The Realities of Working with a Real Estate Agent as an Investor
My husband and I started acquiring properties in Jacksonville, Florida several years ago sight unseen while living in NYC. We recently moved back to Florida to grow our rental portfolio and help others do the same. After speaking with hundreds of investors that I’ve met on BiggerPockets, I realized that there is a disconnect on what investors think an agent should be doing for them and what an agent actually does. I’ve also seen many investors not move forward on a property because of the misconception of the agent’s responsibilities in the deal. The goal of this article is to help set the expectations of newbie investors, so that they can successfully work with an agent and acquire their first property!
A quick summary of what most agents will and will not do for you
Many new investors believe that an agent will find them properties that meet all of their criteria for cash flow, cap rate and cash-on-cash return. The truth is, this is a ton of work for anyone to do. Most agents will not perform a cash flow analysis of a property and many don’t even know how to do this unless they specialize in working with investors or are an investor themselves. The real estate exam does not prepare agents on how to analyze the potential cash flow of a rental property. Also, a real estate agent is not a contractor that’s able to estimate rehab costs or an inspector who is able to point out every single thing that’s wrong with the property. The agent’s primary responsibility is to help facilitate the transaction.
What a good agent will do, no matter if they focus on standard home buyers or working with investors, is respond to your request for information on properties of interest within a reasonable time. Make sure to have a discussion with your agent about the type of properties you are looking for and your target income demographics as well. After you settle on your preference for price points and desired areas your agent will set you up on a daily MLS email list. By establishing a working relationship with your agent and showing them that you are serious about starting or expanding your portfolio, they should keep an eye out for any potential deals that they come across and send them to you to review and analyze. Again, most agents won’t do all of the analysis for you, but they can advise you on rental pricing for the area since they have access to that data. The analysis is your job since only you will know what investment will work for you from a risk and return perspective.
An agent will view the properties for you, pull sales and rental comps, help you with due diligence, and of course put in offers and negotiate on your behalf. I know several investors that had to pull teeth to get their agent to submit offers for them. Their agents were battling them trying to get them to offer a higher price for the property of interest simply to make a deal. This is NOT what an agent should do. Your agent is your biggest ally. They should listen to the price you want to offer and if they have a sense of the market they should be able to offer their advice on your offer price. If they believe the property is overpriced, they should tell you that too, especially if you are an out of state investor new to the market that you’re trying to invest in. Your agent will be your eyes, your ears, your everything. It is critical to find the right agent, but also to know that they won’t do all of the heavy lifting for you. If you are serious about investing in real estate, then you need to be online every single day looking for properties, conducting analysis and submitting offers when you find a potentially good deal.
Finding an agent
For an agent, working with home buyers and working with investors are two totally different specializations of the business. Those who typically work with home buyers may tell you that the counter offer from the seller is a really good deal without knowing that your cash flow numbers aren’t making sense at that price point. Some agents don’t want to work with investors that have too low of a price range because they are doing the same amount of work for less commission. What these agents don’t understand is that an investor can bring repeat business to them. When looking for an agent be open about what you’re looking for and your timeframe for making a purchase. Test them out by sending them a few properties to see how quickly they respond with more information or answers to your questions. But remember, these questions should not be, “what’s my potential cash-on-cash return” or, “what’s the NOI for this property.” In general, the questions should be about the property itself. If they take too long responding every time you ask a question (too long meaning 1+ business days, not including weekends of course), then they probably will take too long submitting offers and you’ll end up losing out on deals.
Our first agent was a longtime family friend. She was extremely helpful throughout our first year of investing. Since she was a family friend, we felt very comfortable with her and trusted her greatly when viewing properties. I understand not everyone has an agent that’s a family friend, but that doesn’t mean you cannot find an agent that you can trust. When our agent changed jobs to do new construction real estate and couldn’t work in residential sales anymore, my husband went on LinkedIn and starting calling up brokerages. He found an established brokerage firm that is family owned for over 30 years and one of the owners of the brokerage referred us to one of his top agents/property managers. Long story short, he has been our agent ever since and an amazing addition to our team.
