Thoughts on a realtor/contractor asking for a retainer?

Question

Hi friends!I am a newbie investor looking to invest out of state in an area I used to live. I have a friend in that area who is a contractor who also has his RE license, and owns several rentals himself in that area. I trust him completely as we've known each other for a while. He has offered to do all the leg work of finding a place and evaluating its potential for me, as well as doing all the needed repairs to make something rent-ready. What he's asking from me is a $1500 retainer. The deal would be, if I buy something with him in the next year, the retainer is applied to the closing costs, but if I don't, I lose the retainer. Personally, I don't think it's that bad a deal. That way, he isn't working for free, but he's committed to doing the work to get me a property or two. I'd love to hear what the experts think of this arrangement. Should I get into this partnership?

Elizabeth Colegrove · Answer

@Bryan H. Honestly our first realtor started with us and we had NO proven track record at 24 other than our personal house. We were out of state buyers who were there on a whim! Trust me that was an interested battle and we bought 2 houses within 6 months. We ALL start somewhere. We actually had to leave this realtor because he stopped finding us houses and we didn't jump ship soon enough because of loyalty.Heck ever our latest realtor had never worked with us first and only knew of us from our friend and her recommendation. Yes there are many investors who don't pull the trigger but there are many others that are trying to buy 10 houses in 5 years :)I still don't believe anyone should be paid to do their job. A realtor is paid when the deal is completed! That is the deal! Just like I am paid when I receive rent or my day job as a salary no matter the millions I make with the company or not! I am simply fired when I don't perform.A realtor makes alot on each deal so he is paid for all the things that don't pain out. I have had to fire dud realtors over the years. So I guess it grates on my to "pay" someone who hasn't found me a deal. What is there skin in the game. If they are getting paid no matter what. Why would they work there BUTT off to find me deal and earn my business again!Just my two cents.

Joel Owens · Answer

Fair is in the eye of the beholder.YOU create your own demand so that you can decide what your time is worth and not the other way around.Searching high and low for a deal on the premise you might eventually get paid is a long shot.I get asked all the time if I charge money upfront. Some are asking because they expect me to for my time.I put potential clients through a vetting process. If there is something I do not like then I do not work with them. They have to be motivated, serious, and committed to the demands of the process of buying commercial real estate.So when you define a business you need to reverse engineer to qualify buyers.If you do not define what you want your business to be you will fall for anything.

Elizabeth Colegrove · Answer

Um NO!!!!A realtor is paid when you close on a house! I don't pay my realtors to look for houses for me and they are STRANGERS! I can't image paying a friend to help me buy a house!Now if your contractor wanted a fee to evaluate every house before you bought it that is different. But I am laughing at the idea to pay my realtor to "find"me houses. They are paid when the house is found.The only reason I can see someone doing that if they don't think you are serious!

Manolo D. · Answer

Im a newbie to RE but not to construction or contracting. Like a regular businessman that i am, we always have opportunity costs, it IS part of business. I agree with @Elizabeth Colegrove , earning business is not easy. I go with the nature of what agents are for.Say i give the 1,500, what is my assurance that he will perform his end of the bargain? What if he is lazy and does not perform or i plainky dont like his pace because its too slow? I would be stuck with -1,500. What if I dont pursue my goal because of some family issues. Without the -1,500 on my books, its easy to call quits.

Judy Parker · Answer

One option would be to sign a Buyers Agency Agreement with your Realtor friend, to show him that you are committed to working solely with him.

Jesse T. · Answer

I would look for a shorter period and a smaller dollar amount - even if it was not refundable. If it wasn't refundable, I would want it to be based on expenses and/or hourly.I think with 2 or 3 months for $250 or so, you should be able to tell if the arrangement has potential on your side, even if you don't reach a deal on a property.

Bryan H. · Answer

Elizabeth, you paid with your experience and your proven results. How many newbies never pull that trigger to do even one deal? Most don't. I think it's only fair for unproven people who are looking to break into the field to put up something. He was given a year to get something done and the money goes towards the deal. If you have someone working for you for a year without doing a deal, $1500 is a bargain in my book. I am also an out of state investor. My Realtor looks at houses for me, no charge. Why? Because I have a proven track record of buying. It must be earned or paid for with cash in my opinion.

David Barr · Answer

I've often thought of charging a retainer to "difficult" or indecisive clients, but in the end I think it's not best practice. I am motivated enough to find the right property for my clients by the incentive of the compensation at closing.

NA Jones · Answer

I can see both sides of the debate. At the end of the day, if it works for you and your friend, great. In every situation, there is a win win. If you think it's unfair, find someone else. There are a million agents that would do the same thing for you, without a retainer. Do you want to work with them or your buddy?I would definitely add clauses in there to protect your money in the event of you make offers and none are accepted, or if you pay $1500 and feel like he isn't doing his part in trying to find you something.

Elizabeth Colegrove · Answer

@Robert Fuhs I am an out of state investor and I don't pay. My people do everything you are describing. Just food for thought.