Real Estate Agents and Investing

When I began looking into investing I assumed that I needed to be a real estate agent so I can learn how to buy and sell real estate. Thus I began taking real estate courses in 2005 and became a real estate agent. I learned that those classes only taught me the law but nothing about how to contract, buy and/or sell real estate. All this came from on the job experience and each transaction taught me something new because no two transactions are the same. For this reason you should be cautious when selecting a real estate agent.

Today, as a broker, I make it my goal to properly train my agents thoroughly. Too often my agents and I work with other real estate agents that have not been properly trained. In fact, many times, those agents have called us to ask how to do/handle certain parts of the transactions. It has happened so often recently that we had to figure out what we would and would not assist with due to liability. We determined if the answer to the question is a fact we would answer. If the response is an opinion or company based we request that they ask their broker. I believe that this has happened more and more as a result of 100% commission brokerages. Agents receive their license and start at a 100% commission brokerage where there is minimal to no training because they are paying 100% commissions. What you end up with is an inexperienced agent that will learn at the client’s expense. When investing in real estate this can be a blessing or a nightmare.

If you are an experienced real estate investor and have the time, you could take this newly licensed real estate agent under your wing to train and mold specifically for what you need as an investor. This is a great win-win situation because the new agent will receive free training and you will have an extra pair of eyes and ears finding investment opportunities on your behalf. Not to mention that the agent will have a client that will buy anything that he/she finds that fits the investor’s criteria. I personally have been on both sides of this example and can attest to the fact that both parties win in this relationship.

On the other hand, you may be an experienced investor but not familiar with a particular market or a novice investor just getting started and you meet a new real estate agent that has no previous training. This is an equation for disaster. I regularly meet with investors that are very successful in real estate and others that are successful investors but not in real estate investing. The one thing that they have had in common was working with a newbie wholesaler and/or real estate agent. One investor took it as a lesson and forged forward and the other decided to leave real estate investing. In these instances the agent/wholesaler overestimated the after repair value, under estimated the renovation and/or both. This may not have been done intentionally but was caused by a lack of knowledge. An experienced agent/wholesaler could give you a pretty accurate ARV with the correct comps. While an inexperienced agent/wholesaler will give you a completely different value with incorrect comps. Two very common mistakes that I see in a CMA is the newbie comparing a ranch style home to a split level or a property on a main street to one inside the neighborhood on a cul-de-sac. The proper adjustments in the after repair values must be made for these differences. Of course, investors should do their own due diligence but then why use a wholesalers or agent if the info they are going to provide is wrong. The investor can save those fees and add it to his purchase price, renovation costs, or his/her bottom line. As an agent you must provide more value other than access to the MLS. As an investor make sure your agents are trained in investment real estate if you do not have time to train them. If the real estate agent has invested or does invest in real estate that is even better. This means they know the true cost of renovations, regulations in the different counties, have contractors they can recommend from personally using them on a project not just word of mouth, has other investor clients as referrals, you get the picture. The biggest advantage about working with an agent that is an investor is they know what it is like to be in your position as a buyer, remodeler, developer and seller. Keep in mind that there are plenty of excellent real estate agents that do not personally invest but have taken the time to learn all the information previously mentioned and implemented it with their other investors.

In some states the real estate agent’s license history is on the real estate commission’s website so you can start there. Next time you are looking for a real estate agent make sure you do some due diligence on the agent. This can save you time, money and/or be the beginning to a long term prosperous real estate investing relationship.