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Why I Never Work With a Real Estate Agent

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MJ DeMarco

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I'm happy to announce that I bought a house today and got a steal of a price -- 25% discount and under assessed tax value! I plan to live there for 1 year while my primary residence completes its remodeling/pool project - which has gotten out of control.

I got the deal primarily because I WASN'T working with a real estate agent - which i never do.

First a disclaimer: This is not an attack on real estate agents as I know there are a few here. This is my opinion on WHY I don't use an agent. Second, this is based on my experience as a buyer and seller of real estate; not as a full-time "investor".

Why I Never Work With a Real Estate Agent

In the past 10 years, I've bought and sold various properties from homes to land, and I've NEVER used a real estate agent, w/exception to the first home I ever bought.

First, on the sell side. I always sell By Owner (FSBO) and pay a listing service to drop the property in the MLS. Then I offer the buyer agents a fee if they bring a buyer -- from 2% -3%. The caveat is you have to be home to show the house, or, put the house on your own lockbox (which can be purchased at any Home Depot).

I buy the standard contracts and do them myself.

On the buy side, I troll neighborhoods I want to buy/live. I call the agent and ask for a showing. I line em up one after another! Now, since I am not represented by an agent, I have some negotiating power to get a lower price since the 3% is saved in buyer agent commission OR the selling agent is motivated because he thinks 6% is coming his way.

Prior to trolling neighborhoods, I search the web for properties. In the age of the internet, you now have access to MLS listings which was once a sacred ground for Realtors. Not any longer.

I used in my search:

1) Realtor.com
2) Craigslist.com (Distressed)
3) RealtyTrac.com (Distressed)
4) Maricopa.gov (Check Neighborhood comps / Tax bills)

I was able to get a contract due to the fact that I was NOT represented by a real estate agent - the seller (which was FSBO and offering 4% to buyer agents) was FREE from paying commission to anyone.

I was told later that my offer wasn't the best; but since I didn't have agent representation, I got the deal. The seller netted MORE since all agents where removed from the transaction.

My competition on the property was working with agents costing the seller thousands - hence, they didn't get the deal. Every dollar counts to a motivated seller.

Remember, 3% on a $1,000,000 home is $30,000 -- what can you do with $30K?

A lot!!!

:eusa_clap:
 

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nomadjanet

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You have some good points. The only time we use an agent is on out of town property, it's just worth the money to us when we are dealing with property that is hundreds of miles away. It is true that some people would rather deal with FSBO and won't even call when it is a realtor deal. Years ago before the internet, MLS was a big neal, now not so much.
Janet
 
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MJ DeMarco

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You have some good points. The only time we use an agent is on out of town property, it's just worth the money to us when we are dealing with property that is hundreds of miles away.
Janet
Have to agree with you there. I never bought out of state and not knowing the area would be a detriment - an agent would be a must in that circumstance.
 

kimberland

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We've only purchased one home (our current)
and didn't use a real estate agent.

IMHO... real estate agents work for the seller.
They are paid on a % of the selling price.
Higher selling price? Higher commission.
So they'd be working against a buyer wanting the lowest price.

But then, my hubby is one of the best negotiators I've seen.
And he does his homework before walking into any deal.
 

piranha526

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MJ,
Do you use a lawyer to review contracts or do you do this yourself as well?

Also, do you use a title company or do the searches yourself?

I am currently taking the RE classes here in NJ (for the hell of it). I don't like using RE agents either. I may never use the license but it is just some more education for a very cheap price!
 

randallg99

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MJ,
Do you use a lawyer to review contracts or do you do this yourself as well?

Also, do you use a title company or do the searches yourself?

I am currently taking the RE classes here in NJ (for the hell of it). I don't like using RE agents either. I may never use the license but it is just some more education for a very cheap price!

