Use or Don’t Use a Realtor
Finding, Buying, and Selling Properties Without a Realtor: Insights from a “Street Smart” Real Estate Mentor and Real Estate Investor
An experienced or beginning real estate investor can find motivated sellers, quality investment properties, and “fixer-upper” opportunities with applied effort and by using some basic guidelines and skills without using real estate agents or brokers. Real estate agents and brokers are an important part of the overall real estate industry in the U.S. and Canada. However, there are some aspects and duties of real estate agents and brokers which are directly opposed to the goals and objectives of an investor who is trying to buy real estate:
The “listing” real estate agents/brokers are contractually working for the seller of a potential property, not the buyer.
- The “listing” real estate agents/brokers are contractually and morally bound to facilitate the seller obtaining the highest possible price in a timely manner.
- The selling agent broker receives their commission from the Seller, via the listing broker.
- Both the listing and selling real estate brokers, and their agents, receive their commission based on a percentage of the actual sales price that the property sells for, so the higher the sales price the higher all the brokers/agents’ commissions. This commission is not in the real estate investors’ best interest, in fact, the real estate investor should buy at the lowest possible price.
- In addition to their contractual and fiduciary commitments the selling (“listing”) real estate agents/brokers are bound morally and ethically by the National Association of Realtors “Code of Ethics,” which specially states: “Article 1: When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors® pledge themselves to protect and promote the interests of their client.” [Source: NAR 2008 Code of Ethics]
- Most listing real estate brokers (and their agents) strive to minimize, or totally eliminate, the potential purchasers’ interaction with the properties’ owner.
- The listing broker/agent will definitely want to control the presentation of the potential buyers’ offer and absolutely not allow the buyer (or their buyer’s broker) to be present when they present and discuss the written offer to purchase from the buyer.
- Most real estate brokers and agents do not really want to list or show major “fixer-upper” or “ugly houses;” they want to show “pretty” fixed-up show place homes to list, which they can show at an open house and/or sell quickly with no hassles.
- 9. As matter of State law and according to the Canons of Ethics of the National Association of Realtors Code of Ethics, real estate brokers and agents may not reveal to the buyer any confidential information about the seller or their motivation or reason to sell the property. This leaves the investor at a material disadvantage.
This undisclosed information can and will be helpful and really essential to the successful acquisition of real estate at the best possible price for the buyer. According to the NAR Standard of Practice 1-9:
The obligation of Realtors® to preserve confidential -information (as defined by state law) provided by their clients in the course of any agency relationship or non-agency relationship recognized by law continues after termination of agency relationships or any non-agency relationships recognized by law. Realtors® shall not knowingly, during or following the termination of professional relationships with their clients:
i. reveal confidential information of clients; or
ii. use confidential information of clients to the disadvantage of clients; or
iii. use confidential information of clients for the Realtor®’s advantage or the advantage of third parties. [Source: NAR 2008 Code of Ethics]
Each of the above detailed points creates a situation where the listing broker cannot and will not answer questions from an investor as to the nature and depth of the seller’s motivation or personal situation. That makes it significantly more difficult for a real estate investor to be able to identify truly motivated sellers.
Real Estate investors are far more likely to be able to find potential properties on their own rather than from the agents/brokers. Real estate investors have to apply effort and diligence in the pursuit of motivated sellers with homes or commercial property for sale.
Have you ever driven by a house that looks vacant, neglected, or in obvious need of repairs? Maybe it is an REO property? Maybe some died? Or maybe the heirs have inherited this real estate and they don’t have time or money (or both) to fix it up and then the sell the real estate or they live out of State, or Province? Did someone get transferred? Maybe the house is about to be a FSBO (For Sale by Owner)? Is there a divorce action underway?
These could be difficult issues for the sellers, but wonderful real estate investment opportunities for investors! Investors need to get out of their easy chairs and go out hunting for potential Real Estate Investments. Driving, bike riding, or walking around neighborhoods in areas one knows and one is familiar with is a good place to start. Stop by a vacant, or neglected house, and knock on the door of the property to inquire (if the owners have considered selling their home) “if they know someone who might be interested in selling their home in the near future” then add” they would not have to fix the house up and would not have to pay any real estate commissions”-or just stop by to say “hello.” (FYI I usually do not recommend the direct approach of asking if the owners have considered selling their home, I have had much better success with the third party approach.
You could talk to the neighbors and find out a lot about the property and about the property owners. Neighbors are wonderful sources of information not only about the house, but the properties owners. Talkative neighbors may even share with you very important insights as to the owners’ possible motivation or their intentions. Just be friendly and listen!
