“Donald Trump made $375,000 for each of the 16 episodes of “The Apprentice” — a total of $6 million. Here’s what he had to say about it: “That may sound like a lot of money, but real estate is still better.”
As a real-estate investor or a homebuyer, you want to buy a property at the lowest possible price. Real-estate agents, on the other hand, are motivated to sell each property they represent at the highest possible price. Their commissions are based on the sales price — so the more you pay, the merrier it is for them.
You might think this conflict of interest means you should avoid agency-listed properties and focus solely on for-sale-by-owner deals. If you do think that, however, you’re wrong. Good deals can come from all kinds of sources, including agencies — and there are some properties that you can’t have access to in any other way. Here’s why:
- Real-estate agents sometimes represent highly motivated out-of-town sellers. Those sellers can’t show the property themselves, so the only way you’ll see it is through a real-estate agent.
- Real-estate agents sometimes represent sellers in financial distress who need to sell their properties quickly.
- Some real-estate agents specialize in real-estate-owned properties (REOs). These are (usually vacant) properties that have been taken back by a bank or other lender and are now back on the market — and can often be excellent values.
- Other agents may specialize in pre-foreclosures.
- To make a deal happen, agents will sometimes offer to reduce their commission, saving you money.
- And even with properties that aren’t in a special situation, real-estate agents will sometimes simply represent a property that offers a better value than competing for-sale-by-owner properties in the area.
I’ve even gotten excellent value buying DIRECTLY from a real-estate agent. Last year, for example, a partner and I called on a multi-unit property that was listed with an agency — and it was superb. It was zoned both commercial and residential and was just half a block from the heart of a busy and growing downtown.
As it turned out, the agent on the deal actually owned part of the property and the other owners were experienced investors — so you’d think there would be no way we’d get a good deal on it. But, in fact, we got an excellent deal on it. We paid $230,000 for it. It has produced healthy net cash flow from the very beginning and in a little over a year has increased $120,000 in value.
Why did we get such a good deal? Because the owners, including the agent, wanted to “cash out” so they could get into property development. They had an opportunity already lined up, so they were motivated sellers. If my partner and I had automatically shunned all agency-listed (and even investor-owned) properties, we would have missed out on this one.
My only regret is that we didn’t buy another property that these same owners were selling at the time. It was right around the block and was also offered to us at a very good price. We simply didn’t act on this second deal in time.
So when looking for that rare real-estate bargain, don’t rule out real-estate agents as potential allies. Yes, many of them list properties at ridiculous prices. But they also sometimes have very special deals available. So the more real-estate agents you’re on good terms with, the better.
(Ed. Note: Justin Ford is the editor of Main Street Millionaire, ETR’s real-estate investment success program.)