Locator Programs and Realtors

[Adam King (MI) 1]

Hey all,

I thought I would stir some conversation up about using Realtors and marketing. I posted a deal I did about a week ago that happened a few months ago with a Realtor. It was a LOA and worked out very nicely. Nice enough for me to want to do it again....and again....and again....

 

Apparently I made an impression on this new Realtor this week by trying to find a property for a prospect with $10K to put down. (Right now I have two prospects with mid 500 credit scores and $10K to put down. I'm not letting that pass me by.)

 

The prospect led me to the property and gave me the Realtor's phone number. That's the way it usually works. Let the prospects do the legwork.

I made the offers (One sandwich LO "In which I would assign" and the other cash “which I would flip”). These were offered to put the prospect buyer into the house, but also with the intention to buddy with the Realtor in case this one didn't work. The Realtor said she liked me, but thought the seller wouldn't go for it. I told her that was no big deal, but the numbers had to work. She understood that. I then told her that we should work together on getting her commission if not on this one, than another one. She laughed and told me that's why she talked to her broker about me.

She said that she was also the assistant broker (That means she is also a broker) and invited me to speak on Tuesday at their Realtor's meeting.

 

So, what I am posting about here is getting Realtors to help you with marketing and getting deals. That is, marketing that produced the property after you found the buyer.

 

I will also post about what I talked about and how they reacted. I think this could be a valuable form of marketing because if you’ve ever placed an ad “rent to own”, you know the buyers come out of the woodwork. So why not use the buyers as ammunition to produce a quick sale and the Realtors to produce the vehicle? Everyone wins.

So, what came first? The chicken or the egg?

Regards,

Adam

[Mark in St. Louis 0]

Adam,

 

I have always thought that there had to be a way to do lease-options and bring Realtors into the process.

 

My question though is how does the Realtor get paid?

 

Do you just split the option deposit with them? If so, isn't that going to be less than their commission would have been? Would they be happy with that?

 

Also, who would you be working with....listing agents or buyer's agents (or both)?

 

I must admit, I don' know the whole Realtor process very well so maybe that's why I can't figure out how to make it work.

 

As an example, say you have already found a tenant-buyer with $5000 to put down and can afford $1000/month in rent. They have found a house they like that is listed with ABC Realty. Suzy Realtor is the listing agent. The house is listed for $100,000. The sellers have a loan balance of $85,000 and a monthly PITI pyment of $675. What type of deal would you propose (include $'s and terms) and how would you see each party getting paid? (and how and when)

 

1) Sellers

2) Listing Agent/Suzy

4) Investor/Adam

 

Thanks!

[Mr Saint 0]

Dido to Mark's questions.

 

By the way...what IS the difference between an agent and a broker anyway?

[Adam King (MI) 1]

Mark and Mr. Saint,

 

First off, glad you guys are interested in this topic. I am sure we'll all learn a lot from it.

 

Okay....

 

First Question:

My question though is how does the Realtor get paid?

 

Do you just split the option deposit with them? If so, isn't that going to be less than their commission would have been? Would they be happy with that?

 

Answer:

First off, there are a few different ways I can pay them. One, they lose the listing and get a referral fee. ($500 on average, but no more) This is perfectly normal and most brokers have no problem with it. Two, they take part of the option and change their "seller's agent agreement" to a "dual agent agreement" or "transaction coordinator agreement". This means they are now acting on their own behalf and can represent both parties in the transaction. If they want their full commission they have the tenant/buyer create a PA with them so they can get the rest at the end. (When the tenant/buyer cashes out) Don't forget, an agent that's about to lose a listing gets motivated too.

Three, I pay cash for the property and their commission comes from that.

 

Second question:

Also, who would you be working with....listing agents or buyer's agents (or both)?

 

Answer:

Seller's agents bring deals to me. Buyer's agents work with me to find deals that selling agents may have so I can turn them into LOAs, LOs, or cash. But this post was originally for seller's agents.

 

Third question:

I must admit, I don' know the whole Realtor process very well so maybe that's why I can't figure out how to make it work.

