By Aly Yale and Liz Brumer
The days of needing a Realtor in order to buy or sell real estate are long gone. In today's technological era, anyone with a smartphone or computer can easily browse listings or advertise a property for sale by owner (FSBO) for free. Enlisting the help of a real estate agent can be beneficial at times, but for many professional real estate investors who know their markets and the going value of homes, hiring an agent can be a costly and unnecessary step when purchasing a property.
Below, two Millionacres pros debate the virtues of each side of this topic.
Is a buyer's agent worth the cost?
A worthwhile Realtor should:
- Provide insight into your local market.
- Set up automatic listing notifications according to your buying criteria,
- Put you in contact with professionals to assist you during the purchase, like mortgage brokers and inspectors,.
- Negotiate with the seller's agent for you.
- Assist you in filling out the paperwork.
Most savvy investors aren't in need of those services as they likely already have established connections with lenders or are buying cash, understand the paperwork process, and can establish their own listing notifications for free. A good agent can act as a buffer between the two parties during negotiations and may potentially have a pocket listing from other sellers or clients, but in most cases, the services real estate agents offer aren't that appealing to experienced investors.
Benefits of buying without a real estate agent
Even if you were looking at it from a convenience standpoint -- for example not wanting to spend your personal time taking care of the closing process, the paperwork, or other parts of the buying process -- you need to consider the cost for the services you're outsourcing to an agent. The average sale price of an existing single-family home in the U.S. in November of 2020 was $315,500.
In most cases, the full commission for both the buyer's agent and the seller's agent is paid out of the proceeds. Some states allow a listing agent to represent both a buyer and a seller, a condition known as dual agency. If a buyer is unrepresented, there may be an opportunity to negotiate for a rebate or other incentives.
Spending that much money will significantly affect your return on investment, and in most cases, buying on your own can be well worth your time. Assuming it takes you 30 hours to seal the deal, you would be “making” $315 per hour based on the above averages by purchasing the deal yourself rather than using a buyer's agent.
To top it off, better deals can often be found looking for FSBO or via other direct marketing efforts. The National Association of Realtors found that the typical FSBO home sold for $77,000 less than an agent-assisted home sale. Finding off-market deals or working with buyers who don't have a buying agent fee can be an enticing negotiation tool.
The other side
The homebuying process can be complicated. There’s tons of paperwork and due diligence involved, you have to negotiate and put together contracts, and you need to coordinate a number of logistics and appointments, too — things like showings, appraisals, inspections, your closing, and more.
Unless you’re super well versed in all these things, having the guiding hand of a real estate agent is a no-brainer. It’s also why a whopping 88% of buyers last year used one.
Benefits of using a buyer's agent
- Paying less for the property: Agents know the market, they know what a property is worth, and they also know how to negotiate. All these things combined typically mean you’ll pay less for a home once you find one.
- Better vendor recommendations: When buying a property, you need tons of vendors. There’s the home inspector, the title company, the home insurer, the real estate attorney, and so much more. Experienced agents have worked with dozens, maybe hundreds, of these professionals over the years, and they’ll have a whole arsenal of great ones you can pull from.
- Access to more properties: Agents are networkers. They have connections to other brokerages, other buyers, up-and-coming sellers, and more, and they often have inside lines on homes that aren’t even listed yet. At the very least, they’ll be able to alert you as soon as a house that meets your criteria hits the market. In today’s competitive landscape, that can mean the difference between finding your next investment or just sitting on the sidelines.
- Easier negotiations: The negotiations don’t stop at the offer. Once your inspection and appraisal roll in, there’s more haggling to be had — and an agent can help you come out on top. They’ll know what repairs to make a big deal out of, how much to ask for in repair credits, and what to do if the appraisal comes in low so you don’t lose the deal.
Finally, you’ll probably find a home faster, too. With your agent’s connections, their ability to negotiate, and their experience (meaning they can draw up a contract fast when needed!), you’ll likely find and secure that next property much quicker than you would going solo. This is especially true in a hot market or with a home that’s in high demand.
The bottom line
There are certainly pros and cons to both paths next time you buy an investment property. On the one hand, going it alone means more control and potential savings on commissions, while using an agent may equal a better price, stronger vendors, and access to more properties.
If you’re not sure which option is best for your next investment, consider interviewing a few agents first. Find out what they have to offer and see if their communication style and personality jibe with yours. If they’re the right fit and can add marked value, you might consider adding them as a permanent member of your investment team.