As a buyer, you love bad real estate agents because you can take advantage of them to get better pricing. As a seller, you obviously want a good real estate agent so you can maximize your profits.
According to the National Association Of Realtors, there are supposedly around 1.5 million real estate agents today. However, there are way less than 1.5 million homes for sale in America. As a result, competition to make money as a real estate agent is fierce. The top producers consistently get the lion's share of the transactions.
Let me be clear. Most real estate agents are not bad. Further, using the word “bad” is just a catchall term to include “inexperienced,” “disorganized,” “out-of-town,” or “aloof.”
Identifying bad real estate agents will help other buyers and sellers in the long run.
How Bad Real Estate Agents Can Cost Home Sellers A Fortune
I'm currently witnessing two examples of piss-poor listings that will cost two different sellers at least $100,000 each if they finally sell their homes. It saddens me how much money they will lose by going with their current real estate agents.
Somehow, the sellers got sold into going with them when these two real estate agents are not qualified. Not only will the sellers lose out on a lot of money, so will the existing homeowners in the neighborhood.
Therefore, I'd like to warn prospective home sellers what to look for in a listing agent. Selling a home is an already stressful process. Having the wrong listing agent makes the process that much worse.
Signs Of A Bad Real Estate Agent
Here are some immediate red flags that stood out based on these two real estate agents as well as my experience using one years ago.
1) Insisting on listing during an inopportune time.
Let's say the Fed is about to announce its rate-hike cycle after three years and a nuclear powerhouse decides to invade a sovereign nation. Deciding to proceed with a listing instead of waiting may prove to be terrible timing. At the margin, homebuyers would rather wait and see what the Fed has to say and wait until there is a de-escalation of World War III before bidding on a house.
But because a bad real estate agent is inexperienced or anxious to move forward to make some money, they recommend listing anyway. Going ahead with a listing during an inopportune time can often backfire because a house will sometimes end up sitting on the market. Once a listing becomes “stale-fish” the vultures start swarming.
As a buyer, you want to look for properties that have listed during times of extreme uncertainty. Some other examples include the onset of a pandemic, after a natural disaster, during a military coup, following a terrorist attack, or during the winter holiday season. I love looking for properties during the winter.
2) Not knowing the basic details of the property.
I cannot tell you how many times I've gone to an open house and the real estate agent doesn't know the basic details of the property. Not knowing is such an insult to the sellers who are paying a large commission.
The following details about the property need to be known:
- Square footage
- Lot size
- Type of electrical wiring
- Whether the sellers got permits for any remodeling
- What was done during the previous remodel
- When were the roof, water heater, and windows last replaced
- Are there any liens on the property
If a real estate agent doesn't know the basic information of the property they are trying to sell, they probably don't know the comps or what's in the 3R report either. Further, they probably cannot eloquently sell with conviction because they lack information. Huge red flag!
The more opaque the real estate agent, the more you may want to consider hiring a real estate lawyer if you really want to proceed.
3) Mispricing the property.
Yes, there is both an art and a science to pricing a property. However, bad real estate agents significantly overprice properties to their sellers' detriment. Severely underpricing a property is less of a problem because it often creates bidding wars.
Overpricing a property occurs when you don't know the neighborhood and don't know existing and previously sold comps. Unfortunately, mispricing also occurs because the real estate agent so badly wants to win the listing. As a result, some real estate agents will overpromise on the selling price.
If you've never sold a property before or haven't sold a property in many years, you may be more easily swayed by a real estate agent's sales pitch to list your property. Therefore, it's up to sellers to do their due diligence about the market and the real estate agent before awarding their listing.
A good real estate agent will know the past 5-10 recent comparable sales. They will also price the property at or slightly below market value to generate as much demand as possible. It is better to entice more buyers to bid with a slightly lower market price than shoot for a new record-high price. A good real estate agent will also follow the local pricing culture.
