Thank you so much for asking this Dallas. From your post it is clear that you are taking action… congratulations and keep it up! You can do it.
One little tip for how I found investor friendly real estate agents in the 280 markets we were wholesaling in and that after that tip, I’ll share with you some of my selection criteria for deciding which to work with.
First, the tip: post an ad on CraigsList in “Real Estate Jobs” describing that you are a real estate investor and you are looking for an investor friendly real estate agent/broker to help you. Describe in as much detail as possible everything you’re looking for and include your contact info. The more detailed you are, the less responses you’ll tend to get, but the higher quality the responses tend to be.
As others suggested, if I was just doing it locally, I’d also be at my local real estate investor club looking for agents there.
You’re right though… whether you are an experienced Real Estate Investor or a First Time Home Buyer having a great Real Estate Agent or Real Estate Broker on your team can make a huge difference both in how easy or difficult it is for you to find, negotiate and close on the property you want and, especially in the case of Real Estate Investing through Real Estate Agents or Real Estate Brokers, how profitable it can be.
Here is how I would recommend you go about selecting a Real Estate Agent. It is critically important for you to realize that if you are using a Real Estate Agent to buy, that in all but a few rare cases, the seller is actually paying for you to have the best Real Estate Agent you can find and that it costs you nothing extra to have the best than it does for you to have the worst. In fact, having the best Real Estate Agent will actually help you save more money by getting a better price and/or better terms with less frustration on your end.
For the sake of the rest of this discussion, I will use the term Real Estate Agent interchangeably with Real Estate Broker or Realtor even though there are differences between them. For the sake of the majority of this discussion, they are providing the same type of service.
I’ve broken down the selection process into several major areas:
Selecting A Real Estate Agent Based On Market Knowledge
For both Real Estate Investing and buying to live in a property, market knowledge is a critical skill set that you must DEMAND of any agent you work with. Wouldn’t you want to know if a particular neighborhood’s price has been trending down for the last 6 months? Wouldn’t you want to know that a particular neighborhood you are interested in is being considered as one of 3 areas for new zoning for an industrial park? How about having an agent that knows that, on average, properties in your town that back to major roadways sell for 10% less than the exact same properties not backing to a major roadway?
To some people, having a Real Estate Agent with knowledge of the job market in a certain area is a huge help. Consider someone who is moving into the area from out of state and who will be looking for work. Some Real Estate Agents have extensive networks already in place for just this type of clientele. For most Real Estate Investors, this type of knowledge is largely useless to them when they are actively buying properties for rent. Conversely, knowledge of certain landlord information may be useless to someone looking to buy to live in, but would be highly desirable for investors.
For Real Estate Investors selecting a Real Estate Agent, I think it is important to have an agent that is also knowledgeable about your exit strategy if you don’t have other team members that can assist with that. If you plan on renting your property, it helps to either have a great Property Manager that can tell you market rents or your Real Estate Agent needs to be very knowledgeable about that. If you plan on doing a Fix And Flip then it helps to have a Real Estate Agent that can help you determine resale value and current resale Time On Market estimates.
Selecting A Real Estate Agent Based On Credentials
For the sake of this discussion, I will be including licensing that is required of a Real Estate Agent in with credentials. Don’t work with folks that are not licensed with their state and have proper insurance. I am not an expert on every state, but in Colorado, where I live, you need to be licensed with the Colorado Division of Real Estate and have Errors And Omissions Insurance.
I was just about to start spewing out what all the different real estate credentials you can get are so that you can get a feel for which ones you might like and which ones you might not like, but–and I am sure I’m about to really upset a lot of agents that have paid a lot of money for get certain, often very difficult and time consuming designations–my brother told me a joke when he was graduating from medical school that just about sum up how I feel about credentials. Here’s the joke: do you know what they call the person that graduates at the very bottom of their medical school class? Doctor.
The point I am trying to make is that it is incredibly difficult to say whether someone with a certain set of initials after their name really knows the material they were taught, and more importantly, can apply it in a practical way to save/make you money or make your life easier or if they squeaked by, got the designation and never really implemented what they learned. So, what credentials mean to me is: “hey, I am committed to investing time and money into my profession.” It tells me that they are serious AND it invites me to ask probing questions that relate to that designation if it is something that is interesting to me. And, if you don’t know what each designation is (or if you do and want to use it as a conversation starter), ask them what they had to do to earn the XYZ designation or credentials.
