Newbie: use a realtor for house for sale by owner?

[FrugalFan]

Hello everyone, I'm just getting into real estate investing. I am specifically interested in buying student rentals near the university where I work. I have been scouring MLS for months, but I just found a great house listed on Kijiji today. I have a meeting set up with a realtor tomorrow who focuses on investment properties and student rentals. If it goes well, should I ask him for help with this property I found? I have no experience (other than buying my own houses), so it seems his help would be useful.

[Axecleaver]

Agents are hired to make a sale. They are in it to close the deal, not to represent your interests.

I would try to keep the agent out of a FSBO. The agent will want to siphon off a commission for his help from the seller, and that affects his loyalties (he isn't getting paid by you, so he may not give you advice that's in your best interest). Instead, hire a lawyer for a fixed fee to represent you at the closing. The lawyer can guide you through the process of the sale and he will have your best interests in mind.

[FrugalFan]

Agents are hired to make a sale. They are in it to close the deal, not to represent your interests.

I would try to keep the agent out of a FSBO. The agent will want to siphon off a commission for his help from the seller, and that affects his loyalties (he isn't getting paid by you, so he may not give you advice that's in your best interest). Instead, hire a lawyer for a fixed fee to represent you at the closing. The lawyer can guide you through the process of the sale and he will have your best interests in mind.

Thank you. Hiring a lawyer seems like a good idea. However, since I haven't bought a rental property yet, I was hoping the real estate agent, who has specific expertise in this type of rental, could advise on whether the property, location, and price seem good. Maybe he would have my best interest in mind if there is a chance I would use him in the future for another investment? 

[forummm]

Personally, I would want to know a lot about real estate before I got into being an investor. If you don't know how to look at comps and such yet, maybe you should learn some more before you get into investing. Some realtors are good at that kind of stuff. Many are not. Don't risk your investments to someone else's expertise.

[FrugalFan]

Thanks. I understand your perspective. I have been reading a lot of blogs and ebooks, and looking at sales in the area for a long time. I've got great spreadsheets for calculating cash flow, return on investment, cap rates, etc. But I want to know more about the local market and I don't know how else to do it. I think interacting with a local realtor who specializes in investment properties is a good start. I just don't know if potentially involving him in FSBO is a good idea or not.

[AlanStache]

It seems like the entire real estate game is set up to make you think you need an expert to hold your hand.  Maybe you do maybe you dont, but if you are going to make a business of it you will have to jump in the deep end at some point.  It does not sound like you are ready to bet multiple years of salary on a place making money.

Re areas: cant you walk around and talk to students?  Look at what is for rent and where, act like you 19 are trying to rent for the first time?  I am all about the interwebs but sometimes you need to go outside.

Axecleaver; from the other thread: seller and I came to an agreement today-and are moving forward.  I did not have an expiration date on the offer, definitely something to remember for next time.

[Fishingmn]

Agents are hired to make a sale. They are in it to close the deal, not to represent your interests.

I would try to keep the agent out of a FSBO. The agent will want to siphon off a commission for his help from the seller, and that affects his loyalties (he isn't getting paid by you, so he may not give you advice that's in your best interest). Instead, hire a lawyer for a fixed fee to represent you at the closing. The lawyer can guide you through the process of the sale and he will have your best interests in mind.

While hiring a lawyer or just doing it yourself are certainly viable options the information above is totally incorrect (at least in the US).

If you sign a Buyer Representation Agreement with a Realtor that agent has a fiduciary relationship to represent your interests. The only exception is if this is a dual agency situation (buyer and seller both represented by same brokerage) and if the seller has no Realtor then that doesn't come into play. If an agent with a signed Buyer Rep Agreement does not "give you advice in your best interest" they would expose themselves to possible fines and/or loss of their license to practice. Also, the seller may or may not be paying the commission. The Buyer Rep Agreement will define that but just as often in a FSBO the buyer pays it directly.

Is there a profit motive for real estate agents (and lawyers and accountants) - yes. But they are in place to provide guidance and expertise and yes, that costs money. If you don't need that advice then don't hire them but it sounds like it might be a good move to hire someone for your first transaction whether that be lawyer or realtor.

