In my free video “Seven Biggest Mistakes in Portland Real Estate Investing” I talk about the double-edged sword of working with realtors, because of what you need from them vs. what you have to be careful of. In this article, I want to give you two insights you may not have considered about why many realtors are subtly encouraged to undermine your deal evaluations and suck profits out of your real estate investing business.
If You Look Good, You Feel Good
Many realtors consider themselves very special people. After all, in Portland tens of thousands of home buyers are working with realtors every year, seeking advice and guidance on the biggest purchase many will ever make in their lives. Like doctors, lawyers, and politicians, sometimes that authority goes to agents’ heads, and inflates their ego. Many even lose the sense of themselves as salespeople, and begin to think of themselves more as professional advisors, when in fact only the most sophisticated realtors know even the basics of what the average investor learns.
What that translates into is an unwillingness to do anything they perceive as “salesy,” including making “lowball” offers. Many of these realtors feel that it is more important to look good, like they’re bringing only big spenders, than it is to actually generate the multiple sales that are inevitable when dealing with an active investor. These realtors will tell you that they cannot or will not present your offers, though they are required to. They will tell you that the offer will be refused, with no knowledge of the seller or their requirements. They will often require you to raise your offer, and new or hesitant investors often will. Imagine shaving thousands or even tens of thousands of dollars of safety margin and profit from otherwise good deals because of working with realtors of this type.
I Make Money if You Lose Money
This is perhaps the most insidious element of working with realtors more focused on their success than true win/win transactions. As I mention in the video, realtors have no skin in the game. They’re not paying to be part of the transaction, and there’s no risk to them if the transaction fails. But it goes one step further.
The realtor is paid a percentage of the purchase price. The higher the price, the higher their commission. If they can encourage you to increase your sense of the value of a property to where you are willing to raise the purchase offer by $10,000, they will increase their income by $150 to $600. It may not seem like much incentive, but if they do that for 20 transactions in a year, that’s an extra $3,000 to $12,000 in their pockets. Even the most honest person is going to be tempted by that kind of self-driven raise, right?
However, their raise translates to an increase in your buying costs (if all 20 of those purchase transactions were with you) of $200,000 in that year. A good portion of that pure profit income that you gave up. That could be the difference between barely breaking even and living the lifestyle you and your family deserve. See how quickly that can add up?
How Can Working with Realtors Benefit You?
The good news is, not all realtors are cut from the same cloth. In fact, some realtors are, have been, will be, or have the mindset of, investors. They understand that investors can reinvigorate a local community, increase property values, bring new residents and new tax revenue, and give potential home buyers a chance at the great American Dream. They believe in you and what you do.
And they also realize that even though they may not make the maximum dollar from every transaction, they will do a lot more transactions with you than the typical buyer or seller who does a transaction every two to five years. This translates into less work pounding the pavement and looking for listings or trying to find buyers for the listings they’ve got sitting stagnant. Everybody wins.
So how can you find and start working with realtors of this variety? Ask around. Check with other local investors who are successfully working with those types of realtors. Look for them in local investors’ clubs. They’re there, and chances are, they won’t be hard to find. And when you find a good realtor who understands investing and is willing to support you, treat them as the true asset they are, and you will find that your business blossoms along with theirs, and you will make the money you want and create the lifestyle you dream. Take action and prosper.