How can Realtors help investors to see the bigger picture?

Question

Greetings BP Brethren!

I'm newer to the real estate business, I've been a Realtor now for the last 7 months. I've closed 4 deals, have 2 current listings and a whirlpool vortex of buyers... and half of them... investors. *sigh* haha just teasing. I do love me some investors. ;-)

I do love the flip sides of the transactions and really have zero issues when it comes to working with investors. It's a fantastic niche, but I believe there are some that just aren't able to grasp the actuality of the game. I have 2 current investors that haven't divulged how much they have really done in investing other than show me their certificates of organization and their pre-qual finance statements. I really do believe it's going to be their first deal a piece. I don't want to belittle them by straight calling them out, I have done the leg work and research and they are both different in terms of goals, strategies and areas, but I really find myself at a cross roads when the real information needs to be divulged. How can I best explain these issues?

1. Pricing: Just because it's a bank owned or short sale doesn't mean they're going to give the thing away. If you are looking at a basic home that's listed below market value I wouldn't expect an offer to be given more than 15-20% below current value. If the place isn't riddled with holes, has working heating and cooling components, you're not going to get by writing an offer at HALF price... and then exhale with frustration like you're super surprised... I mean, come on. you need to put some skin in the game and realize each and every flip isn't going to net you 50k...

2. Earnest Money Complaints: Many REO's are now asking for certified funds with the copy ahead of time submitted with the offer... I do not see the logic in arguing the basic process and requirements with the bank's stipulations. they own the damn thing. If they want a copy of the check up front, so be it. AND while we're at it investor sassy pants, it'd be highly recommended that you put more than the absolute bare minimum down as earnest money. let's say at LEAST 1-2% respectively. It is also not uncommon to see on cash offers banks asking for 10% down as earnest money. don't get your panties in a twist. this is what we're dealing with every day.

3. Inspections: Ok, common cliche is going to get thrown... takes money to make money... don't get cheap with the inspections. in the long run a $500 inspection that lets you out of a contract is going to save you 10k in useless repairs or damages you didn't know about before. Don't cry. it's a contact sport. get a helmet.

Please let me know if this is what a lot of Realtors are seeing from potential investors, and perhaps some help on the investor's side is what they find most helpful about having a good realtor on their team, and hopefully it's more than just the necessary evil to write up a contract. lol. happy investing folks! thanks for sticking through my rant.

Mike

Bill Gulley · Answer

Welcome Michael!

7 months in and seems like you're doing great. Congrats!

Part of your job is to educate your client, regardless of who they are or what they think they know.

This is from the Realtor's point of view.

As to price, the "investor" training says buy at 70% of market value or less. In reality, that's not possible or probable off the MLS, most of those properties aren't gut rehabs they are retail ready. This is pretty much the "training" they get from gurus and very little education being offered in valuation, the economic aspects of RE or differentiating between a property for sale and a property with potential that's for sale. It's all about education.

That is the problem, just as Anthony G. pointed out, he has his numbers. Not picking on Anthony, but most investors that attempt to make any property a deal will approach it with a profit made by buying low, many niche type operators need to do that. Your job is to say this property is not going to be a deal. Just say no! Educate them.

Your other two matters about money, most don't have money. If they do have money or funds available, many are scared to death of losing it, at times I may have concerns but I'm never scared of losing. Again, this is an education and experience issue.

$500 for an inspection on a SFD? Maybe on a 5,000 sq. ft. home I'd consider that. A decent volt/ohm meter is less than $15 just about anywhere. Every community has a HVAC company that services home units, for $50 on a trip charge they can tell you if it's safe and operable as well as about any service needed. I inspect my own properties, fairly quickly too, but if something appears to be an issue I can call in a specialist. If your "investor" can't make a buy decision based on their own inspection, then just like any Harry Homeowner they need to get someone else to do what they can't do. Again, it's a lack of education.

A Realtor's job is more about educating clients than anything else, you don't sell homes, homes sell themselves! If you're dealing with an investor, you don't sell the investment, you present it, if it's meeting the investment need then you have a sale. You need to take off the retail sales hat and look at a property from their point of view. You may need to study guru systems and see what your investor is really thinking to relate to them. If their "system" isn't the reality of day with a property then you need to be able to educate them as to what that reality is.

You'll see investors asking for "investor friendly" Realtors, attorneys, title companies and whatever. Have to understand that most investors have learned RE under guru systems or specific "strategies" and what they are asking for are folks to provide services that will get on their bandwagon.

