When you’re building a team for your investing business, one member in particular who can make an enormous difference is a real estate agent. Specifically, an agent who understands an investor’s needs.
Often referred to as an “investor-friendly agent,” this person can help you make smart decisions when purchasing a property and then help you sell for maximum profit. But not every agent is suited to work with investors, and vice-versa.
From an agent and investor who has been there, here are key tips for navigating the process of selecting the right agent.
Manage Expectations
First, a disclaimer: every real estate agent is bound by a set of moral and legal obligations. So when we talk about an investor-friendly agent, we don’t mean someone who will bend rules to find deals or make sales. If you’re looking for someone to cheat the system, you’ve come to the wrong place.
For example, if you’re purchasing property, understand that the seller’s agent is obligated to do right by the seller. So even if the house is bank-owned, an agent still has a fiduciary responsibility to put together the best deal for their client, the bank.
You might assume agents are motivated only by a commission check, but the law dictates that they be motivated by the needs of their client above all else. This means, for example, that they may not care that you can move fast; perhaps they feel confident they can fetch a higher price for the property even if it takes a few weeks longer.
On the other hand, if their client has indicated a preference for a quick sale rather than holding out for price, they may accept lower offers. In the end, a variety of factors can be at play.
When you are the seller, if you list your property with an agent, they have a duty to you but they are also legally and morally obligated to disclose certain information about a property. These are generally what are referred to as “material defects” in a home and are the kinds of things that affect its value or information that is vital for prospective buyers to know in order to make an informed decision.
For example, you can’t hide information about a faulty septic system or mold. Trying to cover up information like that can land you and your agent in a mess of trouble.
What To Look For
Now that we’ve dispensed with the warnings, there are still a number of factors that can distinguish whether an agent is “investor-friendly.”
They Understand Investor Terminology
One is to determine whether the agent understands key concepts like ROI and ARV — Return on Investment and After-Repair Value.
The typical agent who helps owner-occupants doesn’t concern themselves with these things. They look for properties within their client’s budget and pay more attention to making sure their client qualifies for a mortgage and whether the house passes inspections. An investor may not care about either of those things, i.e. many investors are cash buyers — or using hard-money lenders or private lenders — buying a property as-is, with all of its warts.
Instead, an investor wants an agent who can dig into analysis at another level. You want your agent to understand whatever formula you use to purchase — whether that’s the so-called 70 percent rule (After-Repair Value times 70 percent, minus repairs) or another approach. It’s important they understand and are comfortable with your computations because they’re the ones negotiating on your behalf.
If you’re buying rentals, you want an agent who thoroughly understands how to calculate net profit and can pick apart Income and Expense sheets or Profit and Loss statements.
They Know The Market
When you’re an investor, one street can make the difference between success and failure. It’s important for your agent to understand markets and “micro markets,” or neighborhoods.
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Again, an agent helping an owner-occupant may have a good general knowledge about their towns and cities and the areas within them, but you need to be more specific.
If you’re a landlord, you need to know how the rents vary according to distinct neighborhoods in order to make the best decisions. And when you’re flipping, you need to know not only the price your 3-bedroom ranch should get upon resale, but how quickly it can sell compared to the other 3-bedroom ranches on the market.
Accuracy / Hustle
A few thousand dollars makes little difference to an agent’s commission but a big difference to you; and again, agents shouldn’t be influenced by that knowledge, but human nature can sometimes worm its way in. You want to make sure your agent hits the mark consistently.
One way to vet agents is to look for the top-selling salespeople … not just top-listing. The ones who sell the most are typically those who hustle the most and who understand the market the best. You can’t sell many properties if you don’t understand how to price them right.
They Just Get You
Like any relationship, you need chemistry. Spend some time getting to know agents before deciding to work with them. You can grab a coffee or meet at their office to talk shop; you’ll know pretty quickly whether they understand investors, and you can also gauge how well the two of you communicate.
Investing can be a high-pressure business and this relationship will endure stress. So make sure you fully trust and respect those you work with.
Where To Find Agents
One word: networking. It’s highly unlikely you’ll find an agent who advertises themselves as “investor-friendly”, so you’ll need to do a little digging.
Attend your state or region’s REIA (Real Estate Investor Association) meetings, where you’re bound to meet a number of agents. Fellow investors may or may not be willing to share some names with you as well; it doesn’t hurt to ask.
When you scan listings, take note of the agents who list rehabbed properties. Chances are, it’s the same few folks again and again. You can also figure out pretty quickly which agents are the ones who list the REOs. Banks work with certain agents, and these are always good people to get to know. They understand the foreclosure process and what the bank (or seller) is looking for.
You can also check out an agent’s website. This is less reliable, as a lot of agents don’t maintain their own sites or simply don’t have much of an online presence. But you can still glean a lot of information from a search.
And of course, there’s always the background check. Always make sure your agent is in good standing and has renewed their license. This is easy to check online via state record (often the state Department of Consumer Protection). You can also check your state’s judicial website to see whether they have a criminal record or lawsuits filed against them.
Be An Agent-Friendly Real Estate Investor
Finally, a guide like this wouldn’t be complete without mentioning the investor’s role in this relationship. There’s a reason the majority of agents don’t work with investors, aside from lack of knowledge about the industry.
Here’s what you don’t want to do:
- Demand that your agent send in one lowball offer after another, taking up their valuable time filling out and submitting contracts that will never get accepted.
- Demand that they run comps, show a house, send in an offer RIGHT NOW and drop everything else immediately.
- Ask them to just give you the lockbox code so you can check the property out yourself.
- Ask for their MLS login so you can scan properties or run comps yourself
- Hide information from them about material defects in a property
- Back out of a contract over minor issues
- Pretend you have money you don’t
- Skimp on their commission
Investors have done all of that and more to agents. Would you want to work with that person?
Investors and agents can form long-term profitable relationships, but each side has to come prepared to understand what the other wants and needs. As an investor, you offer something really valuable to an agent: repeat business. But the agent needs to trust you and know you’ll follow through, and that you respect their role and obligations.
Together, you can do great things for your businesses and to improve the neighborhoods in which you live and work.
As you build your team and get ready to secure your next property, ABL is here to help with a hard money loan to fund the project. Get started here.