4) Not being familiar with the neighborhood
One of the mispriced listings I'm observing is a single-family home on the west side of San Francisco. It is a fixer that needs $400,000+ in work. That's fine if the property was priced below $1,000 a square foot. However, the property is priced at $1,244 a square foot. Only remodeled properties are trading at over $1,200 a square foot in this neighborhood.
So why is the listing agent so clueless with her pricing? The listing agent specializes in selling luxury condos in downtown San Francisco. As a result, she has mistakenly transferred her expertise about one type of property in a completely different market to this one.
The other mispriced listing I'm observing is also a single-family home on the west side of San Francisco. Instead of pricing the property at a more reasonable $2,399,000 for a 5-bedroom, 4-bedroom, 2,432 square foot home, they decided to list it for $2,750,000. The agents are young and also based in Marin, not San Francisco.
When I spoke to them about the neighborhood, they had no idea about the nearest bus stop, grocery store, or playground. These are important things to know for the target demographic buyers, which are mostly families. I asked them how they came up with the price and they showed me unreasonable comps they had clearly never seen in person.
Hire a real estate agent that knows your neighborhood inside and out. This way, they know what the true comps are because they've actually been inside them all.
Part of the reason why Zillow lost a fortune in their iBuying program is that they simply relied on public data. But as any experienced real estate investor knows, properties are often not what they seem online.
5) Not willing to be flexible with commission or come up with a creative idea to sell a property.
Selling a property is much more stressful than buying a property. I know because I've done both and wrote about my selling process here. Transactions fall through all the time. A bad real estate agent usually isn't willing to come up with creative solutions in order to get a deal done.
Here are some things a good real estate agent could do to complete a transaction:
- Reduce their commission to get a reluctant seller over the hill
- Lower the commission for the seller, lower the purchase price for the buyer, and still make more overall as the real estate agent as a dual agent
- Negotiate a rent-back agreement to give the seller more time to move out or find a 1031 Exchange property
- Convince the buyers to pay some or all of the seller's closing costs
- Offer special concessions, like free lodging at the seller's vacation property for four nights every month for one year
- Identify other potential investment opportunities for the seller who is worried about how to invest their house sale proceeds
- Skillfully create FOMO in the buyers by scheduling a private showing right in between two other private showings so everybody sees each other walk in and out of the property
Reducing Commissions Is The Easiest Move
The easiest thing a real estate agent can do is cut their commission to help the seller save. Let's say the listing agent gets a 2.5% commission on a $2 million house. That's $50,000. Meanwhile, the seller also has to pay a 2.5% commission to the buyer's agent for another $50,000. Ugh.
Let's also assume the offers came in relatively quickly in this strong housing market. The seller is having second thoughts. The seller also feels stupid for paying $100,000 in commissions when the buyers came so easily. Both real estate agents could agree to cut their commission by 0.5% each, resulting in a $20,000 savings to the seller.
A bad real estate agent would stand strong on 2.5% and let the deal expire instead of compromise and get a successfully sold listing on their resume. The excuses are always “I can't charge less because my brokerage house prohibits it.” This is such stubborn and ridiculous short-term thinking for the sake of collusion. $80,000 in commission is better than $0. The cost to sell a property is still so high despite so much technological innovation.
6) Not looking presentable to prospective buyers.
If you plan to sell a big-ticket item like a house, you had better look presentable. When I tried to list my house back in 2012, my listing agent showed up to a private showing in a t-shirt and shorts. He was a friend who had just finished playing a tennis match. Come on buddy! Good real estate agents are respectful to potential clients by dressing well.
Another wrinkle to being respectable nowadays involves mask culture. When I visited the $2,750,000 open house hosted by the out-of-town Marin real estate agents, none of them wore masks indoors, presumably because Marin had already dropped their mask mandate. However, San Francisco had not yet dropped its indoor mask mandate. Therefore, many of the prospective buyers thought they were rude and clueless.
Properly reading the room is important in every social and business function. When in doubt, good real estate agents are more conservative with their appearance and mannerisms. They will dress professionally and treat people with great respect.