When you start pushing buttons that effect someone's ability to make money you're going to get confrontation if they are not willing to take your advice and learn. The problem here is building trust, if you can't have them trust your judgment then you don't have a client, you have a prospective buyer.

You can't build trust with someone who believes they know all about what they are doing. If your client isn't teachable and follow your advice then they won't be a client, let them go!

Keep in mind starting out that you are building your reputation in your community, not only with the public but with other Realtors, attorneys, closing agents and others dealing in the industry. There is nothing wrong with making an offer significantly under an asking price when that offer can be justified by the market, by the condition or circumstances about that property. You can not justify a low ball offer based on the wants of someone wanting a property just to make their numbers work. Throwing out offers without a justification is a reflection on you.

You can bet that if a listing agent has to present some unjustified low ball offer they will do so to that owner with comments like "I can't believe this agent would even allow this to be made, I suggest we not even counter this". I've sent low ball offers back at full price plus all the seller's closing costs, this deal is just for you!

There are wheeler-dealer Realtors that do deals based on sizzle rather than serving the meat, they'll sign almost anything and send it to a listing agent. That listing agent has to deal with that offer, it takes time and effort and it's an administrative liability to that broker and yours. If you get a reputation of sending in ridiculous offers you'll be seen as lacking professionalism, knowledge and failing to educate your client. It's no skin off the nose of some newbie investor it's your black eye. If your offer is contrary to local custom it's two black eyes. Again, most investors lack knowledge of what RE brokers are required to do, the parameters they must deal within, or what your business is, the relationships in a co-broker environment.  If they have never been an agent or broker they may think they know but they really have never experienced your side of the fence. You need to educate them.

Being new you're likely to pick up whatever comes along, but you do need to be careful as to who you deal with in some manner. What you get involved with can come back on you and put your license at risk.

OTH, there is no better client than an investor that can actually buy or carry the deal, who will listen to you and consider your advice, who actually buys multiple properties. Dealing with a savvy investor who really understands what's going on is great!    :)

Tyrus Shivers · Answer

Everyone has a bigger picture and it is almost always from their own perspective. @Michael D'Egidio's initial post spoke from his perspective and what he has encountered. @Bill Gulley explained why investors think the way they do. I have found that through education people can meet on a common platform. @Manny Cirino your bigger picture may not be my bigger picture. So to say that means nothing especially if we have different goals.

I believe with solid working foundation in RE principles, laws, and ethics both agents and investors can work together to find that common ground and get a deal done. People are doing that everyday, but to try and sway one or the other over to the other side because they do not see your BIG idea is pointless. Face it investors may want to bash realtors about not submitting low offers on MLS, but you need the agent to do that. You cannot do it. If an agent does not agree then move on to another that will. Bill was right in that it is the agent that is being looked at when those lowball offers come in. Would I be embarrassed? No, but that does not mean the reputation of that agent and broker would not suffer.

The big picture is that this is a business relationship and it is not about just one investor and thier offer, many people are affected by the actions of each person involved in the transaction. Investors, agents, attorney, title co, banks, HMLs, all work together in some capacity and at some time. May be direct or indirect, but the point is to be ethical and honest, and stop trying to bash the other side. If you know someone is lacking in  education or knowledge from any one of the perspectives, try to help that person rather than tear them down and get rid of them. Whenever an investor "fires" an agent, the agent just goes back to homeowners, and when an agent does not work with an investor, the investor finds another agent. Work together!

Bryan L. · Answer

@Michael D'Egidio  - On your point number 1:  I am a combination investor/Realtor (in that order), and I have bought MLS-listed properties at LESS than 50% of list price.  The thoughts that you express in this regard are exactly why I am able to do this.  Because most Realtors (and most investors) are too embarrassed to submit a low-ball offer.  So, while that REO sits there getting no offers from others, I come in and make my offer and sometimes get it accepted.  Here's a great example.  I once bought a house for 22K that was listed for 59.  My initial offer was 18.  Was it all torn up, riddled with holes, etc?  No, my rehab was only a few thousand dollars.

Dev Horn · Answer

Realtors in most markets are seeing this big picture: Investors ARE the buyers right now.  According to CNBC, 43% of all home purchases in the first quarter were all cash deals:

http://www.cnbc.com/id/101654929

In some markets (listed in the article), more than 50% of the deals are all cash.

CASH IS KING!  And investors are driving this market!