 

As an example, say you have already found a tenant-buyer with $5000 to put down and can afford $1000/month in rent. They have found a house they like that is listed with ABC Realty. Suzy Realtor is the listing agent. The house is listed for $100,000. The sellers have a loan balance of $85,000 and a monthly PITI payment of $675. What type of deal would you propose (include $'s and terms) and how would you see each party getting paid? (and how and when)

 

Answer:

In a deal like this, I would find out the monthly payment and make it work for both the seller and the tenant/buyer. For example if the tenant/buyer wants to pay $1,000 a month and the seller’s payment PITI is $675, then I would tell the seller to give them a 50% rent credit on their $1,000 a month rent. (I am in love with Michael’s take on the 50% rent credit thing). That would put more leverage in my corner by creating cash flow for the seller and equity for the tenant/buyer. Plus, it will get the tenant/buyer used to making a $1000 payment on a $100K house. Those numbers are realistic. Which answers the final question, I would sell the house to the tenant/buyer for $100K plus the amortized value, basically figuring “next years price”. (I.e. $105K or more etc) I would then negotiate my cut with the Realtor (Which is NO less than $2,500 to do a LOA) and they could take the rest for their up front commission. Seller wins, tenant/buyer gets equity, realtor gets compensated for a house they couldn’t move and I get cash in my pocket for a deal that normally takes no more than 5 hours.

 

Oh yeah, one more question.

 

By the way...what IS the difference between an agent and a broker anyway?

 

A broker is a person licensed to arrange the buying and selling of real estate for a fee.

 

A Realtor is simply a licensed agent for the broker. They could not buy and sell real estate for other people without their license and a commission could not be paid without their broker. I.e. If they are successful, they get a cut of their efforts from the broker.

 

Any more questions?

Adam

[Mr Saint 0]

Adam,

 

Thanks for answering the questions so thoroughly. This whole thing is definitely another way to skin the cat and worth some attention. Especially since, I'm in such a big area with a plethora of realtors. Thanks again.

[Adam King (MI) 1]

Mr. Saint,

You're very welcome, but I'm learning here too!

 

It should be exciting to see what the brokers say after the meeting. I would like to continue with everyone's ideas on Realtors and see if there's a niche for it after all. Again, I've worked with them all along, but this is really taking a big shortcut.

Good stuff,

Adam

[Mr Saint 0]

Adam,

 

Funny we should be having this discussion today. Just this morning, someone called on a property I have advertised. Of course, that property is almost a done deal so I took her name and number. She is definitely looking for a LO. So I mention that if she sees a house she likes that's listed with a Realtor to contact me and maybe we can work something out. She has $10,000 to put down. She said she would probably be calling me back in a couple days. If this turns into something, I may need your help with taking it to the agent.

 

Thanks for bringing this up.

[Adam King (MI) 1]

Mr. Saint,

This is exactly what I'm talking about. But, don't let her call you back. (Don't let ANYONE call "you" back)

 

You want to stay in close contact with this person. Actually, you want to start WORKING with this person.

Remember that $10K is the same $10K you would have if you put her into a house you already had. Just get creative and get it "before" the house and then find her one.

 

I have people sign an agreement that says we are working together to put them into a house. I then give them to my loan officer, do a credit check and outline the criteria for what they need in a LO. We then start looking for properties but only based on their financial criteria and what they desire. Don't forget, these people are motivated buyers, but I have run into one couple that were too picky. I lost their number somewhere....fast.

 

Picture the phone call to the Realtor.

 

Hi, this is Mr. Saint I'm an investor/consultant and I’m calling about one of your houses that you have listed.

Oh, I don't like investors Mr. Saint.

Well, do you like money? I have $5K (Or less/more etc) with your name on it that says I can have that house sold in the next 24 hours.

DOH!….uh, okay. What can I do for you?

 

Well, this isn't truly the way I go about it, but not far off.

Creative REI. The putting of motivated sellers with motivated buyers through motivated Realtors....I can see the headlines already.

lol

Adam

[Mark in St. Louis 0]

Adam,

 

Thanks for the detailed reply. I still have a few questions:

 

One, they lose the listing and get a referral fee. ($500 on average, but no more) This is perfectly normal and most brokers have no problem with it.

