Realtors are on board!

[Adam King (MI) 1]

Hey all,

Just got back from the speaking engagement at the Realtor's office. Both brokers were there and I spoke for an hour and a half about lease options assignments and sandwich lease options. (But mostly LOAs)

 

The topic of why I was there was; Never lose money again on a "pretty house" listing that has little to no equity.

 

I first explained to them their process of listing and selling a house. We came to the conclusion that they lost about $1,700 a month, or $200+ on each house they lost because of no sale. We confirmed that they were out about 33% of business to lost or expired listings. Again, these listings were mainly due to "seller's dept" and priced too high to sell. This is also the primary recipe for foreclosure.

 

I got their attention right off the bat when I told them I could sell a house with negative equity, legally, fast and put money in everyone's pockets.

 

We then moved to the explanation of the strategy and how it worked. I lost them a couple of times when I got too technical, but they pretty much understood everything at the end.

Also towards the end I was open to questions, which I was bombarded by. The issue came up again of me needing to be a licensed agent to do what I do. I quickly pulled out the law papers and read them to them. The brokers agreed that during lease options you hold interest to the property and are not actually selling it.

 

It was a great time and everyone seemed to be interested. I have only been back for about a half an hour and my phone has rung already from a lead from one of the Realtors at the agency.

Man, what a business....

Adam

PS I REALLY want to get this "do I need a license" issue behind me. My attorney just came up with a very good idea. Give my agreements (Again) to the board of Realtors attorneys and have them overlooked. If they agree with them have them put it into writing. That way if it ever comes up in court I can use that in my defense.

[verbatim 1]

Good idea your attorney came up with. Precautionary measures, i like that.

 

glad to hear that you didn't get eaten alive by the realtors, 1 deal already - MAN!!!

 

 

Talk about fast,

 

 

Verb

[Guest Pete]

Adam,

 

I think you are making too much of a big deal about the "do you need a license"

thing. I would just ignore them. Your business is your business.

 

Pete

[pilot76180 51]

This is true Pete, but keep in mind he is looking to work WITH these people. He has to have their trust.

[Adam King (MI) 1]

Pete,

I appreciate your two cents in this matter and I would have said the same thing two months ago. But I am being sued right now from a tenant/buyer that came to his drunken senses about an hour and a half after we closed that it was a bad deal for him and he wanted his money back. I of course told him no and he needed to think about what it was he was doing.

 

The Michigan Board of Realtor’s Attorney after reviewing my “LOA Program” (By the seller’s word of mouth only) because of this case immediately told my client (the seller who was also a Realtor that presented the program to him) and this gentleman (the tenant/buyer) that what I was doing required a license and was illegal otherwise. That same attorney once again reviewed my agreements and said that it was legal, but in a very gray area. That is why this has become such a big issue for my attorneys, my associates and myself. I can tell you all day long that it “is” legal, but only after I can get it in writing from the people that will push the issue, will I feel better about it. I will of course continue to do and promote these deals. It’s just the way I am going about them that seems to be the concern here. And just a note here, I have been going about these by assigning back to the seller and not the buyer. Yes, I can switch either way, but it’s the “intention” that has created a concern. Disclosing that I am only taking interest to assign has made people see the true intention. (Bringing two parties together for a fee)

 

Again, assigning a lease option is NOT illegal by any means whatsoever. There’s just a gray area you have to be careful with and it’s my job to add color to this area so I can continue to help people and profit accordingly.

We are all still learning….

Regards,

Adam

[puls1234 0]

Adam,

 

I probably would have given him his money back and found another tenant buyer. There are too many people out there who would love a deal with this rather than to blow up a simple issue. The quieter I can be the better. Just do the deals correctly, make the money, and go onto the next one. But I do understand your point of view.

 

Pete

[Adam King (MI) 1]

Pete,

Amen. Unfortunately it wasn't only my decision even knowing I made it sound like that in previous posts. The seller didn't want to give his cut back either and he was the one originally sued. They actually went to court on the 6th. The lawsuit was thrown out because the judge said that the original agreements were between the tenant/buyer and myself/company. I offered him half to get him off my back. He said no, lost in court and is now coming after me. I can still make the decision to give it back to avoid attorney fees. That's because in small claims court I can't represent myself because I'm an LLC, but I'm not going to bow down to threats either. I am going to make a final post about the license issue within the next 72 hours. I think it's time I came to my senses about this. Compulsive thinking may be the only thing to blame. I am continuing to do a lot of these deals daily. So far everyone but this jerk has been happy....very happy.

Thanks again for you interest.

Regards,

Adam

[verbatim 1]

that sucks that you cant represent yourself in small claims due to the fact that you did in the name of your business entity.