Bill Gulley · Answer

There are physical limitations at work on an individual Realtor or investor.

It takes about 2 hours to find 4 decent properties on the MLS that are close to your clients' needs.

You already have 2 hours invested meeting the prospect and getting basic facts, that doesn't count any time spent in marketing efforts to get face to face with a buyer or seller.

If you can take a buyer out in one trip you'll save time. If driving time is only about an hour, you can preview 4 house in two hours or a total of 3 hours.

You'll have another hour selecting those to visit again with most buyers, seeing two will take about an hour each, so you have 2 more hours.

If your buyer is serious and follows your advice you can get an offer done in an other hour meeting at your office, you can get it done quicker but you'll have some office time that will eat up a few minutes too.

That's 10 hours eaten up getting one offer out the door, it could easily take twice that with a wishy-washy buyer or those that delay making a decision.

Say that offer is accepted. You'll have at least an hour coordinating with the listing agent and title folks, setting a closing time and coordinating with your buyer. If you are assisting a buyer in financing, you'll have at least 2 more hours involved. You're at 13 hours.

You'll have 3 more hours on the phone, title work, lender's progress, handholding the buyer and answering questions, reviewing inspections and that's if everything goes smoothly, it usually doesn't.

Toss in another hour if you have to open the place for inspections.

You'll have another hour in loading the MLS and taking it off, if they have cover sheets of info for the board office and your office, add another hour.

You're 19 hours in before going to closing, that can easily eat up 2 more hours. It's not that settlement can't go faster (and I've wasted a whole day with a few settlements) but you'll have chitchat, you can't just walk in and walk away from your buyer.

You're not done! You'll have 3 more hours, go pick up your sign, send your thank you note, meet the buyer and welcome them to their new home.

That's at least 24 working hours in one deal, often it can be twice that.

Working with an investor you can knock that time down in half.

Starting off you'll have days researching the market, going to meetings, classes, working out your marketing activities.

Listing properties generally takes half the time working with a seller than a buyer, if you're great a valuations or it can take just as much time.

You might think the key is just to list properties, but you really need to sell to buyers to support your fame to get the listings.

25 transactions will take an agent about 600 hours if everything goes perfectly as it should. You'll be fielding 4 times that in meeting people who don't buy, calling you, answering questions and looking up dead ends. You meet 4 you sell one, if you're good!

RE is seasonal too, you may average a closing every other week, but you'll have dead time in the winter, we lose about 3 months due to weather.

Adding dead time, in 9 months you'll have about 1,666 hours compressed into 9 months. 2.78 deals a month, 66.67 hours of one on one contact of 185 hours. You have a 44 hour a week job doing an average of 25 deals a year when you're doing deals.

If you're on a 3% commission you'll on a 60/40 split you get 1.8% before taxes and expenses, you'll probably net 1%. If you have to make $30,000 you need $1,000,000 in closings. That means an average sale price of $40,000. At $80,000 closing you'll be pulling $60,000.

Point is, when you hear someone saying they are doing a 100 deals a year either they aren't doing everything in a transaction to really take the credit of doing the full transaction or they are lying.

Working with good investors, not the woopsiedo shotgun offer types, in REOs or foreclosures, doing bulk transactions like 6 or 12 properties a deal at 1 1/2% will turn out more production. Not easy to do. Don't expect to build your name and business in just a few years to pull in top investors.

Not only do you mess up your reputation in making unjustified offers, the time and numbers won't work for you as an agent. If you're making 20 dumb offers to get one accepted you just increased you time in that one deal by 60 hours, finding the properties and follow up or if the investor brings everything to you, you'll increase your investment by 20 more hours. That's almost another transaction or working at half pay. That's what the multi-offer shotgun lowball investors are asking you to do, work for about half the compensation.

It's not that a low offer is bad at all, when it's justified with the numbers.

Investors are quick to mention buying a $60K property for $20K, what they don't and won't admit is the number they struck out with, did they really get a great deal considering all they went through to get that one deal?  Are they making more than if they had done 10 more transactions without elephant hunting? LOL!

Joel Owens · Answer

Part of any new agent entering this career is finding your path.

That takes time and experience. Once you fall on your face a few times you will go " Ouch that hurts, how do I not do that one again?!".

The agent will eliminate the " deer in the headlights " look and write out a business plan. Forget the brokerage you are at missions statement. YOU need to define in  a perfect world what your career looks like in 2,5 10 years and plan how to make the dream a reality.

