Question on appropriate commission to negotiate...

[Michael W.]

I have a question on what is the appropriate commission to negotiate...

Background: For 5+ years my wife & I have been planning on semi-retiring & watching a semi-rural area (ranching/farming type community where you could commute to a big city) where other family members have retired to. Over a year ago we convinced my sister & her husband to also retire there and we jointly looked for a 20+ acre "ag exempt" property that didn't have restrictions preventing at least 2 homes. My sister found an agent and the agent helped us look at multiple properties. In the end, we didn't find a property we both liked/wanted (most were approx $200K-225k for the raw land) and we ran out of time so my sister decided that she instead wanted to get some 1-2 acre lots in a lake subdivision with amenites (pool, pavilion, boat ramp, basketball/tennis/volley ball courts etc)... In total the lots were approx $40K apiece and we thanked the agent for helping us.

Since then I have been watching that market and finally found a property that meets our original desires & is really close to the lake lot (we will try to keep that lot and maybe build a lake house one day or just use it for the amenities since the HOA is really reasonable).

Anyway, the property I found is likely to go between $325K-$375K total, is ~21 acres total (house .5ish & 20.5ish ag). We self-toured property (no agent on our side) & the house is likely not what most people want (older many-kids/large family style) but my wife & I are fine with the house overall... Most ~20 ag exempt acres I have seen in that area are approx $200-$250K so to me that means the house could arguably be approx $75K-$185K of the total deal depending on slice it. I am not sure exactly how this works but they put it up on the market as a 20.5 acre property but I think it is technically two 10ish acre lots with the house on one and .5 & house taxed as improved and 20 acres ag exempt (or something like that).

I frankly don't know much about proper due-diligence on buying properties and want help on validating many things (tax roles for the house vs. the ag property, should I make two offers (one for house and one for the ag property, etc)). I also want quality inspectors to review the house, wells, septic, barn, etc.

At this point I still don't have a buyer's agent. My brother and his buddy run a real estate company (re-finances, etc) and his buddy offered to represent me & rebate 2% of the 3% back to me but really doesn't know that area & I want some due-dilagence he likely can't do.

My sister recommended I talk with her original agent and tell her I found a property and would like that agent to do it but since I found it and did most of the leg work (up to now) ask for a percent or percent-and-a-half off (of the 3%).

Anyway, I thought this agent was "ok" and as good as any I had met though I personally would have chosen someone with more of a rural/ag focus. She appears to be pretty connected in that area and with me moving my family there with kids in those schools I don't really want to offend anyone for no reason...

Sorry for the long post but I figured it best to share the details as best I could to get a quality response. If you have read this far I really appreciate it...

Anyone have any recommendations/thoughts as to what reasonable discount/rebate, if any, I should be asking for if I go with this (or another) agent?

[Jon Holdman]

Keep in mind agents split their commission with their broker. This could be as bad as a 50/50 split, though likely less. Nevertheless, you're talking about a $10.5K commission, which the agent would net $5000-7500, pre tax.

Not sure where this property is, but a rebate from an agent to an unlicensed person is illegal in almost every state. An unlicensed person cannot receive a cut of the commissions.

You could negotiate a price reduction, with the understanding the agents involved will take a smaller commission. If sales are slow, and this property has been setting around a long time, they might do that.

Realize the commissions are paid out of the sellers proceeds from the sale. Yes, I understand you're the one bring cash to the table, but the seller is paying the commissions from what they net.

You acknowledge you don't have the ability to do the necessary due diligence yourself. So, you need the help of an agent. I can see asking an agent to take a commission reduction if you're doing some of the leg work. But you're saying you need the agents help.

In a RE transaction, its my opinion the buyer's agent does most of the work. Admittedly, you've found the property. That save a bit of work, and potentially a lot of work if the agent had to shuffle you from place to place. OTOH, it sounds like this agent DID shuffle you around on the first hunt, and didn't get paid anything. The hard work of helping you with that due diligence and doing all the paperwork still remains to be done.

I don't think any commission reduction for the buyer's agent is in order. If you want 1 or 2%, get the seller to knock that much off the selling price.

[Michael W.]

Good points and thanks for taking the time to respond.

I think what they were talking about was rebating the commission on the HUD statement such that it was less than 3% from the get-go and not some cash behind the scenes. I don't know that much about this stuff so I could be wrong...