Establishing a relationship
Your relationship with your agent is extremely important. Yes, technically they “work for you,” but you also have to be considerate of their time. If you make it easy for them to work with you, then they will get back to you very quickly when you need something and go out of their way to help you. That’s been our experience. We only send our agent properties that we are seriously interested in and have already done some preliminary due diligence on. We first ask for sales and rental comps to confirm our analysis, then if that looks good we ask to either go see the property or to put in an offer right away. Lately, we have been doing more of the latter because North Florida is very competitive when it comes to flipping or buy-and-hold deals. We take into consideration that our agent isn’t sitting around waiting to see properties only for us. He has many other clients he’s helping so we need to make good use of the time he’s spending with us. If you do that for your agent they will take care of you and make sure to get back to you quickly when you need something. I strongly feel that an agent should be the very first person on your team.
Viewing the properties
For out of state investors your agent is your eyes on the ground, right? So, during showings they should be taking detailed pictures and/or videos for you. They should be looking at the ceiling for signs of any leaks, looking for mold on walls, wood rot outside the house, the condition of the A/C unit and water heater, and anything else that may cost you money. If you won’t be there in person to see the property before the inspection takes place, then you have to be aware of what can come up during that inspection. An inspection will cost you a few hundred dollars and it’s well worth the money to make sure you know what you’re getting into, but you don’t want to pay for an inspection for every property that you’re interested in if your agent can catch these things during the walk-through. This doesn’t mean that your agent is by any means an inspector or should catch every single thing wrong with the property. But they should be on the lookout for major things that they can spot while walking the property. Most importantly, for competitive markets, your agent should go see the property for you within a day or two of finding it. For my market, I’ve seen many properties go contingent in a day or two of being listed. If you’re a serious buyer and in a competitive market you have to move fast and your agent should also understand the urgency.
Putting in offers
I tell investors all of the time: putting in an offer is FREE! Most of the time the sellers won’t even accept your first offer. I know signing that Purchase and Sale Agreement may seem scary, but it’s really not that big of a deal. You submit the offer, the seller either ignores it or counters, and eventually you have a deal or you don’t. If you do, you sign the agreement and you still have to send the binder money within three days and that’s when you’ve made a commitment with an inspection contingency. The standard inspection contingency timeframe is ten days, which allows you to back out if there is something you don’t like that came up on the inspection report. Therefore, you have a minimum of ten days from the time the agreement is fully signed to back out of a deal for any reason at all. This is why we started putting in offers without having our agent go see the property. This has been saving us a lot of time. We do as much up-front research as we can and if the offer is accepted at the price we want then we will send our agent to go see it and decide if we want to move forward with it or re-negotiate. This is called a blind offer. Of course, now that we are local we can go with our agent to see the properties as well.
Getting to the “closing table”
If you are a new investor, you may not know the process of acquiring a property. Your agent will be the person who helps you along the way with this transaction. They should never be pushy. If you want to back out of the property, don’t feel bad. That is part of the business. People back out all of the time. You have to feel comfortable moving forward on the property since it’s a major commitment for you and not for the agent. Once you decide to move forward your agent will help by scheduling the inspection report, scheduling any vendors that you may need to give you quotes (it’s best if you assist in this part as well), and working with the title company to make sure the closing goes smoothly.
Time to hunt for properties!
I hope this article has helped bridge that gap for many of you newbie investors and set expectations on what your agent should be doing and most likely won’t be doing. They are professionals who are part of your team so respect their time and effort. They don’t get paid until the deal closes, so it’s in their best interest to help you. But they won’t do the analysis for you or scour the MLS day and night for your next deal. Nor are they a financial advisor, so they can’t tell you what cash-on-cash return is right for your investment needs. The great agents will have many clients. It’s important to remember that their time is valuable and to be as efficient as possible when working with them. Now, it’s time to go put in some offers and acquire that first, or next, property!