Seller has realtor. What exit strategies work best?

Question

If you make a call on Craigslist for example and the person has a realtor, what exit strategies are doable at that point?  I mean I'm assuming you can't do a sandwich lease option, or try to pull the owner into a JV to fix, flip and split profit at that point.  Are you limited to just doing a wholesale or a normal ole' fix and flip at that point?

Alexander Gonzalez · Answer

In a buyer’s market I would use the words “lease option” and I

would also say their commission is paid “in full” versus “up front.” It

is not as strong, but still very positive.

After I started to send out this type of letter, the deals started to

come in. The commission was no longer a stumbling block issue for

the Realtors—they didn’t have to worry about waiting for years to be

paid for the work they were doing then.

In a weaker market or a buyer’s market, I don’t pay the entire

commission up front—I might only pay part of it, say 1 to 1.5 percent

versus the 3 percent I would pay in a seller’s market. They would then

have to wait until closing for the remainder of their commission. In a

weaker market they realize that they might not get paid at all if their

listing doesn’t sell. At the same time, I am getting less from my buyers

in these markets. Remember, a slower market for sellers means a

slower market for buyers; less money for sellers translates to less

money for buyers. Realtors understand that when business is slow for

them, it is slow for me, also.

Here’s an example: I offer $200,000 in a seller’s market and I pay

3 percent of the listing portion of the commission up front. This is

$6,000. I would owe $194,000 when I pay off the seller (when I exercise

my option). However, if I don’t exercise my option, I would not

get that money back. I am fronting the seller’s expense for the real estate

commission.

Alexander Gonzalez · Answer

HOW TO GET REALTORS TO HELP YOU DO LEASE OPTIONS

Sequence of Events When Working with a Realtor

The Realtor gets paid when I put someone in the home—in other

words, when I get money from someone else. The sequence of events

is as follows:

1. The Realtor gets a listing.

2. The seller says the four-letter word, “rent,” and the Realtor

shares it with me.

3. I look at the property.

4. We negotiate it through a proposal.

5. We agree on the terms.

6. I write up a full offer.

7. The offer gets signed.

8. I find a tenant-buyer.

9. I pay the commission or a portion of the commission to

the Realtor.

10. The tenant-buyer moves in.

11. Closing happens at a later date.

A part of Wendy Pattons

"Investing in Real Estate with Lease Options and “Subject-To” Deals"

Alexander Gonzalez · Answer

Not at all a professional, but Wendy Patton has a chapter in her book that explains paying the Agents Commission up front in a Lease Option. Not too sure, look into it more cause I'm interested in the correct way as well.

Samuel Sedore · Answer

I looked into and yes it is technically legal just very messy, as if the original deal does not close your on the hook.

The grey area for the realtor is that if we re list a property at a higher price, we clearly were not taking the first client best interest into consideration and trying to sell for top dollar.

Doug Pretorius · Answer

Admittedly I've never done a wholetail deal but it's my understanding that there's no problem with listing a property you have under contract, so long as the contract allows you to list it, and you disclose that you are selling equitable title not legal title. I believe most MLS systems have a place to check off which type of title is being offered.

Samuel Sedore · Answer

I would argue that buy and hold is the most advantageous to both, considering it costs an investor 0$ to buy with a realtor and if business is consistent then you can usually work out a deal for having some costs covered.

Yeah the main issue there is it is actually against our code of ethics to pay or remunerate someone that's not a licensed realtor to give us business directly. There are ways around it like "gifts or "consulting fees". Although if most realtors are already having success they would be un-likely to take on the extra risk.

Also listing a property that has not yet been closed on is a huge grey area, unless the realtor sells it as a pocket listing. Which might not result in top dollar.

Doug Pretorius · Answer

Yeah I wouldn't recommend putting MLS properties under contract for wholetailing, that's a very tricky thing to pull off. Instead, do your own marketing, whether that's direct mail, signs, networking, cold calling etc. And put properties under contract that aren't yet on the market, then have your realtor list them. You don't need to worry about financing or inspections or contractors either. Just get the property under contract below the as-is value and someone will grab it.

You can do this with properties that don't need any work too. Just get it under contract for 90% or less of FMV, that's enough to cover the commission and closing costs and get you a decent payday for very little work.

Austin Faux · Answer

@Doug Pretorius I've tried Wholetailing with a few realtors in the past, and they didn't like it.  I think my downside was I didn't tell them I was trying to wholetail, and the realtor thought I was buying to fix and flip.  But overall I was trying to get properties under contract with the realtor, find all the financing, do the initial inspections, get the contractors in place and then I was going to turn it over to another investor.  Once the realtor saw what I was doing she said I was being unethical....lol.Is there a better way to wholetail?

Doug Pretorius · Answer

@Samuel Sedore Yeah, unfortunately realtors and investors are often like oil and water, especially when it comes to creative financing.

An area of investing where they work perfectly together though is wholetailing. If I was in that niche I would focus all of my efforts on getting deals under contract and have a great realtor on my team doing all the selling (assuming they could handle the volume).

Samuel Sedore · Answer

its up to the agent. I have enough confidence i never go over 30 days. Although i believe 60 is the norm any agent using 1 year holdover periods is definitely not looking out for their clients best interests.

@Doug Pretorius is correct 95% of realtors don't know the difference between investing and the back of their hand. Anything not normal will just scare them away. Also investors don't get a great wrap either, considering most have no loyalty to the realtor only the deal and some will attempt to create back door relationships with sellers to avoid commission . From my experience the average realtor wants nothing to do with an investor.

Seller has realtor. What exit strategies work best?

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