Ok....so you are saying the listing either expired or they are cancelling it? You pay them a referral fee....they meaning the listing agent? I'm assuming there would be no buyer's agent involved here?

 

Two, they take part of the option and change their "seller's agent agreement" to a "dual agent agreement" or "transaction coordinator agreement". This means they are now acting on their own behalf and can represent both parties in the transaction.

Ok...here you are saying they (meaning the listing agent/broker) change the listing to a dual agency agreement. This allows them to represent both the seller and your T/B.....or does it mean they represent the seller and you? I'm trying to figure out how you keep from being shut out.

 

If they want their full commission they have the tenant/buyer create a PA with them so they can get the rest at the end. (When the tenant/buyer cashes out)

So you are saying that the T/B you brought to them fills out a purchase agreement (in advance) for the eventual purchase (exercising their option) of the property? Does that put the T/B on the hook for buying or do they still have an option? also, who is paying the rest of the commission at the end...the seller? And what is he paying...the remainder of the commission he would have paid? If so that looks to me to not be such a great deal for the seller. He has to accept a lease-purchase agreement and still pay a full commission.

 

Three, I pay cash for the property and their commission comes from that

What type of cash price are you getting on a listed home? I'm typically not going to pay cash for a home unless I'm getting it for around 70% of FMV, minus any repairs. I have found that a listed home rarely works out....unless it's a REO.

 

 

 

Second question:

Also, who would you be working with....listing agents or buyer's agents (or both)?

 

Answer:

Seller's agents bring deals to me. Buyer's agents work with me to find deals that selling agents may have so I can turn them into LOAs, LOs, or cash. But this post was originally for seller's agents.

I don't see how it would work with two agents/agencies involved. How is there enough there for everyone to get paid?

 

Thanks!

[Adam King (MI) 1]

Mark,

 

Ok....so you are saying the listing either expired or they are canceling it? You pay them a referral fee....they meaning the listing agent? I'm assuming there would be no buyer's agent involved here?

 

Sometimes if you have marketed yourself properly to an agent or their agency, you name will come up when an agent is about to lose their listing. This means as a last ditch effort they may put you together with the seller as their listing runs out. Meaning they are looking for a referral fee. If they can't sell it and they know you give $500 referral fees, why wouldn't they give it to you? Especially when they know you have a high success rate? And yes you're right. I don't see a LO, LOA or SLO with a listing and a buyer's agent involved.

 

Ok...here you are saying they (meaning the listing agent/broker) change the listing to a dual agency agreement. This allows them to represent both the seller and your T/B.....or does it mean they represent the seller and you? I'm trying to figure out how you keep from being shut out.

 

This means they are representing both the seller and my company (The principal), or themselves as a transaction coordinator.

 

So you are saying that the T/B you brought to them fills out a purchase agreement (in advance) for the eventual purchase (exercising their option) of the property? Does that put the T/B on the hook for buying or do they still have an option? Also, who is paying the rest of the commission at the end...the seller? And what is he paying...the remainder of the commission he would have paid? If so that looks to me to not be such a great deal for the seller. He has to accept a lease-purchase agreement and still pay a full commission.

 

Mark, it may not sound like a good deal to the seller, but it is. Yes, the agent is doing a purchase agreement with the tenant/buyer and they still have an option. As a matter of fact, when I do a "lease purchase" I still use an option theoretically still making it a LO. The option refers to the PA for the option price. And let me ask you this; Do you think the seller from the last deal I did with a Realtor is going to have a problem paying the REMAINDER (There's the answer to your other question) of their commission on the $192K deal I set up when the Realtor themselves only had it listed at $175K? I don't think so. And yes, the Realtor could change the commission to be paid by the buyer. Most 0% down mortgage will actually raise the purchase price to roll in other fees. Common practice.

 

What type of cash price are you getting on a listed home? I'm typically not going to pay cash for a home unless I'm getting it for around 70% of FMV, minus any repairs. I have found that a listed home rarely works out....unless it's a REO.