7) Not turning over every rock to find a potential buyer
A bad real estate agent is reactive instead of proactive. A great real estate agent will make sure to jot down the contact information from every person who inquires or visits. They will then methodically fellow up with every potential lead to try and illicit an offer.
A bad real estate is lazy and will think the property will sell itself. A great real estate agent takes nothing for granted and will try and get the maximum price possible for the seller.
Take Advantage Of Bad Real Estate Agents
Given commission rates are similar no matter which quality of real estate agent you go with, you might as well hire the most experienced real estate agent who has done the most number of deals in your neighborhood. They will have the credibility, the marketing skills, and the connections to get you the best price possible.
As a buyer, you need to take advantage of bad real estate agents. Go through listings that have been sitting for a while. Look up the listing agent's sales history and see if there's a big mismatch. Out-of-town agents and inexperienced agents are the best for getting great deals.
After a certain number of days on the market, the listing agent will start feeling a tremendous amount of pressure. This is when you should come in and try and get yourself a deal.
How Some Real Estate Agents Have Helped Me Save
Looking back at my purchase history, I clearly see how some suboptimal real estate agents have helped me get better pricing. They might not have been the best agents for the seller, but they still got the job done, which is what matters most in the end.
2004: Listing agent was an out-of-town agent who listed the property during a wet December. As a result, the listing sat and I was able to get $30,000 off the asking price. However, I also screwed up by letting an agent represent me and get a big commission, even though he did zero work because he was on vacation and I found the property. It was my second property purchase, so I didn't have the confidence to buy on my own yet. If I was smarter, I could have saved another $10,000 – $20,000 no problem.
2014: A 72-year-old part-time real estate agent from out of town got the listing because he grew up next door to the sellers. He cut me a deal and shunned a higher offer due to our handshake agreement. He was an honorable man who also lowered his commission to the seller because he also represented me. Savings: ~$50,000.
2019: A 55-year-old out-of-town real estate agent from Petaluma had no understanding of the neighborhood. She was able to convince the sellers to go with me after only five days on the MLS. She was a crafty veteran so I had to watch out. But because she didn't know the area and I did, she panicked at the thought of me walking. Savings: $150,000 – $200,000.
2020: A relatively inexperienced real estate agent decided to list the property in April 2020, a month after lockdowns. We developed a good relationship after hours of discussions during the weirdest time ever. Ultimately, he convinced the seller to forgo a higher offer and go with me. As a result, we bought our forever home. I appreciate the agent's willingness to work with us, which is why he's my top pick if I were to sell. With two more years of selling experience under his belt, I'm confident he is a better agent today. Savings: $80,000 – $100,000.
Time To Buy More Real Estate?
One of the reasons why I like real estate investing so much is due to the inefficiencies. If you're a savvy enough buyer, you'll be able to take advantage of the kinks and save. If you're a seller, you really should go with the most experienced real estate agent in your neighborhood.
The war in Ukraine and the rise in mortgage rates has created a dip in demand. As a result, I believe there is an opportunity to get a better real estate deal today. One of the easiest ways to invest in single-family and multi-family homes without leverage is through Fundrise. Fundrise focuses on investing in the Sunbelt region where prices are lower and cap rates are higher.
If there is a peaceful resolution to the war and if inflation rolls over, demand for real estate will rebound again. We are already seeing signs that inflation is peaking with the decline in shipping rates, trucking rates, and pending home sales.
I would try to pick off some poorly-marketed real estate listings right now. Unfortunately, I don't have a spare $300,000 – $600,000 lying around for a down payment. Therefore, I'm simply going to buy the dips in real estate ETFs and continue to add more to my private real estate funds.
The reality is, we won't be in the market until 2025 at the earliest because we like to live in our houses for at least five years before considering a nicer home. Moving is a a major pain. Ideally, we'll appreciate what we have forever and never move.