[zephyr911]

Hello everyone, I'm just getting into real estate investing. I am specifically interested in buying student rentals near the university where I work. I have been scouring MLS for months, but I just found a great house listed on Kijiji today. I have a meeting set up with a realtor tomorrow who focuses on investment properties and student rentals. If it goes well, should I ask him for help with this property I found? I have no experience (other than buying my own houses), so it seems his help would be useful.

Personally, I would want to know a lot about real estate before I got into being an investor. If you don't know how to look at comps and such yet, maybe you should learn some more before you get into investing. Some realtors are good at that kind of stuff. Many are not. Don't risk your investments to someone else's expertise.

Noob does state that this Realtor has expertise in those types of rentals, which would be nice but is rare.
I got my own real estate license when I decided to seriously invest in real estate, after a few years of small-time stuff (renting out rooms, then one whole house after I moved into another). Most agents are not very conversant with the concerns of cash-flow investors, even the ones who talk a good talk, and too many others (sad to say) just want to upsell for max commission. I recently called up a very successful agent whom I've met in past trips to a particular place that I visit often, who sells craptons of vacation rentals (and whose daughter manages them) about a prospective investment in her area, and she tried to talk me out of it in favor of a "nicer and bigger" one that would earn about 2x the income... at 2.5x the price.
Yes, sadly, too many agents don't like crunching numbers. In my experience, that kind of attitude is the norm, not the exception. Even if you have a good one who is able to look at things from the cash-flow investor's standpoint, I would strongly suggest doing your own research and vetting. Spend time analyzing listings and asking yourself the pros and cons of each one. Work out cash-flow projections after debt service (if applicable), taxes, insurance, maintenance, utilities, likely vacancies, etc. Develop a consistent rationale for evaluating each property and don't bite on one till you've gone through this process many times. There will always be opportunities, and you don't want to miss out on a home run because you just sank all your capital into a mediocre money pit.

Also, as far as the FSBO goes, let's be clear that the question of commissions and who pays them is *always* subject to negotiation between client and agent. And you are free to go to that agent and say, "I'd love to buy this house but I need you to negotiate commission with the FSBO seller". Agents are taught how to handle a situation like that. Many brokers even offer their agents scripts for approaching FSBO sellers and offering to bring in a serious buyer prospect, subject to some kind of commission being paid by seller. The worst that can happen is someone says "no". Nothing lost on your part.

[srob]

I tend to agree with most people on here. I have a couple of investment properties in a university area that rent to students. I have gone around with one of the premier real estate agents who specializes in this kind of thing in my area and he has tried to talk me into many properties that were not a good deal at all. Count on agents to do what they do best, ie finding properties, showing, closing, helping with due diligence, etc. Don't count on them to help you analyze a property to determine if it is the best one. I have never had an agent try to talk me out of a bad deal.

[Axecleaver]

If you sign a Buyer Representation Agreement with a Realtor that agent has a fiduciary relationship to represent your interests. ... If an agent with a signed Buyer Rep Agreement does not "give you advice in your best interest" they would expose themselves to possible fines and/or loss of their license to practice.

We are not talking about a buyer's agent colluding with a seller's agent, or actively acting against you. We're talking about aligned interests, and an agent's interest is simply in making a sale, not in ensuring their client gets the best possible deal. You have to balance the fiduciary relationship against the effect of cold, hard cash. In my experience - yours may be different - agents are interested in making a sale so they make a commission. This is not necessarily exclusive to their fiduciary responsibility. It's very difficult to prove they violated their fiduciary responsibility if they simply upsold you, and agents know this.

They will do everything they can to make the deal work. I've never met an agent who, when representing the seller, will advise them to hold out for more money rather than take the deal that's offered. How else could you explain the Freakonomics findings that real estate agents sell their own properties for 3% more than average?

...measure the difference between the sales data for houses that belong to real-estate agents themselves and the houses they sold on behalf of clients. Using the data from the sales of those 100,000 Chicago homes, and controlling for any number of variables---location, age and quality of the house, aesthetics, whether or not the property was an investment, and so on---it turns out that a real-estate agent keeps her own home on the market an average of ten days longer and sells it for an extra 3-plus percent, or $10,000 on a $300,000 house.

My advice to the OP is to understand that the agent's role is not to give you good advice. You will get good advice from a competent home inspector on the condition of the property, and from your lawyer about contract terms. But don't expect an agent to give you good advice about buying a property.

