their commission. If you are going to try commission cutting it may be advisable to work with a 100% agents
Totally randon thought on closing costs and capital gains
I am not a tax person but I would think that building closing costs into your purchase price is actually a good thing because it raises your basis in the property. You could either purchase a property for 70k with you paying 3000 in closing costs out of your own pocket or you could purchase for 73k with 3k built in for closing costs. If you are worried about capital gains when you sell in one instance you would have to pay $3000 more in capital gains because your purchase price was $3000 lower. Plus the money that you pay in for closing costs is after tax dollars. If you build the closing costs in you will pay less taxes at capital gains time and you will get a tax deduction on the interest paid towards closing costs on your monthly payment. You will be borrowing your closing costs so you will be paying 5-10% depending on your rate, but that amount is tax deductible. So if you were paying 6% interest, and were in the 33% tax bracket then you would essentially be paying 4% interest. Which would tell me that if you can make better than 4% on your money with real estate investing then you are much smarter to finance in your closing costs.
Random thought on saving money
One other random thought $2500 is not alot of money in and of itself, but say a 25 year old newbie investor saved that $2500 one way or another buying real estate. Say they hated real estate (which I couldnt imagine) so they instead took their $2500 savings and put it in a roth IRA at a 10% return (less than the historic return on the stock market). Their lousy little $2500 would be worth $134,251 at retirement age which is more than 40% of people in the U.S have saved for retirement by the age of 55. Bottom line Save when you Save, every penny counts, when you save $2500, save $2500.
Eric Medemar