Readers, have you had any experiences with bad real estate agents? If so, I'd love to hear how you were able to take advantage of the situation. Or maybe you were hurt by a bad real estate agent? What are some other red flags to look out for?
Update: The $2.9M property cut its price to $2.5M and ultimately sold for only $2.3 million. Bad realtors are so bad! Make sure you find a good one please.
23 thoughts on “How Bad Real Estate Agents Can Cost Sellers A Lot Of Money”
I got lucky with my latest property purchase in the Peninsula. The listing had terrible pictures that were dark and looked like it was taken with an iPhone 5. The seller didn’t bother to stage the property and the furnitures at the time of listing was very dated. The property needs cosmetic updates but the bones are good. Even all the appliances are already SS. I offered just slightly under ask by a few thousand and let the seller rent back for free for a month. So technically, I was able to purchase at asking price and there was no crazy bidding war. I’d say we should pay more attention to listings with ugly pictures and furnitures! :)
Finding a good agent is a surprisingly low-priority for most people when they’re buying or selling property. I have a fairly limited amount of experience in real estate, so the value my agent brought to the table was pretty crucial. Even in the RTP, NC market, during one of it’s recent peaks, my agent was able to help me get the house I wanted for (cheaper than) the price I wanted, and got almost all of the closing fees paid for by the seller (which was basically unheard of at the time). The caveat? The house needed about $1000 in repairs and some paint/touchups in a few rooms. That delayed me moving in by a couple of weeks, but it was also something I could afford at the time (which the agent knew).
That same agent has helped another member of my family make some pretty significant profits in real estate too (as the listing agent). So, yea, don’t undersell the value of a good agent – or the detriment of a bad one. They can be the difference between a deal being bad or excellent, whether you’re a potential buyer or seller. There is the additional cost of having a buyer’s agent, so I understand the wariness there, but for someone like me with absolutely no real grasp on the real estate market at the time, it was well worth the additional price.
I have regrets about not working with a buyer’s agent since the seller’s agent was so rude that she didn’t deserve the full commission. We called the agent on the “For Sale” sign in front of the property we wanted to purchase. We knew right away that the property had everything we wanted so we made a cash offer the next day and asked for a quick closing. We are the types of people that like to get everything in order as soon as possible but every time the agent would follow-up on the “to do” items, she spoke to us with the assumption that things weren’t done yet. Throughout the purchase process, we reached out to her no more than three times so I don’t think that it was because we were a burden.
I have a hypothetical for you Sam, in forecasting future price fluctuations in the Bay Area housing market:
Let’s assume the following:
– Bay Area company stock prices will continue to stagnate / fall for the next couple years; therefore the “funny money” effect will subside and people will not feel as rich as they did during the bull market.
– Interest rates will rise several more times over the next couple of years, increasing the effective cost of buying a home.
– Taxes rise, due to inflation, making it more expensive to afford the all-in monthly cost of buying a home.
If these all play out, when do you think an optimal time to buy might be? Say, next winter or spring? Or could these phenomena play out sooner? Obviously you can’t know for sure, but wondering what you think.
I like December 24, 2022. By doing the winter, and by after I 5 to 10% price decline. It’s really hard to buy for anything lower than a 10% decline. I’ve been in this market since 2003.
Real estate commissions have not gone to a flat fee yet because companies like Zillow and redfin derive a huge portion of the revenue from realtor advertising.
So these online real estate companies can’t afford to overly hurt their clients.
I don’t think that its due to advertising. I think it is because many online realty sites have their own realtors working the system and wanting to charge commissions to make more money as the middlemen they are.
Look buying a primary home is a very personal and dramatic process. There is something very deep and ingrained in all animals and people when finding and choosing a home to live in. It can certainly be helpful to have someone experienced help you, but realtors need to modify their payment model if they want to gain any respect and keep their profession going. Would you pay a travel agent $2000 to book an airline flight or hotel for you?? Today with online travel sites that would be idiotic and a total waste of money. So why have realtor percentage based fees remained the same now that almost all the information is online??