Selecting A Real Estate Agent Based On Experience
Experience matters and not all Real Estate Agents deal with every type of property or transaction. Using the same Real Estate Agent that helped you buy your dream house, may not, and dare I suggest probably is not, the best Real Estate Agent to help you buy a commercial office building–even though they’d often be “happy to help”.
I recently read the book, Outliers by Malcolm Gladwell and in the book he talks about the amount of time working at something that it takes to become world class. He claims that his research says it is 10,000 hours. I bring this up because you may be wondering if it matters if you find a Real Estate Agent that is full time or part time. I have two words for you (and they’re not “part time”): FULL TIME. It is my opinion that you should work with people that are serious enough to devote their full energy to becoming world class experts and that requires a substantial investment of time that can really only be achieved with serious, full time effort.
Selecting A Real Estate Agent Based On Knowledge Of Financing
Whether you decide to select your Real Estate Agent based on their knowledge of financing is largely dependent on your knowledge of the financing part of buying real estate. If you know a good deal about financing, have great Lenders and Mortgage Brokers on your Dream Team already then this is a throw away selection criteria. However, if you’re not very knowledgeable and are going to be relying on your Real Estate Agent to assist you with finding a Mortgage Broker or Lender to help you finance the deal, then it is a very, very important selection process.
Selecting A Real Estate Agent Based On Brand Name
In three words (one of them being a contraction): don’t do it. There are tremendous Real Estate Agents working at the big brand name real estate companies and there are just as tremendous Real Estate Agent that have struck out on their own or decided, for an assortment of personal or business reasons, to go with a less well known brand. I would suggest giving very little weight to the brand name of a real estate company and much more weight to the other selection factors when selecting a Real Estate Agent to work with.
Selecting A Real Estate Agent Based On Fees
To have a full discussion of selecting a Real Estate Agent based on their fees, it is important to understand how the overwhelming majority of Real Estate Agents are actually paid and also a discussion of some of the more unusual compensation models.
Real Estate Agents that are representing the buyer are usually compensated from a pre-negotiated fee from the seller. This fee is almost always negotiated when the Real Estate Agent that is representing the seller in the transaction agrees to help the seller list their property for sale. The seller than, among other things, puts the property into the local Multiple Listing Service and lists what the seller has agreed to pay to any Real Estate Agent that brings a buyer. In many markets the amount that is paid to the Real Estate Agent that brings the buyer is 3% of the sales price. Before you quit your job and decide to become a Real Estate Agent, realize that usually a hefty part of that 3% and/or monthly fees are paid to the company that the Real Estate Agent works for.
There are exceptions to this pay structure. Some Real Estate Agents will charge an up front fee to work with them. In my opinion, you should negotiate it away or pass. If they can convince you that what they offer is so valuable that it warrants paying an up front fee plus the normal commission they would get from the transaction, then they may actually be worth it for their ability to persuade. If they cannot persuade you that its worth it, then they were not worth the extra fee.
Another common exception is when an agent expects to be paid a minimum percentage, usually 3%, and expect for you to make up the difference if the commission being offered by the seller does not meet their minimum. With the massive increase in bank owned REO and Short Sale properties where the commissions to Real Estate Agents are forcibly reduced by the banks or lenders, it is up to you to decide whether to agree to make up the difference, try to negotiate this part of the agreement with the Real Estate Agent before you work with or pass completely based on their inflexibility (or, if you choose to see it as your lack of ability to negotiate it away or their ability to negotiate it in). Personally, I would agree to guarantee 3%, but I’d make sure my offer to buy reflected that additional fee. In other words, I might offer $3,000 less if I knew I was coming out of pocket an extra $1,500 in commission because of my agreement.
Another common exception dealing with very low end properties is a minimum dollar amount. If a Real Estate Agent is selling you a $10,000 property, a 3% commission, which is $300 is hardly worth the effort especially splitting that with the real estate company. While sellers often realize this issue and will offer higher commissions than 3%, you may be asked to make up the commission if you want to work with a particular Real Estate Agent. In cases like that, there may be a $2,000 minimum commission to the Real Estate Agent and you’d be asked to pay the difference between what the seller is offering and the minimum in your agreement.
Since most Real Estate Agents are paid by the seller and that amount is actually fixed whether you have an amazing agent or a mediocre one, why not take the time to find a mediocre one?
Selecting A Real Estate Agent Based On Personality
Sometimes the reason you select a Real Estate Agent is because they have a personality type that you can not have yourself. Maybe they are able to negotiate hard because you are incapable or unwilling to do so.