@Zephyr said:

Also, as far as the FSBO goes, let's be clear that the question of commissions and who pays them is *always* subject to negotiation between client and agent. And you are free to go to that agent and say, "I'd love to buy this house but I need you to negotiate commission with the FSBO seller."

Zephyr, that sounds like good advice. But it seems to me that you could just as easily approach the FSBO yourself and tell them, "I don't have an agent, so I'd like 3% off the price we agree on." Or, understand that you have more room to negotiate the asking price down. I'm just not sure what an agent brings to the table in terms of value, in that scenario.

[Ducky]

Hello everyone, I'm just getting into real estate investing. I am specifically interested in buying student rentals near the university where I work. I have been scouring MLS for months, but I just found a great house listed on Kijiji today. I have a meeting set up with a realtor tomorrow who focuses on investment properties and student rentals. If it goes well, should I ask him for help with this property I found? I have no experience (other than buying my own houses), so it seems his help would be useful.

Personally, I would want to know a lot about real estate before I got into being an investor. If you don't know how to look at comps and such yet, maybe you should learn some more before you get into investing. Some realtors are good at that kind of stuff. Many are not. Don't risk your investments to someone else's expertise.

Noob does state that this Realtor has expertise in those types of rentals, which would be nice but is rare.
I got my own real estate license when I decided to seriously invest in real estate, after a few years of small-time stuff (renting out rooms, then one whole house after I moved into another). Most agents are not very conversant with the concerns of cash-flow investors, even the ones who talk a good talk, and too many others (sad to say) just want to upsell for max commission. I recently called up a very successful agent whom I've met in past trips to a particular place that I visit often, who sells craptons of vacation rentals (and whose daughter manages them) about a prospective investment in her area, and she tried to talk me out of it in favor of a "nicer and bigger" one that would earn about 2x the income... at 2.5x the price.
Yes, sadly, too many agents don't like crunching numbers. In my experience, that kind of attitude is the norm, not the exception. Even if you have a good one who is able to look at things from the cash-flow investor's standpoint, I would strongly suggest doing your own research and vetting. Spend time analyzing listings and asking yourself the pros and cons of each one. Work out cash-flow projections after debt service (if applicable), taxes, insurance, maintenance, utilities, likely vacancies, etc. Develop a consistent rationale for evaluating each property and don't bite on one till you've gone through this process many times. There will always be opportunities, and you don't want to miss out on a home run because you just sank all your capital into a mediocre money pit.

Also, as far as the FSBO goes, let's be clear that the question of commissions and who pays them is *always* subject to negotiation between client and agent. And you are free to go to that agent and say, "I'd love to buy this house but I need you to negotiate commission with the FSBO seller". Agents are taught how to handle a situation like that. Many brokers even offer their agents scripts for approaching FSBO sellers and offering to bring in a serious buyer prospect, subject to some kind of commission being paid by seller. The worst that can happen is someone says "no". Nothing lost on your part.

We are currently working with a buyers agent on a FSBO. For one we don't have enough experience buying property. He has spent months showing me property and giving me one heck of an education. He found several FSBO that meet our requirements and contacted the owners. He flat out told us not to buy a property we wanted. That alone tells me a lot. People pay me for my expertise and I look at using an agent as no different.

[zephyr911]

Zephyr, that sounds like good advice. But it seems to me that you could just as easily approach the FSBO yourself and tell them, "I don't have an agent, so I'd like 3% off the price we agree on." Or, understand that you have more room to negotiate the asking price down. I'm just not sure what an agent brings to the table in terms of value, in that scenario.

The FSBO seller doesn't want (or expect) to pay any commission to anyone, so I doubt they'd view that as fair trade. However, if you leave it to the agent to negotiate a commission in exchange for bringing a buyer that might not bite otherwise, that could be a value proposition in the seller's eyes. It depends how much traffic they're getting.

We are currently working with a buyers agent on a FSBO. For one we don't have enough experience buying property. He has spent months showing me property and giving me one heck of an education. He found several FSBO that meet our requirements and contacted the owners. He flat out told us not to buy a property we wanted. That alone tells me a lot. People pay me for my expertise and I look at using an agent as no different.

Sounds like my kinda guy. I respect that.

[FrugalFan]

Thanks all, the FSBO place was a dud, so I didn't need to involve an agent after all. We did put in an offer on a duplex with the agent though! I'm so nervous I don't know if we'll go through with it or not.