TWO WAYS TO BUY INVESTMENT PROPERTY
Copyright 1998 William R. Broadbent, S.E.C.-CCIM San Luis Obispo, CA#1 BUYING INVESTMENT PROPERTY THE HARD WAY
(because you are a customer)To locate property you drive the commercial, office and or industrial areas, and study the classified ads. You may attempt to avoid real estate agents in the hopes of finding a "For Sale By Owner" situation that you can buy cheaper because the seller won't have to pay a real estate commission.
In this scenario the seller, of course, trying to earn the real estate commission by selling his own property. Only one of you can win that game,
Buyers should remember that the unrepresented person in a real estate transaction is at the mercy of an adversary who may be more knowledgeable, clever, or greedy.
If you (as a buyer) are not averse to working with an agent, you may contact a real estate agent. Normally, the salesperson will show you property in the following order, regardless of whether it fits your needs or does not:
You will be shown:
1. The salesperson's personal listings
2. The firm's listings
3. Properties in the local Multiple Listing System listed by other realty firms.You will be shown property in that order because that order maximizes the salesperson's commission if the agent can "sell" you something from his/her shelf. Selling #1 can even double an agent's income for a given transaction.
Suppose you find a property you really like, but the price seems high. "Will the seller take less?" you ask your agent. The agent may answer your question with something like, "They'll take less because they have to sell now." You then buy the property thinking that you got a "good deal."
Later the seller learns of the salesman's unauthorized statement that favors you and claims "undisclosed dual agency." It is possible that a court could rescind the transaction and you could be out looking for another property.
WHO REPRESENTS WHO?
Under the traditional Multiple Listing system of real estate brokerage that has evolved in this country over many decades, all real estate agents are either direct agents or subagents of the seller and owe a fiduciary responsibility to get the best price and terms for the seller, who is their client. Buyers need not be locked into this system as customers.
If you work with an agent under the traditional brokerage system, you are a customer and must watch out for yourself, as no one else is looking out for your interest. If an agent can persuade you to buy something at any price or terms, he or she has accomplished the objective of their client, the seller.
This is true even when you work with a firm that is not the listing agent on a property. That firm may be a subagent of the seller with a responsibility to benefit and protect their client. the seller,
As a buyer you must be careful what you say to a traditional (seller's) agent or subagent. This agent owes you no confidentiality. Never ten the traditional agent anything you wouldn't tell the seller directly. It could ruin your opportunity to negotiate.
FINDING THE RIGHT PROPERTY
When you work with a traditional agent, will you be shown foreclosure property or other forced-sale property, probate property, or "for sale by owner" property? Not likely. The real estate person has no commission protection in any of these situations and would probably steer you away from them. This usually excludes you from a significant number of properties, any one of which might be the best property for you.
Corporate buyers of commercial sites and local business people seeking a new location are at a great disadvantage. 'Mat's because more often than not the most desirable locations are not on the market at all. In the residential marketplace the vast majority of homes end up in the Multiple Listing System (MLS). This is NOT typical with investment property and therefore what does appear in MLS more often than not is junk! In markets where site selections are limited, high profile buyers may end up paying an unnecessary premium to acquire a suitable location.
If you don't see something you like, you may leave your name and say, "Call me when you see something," and wander off to the next real estate firm where you tell your story again and the "tour" starts all over. Some buyers find this procedure to be tedious, frustrating and very inefficient. Is there a better way?
#2 THE EASY WAY TO BUY INVESTMENT PROPERTY
(when you become a client)Instead of initially shopping for a property, shop for a capable agent to represent you. Remember that over 80% of real estate agents deal primarily in home sales. Inquire until you find an agent with training and experience in investment property.
You are more likely. to locate a Buyer's Broker in a small real estate firm than in a very large firm. Large firms traditionally are inventory-oriented and place -their major emphasis on their sales agents having lots and lots of listings. Their legal and ethical loyalty must be to those sellers.
A buyer seeking client status representation needs the services of a competent, concerned agent rather than a "good lister." When you find that agent, the agent will spend an hour or two talking with you in his/her office to determine your specific needs and objectives. This procedure is called counseling.
Counseling considers the financial aspects of your situation balanced with your personal comfort zones. To avoid any conflict of interest, the agent will first ascertain that your needs do not match any office inventory (listings).