However, you do need to be able to work with the Real Estate Agent you select, so finding one that you can work with is required. Unfortunately, many times you will need to spend time–often a significant amount of time–working with and interacting with a Real Estate Agent to really see if their personality does work with you and your personality since many Real Estate Agents are able to adapt to working many personality types for short durations.
For this reason (and others), I do recommend that you have, in writing, a very clearly defined method of terminating your relationship should you find that working with them unacceptable. What can complicate this is certain uncommon fee structures like an upfront fee.
Selecting A Real Estate Agent Based On Their Team
This is different from selecting a Real Estate Agent based on the brand name of the company they have their license with. What I am referring to by “their team” is that when Real Estate Agents start to get busy, they hire people to assist them in their business and to take over tasks which they dislike or are not suited to handle. Think about it this way: some salespeople are amazing with people and negotiating, but absolutely hate the paperwork. As these people become successful, they may hire an assistant to join their team to handle the paperwork side. Personally, I think this is a great business practice and can give you more value and an overall better quality of service EXCEPT when you end up having team members that should not be doing certain parts of the business doing those parts. That’s BAD. Be sure to understand what parts your superstar Real Estate Agent will be doing (and why if possible) and what parts they delegate out to team members.
As an aside: if, after you’ve decided to work with a particular Real Estate Agent, you find the team members doing things you thought your Real Estate Agent should be doing, speak up. The squeaky wheel gets the oil and when a Real Estate Agent gets really busy, they tend to delegate. Let them delegate other folk’s stuff, but not yours.
Selecting A Real Estate Agent Based On Their Agreement With You
Some Real Estate Agents will insist on having a formal, often exclusive, agreement with you as a buyer to help you find properties. There are both advantages and disadvantages to this type of agreement.
For many Real Estate Investors they want to work with a large number of Real Estate Agents. I often hear them saying, “I’ll buy it through you if you bring me the deal.” They argue that if you have 12 agents working for you, looking for deals, you are 12 times more likely (or some multiple greater than 1) to find deals. While I have seen examples of this happening, I find it to be the exception and not the rule. Many Real Estate Agents will set up these type of less committed buyers on an automatic e-mail campaign that sends them properties that match their criteria as they come on the market and will wait for the investor to call them. The problem is that this is so common among agents that the Real Estate Investors are getting several of these e-mails, showing many, if not all, of the same properties from numerous agents to the investors.
Real Estate Agents that know they have an exclusive relationship established are more likely to personally call or look at properties for the investor than they are for an investor working all the angles. There are exceptions to this, but it is what I have found to be true of many agents.
Some Real Estate Agents insist on an exclusive relationship. When I had worked with clients like this, I insisted on a 2 year exclusive relationship which included mentoring and access to live seminars for clients. It also required that as investors were out looking at properties that were not listed in the Multiple Listing Service that they recommend me to sellers who they would not be able to buy from. In exchange, I would help my investor clients in any way I could knowing that they were committed to utilizing my service.
Selecting A Real Estate Agent Based On References
As a property owner that deals with references from Tenants, my thought is: if you can’t find 3 people–of your choosing–to say nice things about you, then you shouldn’t be renting from me. I feel the same way when dealing with MOST references from potential Real Estate Agents: if you can’t find 3 past clients to say nice things about you, then we’re not going to do business. However, beyond the binary response of so you’ve got references or we’re not doing business because you don’t have references, I put very little weight in references.
The exception is an unsolicited reference from someone who is doing what I want to be doing. I will give weight to that. For example, if a fellow Real Estate Investor tells me about a Real Estate Agent that is finding them more amazing deals than they can handle and they’re willing to share with me, that reference actually means something to me if I trust that investor’s opinion.
Warning Signs
Braggarts often disappoint: be very careful about Real Estate Agents that make all sorts of ridiculous claims about how they sold their listings for full price or more in 12 hours during a blizzard in July. There is a fine line between confidence, which I think you need and someone who is too full of themselves to get the actual job done.
Availability is a double edged sword: be careful of an agent that is always able to accommodate you. To get the level of expertise and experience you probably want, it means they’ve done a fair number of transactions and probably have a fair number of clients and deals going on beyond yours. That means that they probably won’t always be available for you. Now, they may have team members that can help, but remember that you selecting this particular Real Estate Agent for their expertise and not their assistant’s expertise (unless you really selected them for their assistant).
I really, really hope that helped. I pulled a lot of that stuff from my website, but I feel it is relevant.
Please do let me know how your search goes and share with me what you decide to post on CraigsList if you would.
Thank you!
