Some real estate investors like to work with more than one real estate agent because they feel it gives them a better chance of getting a deal. However, many times working with more than one agent can hurt an investor more than it helps them. I am a real estate agent, and I can give the real estate agent’s perspective on how we work and how an investor can make an agent work best for them. I have made over 15 percent cash on cash returns on my long-term investment properties and much of my success is due to being a Realtor. I think the best plan of action for a serious real estate investor is to become a Realtor or real estate agent. If you don’t think being an agent is for you, this article is my opinion on how to best use an agent.
Be sure to check out my complete guide to investing in long-term investment properties to see mortgage options, where to find deals and detailed figures on my properties.
How do real estate agents get paid?
There are many different scenarios for how agents get paid, and there are no standard commissions or structures used. I am going to outline the most common scenario I see in my area.
In most real estate transactions, there are two real estate agents involved, one for the buyer and one for the seller. Usually the seller pays the commissions for both agents. We will use the HUD commission structure for this example which is 3 percent for the buyer side and 3 percent for the seller side. That can seem like a lot of money for one deal, but Realtors have a lot of expenses.
- Realtors must carry a lot of insurance. I carry E and O, general liability and umbrella insurance policies.
- Realtors have to pay fees for their license, MLS and office expenses as well as office space.
- Most Realtors don’t keep their entire commission, they pay a percentage to their broker. In turn the broker pays for staff, advertising or other expenses. Commission splits can range from 50/50 to 90/10 depending on what the office pays for, and the number of transactions the Realtor closes.
- Realtors get no benefits! They pay all their health insurance costs, have no matching 401K’s or other benefits of a corporate job.
- Realtors are self-employed and may pay more taxes than those who are employed by someone else.
After factoring in these expenses, real estate agents don’t make as much as most people think. A Realtor usually only gets paid when they sell a house. They may make $5,000 on one sale, but they may have also spent 20 hours with a multiple clients who never bought or sold a house.
The reason I am outlining the way agents get paid is to show you that agents want to make sure the people they work with are serious. Real estate agents do not want to work for free! If the agent or agents you work with do not think you are serious, they will not do a good job for you. The best way to annoy or put off an agent, is to work with multiple agents at the same time.
Should you work with more than one real estate agent to buy investment properties?
Many investors like to work with more than one Realtor to find properties for them. They feel the more agents looking for properties for them, the better chance they have of getting a good deal. They will talk to many agents all over town, tell them they are a serious investor and looking to make some purchases. This strategy can work in some cases, but it can also backfire. Most agents can sense when an investor or buyer is going to work with more than one Realtor, and a good agent will flat out ask any buyer if they are working with another Realtor. Realtors are taught in ethics class not to steal other Realtors’ buyers or sellers. It is drilled into our heads that it is very bad to “step on another agent’s toes” by showing houses or writing contracts for a buyer that has already looked at homes with another agent.
Because of this training, most agents will naturally shy away from any buyer that says they have seen houses with other agents, are receiving listings from other agents, or work with more than one Realtor in any way. This doesn’t mean agents won’t help out investors who work with more than one Realtor, but they probably won’t put a lot of effort into it.
What if you sign an agreement with an agent?
Many agents will want buyers to sign a buyer agency agreement with them. The buyer agency agreement states the agent will perform certain services for the buyer and the buyer will not use any other agents to buy a house. The agreement can last a couple of months, or even a year. Before you sign an agreement as a buyer, make sure you like the agent you are working with!
If you happen to choose an agent who is not doing a good job, you can still get out of your buyer agency agreement. The best thing to do is be honest with your agent. Tell them why things are not working and why you want out. Most agents will let you out of the agreement and you can move on. If an agent does not want to let you out of the buyer agency agreement, you can ask to talk to that agent’s broker if they have one. They broker oversees the agent and may convince that agent it is best to let a client go, rather than fight them.
If you sign an agreement with one agent, but then use another agent to buy a house, you may still owe the original agent a commission. Even if you do not sign an agreement, but see houses with one agent, and then buy one of those houses with another agent you may still owe them a commission! If it is decided that one agent was the procuring cause of a sale, and you used another agent, the first agent is owed a commission. In these cases, it is not the seller that pays the commission, but the buyer because they caused the problem.
How can you motivate a real estate agent to find you deals?
Realtors are usually able to show a buyer any home listed in MLS, but if they do not have a connection to a buyer or feel the buyer is not committed to them, they don’t have much motivation. They will usually call up the investor if their own listing might meet the investor’s needs, but that’s about it. They won’t actively look for any listing because they don’t know if they will get paid. For more information on how to motivate an agent, check out this article.
Can an investor get a better deal by using the listing agent?
Some investors also feel they may be able to get a better deal on a property if they work with the listing agent instead of their own agent. They feel if there isn’t a buyer’s agent involved, the listing agent will take a smaller commission and the seller can net the same amount with a lower sales price.
This strategy can work on some homes, but many times the agents still charge the full commission. The buyer also is risking not having proper representation when taking this route. Most states allow the listing agent to represent both sides or act as a transaction broker. However, if the agent has known the sellers for years and just met you, whose interests does the agent really have in mind?
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Why you should use one real estate agent to represent you when buying investment deals?
Realtors are taught the best way to do business is to let a buyer choose an agent, and then that agent will work exclusively with the buyer. There are a couple of huge positives for a Realtor to use this technique.
- Realtors know if the buyer makes a purchase, they buyer will use them and they will get paid
- Realtors know if the buyer decides to sell a home, the client will use them and they will get paid
An agent that knows they have a loyal buyer will work hard to send them new listings, search aged listings and other possible deals. They know if they find the right house they will get rewarded with a commission check. They have much more motivation because they have no worry the investor will use another agent on houses they send the buyer.
Investors may succeed working with more than one Realtor, but the investor must be very proactive in finding deals. The investor finds a good deal, and then approaches the listing agent to try to make a better deal. It also makes sense to use multiple agents if you are investing in multiple markets.
If you are new to real estate investing I suggest you find a hard-working agent to work for you. In my experience a young agent can be the best, because they are hungry for deals and willing to work hard. The most experienced and successful agents may not have the time to hunt down properties for a new investor, and they may already have a list of investors ahead of you that they will contact first.