When buying regular/mls listed house - need to use a broker or no?

Question

Hello All,

As I've mentioned before I'll be buying my first property within the next couple months.  I've found a potential property I plan on visiting tomorrow that I found using loopnet.  I was able to find the property and make a meeting without a broker so am wondering if I even need to use one or can use my real-estate lawyer to facilitate the deal?  What are your suggestions?

I already know the price is right, cap rate is within range ofnwhat market is buying at, etc.  I've never bought a property before so leads me to think I should use a broker just b/c of that but hate to pay a large commission when I did all the property finding work.

Please let me know benefits ofnusing one and/or how you're able to bypass using one and still cover your all your basis.

Really appreciate any and all advice!!

Dion DePaoli · Answer

Shea Stringert I personally do not have someone I would put my name on up there.  I would recommend you look up and call some local agents and ask them.  Meet them for a cup of coffee as an informal interview and explain what your after.  Ask them to explain their qualifications.  Then pick one.  My recommendation, be brutally honest with your skill, background and exceptions and needs.  If you start it off on the right foot you will create a business partner relationship that could last you years.

Good Luck.

Dion DePaoli · Answer

Shea Stringert now we have some clarity.  Thanks.

First, stop looking on Loopnet that is for commercial property.  A 2 unit complex is residential.  In fact 1 to 4 units are residential.  Residential is a little better place for you to start, I was a little scared you were jumping in to 100 unit complex with no experience.

The agent you speak of is probobly suffering from fatigue from you.  If you are looking at commercial but plan to buy residential, you are wasting his time.  He is certainly in business to make money, you seem to understand that.  If he is not seeing any progress towards a transaction with you, it might be turning him off.  Perhaps chat with him about the issue directly and see if you can cure it.  Don't be bashful anymore, this is business.  If you can't work it out, find a new one.

The fact that you looking at residential real estate to really purchase those listings will be as most folks above describe.  When the seller lists his property he signs a listing agreement where the total commission is defined and a commission split is defined if another agent shows up with a buyer.  That is sort of the point of MLS.

A terminology correction.  A Buyer's Agent when properly used is an agent who essentially lists the buyer's cash in order to find a suitable property for the buyer to purchase.  The buyer's agent contract sometimes involves a fee above the fee that might be collected on a sale.  This is a defined relationship per Buyer's Agent Contract.

That is not to be confused with a Selling Agent (not Listing Agent).    The agent works the open market and is not contracted with you as a buyer they become bound by the transaction when an offer is turned into a Listing Agent  and accepted by Seller.  This agent essentially sells the listing that is already listed to the open public and does not have any real affinity to a buyer.  (even though many agents who work with buyers do have relations with buyers it is still open in nature)

The Transactional Agent Bill is refering to is the role the Listing Agent conforms to when no other agent shows up.  The Listing Agent must jump into the middle between you and the buyer and can not take sides.  Since both the buyer and seller are working with the Listing Agent the agent can not favor either side, so they go neutral.

Ok, back to the question.  Do you need a broker/agent?  You do not really need a Buyer's Agent, you could kick the guy you are working with [edit: a couple bucks] and he sort of functions as one but no not needed at all and no need to get a Buyer's Agent Contract.

Should you use a Selling Agent?  Yes.  Whether you use this agent or not will not typically change the sale price of the property.  The Listing Agreement is signed and the Seller agreed to pay X% which is to be splint x% and y% to Listing Agent and Selling Agent when the Selling Agent is present.  If no selling Agent is present, the listing agent gets all of it.  So this is why you were told above, a buyer doesn't pay for it.  Essentially you paid the seller the sale price and that commission comes from those proceeds.  So if you look at it that way, yea you paid for it.  But the opposite is not true.  Because the listing agreement is already in place before you, your negotiating power on matter is not high.

Next Bill did not mean YOU could split any commission what so ever.  Go back and read what he said, now you know what the different agent roles are.  YOU can not ever take a commission until you go get a Real Estate license.  If you do that is a kickback and those are forbidden by RESPA.

