There are two common questions that involve Realtors and investors: Should I become a Realtor? How can I work with Realtors?
How to work with Realtors
Many investors think that real estate agents don’t have the best deals or they have all been picked over by the time they actually hit the market. I believe that some of the sweetest deals are sitting on the market. We automatically think that Realtors or their clients will snatch up the best deals before they hit the market.
It is true that some of the best deals do get snatched up before they hit the market, but there are many other deals left behind that no one sees. The reason that no one sees them is because they are looking for “traditional” or what I call “retail” homes, not “lease option” homes.
These are two very different markets. The retail market is what about 90% of the people and investors understand. The lease option market takes up a portion of the remaining 10% of the market.
I look to work with Realtors who understand the concept of lease options and can help their sellers understand lease options. This understanding can take time. Your job is to assist Realtors to understand lease options.
Getting Realtors to understand what I do
First, I have a letter that I send to a listing agent explaining the concept; second, I have a presentation that I do for my local real estate offices; and third I network and continually tell Realtors what I do.
I hear investors tell me all the time that Realtors just don’t understand or don’t want to understand what they do. I can only say that patience and persistence pays off.
Realtors aren’t trained in unique selling techniques, they are trained in the “Retail Market” which is 90% of what is out there. As investors, our job is to continue to help those around us understand what we do, so they know when to call us.
The type of home I am looking for through a Realtor is one that the seller:
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Doesn’t need their equity out
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Doesn’t have any equity in their home
When a Realtor hears a seller say, “If my home doesn’t sell soon, I might have to rent it,” then the Realtor should think of you (assuming you have continued to remind them of what you do).
All you need is two to four good listing Realtors. They work directly with the sellers and know which sellers are in trouble, which ones can rent, and which homes are vacant. Once a Realtor knows what you do and has a seller that can accept your terms–voila! You are the proud new owner of a lease option.
Realtors are just like everyone else
One of the most important things for anyone is that they get paid for what they do. When I am taking on an option, I am asking the seller to wait two or three years to get cashed out. I don’t want to make the Realtor wait that long.
If I do, they won’t even tell the seller about what I can offer. Why should they? It might not do them any good. They are doing all the work now to get the deal done and want to get paid for it. So I give them the listing agent portion of the commission up front.
This is my option fee and is applied to the purchase price when I get my mortgage or when I sell the home. The agent is therefore paid on what they do just as if they sold it conventionally to another buyer. When you sell the home you will be asking for 3% to 5% down from your tenant/buyer. Therefore, you are still minimal or zero down/out-of-pocket.
If you aren’t a licensed agent/broker and entitled to half of the commission, then let the Realtor “Double Dip.” They can get the listing agent portion down up front from you and the selling agent portion when the home closes in two or three years. They will wait for the second half if the first half is paid up front. The second half would just be a bonus that most agents wouldn’t expect anyway.
My recommendation is to get licensed!
Investors tend to be adamant one way or the other about being a licensed Realtor. I am on the side of being licensed. Being licensed has been one of the best tools that I have as an investor. Being licensed allows you access to your database of “comps” or comparables. This is the data you need to buy and sell real estate.
If you have a great Realtor, and you don’t want to be licensed, fine. But I still think it is better to be licensed than not. Some investors say it gives you more liability to be licensed. I have two answers to that:
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What are you doing to create liability?
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Don’t you think a judge is going to know you are an “expert” anyway when they find that you do real estate investments?
Some investors say that sellers won’t sell to you if you are licensed. I find the opposite is true. Most sellers are happy that I am licensed and “know what I am doing.”
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