In most communities, an investor can go online on the local government website and check property taxes, current assessors’ valuation, who the original owner is, and if the property tax bill is being sent to a different address. Real estate investors in the US can and should develop a business relationship with a local Title Company rep. Developing a strong working relationship with a local title company representative will make it easy for an investor to request from the title company customer service department a no cost “property profile” on the property, or properties, they are checking out. Title company property profiles provide ownership details, original purchase prices, existing loans, prior sales “comps,” neighbors’ names and addresses, and much more data! FYI, the Title Company data is more complete than the Realtor’s MLS data. The MLS data only deals with properties sold via the local Board of Realtors MLS, so it is only about 70 to 80 % of all the sales. Investors really need All the data and without a filtering of the data by the Realtor
Real estate investors can look online at hundreds of web sites which provide them a good source of potential real estate investment information including but not limited to:
- For Sale By Owner
- Bankruptcies and
There are a great number of sources of potential investments on websites such as www.craigslist.com or many other various FSBO sites. This and other software can enable an investor to identify the property owner(s) and perhaps obtain some comps for the property being researched.
Investors will that find local papers, rather than the major metro papers are good sources of motivated sellers (such as transferred, death, divorce, must sell, and facing foreclosure). Many of these motivated sellers have not used their property or need to “get rid of” their property and an investor can engage these owners in a direct one on one dialog and establish themselves as a solution provider.
When a real estate investor finally connects with a property owner they should approach them in a professional manner, not be “slick” or threatening. An investor should listen to and care about the potential seller. Engage the owner of the property in a dialog where open ended questions are asked, such as, “I’m just curious, why are you selling?” Listen to their answer, and then follow up with “Please, tell me all about your home.” An investor needs to establish a relationship of trust with the property owner and this will enable them to learn from the owner the depth and intensity of their “need” to sell the property. This will allow an investor to obtain directly from the seller the information that real estate agents or brokers cannot provide them. When an investor’s approach is business like, and they act in a caring manner, they provide a “win-win” solution for all parties.
WHY AND HOW TO SELL PROPERTIES WITHOUT A REALTOR
Investors do not have to list their home with a real estate broker in order to sell their property. Investors can prepare the home for an open house, put ads in the local paper, and can list the property for sale on the internet on various web sites such as www.craigslist.com (or in Canada www.kijiji.ca). They can put out “For Sale Signs,” bandit signs pointing the way to the open house, create sign-in sheets for visitors to fill in when they first arrive (ask for names, phone numbers, email address, what they specifically need in a home). This will enable the investor to create a potential buyer’s data base. Investors should have contracts for buyers to complete, and should provide the seller’s written disclosures about the property (local rules apply). Honestly, selling a house or investment property as an investor without a real estate agent is real work, but investors are well rewarded for their efforts.
Some people think the only reason for an investor to sell their property themselves is to save the realtors’ commission of 3% to 7%. Certainly saving that large amount of money on real estate broker commissions for each sales transaction is financially attractive and would significantly add to the investors’ profits or give them more price flexibility to sell the property quickly.
But, I will strongly argue that the biggest advantage of not using a real estate agent is value to the investor of gathering the names of potential buyers and their real estate needs from those responding to their ads, signs, or attending the investor-run open house.
Building a potential buyer’s data base is a valuable asset which will help build a long term steady profitable real estate business for an investor. Having a personal list of potential buyers will help make each successive real estate re-sale, or real estate “flip” easier, even in flat or declining real estate markets. Real estate investors who build a strong buyer’s database are able to help potential real estate buyers to realize their own real estate ownership dreams.
Investors who have their own detailed buyer’s database can offer potential buyers on their list the opportunity to acquire actually the type of homes or investment property that the buyers were looking to buy. This buyer’s database will help the investor to laser focus their efforts on seeking out to acquire and repair the types of properties that will sell quickly to those on their real estate buyer’s database!
In addition to building the valuable asset of a potential buyer’s database, investors can save up to 6% or 7% commissions by selling their properties themselves. By not giving the real estate broker or their agents the listing for their property an investor will save a minimum of 3% of the listing commissions. Investors can stage and do their own open houses rather than paying a huge portion of their profits to a real estate agent or broker.
If an investor feels they should have their property on the Realtors’ Multiple Listing Service (MLS) in many areas they can list their property on the local MLS for free, or pay a small flat fee to list it through a discount broker.
I recommend that when investors do their property discount analysis they assume they will need to include at least a 3% commission in their selling expenses to be able to pay a real estate agent as a “buyer’s broker.” This will allow agents to bring buyers to the investors-run open house and for the buyer to make offers and get paid a 3% selling broker’s commission. This can be a win-win-win for the real estate investor, the real estate buyer, and their real estate agents!
The author has been a Licensed California Real Estate Broker for over 25 years and active real estate investor for over 40 years. Doc Haller is a well-rounded residential real estate and commercial real estate developer, experience real estate broker, and success real estate investor.
Dr. Howard Edward Haller currently focuses his time as a Real Estate Mentor to help individuals become successful real estate investors, and help those with experience in real estate investing to go to the next level.
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