In business you teach people how to treat you and your reputation is everything. On the residential side investors many are starting out and uneducated about the process. They might have attended a seminar somewhere and now think they have the knowledge to take over the world.

Forget what the investors are selling for what they want to buy. You need to dig deep in your MLS and see what is happening in the market. If the market is saying it has switched to where 80% of REO or Short sales is home owner purchased or from a buy and hold rental investor then you will have a very tough time getting a flipper offer accepted. If you don't like home owners because of all the emotional drama for instance you can work with buy and hold investors who are focused on rent and not the flip formula and spreads.

For a flipper it makes sense to look for the diamond in the ton of coal. They might take 6 months to find it and make 40k after 3 months in for 9 months total. Think about how many offers you as an agent will have to make and time after your broker split, gas, paper, car wear and tear etc. Your money will be very small after all of that is taken away plus to add insult to injury the IRS will say you made all this money..................... : )

There are a lot of people in this business that call themselves investors but really are players and pretenders. On the commercial side I want to know they have money to do the things they say they can. I want to know job and business history, proof of funds liquid in the bank accounts, IRA, 401k, stocks, etc., and a complete financial statement to know liquidity and net worth. If they are not forthcoming and want to play games or not fully disclose their position I won't work with them period. The reason is because what they are trying to do and not disclose will come to derail the deal down the road. Whoever the seller is and whether they are a direct seller or have a listing broker they want to know they have a true buyer. Not a daisy chain of people, not  a wholesaler, assignor, but a direct purchaser.

Do those other avenues work?? They sure do but in this investment cycle it's harder and harder to pull these off.

There are too many legitimate buyers out there to be working with the pipe dream chasers. If they want to spend 1,000 hours finding " the one" that gets them going that is fantastic. Your goal as a broker/agent in whatever niche you have is too help people but also know your market. Would you rather fill your pipeline with 50 investors who buy and hold at higher purchase prices for rent where your data shows 1 out of every 3 offers gets accepted OR a group of rehab investors where every 1 in 100 offers gets accepted at a much lower price??

The buy and hold you can create long standing relationships. The flippers tend to throw out as many tentacles as possible ( agents) and see what sticks.

I wish more power to the flippers and I am not against them. I am saying as you are an agent now ( hopefully your career takes you on to be a broker ) you need to put your business returns and your family first. I am interested in how I maximize my time and my return as a broker working with commercial clients. I think it's laughable when I hear other investors are shocked to find out the great brokers/agents in demand don't want to be used and abused for the investors financial gain.

Also don't by into this if you do this today for a discount I will reward you later stuff. You need to learn the time value of money today is worth more than potentially false promises tomorrow. Get the full money today and if offering any discount have that be in the future. That will keep them loyal to you and not promising better days tomorrow only to screw you and do it again to someone else when they sell.

There are a great brokers/agents out there and honest clients. Then there is the rest of the sea with floating trash that is dead weight that will take you to the bottom.

I could go on but I hope this helps you out some. Eventually start learning how you can work on larger deals that pay more. 100 deals at 3,000 a closing is 300k. Take away 50/50 split and you now made 150,000 a year gross before business expenses closing a little over 8 deals a month!

Instead of 100 deals if you could make that in 10 deals wouldn't life be easier and have more time to enjoy things?? Yes

All the best.

Dorian Canelas · Answer

" . . . with the 3 listing agents of each REO property asking me how dare I  allow my buyers, or investors to make such ridiculous offers. . ."

Your comments about a few divas who take it personally is probably right, and those people might take it upon themselves to haze the "new guy."  I know for a fact that in my local area there are a few of the "top agents" who absolutely hate each other.  You also need to realize that there are a few "bullies" in every profession.  If someone is nasty to you about an offer you present, all you can do is thank them for their feedback.  But how much time does it really take for them to present an offer and then relay back the "no, thanks" to you?

Michael D'Egidio · Answer

Howdy everybody,

I appreciate the food for thought and see so many people coming from so many different ways at so many different levels. This is why forum is such a great tool.

I just wanted to take a minute to apologize in coming across so complacent... Good Lord. Reading the time stamp on that message it looks like it was after the 3 complete reject on offers, with the 3 listing agents of each REO property asking me how dare I allow my buyers, or investors to make such ridiculous offers...

Now for just starting out in the business, I'm not very set on lighting the candle at both ends and burning bridges out of the gate. Like you guys had said there are so many individuals and effects that are going into a transaction, it's easier to tread lightly and become grounded before you start making waves.