 

red tape, red tape, red tape....

 

 

Verb

[Jason (AL) 1]

Nice work Adam!

 

I am so proud of you.

[pssst, I taught him everthing I know ]

 

Anyway....

I know what you did and described to the group was and IS an excellent idea...to help out otherwise screwed sellers, get realtors their comissions, and most of all...to generate leads.

 

But do you worry that you'll "school" the realtors to an extent that they'll take what they know and use it to structure a LOA deal themselves, rather than give you the lead?

 

Granted, there is the possibility that they'll make of mess of things with their new found and powerful knowledge. So they may just leave all the structuring up to you and receive some easy $$$moolah$$$ instead.

 

Also, what do you (along w/the realtor) base their compensation amount$?

 

Thanks Adam.

Jason

[Adam King (MI) 1]

Jason,

The amount I based on what they make is what we can negotiate after my assignment fee. So everyone wins, I have lately only been taking 50% of the option and first month rent. I.e. $5K Option and $1K first month rent, I would get $3K as an assignment fee. The average from the deals I have done has been for some reason $2,100 to the Realtor. Not bad when they're about to lose a listing they have a few hundred bucks in adverting in.

Regards,

Adam

[Mark in St. Louis 0]

Adam,

 

So you are saying that the listing agent is getting 50% of the option consideration as their fee. Correct?

 

So that means that between you and the listing agent/broker the seller is giving up 100% of option consideration but giving 100% credit for it. Plus he (seller) is giving up first month's rent. Correct?

 

That means in the example you just gave, the seller is giving up $6,000. In other words, that is what it is costing him. Correct?

 

Are you also negotiating these contracts where the seller is also giving the T/B a rent credit?

 

I guess what I'm getting around to is how much do you have to bump up the sales/option price with the T/B to cover the $6K plus rent credits....on a % basis that is?

 

Also, are you saying that you get a contract with the T/B and then assign that contract back to the seller? Where does the Realtor/broker become involved with regards to the contract/paperwork? Who is actually making a contract with who?

 

Sorry for all the questions but I see this as a possible goldmine. And I already have some Realtors I have a relationship with and could probably do a presentation with their broker in the next week or two.

 

Thanks!

[Adam King (MI) 1]

Mark,

 

So you are saying that the listing agent is getting 50% of the option consideration as their fee. Correct?

 

Yes, but that doesn't mean that they can't give some to the seller. As a matter of fact, that is between them and not me. I am only getting what I say as my bottom line as an assignment fee.

 

So that means that between you and the listing agent/broker the seller is giving up 100% of option consideration but giving 100% credit for it. Plus he (seller) is giving up first month's rent. Correct?

 

The seller is not always giving 100% of the consideration, but yes sometimes they do. And no, they have to get first month rent to cover their payment. I only take half (And just started doing it by the way) of the first months rent and option when doing these deals WITHOUT a Realtor. The Realtor would only get half of the option money if the seller didn't negotiate otherwise.

 

That means in the example you just gave, the seller is giving up $6,000. In other words, that is what it is costing him. Correct?

 

 

The seller is only giving up the option because we are taking that for our commission and assignment fee. There are also cases where the Realtor may give the seller some of the option. If the seller is motivated enough (Which they usually are) just the fact that I'm moving the property at full price is enough. The deals where there are no Realtors involved I almost ALWAYS only take half of the option and first month rent. Which means the seller gets the rest.

 

Are you also negotiating these contracts where the seller is also giving the T/B a rent credit?

 

I have only done a small handful of deals where there was no rent credit. These were deals where the tenant/buyer wanted to pay less than the seller's mortgage PITI. In those instances I would still have them put down enough money as non-refundable option consideration, but it would go into an escrow as rent credit to pay the difference.

 

I guess what I'm getting around to is how much do you have to bump up the sales/option price with the T/B to cover the $6K plus rent credits....on a % basis that is?

 

I will sell the house for what it's worth during the time of the sale. I.e. if it's worth $100K in a year from now and they are putting down $5K with no rent credit, then the sales price is still $100K. The seller (If they gave me the entire option) would make $95K. Who makes that much on a listed house? I haven't met them yet...

I will however bump it up if I am giving a huge rent credit that doesn't make sense to say the normal returned principle on a mortgage. A lot of tenant/buyers simply think that you make your payment on a mortgage and get a ton back towards your equity. That ain't so!!!!!!!!

 

Also, are you saying that you get a contract with the T/B and then assign that contract back to the seller? Where does the Realtor/broker become involved with regards to the contract/paperwork? Who is actually making a contract with who?

