Bypassing Realtors...is it illegal or wrong?

General Real Estate Investing
1

Hey everyone! I’m still new to rei and I’m curious if it’s wrong to bypass a real estate agent or listing broker?

Here’s why I ask…I’ve searched online for some apartment buildings that are for sale. They are ALL listed by an agent or broker. I would like to send letters to the actual owners of these properties to discuss some owner-financing possibilities.

In the past, I’ve tried communicating to the owners thru the agents and nothing ever comes about. I know that if I can get in touch directly with the owners, I could get a lot more accomplished.

Is it wrong (illegal maybe) to bypass their agents?

2

Hi,

 You can address the property owners directly, there is nothing wrong with that!

However, the real estate agent or listing broker will still be entitled to be paid according to thier listing agreement, so in what ever creative deal you propose you will need to have enough cash available to potentially pay this debt at closing.

There may be a possibility to negotiate something with the real estate agent or listing broker to pay less than the face amount of the listing agreement, however you probable need to budget to pay the whole agreement if you can not get them to budge.

If you make contact the seller is still obligated to pay the listing commission, if you make contact and then decide to wait for the listing to expire, the listing commission may still be required to be paid even months after the listing expires because you made contact and under the listing terms and state law the agency is still entitled to be paid because the initial contact was made before the listing expired.

Some of the things you may want to check before contact is whether the property has a balloon payment coming due or due as you will not be able to take over the commercial loan if it has gone full term and is required to be paid off. A lot of apartment loans are 30 year notes due in 5 years.

                         GR
3

The listing agreement is between the homeowner and the Agent. Meaning you’re under no obligation to adhere to. The homeowner, however, is. And should he try and circumvent the Agent and is found, I suspect a legal hassle follows for him.

4

Cool thanks!

5

Can’t you just talk to the other party? what’s the point in bypasisng them especially if you are legally binded not to do so…

6

Its not illegal to bypass them per se…I would have to imagine the listing agreement is probably for a certain amount of time, at which point the contract expires without a new agreement. Depending on the contract, the agreement could be terminated by either party at any point perhaps I would assume?..

Otherwise if necessary, perhaps you could use the Agent to get the owner to do the deal, also cutting him in as well as getting some work out of him to facilitate leads or whatever it is you plan for the property?

7

That’s kind of what I thought…the problem I had in the past was I can’t get the agent to do anything! As strange as that sounds with the amount of business they DON’T have, I would never even get an acknowledgment that they got my request for more information on the property.

The few that did reply, didn’t want to take the time to work a owner-financing deal out with the seller which is why I wanted to bypass them if possible and negotiate directly with the seller.

8

Have the seller cancel the listing agreement. We do.

Agents are not equipped or educated to handle seller financed negotiations. They’re biggest hurdles are trading off concessions for carpeting and termite damage.

It’s not illegal to contact sellers directly, as someone already pointed, and it’s not illegal to cancel an agreement prematurely. However, if the agent brought YOU to the table…it’s unethical for you to cut them out of the commission. After all they spent their time and money marketing the house to let you know about the house, so they deserve the money.

However, if you found the house without the agent’s advertising…like through direct mail, or the seller called you from one of your ads, then the listing fees are the seller’s issue not yours, unless the seller doesn’t cancel the listing BEFORE you close on the deal. In the latter case, the agent has the right to a commission regardless of the work they did/didn’t do to put the transaction together.

Agents can lien your property for their commission, and/or sue the seller at the same time for reimbursement of fees.

Frankly, as long as we’ve successfully had the seller cancel his listing with the agent, before we closed, we’ve never had a problem. And you won’t either.

BTW, seller’s don’t have to have a valid reason for canceling the listing…!

9

Hi,

Ok, were not talking about a single family home, were talking about a "Commercial Apartment Building" presumable over 5 units.

The seller is someone who was able some years ago to afford to buy the building and manage it to this point, and the seller is potentially a fellow investor, a LLC or Corporation acting on behalf of it’s owner or owners, this could include a holding company, family trust, syndications or an institutional type investment.

When I go to sell one of my apartment properties, if for example it’s worth $2m, and the commission is 5% total, 2.5% for listing agency and 2.5% to the buying agency. I expect my agency representing and listing my property to expend money marketing and advertising my property, not just placing a property profile in the MLS system.

When 2.5% of $2m is $50k dollars I expect my agency to spend money on advertising and marketing. Most of these companies, agents and agencies will spend upwards of 25% of expected commmission to move the property in an initial listing, and more if it does not sell during the initial listing period.

Canceling a Commercial listing is not that simple, no commercial agency is going to walk away after spending money for advertising and marketing until there listing expires, and most of the big agencies and franchises have more money to expend protecting there legal position which can make it harder than it’s worth.

I challenge you to read all the fine print in a commercial listing agreement, there are specific provisions which protect the agency and the agencies investment to sell the property.

In a commercial property listing you will find that you do have to have legal reason to terminate a listing early such as “Non Performance”!

As an investor we have to remember the position the seller is in and be willing and able to find an agreement that is win / win for everyone, but mostly there has to be an ethical handling of the seller and the sellers agency.

               GR
10

Thats a great point GR…I am sure there is far more to a large commercial listing as opposed to a single family home listing in regards to contracts etc.

This does not mean however that you could not make contact with the seller personally if you can find him, tell him your ideas and ask him to get back in touch when he is in a position to be interested.

I dont know the specifics of what you are trying to do though so I dont know if your idea is something he hasnt thought of and if you tell him he can just go out on his own and do, but I guess that is where your sales skills will need to be there and make him think that he needs you to be able to do it.

11

Hi,

What everyone forgets is everything is negotiable!

However, as an investor it is up to us to negotiate the best terms and conditions for a satisfactory purchase. The seller wants to sell now, not later and if I think I want an apartment building I go to the owner and I talk out (Negotiate a deal) subject to negotiating a satisfactory deal with the listing agent and agency!

It’s not sales skills, it’s negotiating skills! But in 99 out of 100 commercial property listings the seller expects some kind of down payment for the seller to cover selling cost’s! (Realtor Fee’s, Closing Cost’s, Pro-rations, incidentals, etc.

The point I make is you are likely to need something down to buy a listed property even if you negotiate it down to 5% your going to need something.

Unlisted Apartment buildings you can obviously make contact and negotiate anything you want, in fact you are probable much more likely to negotiate something on a unlisted property because there is no pressure on the seller to pay selling listing cost’s.

             GR
12

Thanks everyone for your responses…my main question was, is it illegal or wrong to bypass an agent. I understand the seller can still pay commissions to the agent on a deal him and I negotiate. I just wondered if the negotiation HAD to occur between myself and the agent, which I think has been clearly answered here as a NO.

Thanks again!