Wednesday, March 31, 2010
Working with a Real Estate Agent
One of the key members of your real estate investment team will be your real estate agent, if you do not already have a real estate license. Real estate agents are typically paid by the seller of a property, so as a buyer you usually do not pay out-of-pocket when using an agent.
As a seller, you would typically pay the commission for both sides of the transaction, for both a listing agent and a selling agent (buyer’s representative). However, commissions are negotiable, and either party to the transaction may pay commissions. The amount of commission paid is also negotiable, although six percent (3% to the listing agent; 3% to the selling office) is the most common.
Commissions are paid to real estate brokers only, and not directly to the sales agent. The real estate agent is an independent contractor, but works under the supervision of a licensed real estate broker (Note that as of July 1, 2010, a licensee will be called a real estate “broker” not salesperson; and their supervisor will be called a “Managing Broker” rather than simply a “broker”).
Most real estate agents will focus on listed, rather than unlisted, properties. But if you make your agent familiar with your investment focus, they may notify you before a property is listed on the NW Multiple List Service (NWMLS), or in the case of commercial properties, on the Commercial Broker Association (CBA) listing service.
There are legal responsibilities that bind real estate agents and brokers. Many of these duties are defined in a brochure called “The Law of Real Estate Agency,” which an agent should provide prior to having you sign any other paperwork with them. It defines ethics and responsibilities towards principals in a real estate transaction.
A good real estate agent will be an expert in his or her chosen area of focus. This agent will have a very good idea of values in their focus area, and can provide guidance on any number of related real estate issues for their client. The agent can typically assist a seller in setting a reasonable sales price, based on similar sales in the same general area. The agent can advise you on the home improvements most likely to increase the value of the property. He or she can provide referrals to handymen and contractors that can do the work required.
This agent will also provide an extensive marketing plan to sell the house quickly that may include consultation on staging; professional photographs; flyers; yard signage; listing on the multiple list serve; advertising to other agents, clients and brokers; reverse marketing; open houses; hotlines; internet marketing; direct mailing; virtual tours; website features; blogs; print advertising, and more.
A good agent may be able to save his client money by effective negotiation on price. The agent will handle all paperwork to comply with local, state and federal regulations. A good agent is keeping well-educated through required clock hours that help them become the expert you want to hire.
The agent will oversee a transaction through pre-approval, loan application, inspection, escrow and right through to closing to make sure that everything is being done in a timely and accurate manner. A good agent makes all of this look effortless, and it is sometimes difficult for a client to understand why they are paying such a large commission for what seems like easy work.
Should you the investor study to become a real estate agent? Keep in mind that a real estate professional is held to a higher standard, and that you will need to disclose to sellers and buyers that you hold a real estate license. Recognize that when you are making a low offer to purchase a property, that you are foregoing the opportunity to list it. Recognize too that a real estate licensee is paying desk and transaction fees to a broker, subscriber fees to belong to the multiple listing service, marketing costs to find sellers and buyers, educational fees to meet clock hour requirements, licensing and business fees, among other expenses associated with getting and maintaining a real estate license.
As a real estate broker, I enjoy having the knowledge and expertise needed to be fluent in the laws and language of real estate. I find it gives me an advantage in working with buyers, sellers, and other real estate professionals. I also recognize that it is a commitment of time and money that may be more than what many other investors may be willing or want to do. If you are an investor who does not have a real estate license, I'd be happy to talk with you about buying or selling investment real estate!