If you are a Realtor® who invests, chance are, you are probably inundated by email by wholesaling investors touting their latest offerings saying “Realtors® add your commission!”
Oh… if it were only that simple!
I hate to sound like a curmudgeon, but that is about the most worthless advice a person could give! “Add your commission!” as if it were just that simple!
For the Realtor® who is representing a client on a wholesale deal, there are a ton of considerations! The likelihood of your contract having challenges, or extra liability can exponentially rise if done incorrectly.
In this article, I am going to share with Realtors® who invest three powerful ideas to help your clients make good choices in their investments! This way, you will be able to safely, efficiently, as well as effectively control the wholesaler on the “other side of the transaction!”
Agency for Investing Agents
One of the key things that a Realtor® who is representing buyers on wholesale properties must know, and be aware of is the nature of the wholesale (aka “assignment of contract”) transaction.
Understand that the person who is selling the home is not the homeowner of record! As such, they are simply selling the equitable interest. Many times, a one page assignment is sufficient for the regular assignment to accomplish the actual transfer of title.
While that is all fine and good for the execution of the contract, and your client gets the home they want.. there are no provisions for your to get paid! How do you ensure you get paid when you cannot include commissions in contracts and yet, must disclose how you are to get paid!
This creates quite a dilemma for a Realtor® who is attempting to represent a buyer on a transaction that is wholesale in nature. On the one hand, you must represent your buyer to the best of your ability to get the best price and terms as possible.
The other challenge is that if you negotiate too hard, you may run the risk of losing the entire deal, or causing the investor to try to include your fee into the deal. An example of this is when an Investor says “well, I will take that price, but you gotta reduce your fee to make that work.”
To avoid this problem, it is my belief that you need to handle this delicate contract issue in the “front end” of the transaction instead of trying to handle at the negotiation table!
Exclusive Buyer Broker Agreement
One potential way to handle this issue to is to have your buyer client sign a buyer broker agreement for a limited time. I suggest a limited time simply because you do not want to be “Committed” to this buyer for a long period of time.
In my mind, this is the best way to handle this problem. Why? Because you can state your fee in advance as either a percentage of a sales price, or as a set fee. Since they are cash buyers, they will be able to pay a fee more easily than a percentage.
Additionally, since you have their agreement to a certain fee for performing a act (i.e. finding an awesome deal and negotiating like a bulldog on their behalf!) you now have the freedom to act as an agent!
Effortlessly talking to Investors and beginning the negotiations (i.e. beating them up on the price) without worrying about your fee getting involved.
Many times you may feel like buyers will be unwilling to sign a buyer broker agreement. If you make them for 90, 120, or 180 days, then of course, they will have a problem.
However, if you present the buyer broker agreement for a limited time period (1 week) then you are only obligated to deal with them for 7 days. If they aren’t going to buy anything you show them in 7 days, then one of two things have happened.
- You have not listened to them, and have misunderstood what they are looking for. Or
- They are not as motivated as you need them to be.
Put it simply, if you are an agent representing a Investor Buyer on wholesale transactions, they get 7 days of my time. If they cannot, or won’t make a decision in that time, then I do not work with them anymore in that capacity.
It comes from a belief in yourself. You must understand and believe that you are taking 168 hours out of your life. Devoting it to ONE person, and ONE home. If you cannot find what they want in One Hundred Sixty Eight HOURS then you need to move on!
I know my market. I know what is available. I know who to ask to find things. If I can’t find it… It isn’t there. If I believe that, then I know whatever I show my client will meet that need potentially. Then the ball is in their court. So long as they are taking action, they are worth my time.
When they cease taking action, or cease following directions, then you need to cease working with them. It’s a tough business approach, however, with buyers, they are literally a “dime a dozen.” You can always find someone who is looking for a great deal!
Establish this as a minimum standard for yourself. If they are true investors, paying cash, you can limit the time, or the agreement in certain ways to make them feel comfortable… But you need to have some minimum standard to eliminate the time wasters, the tire kickers and the wishers.