The moral of your story here.  Remember the butcher, the baker and the candlestick maker?  In general an attorney does what an attorney does...legal stuff.  A real estate agent does...real estate stuff.  Etc.

Do not expect you attorney to pull comps.  That is silly.  Not only will they likely not do it, but if they do who says they are good at it?

The opposite of your question is more true than your question.  Since the property is residential, the contract will likely be your state standard contract.  The Selling Agent will handle all of that for you.  For the most part, you don't really need the attorney.  (when you said loopnet and said yo have an attorney, this is more like commercial not residential -  perhaps mixing the worlds is confusing you)

If the property is in New York, the transaction will use a mutual attorney as a closing agent for the transaction.  He is not representing you or the buyer.

Hope that helps.

Bill Gulley · Answer

Hey John, where have you been...LOL

Now John, he's new and not having his agent means the listing agent will be a transactional broker/agency, not good for a new buyer. His attorney can probably split the commission as well in addition to his legal fees, so he needs to ask his attroeny.

Yes, the seller usually pays the commission in residential but it almost always comes from the buyer through the sale price, offer to little and the commission can't be paid, you may not have a deal.

I doubt the attorney will pull up comps on the MLS, inspect the property, provide names or inspectors and fix-it guys, set up inspections etc.

For new investors, on listed properties, I suggest you get an agent, use your attorney for leagal aspects, contract review and perhaps the closing. Depends on what the listing agent will do as well under a transactional arrangement working with an attorney. I'd say the simplest is get an agent.

You also need to do your due diligence before you get your attorney involved....Good luck

Curt Davis · Answer

If you found a property why would you have to pay a broker?  Even if you used an agent or broker to represent you , you do not actually pay them, the seller always pays the commissions to the agents.  You should have an agent represent you if its your first transaction.  Besides, even if you just went straight to the selling agent they will just collect a 6% commission as opposed to the 3%, your not getting a better deal by not having an agent.  Good luck.

Shea Stringert · Answer

Joel Owens  Totally agree with all your thoughts.  Unfortunately this being my first deal I don't have a reputation to go off of so is why I got the pre-approval of funds already and plan on buying a property that is less than my pre-approval amount.  Not sure what else I can do to show that I am serious, am capable of buying, and absolutely plan to when the deal is right.

Joel Owens · Answer

Depends on what you are buying.

Commercial brokers know who the other top commercial brokers are.

I am not talking about your 2 unit which is residential.I am talking about larger deals.

In that case my offer representing my client will not go to the bottom of the stack because the listing broker knows my reputation.

If the listing broker gets an offer from a buyer broker known to not screen their buyers properly they will not want to do business with them.That wastes the sellers time and makes the listing broker look bad.

Before I work with a buyer they have to show proof of what they are saying is true(bank statements,proof of funds,etc.) and they have to be realistic.

If they aren't I wish them well and they go on their way.Time is money in this business.The more successful you become the more you learn to value time.

Your mind would be blown by buyers trying to do a deal size outside the scope of their capability or acting like they have money when they have 2 nickels to rub together.

Account Closed · Answer

@Bill Gulley  Hey Billy Boy!

@Dion DePaoli  Thanks, I guess I was referring to a selling agent.

@Shea Stringert   A data service for comps is essential, but subscriptions are expensive.  RealQuest had a pay per report option (just a few dollars), last time I used them.  You should have every MLS listing available to you through Realtor sites, like this one NJMLS.  If you're missing an active listing, double-check your search criteria.

If my @thing doesn't work, could someone enlighten me?

Shea Stringert · Answer

Dion DePaoli Your thorough reply was very helpful.  Use a sellers agent - check!

Couple questions/comments.  I realize loopnet is much more useful for true commercial properties (5 units and higher, and other stuff i'm not interested in) but they do have some properties similar to what I'm looking for so have used as a tool.  I'm also using realtor.com and trying to use that brokers MLS tool but as I said his doesn't have all the properties seemingly (or the agents just aren't listing them there for some reason).