 

First off, don't forget the agent already had the property under contract. All they do is change their seller's agent agreement to a dual agent agreement to represent both of us. And yes, the way I have been doing them is assigning back to the seller. This is more complicated, but in a state like MI disclosure is king. (Pardon the pun) The Realtor would make their commission, or disclose it by adding a PA to the deal making it a lease purchase. Whether they take a commission at the end or not, it's in the agreement. The agency would then type up their own PA that would be between the seller and the tenant/buyer. Don't forget, at that point I have already assignment my interest.

 

Don't worry about asking me the questions; it keeps me on my toes. I have already seen a couple times where my numbers were wrong and that will only help me to improve and get it right.

Regards,

Adam

[Mark in St. Louis 0]

Adam,

 

You said:

 

First off, don't forget the agent already had the property under contract. All they do is change their seller's agent agreement to a dual agent agreement to represent both of us. And yes, the way I have been doing them is assigning back to the seller. This is more complicated, but in a state like MI disclosure is king. (Pardon the pun) The Realtor would make their commission, or disclose it by adding a PA to the deal making it a lease purchase. Whether they take a commission at the end or not, it's in the agreement. The agency would then type up their own PA that would be between the seller and the tenant/buyer. Don't forget, at that point I have already assignment my interest.

I want to make sure I am clear on this part....the agreements....who does what with who.

 

You are working with the tenant buyer. They find a house they like that is listed. Before you contact the listing agent, do you have your tenant-buyer sign a generic lease and option agreement? Generic meaning it is not for any particular house yet....it just states what they will pay in option consideration and monthly?

 

Or do you contact the listing agent first, work out the specific numbers with them first, then have your T/B sign a lease and option agreemnt for THAT house with the negotiated numbers?

 

I guess I'm wondering if you keep your T/B a mystery to the listing agent and seller until you have firm numbers from the agent/seller?

 

What do you use to assign the residential lease & option agreement to the seller....or is it assigned to the agent.

 

I'm a bit confused here about what forms you are using, when they are signed by who, and how/with who you do the assignment.

 

Thanks!

 

Thanks!

[Adam King (MI) 1]

I want to make sure I am clear on this part....the agreements....who does what with who.

 

Agreements are as follows.

 

1.Seller's agent agreement Agent and Seller

2.Dual agent agreement Agent, Seller and Me

3.Cooperative option to purchase Seller and Me

4.Lease agreement T/B and Me

5.Option to purchase T/B and Me

6.Assignment agreement Seller and Me

7.Purchase agreement Seller and T/B with Realtor/Broker disclosure and fee

8.Letter of Assignment Seller, T/B and Me

That will cost you $2,000!

 

You are working with the tenant buyer. They find a house they like that is listed. Before you contact the listing agent, do you have your tenant-buyer sign a generic lease and option agreement? Generic meaning it is not for any particular house yet....it just states what they will pay in option consideration and monthly?

 

No, they sign a "locator agreement". This is a simple contract that says I have access to their funds (With a deposit) to find them a house. I then charge and perform the credit and background checks BEFORE we start looking for a house.

 

And just a note here; I don't always have a tenant/buyer before the house. For example, I am spending the day with a Realtor (My associate) tomorrow getting names and numbers to expired listings that had the words, Lease or Rent in their original listing. I will also make offers on these houses that ARE listed. If the Realtor (Listing Realtor, not my associate) is motivated enough they will help me close the idea on the seller. Tenant/buyers are a dime a dozen, but to stay on track with the subject yes, the tenant/buyer and their criteria comes first.

 

I guess I'm wondering if you keep your T/B a mystery to the listing agent and seller until you have firm numbers from the agent/seller?

 

 

No, there is no such thing as firm numbers. If I have the T/B first, then I have "Something to work with" and I guess those numbers are close to firm. The sales price, who gets what out of the option and rent credits are all negotiated. I try to make all parties win.

 

I'm a bit confused here about what forms you are using, when they are signed by who, and how/with who you do the assignment.

 

I'm starting to think I should be writing a course. lol just kidding. I listed the contracts above. It really is a simple transaction. But make sure you realize that I am now adding a "Broker's disclosure" on my behalf. Again, these are MI specific laws that have made me choose to use a broker. There are other factors involved that may not concern you and your business. Also, there are other agreements involved like seller’s disclosure, lead paint disclosure, pet policy, credit check and deposit receipts etc. But the main ones to do a deal like this are posted above.

Keep em’ coming.

Adam

[Mark in St. Louis 0]

Thanks for the reply Adam. I am going to go over this a few times to make sure I understand the flow.

 

I'm sure you'll see another question or 50 from me sometime soon.

 

Maybe you should develop a course.