Ask a friend or anyone unfamiliar with the industry who would be a good example of a Real Estate Investor and they’re likely to mention Real Estate Agents. In reality, agents and brokers are no more an investor than your attorney or accountant.
They are service providers and professionals that operate in an agency relationship either on behalf of the seller, the buyer or in some cases both – to market real estate properties and bring buyers and sellers together.
Agents and Brokers are licensed in their locale and must adhere to specific ethics and code of conduct rules. They also must meet initial and ongoing education requirements to gain and maintain that license.
Agents and brokers should be experts at advising their clients, negotiating with buyers and sellers (or their agents), understanding all the documentation associated with real estate transactions, marketing real estate products and services and be knowledgeable on current real estate market conditions.
Agents and Brokers earn commissions from the successful completion of a real estate property transaction. Commissions are typically in the range of 4-7% of the sales price – most commonly 6% – but these may vary and can often be negotiated. Realtor and Broker commissions are funded from the seller side of the transaction.
Are all Agents and Brokers the Same?
Agents work under the guidance of a Broker, who can perform all the functions of an agent, but Brokers have more responsibilities and are often in an ownership position of the real estate firm.
Agents and Brokers will have varying specializations, skills, knowledge, and expertise, not all agents and brokers are created equal. Brokers and agents may be from small independent companies, or they may be affiliated with a very large national organization.
The Real Estate Agent can be an invaluable asset to the real estate investor. Agents can help them find properties, sell properties, make connections with other professionals, and bring a wealth of knowledge about local real estate markets and trends.
While some investors are critical of the “cost” of commissions and how it impacts the profitability of a deal, the savvy real estate investor appreciates the value that agents can bring to their real estate investment objectives.
Choosing a Real Estate Agent to Work with as an Investor
As a real estate investor, it’s important that the real estate agent you choose to work with understands the special needs and demands of you, as an investor. An agent that is an investor themselves, or who works exclusively or primarily on behalf of investors rather than the typical retail home buyer or seller that is seeking or selling their own home is key.
Your agent should:
- Have an understanding your desired investment strategy and finding properties that align to that strategy. For example, suitability of potential properties to be a long term or short-term rental, an understanding of multi-family markets and properties, profit opportunities for fix/rehab and flipping, if those types of investments are your strategy. The agent should have a strong understanding of the current market cycle and how that applies to your investing situation.
- Be a part of a larger team of agents from the same firm. Such an agent immediately extends the reach of your network, bringing broader perspectives on the market, more potential connections for buyers and sellers.
- Be an investor focused real estate agent. While any agent will have access to Multiple Listing Service (MLS) properties, an investor focused agent will likely have better connections with off-market, exclusive and pocket listings before they ever reach the MLS. It can be key as an investor to have opportunities to purchase properties before they reach the broader market.
- Have an understanding of creative finance concepts – going beyond the typical conventional home buyer financing options. Does your agent understand seller financing, subject to financing, wrap mortgages and are they comfortable with finding and negotiating these types of deals with and for you?
- Have an understanding you likely will have a need to purchase well below retail market value. Your agent should not take up your time with properties and sellers insisting on full retail pricing. Full retain pricing is something that won’t typically fit your investment model in all but the strongest sellers’ market. Your agent will also be able to provide you with comparable properties to gain a good understanding of the value of the properties you are buying or selling.
- Have connections and contacts with other professionals that can help you with your investment strategy. Your agent should have a network of contractors, tradespeople, property managers, appraisers, title companies, real estate attorneys, and inspectors that they trust and recommend.
The right agent can be one of the most valuable members of your investment team! The commissions they earn should pay returns many times over.