In my wall of text above, believe I did say above that we did buy about $80K worth of properties (two ~$40K lots) through that agent the first go around.

I didn't mention above that we also brought two other extra lots in the same subdivision (we have lots of kids & family) for another $95k and subsequently sold one of those for $75K, all through that same agent and the agent was paid on all of those transactions (80+95+75=$250K thus far).

The agent did help us get to/from all of them though my sister and I found most of them that time also. The due diligence was minimal because these were just lots in a subdivision with no improvements or amenities.

This agent does not appear the strongest at helping me work the ag exempt side but maybe can bring to the table the right inspectors...

I guess that impression is maybe part of what concerns me about this agent as I want to structure the deal with the right tax advantages and any loans may need to separated (home and farm loan separately).

I also want the inspector to tell me multiple things like "is the roof suitable for rain water collection for human or animal consumption or both" and needs to know to check for how the metal seams were done, any nails used, etc and I suspect only an ag type inspector would know these things… There is also some ag machinery that I may need to get appraisals on because I know nothing about pricing tractors or implements or such (my wife & I grew up farming but didn't ever buy anything because our parents did all that).

Another example is that I can pursue the home loan through my banks but I will need to talk to the local farming property loan people and don't know much about that... I suspect I also need the tax history on both lots and home and not sure how to get that...

You may not have enough information to answer this but do you think that it is likely that most agents in this type of semi-rural ranching/farming area know how to handle this sort of deal and bring to the table the right people?

Do you think that I maybe should look at a more farming/ranching buyer's agent while I still can?

[Jon Holdman]

Yes, I think you may want a different agent. No, I don't think its likely "most agents" would know about the ag questions. A few will, most will deal with houses and lots. Find someone who specializes in farm and ranch land.

You may also want to contact the county extension agent and the county assessor. The extension agent can help you with some of this information. They may also be able to point you to other resources related to your ag questions. Extension agents are tremendous resources.

The assessor can help you with your tax questions.

A tractor dealer can help with the equipment appraisal issues.

Where is this property located? If its in Colorado, your rainwater questions would be moot, unless you have water rights. We're not allowed to collect rainwater for any purpose. Not sure what the regulations are in TX, since when I owned property there is was south and south west of Houston and water was not an issue. Well, at least lack of it wasn't the issue.

[Michael W.]

Jon, U are a gem. Thanks for, as always, the rapid and thoughtful replies.

I frankly never heard of a County Extension Agent (CEA), I will try to do that today. Maybe the CEA will recommend some real estate agents that speacilize in farm properties.

The property already has a working well (and septic) and I know multiple other properties in Texas that do rain-water collection so I don't think that is an issue in Texas.

[Michael W.]

Also, I don't know if I can give you points or anything but you have been great everytime I see your reponses on these forums. I voted above but if there is any other way to give influence points or something I would be happy to do so (just don't see how).

[Steve Babiak]

Originally posted by Michael W.:

Also, I don't know if I can give you points or anything but you have been great everytime I see your reponses on these forums. I voted above but if there is any other way to give influence points or something I would be happy to do so (just don't see how).

FYI - Every reply post made increases influence. Every vote received also increases influence. So you have seen to it that Jon has been rewarded with influence points by getting him to reply and then by voting for his posts.

[Jon Klaus]

Michael, what county is this property in? Near which lake?

Also, do you have any recommendations of rain catchment companies? I am looking into getting a system for my church.

[Michael W.]

Steve, Thanks.. Good to know Jon H. got his props! He really helped... The County Extension Agency was great and I now have a Agent that specializes in Farms (he also personally lives on a farm)...

Jon K, I am a director for a South American Mission that has an extensive water collection system/cistern through efforts with UNICEF. We are looking in the Hill country and my wife's cousin is currently buiding an extensive Rain Water harvesting system utilizing the roofs of his new house and barn near Fredricksburg. If memory serves me correctly he has two 2300 or 3400 sealed tanks (I think they may be spheres?)... I haven't seen it but will try to go by on my next trip (maybe this weekend) and/or get pictures and confirm manufacturers/etc...

On our ranch we have a large uncovered concrete cylinder that we pump into for the animals. We are considering utilizing the barn & shed roofs there but they have rust and the nails and such may not be suitable for animals let alone human consumption...

In a hurry and gotta run...