I think when seeing a bigger picture, I really think I meant more about realistic expectations. Like all of you had confirmed it's all about the numbers and at the end of the day I'm there to work with someone regardless of their goals. Addressing false expectations and high false hopes makes matters only worse as the transaction progresses. I like to be honest, upfront and realistic with any clientele.

I have NEVER told a buyer or investor that their offer was unreasonable, ridiculous or low ball... I have the market data for you, I have the trends, research and raw results and present an open range. the decision is purely theirs, not mine. I've not been afraid about ever delivering a less than market value or LESS than ridiculously lower than market price offer. Realtors have got to be the most concentrated group where among the productive good ones you are just bound to bump into a few divas who take the whole damn thing personally. This rant was catapulted by an offer rejection yesterday morning with one of my absolutely favorite investors. They know the area they want to be in, they come prepared with all figures and documents and the meticulous work they put into each property is absolutely phenomenal. We went about 60k less than market value, taking into consideration of course all of the money they were going to put into it, not only upgrading, but completely remodeling. Every investor is different. Now out of the blue after the reject letter came from the bank I received some Realtor hate mail. I thought I may have been in the wrong allowing them to offer that low, like I really did my investor a dis service and I felt extremely bad.

I want to learn more than anything, if someone has a different system in acquiring the deals, or a routine they follow and aren't afraid to share, I would very much like to do so. Searching the MLS for "deals" is quite the pain. Many private sellers on the MLS would be highly unlikely to be a candidate for selling below market value and the REO have so many hoops and snags and can be very time consuming. At the end of the day it's all about improvement and preference. All of your comments and feedback will give me just that. I really appreciate your time in your responses.

Mike

Manny Cirino · Answer

Tyrus,

I understand what you are saying my reality is not someone else and I am aware that I can not impose my thoughts and believes upon someone else. I simply answerred his question, "How can Realtors help investors to see the bigger picture?" You can, I felt that the question is giving the impression that a Realtors reality is great than that of an Investors and that is definetly not so. A Realtor has a set a guidlelines that they must stay within, Some call it ethical believes I consider there beliefs of ethics to be a lack of lateraul thinking skills which limits them to a commission(but not denying there are legal guidelines).

I am just saying if you want to work with investors then know how they think and operate. What better way for an Realtor to help and investor see the bigger picture than presenting him with some potential deals and have the calculations broken down.

Manny Cirino · Answer

Micheal,

congrats on your early success it seems as if you are well educated and true hustler. Someone with that quick of a success is someone who is a people person. With that said your attitute towards real estate investors and the offer they want and need to submit to make property worth buying is the very reason that investor training advises against buying MLS deals and working with Realtors who do not understand the business. You as a Realtor are driven by commission and naturally you need to sell at a higher price to gain a higher commission so would hesitate to put in an offer that embarresses you and would not compensate you that well.

The name of the game for the investors who purchase REO is a numbers game, to make multiple offers with out any emotional attachment until one gets accepted. The one that does get accepted is the only one that matters.

To give you some insight your quick success is not common and any Realtor will tell you that you will encounter rough times in this business. One of the defenses to this is to build strong realtionships with investors. Understand that some banks have held some properties long enough and need to dump them to help balance there accounts so they will accept the offers.

I suggest trying to work out an agreement with these clients. Submitting there low offer in exchange for the exclusive listing. Also learn the way we calculate the number we need to be at that is usually

Estimated retail price(A.R.V.) x .70(70%) - estimated repair cost.

We do not offer low because we are greedy and cheap it is because we have a hard number we need to stick to and we have to be below the 70% because that is were the Hard Money Lenders maximum allowance. If we buy a house worth $100,000 at $80,000 and it needs $10,000 in repairs that $10,000 Profit will be eaten in fees. Now lets say we buy a house worth $100,000 at $70,000 - $10,000 = $60,000 and sell at a $100,000  they have $40,000 profit, right? Wrong! they  have $6,000 in commission, $2,000 in closing fees Utilites, Insurance, and a 12%-15% interest only loan payments per month that they hold the property. lets say $150 in you utilities, $80 insurance and $700 mortgage over 6 months is $5,580.

so your $40,000 will lose about $13,580(and $930 for every extra month you don't sell) for a profit $26,420

Look at the bigger picture!

How can Realtors help investors to see the bigger picture?

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