Practices are different from state to state... in our wonderful undertaxed state of NJ, it is common practice in Northern NJ (above Trenton) for attorneys to handle the transaction, who by the way contract a title company to do the title search. However, in Southern NJ, it is common practice to use only a title company to handle the transaction.

regarding title search- it is too cheap not to have a company do it, IMO.

After a couple of deals, it becomes natural to know what the steps are... first time home buyers as a rule of thumb probably should use an agent to help them through the process. Your average Joe6pack does not carry the knowledge needed to make a closing (ie negotiating skills, inspections, CofO (if necessary) etc...) ... obviously Kimberland is a little more savvy than the average consumer.

btw, I took the RE classes last year and only yesterday hung the license just in time before expiration... I, too found the class very interesting and initially was not too sure what I was going to do with the license.

I will probably gain 10-30k annually in commissions just by holding the license and representing myself
 

andviv

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My opinion:

- Realtors are worth every penny if they really bring deals.

- Realtors are paid, in the end, by the buyers (the extra money for that will be paid by the buyer at the end). It is a myth that the sellers pay for it, created so buyers use Realtors for their transactions.

- I think it all comes down to the service behind the agent. Why is s/he in business? Is s/he providing a service or just does this 'to make some extra money'? This relates a lot to MJ's post about entrepreneurship.

I've done several transactions, some with, some without Realtors. It really depends on the situation, in my opinion.
 
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MJ DeMarco

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MJ,
Do you use a lawyer to review contracts or do you do this yourself as well?

Also, do you use a title company or do the searches yourself?

I am currently taking the RE classes here in NJ (for the hell of it). I don't like using RE agents either. I may never use the license but it is just some more education for a very cheap price!
Chris,

In AZ, RE lawyers are not used much. I use a title company to do all the title work and they prepare the documents, w/exception to the sales contract.

Instead of a RE Agent opening escrow, I do it.
 

JScott

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IMHO... real estate agents work for the seller.
They are paid on a % of the selling price.
Higher selling price? Higher commission.
So they'd be working against a buyer wanting the lowest price.
In theory, that makes sense. But, in reality, do you really think that's true?

Consider that on a $300,000 property, an agent will make 3-6%, or up to $18,000.

Do you really think they'd be willing to say "no" to a buyer who was about to make them $18,000 just to hold out for another $1000-2000 if they could up the selling price 5-10%?

If anything, I'm guessing it works the other way...

An agent would more likely convince a seller (their client!) to sell for less so that they can lock in their commission and start working on the next one.

Let's say that same $300,000 property were to get an offer of $280,000. To the seller, that's a $20,000 loss, but to the agent, it's only a $1200 loss. The agent would be highly incented to get the seller to take the lower offer and give up the extra $1200, as opposed to holding out and potentially losing to the entire commission if they never get the asking price (and losing the opportunity value of not being able to spend time on another property).

If anything, I'd be concerned that there is collusion (not always explicit) between buyer and seller agents to "just get the deal done" at any cost, so they can collect their money and move on.

Just my opinion...
 

piranha526

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btw, I took the RE classes last year and only yesterday hung the license just in time before expiration... I, too found the class very interesting and initially was not too sure what I was going to do with the license.

I will probably gain 10-30k annually in commissions just by holding the license and representing myself
Randall,
The point about northern and southern NJ is very true (when speaking of lawyers).

Your last point was my reasoning to spend the 75 hours in a classroom. The license, even if never used, will save/make me thousands over the years with my own transactions. I can actually say I have learned a few things I did not know prior to the class but then again, I am not a RE guy.
 

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piranha526

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In theory, that makes sense. But, in reality, do you really think that's true?

Consider that on a $300,000 property, an agent will make 3-6%, or up to $18,000.

Do you really think they'd be willing to say "no" to a buyer who was about to make them $18,000 just to hold out for another $1000-2000 if they could up the selling price 5-10%?

If anything, I'm guessing it works the other way...

An agent would more likely convince a seller (their client!) to sell for less so that they can lock in their commission and start working on the next one.

