I’m looking into this REI stuff (I’m restless but VERY cautious), and in looking at a worksheet for rehab/flipping, it’s staggering to me how much the commissions are. It doesn’t necessarily hurt you on the buying (I assume), but when it comes time to sell… whoa.
I’m assuming 4-5% is typical commission (is that accurate?), which means that this part could easily be half of your costs - i.e., you’d double your profit if you sold it yourself. That’s not a place I thought I wanted to go, but the numbers are suggesting otherwise.
What, exactly, does a real estate agent do to earn such a hefty payday? I must be missing something, because no one seems to bat an eye here at this part of “doing business” when I’ve scanned some other folks’ draft worksheets.
And closing costs - how much of it is just “car rust proofing” of questionable merit? Loan origination fees? bizarre fee blah? I am in a “question every line” mode right now, trying to understand ALL of the costs.
Like I said - newb here. Whole new interesting world
6 percent is actually the standard commission, although virtually everything in REI is negotiable. Out of that 6 percent, it gets divided four ways: listing agent, listing broker, selling agent, selling broker. So for them, it’s not like they’re making a windfall on each deal. Selling agents have to deal with the marketing to sell, buying agents deal with the buyers who can’t decide what they want before looking at 30 properties. Brokers carry liablilities in the whole process. That’s what all four do to earn their commission. Sellers generally pay the commission, unless otherwise worked out between the buyer and seller.
Closing costs can get out of hand, depending on credit and of course the mortgage broker you use. Keep in mind, though, lenders are in the business of making money, too. If you buy a property and keep it six months, then flip it, the money the lender makes off interest isn’t a ton. Interest takes a while to really pay off. Plus, the loan origination fee and similar fees help pay the salaries of the office workers who make sure documents are all taken care of.
Thanks for the info. I could understand some of the fees being raw prices rather than percentage cuts. It’s good for those getting the cuts, of course.
There is nothing that says that you have to use a real estate agent either on the buying or selling end. In my short time in REI I’ve met with many realtors/agents. Some provided a great service while others did not listen to a single word that I said but showed me what they thought was best for me as a real estate investor… ummm yeah, that $500,000 property sure does look good nestled between $100,000 houses in the poor part of town.
You can look at for sale by owners and bypass the real estate office while buying. Then turn around and sell on your own accord, again without stepping foot in a real estate office. Again, some realtors provide a fantastic service. Unfortunately when it comes time to sell a property, some agents are bogged down doing other things and cannot fully promote your property (except listing it in the MLS). Depending on your personality, you may be able to talk to people about the property that you are selling, talk to more people, talk yet to more people, place creative ads, etc… and get the job done without the 6% commission and in a quicker timeframe.
Again, not a bash on realtors/brokers/agents. You have to find what works for you. How would you like it if you just sold your property for $160,000 in 3 days without a realtor and then found out that a very similar property right next door to yours that was listed with a realtor (at that tremendously high 6%) was just sold for $195,000 in one month? Sometimes a realtor can be your best friend or in my case (in about 1 months time), my favorite realtor will be my brother.