 

Ditto, but I can actually pay more than 70% on a home. (Up to 80% "or more" on a nice home.) I use third party investors to purchase the property and then get them an investment mortgage with my team. I make the offer in my company and assign the PA to my investor for an assignment fee. We then adjust the price to a LO term, say 1 to 3 years down the road and I then do a LOA and get another assignment fee. I can make on average about $6-$8K on these deals.

 

Example numbers:

1. Asking and appraised price “this year”. $100K

2. Offer price $80K (This would include my investor’s closing cost etc. Actual offer may be $77-$79Kish etc)

3. Spread for investor minus my $5K assignment fee is $15K based on $100K sale

4. Set it up on a two or three year LO at say $110K (Or more)

5. Assign it to my investor for half of the option of say $5K (Equals $2,500)

6. My cut in total $7500. Minus the total equitable interest of $30K. (This doesn’t include cash-flow or the subtraction of a home warranty etc)

7. The investor’s final average cut for doing nothing, but signing some papers. $22,500.00

8. Only question asked by my investors after the tenant/buyer moves in? When can we do another one!!

 

Total win/win/win/win situation. (That is if the seller is happy with the sales price)

 

 

I don't see how it would work with two agents/agencies involved. How is there enough there for everyone to get paid?

 

I can have an agent that works with me to run expireds for marketing and bring me MLS listings to get the "listing Realtor's" deals. I would then compensate them for their efforts by cash (Referral etc), or by giving them leads. As a matter of fact, the Realtor that initially let me to the listing Realtor of the deal above received a $500 referral fee AND I got him another listing by actually sitting at the negotiating table with the seller. He now has the house for sale on the MLS and once they sell it, we're taking the equity they get to put them into a house rent to own that I buy, take over SLO, or LOA.

 

The possibilities are limitless.

Adam

[ctrmrz31 0]

Hello Adam!

You really bring a unique twist to this Lease Purchase niche of ours here on this forum. I think it is great to learn the various methods on how we can apply our skills. I am still learning how to apply the basics of Lease Purchase, so this stuff is still somewhat complicated and mostly because I am not familar with agents and brokers and how they operate. I am paying attention to this post, reading and rereading to attempt to understand these methods completely. I am all for doing deals anyway they can get done and hope to keep hearing from you guys.

Cruz or Brandon?

[Adam King (MI) 1]

Cruz,

You're not the only one. As a matter of fact, I just got off the phone with the broker who invited me to talk Tues morning and she says she's not even giving my offers to the seller until I do my presentation. Once you talk to enough people in this business you learn that what she just said was WAY better than...oh, yeah I gave your offers to the seller and they said no. That is because most of the time no one knows what the heck I'm doing. She just proved to me that she actually wants to hear what I have to say. It also proves to me that she is beginning to "trust" me. That is integral.

 

I think getting Realtors on your side could be a HUGE benefit. Just think how Realtors would feel if I could help them never lose money on a listing again?

That would be cool.

Adam

[Guest Peggy]

Interesting twist on LO. I am new to the board. I was curious, do you think having a RE licnese, but acting as principle would benefit you or hurt you in this particular scenario?

[Adam King (MI) 1]

Peggy,

If you had a license you would simply disclose it. Acting as a principle though, I would have to look at the broker rules again. I think there could still be conditions that you would have to follow to involve your broker unless you used a corp that had nothing to do with your license. Even this I am not certain about. But doing these deals for other people would be no problem because you would simply be acting as a transaction coordinator/seller's agent. And of course this would mean that your broker would be involved.

It would be the same as selling, but with a rental and option agreement.

 

But as an investor there is much less liability because of curtain disclosures. I don't know what state you're in, but I can see the laws being different. I can't answer these questions 100% accurately in the first place let alone if you're in a different state.

Another point to remember, these are not "sale" deals. That is why there was so much detail to the "gray areas" of the rules. These are the sales of "interests" and not homes. Just something to think about...

Hope this helps,

Adam

[tgaspard 0]

Adam

 

Just a thought!

 

Could you answer the "License" question this way, "YES!, my company has a licensed realtor consultant on board".

 

Get yourself a realtor to look over your contract deals and pay them a few bucks. Plus with a consultant on board you can put them to work with getting you comps, access to the MLS, good deals etc...

 

What you think Adam - is that a possibility?

 

Todd