It starts with educating the SELLERS. The SELLERS need to negotiate and set reasonable fees for the realtors. A single realtor helping to sell a home at the average home price today typically makes close to $10,000, which is 2.5% of $375,000. $10k actually seems pretty reasonable for this work. Where it goes out the window is at higher end with a 1.5M house where the same realtor would make around $37,500! There is no way it is 3.7x times more work to sell a 1.5M home versus a 375k home, in fact it is probably takes less work and less skill given better neighborhoods and maintenance in higher end homes! Nevertheless even if you add some additional time and effort, you could argue perhaps 1.5x for selling a higher end home, which comes out to $15,000 for selling a 1.5M home, which is 1%!
So SELLERS just do some simple math and figure out how much cash you want to pay your realtor and the buyers realtor out of pocket, and remember and the end of the day you pay realtors cash out of your pocket. I would suggest a maximum payment range of $10,000-30,000 total for all realtor services, irregardless of your home price. Then just take that absolute cash number and divide by your suggested listing price and then you have your “percent” commission which can be split between sellers and buyers realtor. So if you want to pay $20,000 to sell your $1M home, then 20,000/1,000,000 = 2% total commission (1% for seller, 1% for buyers realtor).
Try it out. Many realtors will baulk, but there are many hungry realtors out there and eventually you can find a reasonable one who wants the work…
My home is worth 2.5 times more than the median single family home in my county. Therefore, instead of offering the “standard” 2.5%, I would offer 1% commision (2.5 divided by 2.5) for a realtor to list my home. Who decided to offer percentages anyway? Makes no sense.
Really, I wish there would be a fixed fee based on the respective county’s median home price. Then watch the supply of homes increase slightly (healthier).
The issue I believe is with the buyer agent’s commission that seems less negotiable if I’m not mistaken. That needs to change, and if so, that buyer would heavily increase their chances of becoming “my buyer”.
We need to help the common folks out, not the realtors pockets.
Have you successfully been able to get a listing agent to work for 1% – 1.25% commission?
I’ve found nobody will accept less than 2% (one side).
It is collusion between all the Agencies and Brokers. That is why there are several federal lawsuits out there trying to break this up.
Having to give up $40K (2% buyer agent, 2% seller agent), for a $1m listing that will probably have 5-10 offers in 3 days is criminal.
Inputting a listing into MLS takes all of 20 minutes.
As a seller, I believe you are negligent if you are selling your home or any property and you don’t research the market and the comps. Today, its simple.
SDLookup.com (San Diego’s main MLS listings service) just emailed me one week ago offering a 1% listing fee. It makes sense as home prices have shot up in what was an already expensive market and the work is less. FWIW, they claim high level real estate service, experienced agents, and sale for the most amount of money.
I likely won’t sell this fixed up potential flip, but will be looking around starting January for an upgrade just in case after my two year mark.
Good to know! I hope the trend continues.
One thing though, he will pay them 1% commission, but you still probably have to pay at least 2.5% to the buyers agent. So that’s 3.5%. Still good progress.
Unless you were saying that they will earn a half a percent and pay a half percent of the buyers agent?
Yeah I think this buyers side realtor percentage is an issue that needs to be addressed as well. As a buyer if you are interested in a home and your realtor refuses to show the home to you or submit an offer to the seller just because the commission is “low”, then as a buyer you should report that realtor and perhaps file a claim.
Its ridiculous, some realtor essentially saying: “I don’t want you to see or buy that home because they aren’t offering me enough money”.
Importantly the law recently changed to provide buyers more transparency due to a lawsuit filed by the U.S. Department of Justice. The National Association of Realtors (NAR) agreed sellers’ agents must publicly disclose the commission they offer to buyers’ agents for properties listed on a multiple listing service site. In addition, buyers’ agents will be obligated to tell their clients about the compensation they are being offered. Buyers’ agents won’t be able to describe their services as free to the buyer and must be transparent about how they get paid.”