Let's say that same $300,000 property were to get an offer of $280,000. To the seller, that's a $20,000 loss, but to the agent, it's only a $1200 loss. The agent would be highly incented to get the seller to take the lower offer and give up the extra $1200, as opposed to holding out and potentially losing to the entire commission if they never get the asking price (and losing the opportunity value of not being able to spend time on another property).

If anything, I'd be concerned that there is collusion (not always explicit) between buyer and seller agents to "just get the deal done" at any cost, so they can collect their money and move on.

Just my opinion...
I agree. 3-6% of something (even if it is lower) is better than 0% of nothing!
 
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MJ DeMarco

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In theory, that makes sense. But, in reality, do you really think that's true?

Consider that on a $300,000 property, an agent will make 3-6%, or up to $18,000.

Do you really think they'd be willing to say "no" to a buyer who was about to make them $18,000 just to hold out for another $1000-2000 if they could up the selling price 5-10%?

If anything, I'm guessing it works the other way...

An agent would more likely convince a seller (their client!) to sell for less so that they can lock in their commission and start working on the next one.

Let's say that same $300,000 property were to get an offer of $280,000. To the seller, that's a $20,000 loss, but to the agent, it's only a $1200 loss. The agent would be highly incented to get the seller to take the lower offer and give up the extra $1200, as opposed to holding out and potentially losing to the entire commission if they never get the asking price (and losing the opportunity value of not being able to spend time on another property).

If anything, I'd be concerned that there is collusion (not always explicit) between buyer and seller agents to "just get the deal done" at any cost, so they can collect their money and move on.

Just my opinion...
Totally agree!! I actually should amend my first post -- the very first home I bought I used an buyer-agent to shop -- back then, the MLS was not readily available. The guy was so self-serving and had only his interest in mind. Friends and family also have had real estate agent experiences and they all report similar type experiences - conflicts and self-serving interests. This type of relationship keeps me away from using them.

Randall,
The point about northern and southern NJ is very true (when speaking of lawyers).

Your last point was my reasoning to spend the 75 hours in a classroom. The license, even if never used, will save/make me thousands over the years with my own transactions. I can actually say I have learned a few things I did not know prior to the class but then again, I am not a RE guy.
I think getting a RE license is excellent advice - both for education and cost savings if anyone is going to be active RE investing. I actually am considering getting one -- do 1 or 2 deals a year as well as have full access to MLS (like DOM info).
 
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MJ DeMarco

MJ DeMarco

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MJ...I see you went from 'worried' to 'relaxed'.

Good news?
Bob,

Thank you for noticing (as well as several others!!) :thankyousign:

Had a brain MRI which wasn't entirely normal: Showed a cyst, but was told it could have been there since childhood. The news I received "just to watch it" and observe changes, which to me, is good news.

However, I still am experiencing *issues* which resulted in being sent away for more testing. Basically, I've been having cognitive difficulties since I experienced a hypoxia event a few months ago. The health story is on my Myspace Blog under "How a Gallardo Saved My Life". I haven't' been the same since. Speech/writing problems as well as balance, sleeping, migraines, and hemi-paresis (paralysis one side of body). Balance problems is attributed to the cyst - I can deal with that. Haven't determined the source of the other issues.

Overall, I think Ill be ok as I can learn to live/adjust with some of the problems. Thanks for everyone's thoughts and prayers both publicly and privately.

Sorry to hijack.
 

Nate

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Yup, JScott was right on. RE's want to make deals fast. To take $20,000 less on your home is a big deal for you... but that only translates to $600 if they are making 3% commission. It's better for them to get the deal done and move on to the next. The book "Freakonomics" explains it very well.
 

AroundTheWorld

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My opinion:

- Realtors are worth every penny if they really bring deals.
Agreed.

Realtors are a dime a dozen. Excellent realtors are priceless. You have to wade through a lot of rif raf to get to the real deal but once you do - they are worth every penny.