Assuming your objectives are compatible with the agent's ability to help, the agent will suggest that you employ the firm as a Buyer's Broker. An appropriate Employment Agreement (including the fee paid by you, the Buyer to your agent) will be written up and signed by you and your agent. This procedure is one indication that you're dealing with a pro. Before employing an agent ask them how they plan to pursue your objective.
Now you have broken the traditional pattern of being a customer and have attained client status. Your agent's efforts are directed to benefit and protect you, and to get the right property at the right price and terms for you.
Any property is a possibility because your agent's fee has been agreed to. Your agent can pursue not only listed properties, but can negotiate for probate situations, force sales of any kind, "For Sale By Owner" property, and even property that is not on the market at all.
Customers usually see only listed properties, but the entire marketplace opens up for a client who has employed, and agrees to pay a Buyer's Broker. Access to an properties is very important to investors.
Much so-called investment property isn't marketable as offered. Many properties show unrealistic prices, terms, and/or projections and insufficient documentation, with unrealistic sellers and seller's agents, who will put property on the market at any price to get a listing.
A Buyer's Agent must sift through the junk to try to find something suitable for you, Then he/she will help you analyze it and if suitable, help you negotiate the best price and terms to acquire it.
For the business person looking for a new site, being a client is even more advantageous. Seldom are the best sites on the market at all. A Buyer's Broker can legally pursue the best property without begging for a listing from a potential seller. An employed buyer's agent can act as an agent for an undisclosed principal protecting high profile buyers and investors from being unnecessarily ransomed.
For additional insight, ask for a copy of the brochure Don't Make a Mistake.
WHAT DOES IT COST?
If you think, "I don't pay anything now," listen carefully..
The traditional seller-oriented (agent/subagent) system DOES NOT give buyers a "free ride." A brokerage commission or fee is built into the retail price of the property being purchased. Buyers have actually been paying the commission while sellers have been receiving the representation for decades via the Multiple Listing System. When two real estate firms are involved in a traditional transaction, the commission is divided between the listing and selling offices.
If YOU, the buyer, are paying the fee anyway, shouldn't YOU be receiving representation?
HAVING REPRESENTATION SOUNDS GREAT BUT DOES IT COST MORE?
Whether the property is listed or is For Sale By Owner (FSBO), an employed Buyer's Broker will negotiate a lower net price for the property. This price offset will usually be greater than or at least equal to the fee being received by the Buyer's Broker. It normally costs a buyer less., not more, to employ and pay a Buyer's Agent. A BUYER'S BROKER IS THE ONLY AGENT WHO CAN LEGALLY AND ETHICALLY NEGOTIATE FOR A LOWER PRICE AND BETTER TERMS FOR THE BUYER/CLIENT.
When the Buyer Broker's fee is paid at closing by the Buyer, the fee is considered by the IRS and most mortgage lenders to be part of the total purchase (acquisition) price of the property. The Buyer still gets the maximum loan based on the total acquisition price. The Buyer Broker's fee can be paid at closing from the transaction proceeds, usually a combination of the Buyer's down payment plus a new loan secured by the buyer OR, if the Buyer and his/her agent agree, the Buyer may pay the fee directly to his/her agent.
A competent Buyer's Agent with a written Employment Agreement will sift through numerous properties (not only listed but FSBO and probate as well) and expose the Buyer only to those that seem to fit the buyer's profile developed during counseling discussions. The Buyer's Agent will usually devote more checkout time than the unemployed agent spends to determine that a property really suits the Buyer's needs. The agent's objective is to BENEFIT and PROTECT their Buyer/client in all phases of the transaction process.
Being a client saves you, the Buyer time and effort when buying investment real estate the easy way, preserves confidentiality and increases the profit potential.
Finding a suitable property to purchase can be a frustrating and dangerous experience for a customer. When you the Buyer become a client and have the benefit and protection of an experienced Buyer's Broker to guide the way, your transaction is less frustrating, much safer and likely to be more profitable.
Copyright © 1998 Arnett & Broadbent, Inc. All rights reserved.
Ed Arnett or Bill Broadbent, S.E.C.-CCIM
Arnett & Broadbent Inc.
SINGLE AGENCY REAL ESTATE REPRESENTATION1380 Broad St.
San Luis Obispo, CA 93401-3910
(805) 543-9100
e-mail to bill@arnettbroadbent.com
Copyright © 1997 Arnett & Broadbent, Inc. All rights reserved.