1st March 2011

How to Choose a Real Estate Broker

posted in Real Estate Investing |

Up to the point I purchased my first property, the few experiences I had with real estate agents led me to believe the group was only slightly more trustworthy than snake oil salesmen; a fact which led me to learn everything I could about buying, selling, and managing property on my own.  I read everything I could get my hands on concerning real estate including law books, state codes and statutes, blogs, and websites. I learned about analyzing income and expenses, cap rates, appraisals; it was all so interesting.  I even went so far as to get my own agent’s license; and that’s when I realized I didn’t know as much about real estate as I thought.

While looking for a place to hang my license I met several “professional” agents and brokers. The difference between professional brokers and all the others is that professional brokers are those who work full-time helping clients buy and sell real estate; that is, they do nothing else on the side.  This is a stark difference from the “side agent” who also has a day-time job, like working as a data entry technician for a local medical lab, and selling real estate only at night and on the weekends.  After interacting with professional brokers I realized how much they knew about the market, and how much they could bring to the table, even for someone like me who was just starting a career in real estate investment.

Now, I rely on professional real estate brokers to help me find and negotiate the purchases of all my units; doing so has saved me thousands of dollars, and more importantly, thousands of hours of precious time.

The following are a few tips to aid you in choosing a broker to help supercharge your landlord business.

Experience Trumps All

Experience is the yardstick we use to measure most professionals.  As a landlord with little time to waste your goal should be to work with the most experienced broker available in your market.  In the long run, an experienced broker will save you time and money; two things which will more than justify the time you spend finding that broker.

Finding an Experienced Broker

You could use online resources like Realtor.com, or visit the offices of local brokers, but that wont guarantee you find someone who has experience with investors and landlords.  The best place to find an experienced broker in your market is to attend local investment club meetings.  There you’re likely to find several brokers who specialize in different areas of the industry with experience in areas like residential property, commercial property, and even mixed-use.  Further, at investment club meetings, you are much more likely to find brokers who are also investors themselves; and this distinction can make all the difference.

Brokers with investing experience know all the documents you’ll need before you make an offer, how to successfully negotiate that offer, and give you tips on managing that property once you own it.  The broker who helped me purchase my first property even gave me advice on the eviction process when my first tenants decided to stop paying rent; a tip which saved me hundreds of dollars in legal fees.

Interviewing Potential Brokers

When interviewing brokers make sure to ask the following questions, in order of importance:

●        How many properties, similar to the one under your consideration, has the agent/broker successfully identified and negotiated for his clients?

●        What is the agent/broker’s philosophy on determining value? Do they rely on comparative market analysis, appraisals, broker price opinions?

●        Does the agent have any commercial sales designations like CCIM, or any continuing  education certificates showing a further interest in investment real estate?

●        Will the broker help you find tenants or manage the property?

●        Does the agent/broker represent only sellers, buyers, or both?

●        Does the broker spend most of his time in the office, out in the field, or working from home?

●        Is the broker reachable on weekends during evening hours?

If you are considering this broker to help you list property for sale, there are a few additional questions you should consider:

●        What is the broker’s average list price to sales price ratio?

●        What is the broker’s preferred marketing strategy?

●        Can the broker provide at least three references with which you can speak?

Finally, you’ll ask about their fees for helping you purchase or sell property. While it is customary for the seller to pay sales commissions, it is not uncommon for those costs to be split between buyer and seller on larger residential and commercial properties.  Commissions are a negotiable item on most real estate contracts and you should understand the fees before making offers.

Buying: A Closer Look

Most real estate commissions allow brokers to prove certain educational achievements, like college degrees, in exchange for concessions on certain licensing requirements.  While education does play an important part in a broker’s career, it should not take the place of actual sales experience. Due to issues of confidentiality, your broker may not be able to share every detail of previous transactions, but he should be able to supply references.  Get three and call each one.  Make sure the references are not from recent transactions. References to transactions that took place very recently will likely be in the “honeymoon” period and might not be completely objective.  References from transactions a few months past have the benefit of time to reflect on things the broker did that they could have done better.

Many commercial purchases require an offer be made before viewing the property. Make sure your broker is familiar with that process, and has drawn the contract to leave sufficient room for you to walk away if you see something you don’t like at the property.

Selling: A Closer Look

The sales price ratio is very important.  A tight ratio, that is an average sales price very close to the list price, tells you the broker prices property efficiently and has a thorough understanding of her market.  A loose ratio, one with more variation between average sales price and list price, tells you the broker might not have her finger on the pulse of the market, or might just like to get units up on the MLS and let the chips fall where they may. Brokers with a tight ratio tend to put more time into determining fair market value while those with loose ratios tend to rely on their negotiation skills.

A tendency tight or loose is neither right nor wrong, but using brokers with a loose ratio can take extra discipline on your part. Many investors rely on their broker to accurately price their property for sale, and will make assumptions about potential profit on that price recommendation. A broker which prices your property high just to assuage the investor’s irrational thoughts of value is actually doing a disservice, because when the broker needs to drop the price to actual market price, or lower, the investor will have to recalculate their costs and profit; which, in turn, may affect the investor’s decision to keep the property on the market longer or remove it until he can get a better price.

Documentation

Buying and selling rental property is more than just numbers; it requires attention to detail and a thorough understanding of contracts and real estate paperwork..  When problems arise in real estate the place you go to settle claims is the contract.  The broker you choose should have be able to demonstrate her knowledge of all the forms you will likely encounter during the transaction.

Real estate commissions make many standard forms available as templates through the local MLS, and technology makes it even easier to access and submit these forms with just the push of a button; but it is important your agent know how to deviate from, or modify, those forms if necessary.  Sometimes stock paperwork is just not appropriate.

Summary

A real estate transaction can be wrapped up in a few hours, or it can take years. Choose your broker wisely, not because he is your friend or you were referred to him from a friend, but because he has relevant experience, has demonstrated knowledge of transactions similar to your transaction, and most importantly, because you feel comfortable working with that person.

For more information on buying and selling investment property, or obtaining mortgages for that property visit the credit library at Direct Lending Solutions (www.directlendingsolutions.com).

About the author, Craig Grella

Craig Grella is an expert writing on real estate and personal finance topics. He has worked for large national banks, and for several Fortune 500 companies.  He invests nationwide, and his articles can be found online at www.directlendingsolutions.com.

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