This is important because I have seen the buyers side commission listed on most listings now. As a buyer you can see exactly how much your realtor would get paid. And as stated before buyers realtors really don’t do that much work at all, certainly not more than sellers realtor, so there is no legitimate reason a buyers realtor should get more than sellers realtor.
I agree though that there is collusion among realtors and brokerages to attempt to keep commissions fixed and high. Ultimately lawsuits as well as expansion of flat fee realtors will help, but we need to educate the sellers and buyers as well!
Yeah, I think in today’s age with online MLS and websites which automatically provide all the comps as well as fairly accurate estimates of a home’s value, that real estate agents are WAY overvalued and even 5% commissions for buyer/seller’s realtors is a rip off.
In my view real estate agents should be paid a flat fee or charge by the hour for their services. In the neighborhood I live in houses are listed and sell in 14 days with multiple offers over asking, and that’s true for many hot areas around the country. In this environment paying someone $30-40k for 5-6 hours of work is a joke, just do the math that is like $5000/hour!!! Neurosurgeons don’t make that much, and factor in that you don’t even need to graduate high school to be a realtor, its absolutely ridiculous.
Yeah and I’ve heard it all before that the poor realtors have to spend so many other hours working that don’t end up in a sale or commission, and also that realtors provide so much protection and service and knowledge, and their amazing marketing skills will lead to significantly increased sales prices… when in actuality its a monopoly with the NAR, and they prey on people when they are at one of the most vulnerable times in their life trying to find a home to live in and a roof over their head. It is such an emotional thing that most people don’t even have a handle on the realtors fees and it all hidden and wrapped up in the closing. Furthermore, since it is sold to people as a percentage (that is “paid by the buyer”), when real estate appreciates ~6-18% realtors are getting these huge absolute increase in commission year over year for doing less and less work!
If I ever sell any of my homes I will be using a flat fee realtor, and offering the buyers realtor 1%. The thing is most buyers now find their home online and then go visit it.. so buyers realtors are even less value than sellers realtors. Additionally with virtual video tours and online documents for selling and buying the sellers realtor also now much less important.
Look I understand there is some limited value to having a realtor, but there is absolutely no reason a real estate agent’s fees need to be a percentage of the home sale price. It is time to revert to a flat fee model… ie to sell this home I anticipate it will take me X hours, and my estimated costs are $10,000 to sell this home in 4-6 weeks, like any other contracted work.
I absolutely agree the realtor 5% total commissions is a huge problem, and is a big contributor to this nation’s home inventory supply issue. Closing costs are reasonable but realtor fees are outrageous, especially in this online world. In my neighborhood it would cost six figures for the seller to pay the realtors and the house would be sold immediately, regardless of the home condition or agent. Inventory issues won’t get better until the commissions become respectable fixed fees in my opinion.
I haven’t mentioned it in a while, but I still feel bad that I sold my house in Florida 6 years ago on a company relocation, instead of it keeping and renting it. It was in the middle of the ratios from that post you had like 5 years ago or not topic.
My agent was from the neighborhood, and she was good at marketing. She did over promise a price, but since it was company relocation, I should have looked at the document she filled out better where it was more realistic. I listed in February, thinking it was snowbird season, but we lived in a family neighborhood, and should have waited till April. The other key point, which isn’t in your article, is she didn’t return phone calls. Twice we had buyers cancel on the deal, and I couldn’t ever reach her. That should have been where I turned it back to rental.
But it was a company relocation, I had bought it as a short sale, I sold it just two years later, I made a lot of money, and I didn’t pay a penny in taxes or commission (buying or selling) since both sides was a company relocation.
Hopefully you used the proceeds to buy another property six years ago that appreciated?
Not returning phone calls from potential buyers is completely unprofessional.
Is 75% of your Net Worth in real estate too high? We live in a 1 Br that we love, have a pied-a-terre vacation home in a major city and have 2 additional rental properties. Thank you.