Your point on me getting some of the commission makes perfect sense and what I thought was law anyway so appreciate the confirmation there.

I'm actually looking in Jersey City, NJ but assume the same of the contract.  After all the above, it definitely seems like there is no real upside to not using an agent where as using one has a lot (especially in referrals).  That said, do you know a way I can go about finding a good sellers agent that has experience specifically in the area I am looking for?  Invenstment property that is not owner occupied in my specific market.  I want someone who has knowledge of the rental market as well as a lot of experience buying investment properties to help.  Or am I going over board with wanting all that in my situation and knowledge?

Bill Gulley · Answer

A Realtor acting in a transactional agency may not give advice they may only act to facilitate the transaction, do the paper work, set appointments and inspections and closing. They by nature will have their listing client in the back of their mind and have already given advice to the seller. You need to know what you're doing in a transactional relationship. So my above advice stands.

On a listed property, I'd suggest you not even consider trying to get at the commission money as that has been contracted, forget about commissions, you can't get them unless you're a Realtor. Any attorney may get a commission or a split.

You just need to concentrate on getting the right price without consideration of commission dollars, IMO. Good luck

Shea Stringert · Answer

Dion DePaoli I appreciate your thought and comment.  I have to admit I have to do a better job of explaining my questions and situation more thoroughly.  I created this post to get the questions answered.  I'm more using the property I've found as an example for this question of mine.  The property I will eventually put an offer on will be quite similar - 2 unit multifamily as an investment property.  I am already prequalified for well over the purchase price.  I have been talking to a broker for about 2 months now and have been learning from him but I'm not getting quick feedback form him as I doubt I am at the top of his priority list.  It is through him how I've learned about the market prices, what to expect at what price, going cap rates, GRM's, etc. for the area I'm looking in.  Problem is he doesn't send me any properties and his MLS listings don't seem to have all the listings (or his site is broken) so I have to hunt on my own.

I guess it also isn't obvious that I know I need to do due diligence on the property by getting it thoroughly inspected, check to see what this years property tax will equate to, as well as the other expense like water, trash, etc.  I plan on only buying a property that has each unit individually metered as well.

I don't pretend I know even half the stuff I need to know in order to confidently answer my original question, but again is why I am asking on here.

John Lydic  I appreciate your thought on not listening to naysayers, you'll never get anywhere if you do!  Your comment is part of why I am asking this question.  My current broker isn't giving me any attention at all so why would I ensure he gets a commision on the deal if he isn't going to give me the best help possible to close.  That said, I don't have any recommendations for good fix it people, or inspectors so is a reason why I think I would need one.  Although I could network to find some good people for both, my concern is over negotiation of the price and setting up the deal properly.  I read in one of the books that I could use a buyers broker where I'll get some of the commission they receive on the deal at close, but find that hard to believe.

Bill Gulley  Can you comment a little more on the listing agent being a transitional agency not being good for me?  Is it purely because that agent won't have my own best interests in mind?  That is definitely something I am concerned about and one of the positive to me using my own agent in the list of pro/cons.  I plan on offering close to the asking price as even at full price it is a pretty good deal for me.  Regardless I plan to hold on to it for a while as well since it will be a good amount positive cash flow after all expenses, maintenance, etc. are paid/saved.  An attorney probably wont pull comps but before I made an offer I would check them myself to ensure I was proposing an appropriate price anyway.

Really the question is, is there any benefit monetarily for me not to use a broker?  If not then it wouldn't make sense, I believe.  If I can use just my attorney and get half of the "buyers" commission back at closing then that would definitely be a benefit.  I'm not trying to cut corners by any means, I want to ensure I do this properly and intelligently so that when i take over the property everything goes as smoothly as it can.  Again, appreciate any and all insights and advice on any of the notes I made above!

Thanks all!

When buying regular/mls listed house - need to use a broker or no?

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