How much should investors be paying in real estate agent commissions when they flip houses?
Real estate agents and the MLS continue to be valuable services for real estate investor flipping houses. In the years ahead, when there may be fewer foreclosures and distressed sales, properties may be moving faster and appreciation could climb overnight, the MLS and real estate agents are likely to be even more valuable for investors. Having acknowledged this, how much should those flipping homes be willing to give up in commissions? There are a variety of levels of service available to those who need them. So which is best, and should investors be negotiating big discounts or even be willing to pay a premium to get served?
This debate recently drew a wide variety of answers on a popular online real estate forum. Among the comments were arguments from some licensed real estate agents suggesting that investors ought to pay a premium above and beyond their commission in order to benefit from their services. Well, you have to give them credit for asking. Of course, in reality, if it came down to bidding for a real estate agent’s services, there might never be a ceiling on it. They’d be making over 10% a transaction again instead of heading the other way.
On the other side of the argument are those investors preferring flat fee MLS listing services, and no doubt a few refusing ever to buy or sell a property if a real estate agent is involved in any way, shape or form. This may be a little too short sighted. However, just signing up to pay the status quo and the same as every other Joe that comes along once in a lifetime for one side of a transaction might just be throwing away good money.
However the paperwork is worded, a real estate investor really does pay the agent commission when they buy a property. It’s money added onto the price and comes out of equity that would otherwise be profit. When an investor turns around and flips that property, the agent essentially gets to double dip. Obviously there is a lot less work involved for them when selling the same house twice. If a Realtor banked 3-6% on each side and sold the same property twice in a month, their cut could quite easily be approaching the same profit margin of some investors, but without all of the heavy lifting and risk.
With this in mind ,real estate investors should recognize that they have some substantial negotiating power in this arena. Don’t give away too much, but don’t beat them so low they’ll just sabotage your deals. Find some good win-win middle ground that works for everyone. Volume and repeat business is an investor’s ace up their sleeve. Still don’t expect promises of future business to hold much weight. They’ve heard that story 100 times this week already. Bring your reputation or existing portfolio of business.
Decide how much work you’ll do or can have your team do for less, and how much you want the agent to do and, how much their service is worth. Beyond sourcing new deals, remember it includes handling low level paperwork, time consuming transaction coordination, offers a buffer from liability and can be a great tool in negotiations.
What’s in it for the agent? Effortless deals, no marketing costs to gain new clients, they can sleep at night knowing more paychecks are coming, and almost free money.
There are going to be more and more agents coming into the market soon. A new boom is coming, but it will also be a boom in new and returning Realtors to compete for business amongst each other. Are you going to be stuck overpaying, or in lucrative partnerships?