Real Estate Agents: More Than Glorified Tour Guides
Let’s face it, real estate agents sometimes get a bad rap in the world of real estate. Many people in the general public consider real estate agents glorified tour guides and/or photographers. All they [“we”—I too am an agent] do is open doors for people and take photos of homes and get paid far too much for it. The fact of the matter is that most buyers and sellers just either don’t see or are unaware of all the back-end stuff that agents do for their clients. I could go into far too much detail as to what exactly all that back-end stuff is, but that’s a story for a different day. I’m going to explain why to a real estate investor, specifically, your realtor is the most important member of your team.
Depending on how much experience you have in real estate investments, you may or may not have a good grasp of the process of buying or selling; regardless, you likely don’t know it as well as a good real estate agent. The state-required paperwork, disclosure requirements, timeline of deadlines, effects of missing said deadlines, among a myriad of other factors are why it is important to have somebody on your team who knows the process of a real estate transaction. If something along the transaction comes up that sounds abnormal to the agent, they’ll know that it needs to be investigated further, but an unrepresented buyer or seller may not know to. Since this is such a broad, all-encompassing concept, I’ll exemplify it with a real-world situation that I ran across not too long ago.
Don’t Be Buyer Bob
A few months ago, we got a phone call from somebody who was trying to get financing for a fix and flip. We never spoke to the potential borrower directly but rather with another lender who was asking us if we had interest in the deal. Since I never spoke with the investor directly, I don’t know the exact specifics of the storyline, but the situation we heard went something like this:
The buyer, we’ll call them “Buyer Bob,” was a new fix and flipper looking to do their first deal. Buyer Bob found a wholesaler and got on the wholesaler’s email list. The wholesaler sent Buyer Bob a property that looked like a good deal, so Buyer Bob signed the wholesaler’s contract and put down $10,000 of nonrefundable earnest money. Buyer Bob already had their financing lined up as well; they had found a hard money lender on social media that was advertising the most competitive interest rates that Buyer Bob had seen. Buyer Bob had become prequalified with this lender that he found on social media. Once Buyer Bob had a contract on this wholesale deal, at the lender’s request, Buyer Bob sent the hard money lender $17,000 for the down payment. As it came time to get to the closing table, Buyer Bob’s lender was nowhere to be found; the phone number for the hard money lender was no longer in service. Since Buyer Bob no longer had their loan, they could no longer close on the property and lost their $10,000 of nonrefundable earnest money paid to the wholesaler. Buyer Bob just lost $27,000 without ever even buying their first flip.
Real Estate Scammers Vs. Real Estate Agents
Let’s review what went wrong. Buyer Bob found the lender on social media—certainly not an issue in and of itself; for example, Pine Financial is on social media. But I would assume that Buyer Bob found this lender on some sort of real estate forum on social media, where scammers abound. I’m in a lot of these groups, and I see it all the time: hard money lenders who lend in all 50 states and around the world, all property types, 100% financing, all for a 3-5% interest rate with no credit check. Their posts are often in broken English, and you can get in contact with this lender by emailing them at their @gmail.com email address. These scammers are everywhere, and unfortunately, they are able to take advantage of people for huge sums of money when dealing in the real estate world.
A Real Estate Agent Will Have Your Best Interest In Mind
To be honest, I don’t know for sure whether Buyer Bob was represented by a real estate agent or not; that being said, I highly doubt that they were. A real estate agent would have told Buyer Bob to never wire $17,000 to the lender before closing. As an agent, I would tell Buyer Bob that you don’t have to wire your down payment until the day of closing and that there’s no reason to send it to your lender, as it should go directly to the title company for settlement. As an agent, especially one who works with investors, I would tell Buyer Bob that a 3-5% interest rate for a hard money loan is unrealistic and that they need to thoroughly vet this lender—better yet, I would vet the lender myself.
Knowledge And Experience Can’t Be Overlooked
Your real estate agent’s knowledge in the customs and logistics of a real estate transaction is just one of the reasons that you need to have a good agent on your team. A real estate agent has a fiduciary responsibility to look out for your best interest (protecting your earnest money and down payment, for instance), and on the buy-side, you don’t even have to pay for it. On the sell-side, it’s well worth their fee to pay them for their services, because if you do, not only do you get to put your listing on the MLS and have it in front of the most people possible, but guess who your agent is going to call next time they have a lead on an awesome fix and flip? You, or their other investor they’ve worked with who tried to cut their listing commission?
No Real Estate Agent? Buyer Beware!
I could go into a plethora of other reasons why a good real estate agent is the most important member of your team, from market knowledge and analysis, pricing strategies, presentation of homes and knowledge of what sells, negotiation skills, and much more, but each one of those topics could be an article all on their own. This is just one real-world example that I heard about regarding customary real estate practice and I wanted to pass along the advice to anyone who is thinking that they can do real estate investing without the assistance of a good real estate agent: BUYER BEWARE.