One Party Fee Agreement
While in my mind, working with an Exclusive Buyer Broker Agreement (even if it is somewhat limited) is the most powerful way to work with a Buyer (it enables you to negotiate on their behalf!) there are times where that may not always be practical.
In such cases, your office will most likely have what is called a “One Party Fee Agreement”. This is an agreement that you typically use with a For Sale By Owner if you are going to bring your buyer by.
Using this agreement, you are able to approach the Investor (or any other party) who is selling the home (or the potential interest in the home) as a For Sale By Owner. They agree to pay you some form of negotiated commission in the event that your named buyer purchases the property.
The problem with this approach is that in many of these “wholesale deals” the person signing the agreement is not the homeowner! Although they have “Equitable Interest” in the property, it is not sufficient (to my knowledge) for legally signing a promise to pay a commission on the transfer of a property!
To put it simply.. how can they sign as a homeowner on your One Party Fee Agreement when they aren’t the owner? If it’s a double close (where they actually take possession, even for a moment) then that is one thing. However, on an assignment, the water becomes a bit murkier!
Protect Yourself, And Your Buyer!
Many times, these properties are “shopped around” in “daisy chains” online. It is not uncommon for properties that are purported to be “wholesale deals” to actually be properties that have been spread via email lists and commissions or fees added on top.
As an Investing Realtor®, you may be wondering how you can gain a competitive edge, get Investor Buyers to sign Exclusive Buyer Agreements, or Selling Investors to sign a One Party Fee Agreement in preparation of a double close? The answer is simple…
Generate, you won’t have to tolerate!
Buyer Lead Generation
As an agent who is familiar with wholesaling, and investing in general, you have an advantage! You are a very rare commodity in your market. Most wholesalers, as well as investors in your market are not keen on working with Realtors® in the first place however, they do have a weakness.
I like to call it “Investor Kryptonite.”
You see, Investors really dislike Realtors®, they really do. They think you are going to “steal their deal” (LOL.. I know.. it’s pretty funny. I get a laugh out of it too!)
However, you can turn their intense dislike of Realtors® to your advantage!
You see, the “Investor Kryptonite” I speak of is a very difficult skill for most Realtors® to manage. I almost hesitate to share this powerful technique with you because if you actually did it… God knows what would happen.
“Investor Kryptonite” is simply being friendly.
Yup… not much more than that. If you are “Investor Friendly” then it is like catnip for wholesalers!
They love Investor Friendly Realtors®
To be Investor friendly, you simply help them with the non essential, non “liability” issues. Things like assistance with comparable sales (you do a CMA for a Seller anyway.. why not them?) Contracts, (they won’t use them anyway) and other negotiation advice (why not just give basic advice. No specifics to avoid E&O issues).
As you become known as the “Investor friendly agent” in your area, you will find out about deals before others. Many times, you will even have an “inside track” on the deal because you helped the Investor in the beginning.
For Buyers, this type of information and access has immense value. This “Human Intelligence” of the deals that are off market in your area will help you create a “Top 5 Hottest Deals” list.
This list can be generated very easily by prospecting Expireds, Cancelleds, as well as FSBO’s with The Red Pill Investor Sales Scripts. By generating a list of “ready to sell” sellers, this will enable you to market this list as your unique selling proposition. (USP)
By generating buyers via this “Top 5 Hottest Deals of the Week!” list, you will be able to sift and sort only the hottest buyers. This will keep your pipeline filled with only those who are willing to do something in 7 days. If they won’t sign a buyer broker agreement for 7 days to do it, then you are fairly certain that this might be a problem in the future!
As you generate this list, and the buyers that will undoubtedly follow your marketing of the list, you will have to keep prospecting to refresh the list and on the edge looking for only the hottest deals in town.
Imagine what would happen if you were talking to an investor who has their property on the market. They think it’s pretty hot stuff.. is it? Is it really a hot deal?
If so… then let’s get together to see if it actually is hot enough to be on my Top 5 Hottest Deals In Town List!
Have a Powerful Sales Day!