It is your typical ROI question.... Does having an EXCELLENT realtor on my team increase my returns exponentially? If you've got the right one, the answer is yes.

A story of 2 realtors. Names are changed to protect the guilty! :nono:

1) Realtor Norma developed a relationship with us. This realtor earned a few small commissions on some deals and knew our investment strategy. Norma came across a deal that was too good to pass up and got involved in the deal. A few circumstances changed and Norma now needed a partner. She thought of us. This deal will yield a good chunk of change to us - 10 fold the amount of money we paid in commissions to Norma.
2) Realtor Nunbnuts brings us a new "hot deal" every week. The latest was a SFR with a "deeply discounted" price and "contingent upon the bank accepting a short sale." This house - even at the deep discount will not cashflow ... and .... what, she thinks we should flip? now? Come on.
An excellent realtor will take the time to counsel you. They will truely KNOW YOU, Your investment style, and your objectives. They understand that the true bread and butter of their business is by developing a LIFELONG RELATIONSHIP with a handful of INVESTORS - and that the only way to do that is through treating those investors with respect.... which means they don't insult their clients intelligence. They understand a good deal themselves and will not bring you a bad one. They are not afraid to say, "that is a bad deal." And again... they understand your style, plan and objectives and only bring you deals that truely fit the bill.

They are out there... Hard to come by, but they are there. If you do find one... pay them every penny - because they can make you a million.
 

JScott

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The book "Freakonomics" explains it very well.
Thanks Nate!

This has been driving me nuts since I posted it...as I knew that I was only parroting back an economic study I had read, but couldn't for the life of me figure out where I had read it...Freakonomics was the place...
 

yveskleinsky

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The vast majority of Realtors work for themselves. Really good Realtors will work with you as they know if they work with you they are helping themselves. The problem is most people with a RE license wouldn't know a good deal if they came across one- and the bigger problem is that most people assume that they do.

Trust but verify.
 

kimberland

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In theory, that makes sense. But, in reality, do you really think that's true?

Consider that on a $300,000 property, an agent will make 3-6%, or up to $18,000.

Do you really think they'd be willing to say "no" to a buyer who was about to make them $18,000 just to hold out for another $1000-2000 if they could up the selling price 5-10%?
Yes, I do think its true.

One of the first things a real estate agent does
is ask how high you are willing to go
(at least for the 30 we interviewed)
then he/she takes you to houses near that top range.
Coincidence?
Could be but I don't believe in too many coincidences in life.

People are motivated by what's in it for them.
What is in it for the real estate agent
is to sell you the most expensive house you can buy.

Unless he/she thinks you are going to buy multiple properties
AND (a big and)
can see beyond the next commission check,
there is no motivation or compensation to find you the best value.

That said, obviously if you are a real estate investor,
you should have a vastly different experience with real estate agents
then one off's like myself.
 

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JScott

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Yes, I do think its true.

One of the first things a real estate agent does
is ask how high you are willing to go
(at least for the 30 we interviewed)
then he/she takes you to houses near that top range.
Coincidence?
Could be but I don't believe in too many coincidences in life.

People are motivated by what's in it for them.
What is in it for the real estate agent
is to sell you the most expensive house you can buy.
I was arguing that real estate agents -- while they purport to work in the best interest of the seller -- really don't. I'm not sure that your argument above negates my original assertion.

I certainly agree with you that real estate agents -- given two equally viable choices requiring the same amount of work -- will choose the option that makes them the most money. Most people would.

But they generally aren't willing to do a bunch of extra work for a little extra money, which would be their job if they really were working on behalf of the seller.
 

Russ H

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I've followed this thread with interest.

A few comments (actually, this is going to be long).

Sonya said:
Realtors are a dime a dozen. Excellent realtors are priceless.
Rep speed to you for this one, Sonya.

My first few RE transactions I actually felt like my realtors were working *against* my best interests. I was looking for fixer uppers, and they were trying to up-sell me on nicer, finished houses.