So many valid points. I’ve been to a lot of open houses over the years and can quickly spot inexperienced and/or unprepared agents. Sometimes it’s because the actual listing agent isn’t there and sent a junior colleague instead. But other times it’s the actual listing agent and they still don’t know the major facts on the property or the neighborhood. Real estate transactions can go in so many directions and it’s definitely worth doing a lot of due diligence as a seller before choosing an agent.
I had one rental in Corona last year. Now Im ready to buy second rental in Orange County. The first rental’s buyer agent was horrible. She was my cousin and I cannot fire her. So for second rental, should I become realtor and save money on the commission. OR so I go directly with seller agent and ask for discount off her commission.
As an experienced full time agent/broker/investor for 15 years I’d advise that you do neither. Most buyers have a misconception they’ll save on the commission if they go try and work directly with the sellers agent. I’ve had buyers make this attempt on listings of mine before and they ended up paying several thousand more than a buyer’s agent had negotiated prior to the unrepresented buyer dealing with me, and they paid more than the commission they thought they saved… meanwhile I got paid double and the seller made an extra 10k than the last counter they made to the buyer who had an agent negotiating on their behalf. As an unrepresented buyer no one is looking out for your interests, and the seller’s agent job is to get you to pay the most possible. Why you’d choose to work with someone who has that mindset just seems counterproductive and foolish. Getting licensed is likely ill-advised too unless you plan on using it as a career and getting advanced trained. A license is just a piece a paper that doesn’t necessarily equate to experience or knowledge. If you needed a leg amputated would you go to med school to save on the surgery, or would you work with someone who had only does 1-2 surgeries a year? Probably not. The real estate industry is inundated with inexperienced agents and there is a low barrier of entry. The average consumer doesn’t realize the extent of how much value an experienced agent can bring to the table by having the foresight to know the risks and safest way to navigate a transaction. I just had a long term client relocate to OC, I set her up with an agent with advanced training and tenure. There are designations that are more difficult to obtain that less than 2% of agents hold. If you need help connecting me with an qualified agent in your area please reach out to me.
Why would the buyer let you represent him and not have you cut your commission, instead of earning double and charge the buyer more?
That doesn’t seem great at all for the buyer.
You give me motivation to help empower more buyers to get a better deal.
Related: Buying A Home With The Listing Agent To Save Money
Hi Tam, I would encourage you to ask any buyer’s agent first…”do you own investment property yourself?” There is a lot of realtors, but most realtors are like commodity salesman….you want a fridge…I got fridges for you. You want a 3 bed, 2 bath with a pool in Mission Viejo…I got that too. But that’s not difficult at all.
As a real estate investor myself in Orange County, I take around 2,800 homes and are looking to narrow them to the best of the best (top 1% or less) based on purely analytics. If you’re an investor, you don’t care whether it’s got a white picket fence and flashy colors. It’s more important to find the home with the most built in equity from the start. List prices and value are often two different numbers so I’m always looking to find the best 10 homes out of 2,800 that are the most undervalued. Then, there is also different price to rent ratios. Some areas will have a much better price to rent ratio than others so narrowing to the best on price to rent ratio is a good metric to use.
One thing you probably saw with your Corona rental is depreciation is a perfect phantom loss. You get to deduct a good amount of money in taxes, but it’s not real cash coming out of your pocket. Even a $550K investment gets divided by 27.5 years which is a $20K tax deduction that was never cash out of your pocket.
I see the big problem is that financial advisors push REIT’s related to real estate, but never real estate itself because they don’t get paid on it.
Most realtors are basically commodity salesman and are trained to be glorified order takers.
And the best real estate investors…if they are truly good….have enough passive income that they aren’t forced to trade their time for money anymore. I know I have clients that want me to show them homes on the weekends, but I’d rather surf or play baseball with my 7 year old son…and I can do that because I have enough passive income from being a real estate investor that I don’t need to. Real estate is a fantastic hedge against inflation and I would encourage you to find someone in Orange County real estate that is also an investor themselves because their insight is worth the compensation.