True story:

My second house (and first "investment", since I was hanging onto the 1st house) I spent *months* combing the RE magazines, looking for deals (this was way before the internet). I noticed a weird looking house that was on the market for months. The price was about 1/2 of what other homes in the same area were going for.

So I called my realtor and scheduled a showing.

The showing went poorly (sellers had renters who did not call back to confirm the showing, and had a HUGE black dog (a puppy, really) that scared the cr*p out of all the realtors (mine included). House was a mess (puppy, remember?). But I still remember going up to the 3rd floor converted attic and seeing the eastern Napa mountains out one window, and the western hills out the other window. It was next to impossible to walk on the 3rd floor, since it was under the roofline, and the only "tall" (standup) space was in the middle of the room-- which is where the previous owners had put in a long stairwell!!! Being a contractor, I realized that if we closed up that stairwell and I added a spiral off to the side, the resulting room would be HUGE (and it was).

So I went in with a low offer, and haggled until we came up with what I thought was a *great* price. As I was signing the closing documents, my realtor said, "Is it OK if I *hate* this place?". Surprised, I looked at her and said, "Sure. You're not the one buying it." I asked her why she hated it, and she told me it was ugly, the location was terrible, and she couldn't see how in the world I could make anything of it.

I just smiled. I was looking at a $169K property on 2/3 acre in an area where homes went for $300K to well over $1M. Yes, the location was less than ideal (next to the Wine Train tracks, and Napa's HWY 29). But both the access to the highway and being able to see the wine train each day would be ideal for a romantic home buyer (at night, the location was dead quiet).

I should probably point out at this point that this was my realtors "assistant"-- a family relation who had been working for my realtor for the past 5 or 6 years. She was going nowhere. She had her license, but no ambition. She was the "go-fer" for my realtor.

I bought that house for $169,000 in 1998. I redesigned the layout, added some small accessory buildings, and put on a second floor balcony (off one bedroom) and a large pation off the living room.

All in all, I put about 200,000 into the improvements.

I refi'd and got cash out of the house in 2003-- the cash out actually gave us enough to put a down payment on our B&B (which cashflows hundreds of thousands of dollars a year).

And finally I wound up 1031-ing the "ugly" house in 2005 . . . sold it for $720,000.
I have another story to tell-- about an excellent realtor. It's a longer tale that has much happiness, but a sad ending. I'll post it soon.

-Russ H.
 

NoMoneyDown

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I just wanted to mention that the agents themselves don't get 3% (if using the 6% commission standard). With the 3%, they usually give 50% of it to their broker. They must then pay MLS fees, insurance fees, desk fees, etc., with it. Don't get me wrong, I don't use them unless I have to, either, but many times people (not saying anyone here) automatically assume that on a $100,000 house, the agent will net 3% ($3,000), when it's usually quite lower (often times <1%).
 
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MJ DeMarco

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venom

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The net is nice but realtors have a lot more information on their version of mls then you see on realtor.com. I have seen what they see and having a good one on your side can more than overcome the costs.
On the other hand for people just buying a house for themselves once or twice in a lifetime.. I would say it depends.
 

hawaiiloans

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The net is nice but realtors have a lot more information on their version of mls then you see on realtor.com. I have seen what they see and having a good one on your side can more than overcome the costs.
On the other hand for people just buying a house for themselves once or twice in a lifetime.. I would say it depends.

Check to see if your local area has a public MLS of some sort. We have one for Oahu and I use it religiously to look at any deals, or just to poke around.
 

venom

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The realtor version has things like
Time on the market
occupied or vacant.
Many of the places I have bought are bank owned. They can search this.
They can search for price reductions .
Amongst other things.

I also like using the "wholesalers" The guys that buy the homes from the owner in foreclosure and rehabs them. Sort of what you see on flip this house but rather than sell retail they look for a fast sale at a decent price.
 

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