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Realtors and Investors :: Are you speaking the same language?

Redfin created a lot of buzz on 60 minutes last week. That story will come and go (we have short attention spans and a new distraction will come along soon) but the core issue will remain: is there a disconnect between the value that a Realtor brings and what the consumer wants?

Seems that there is plenty of discussion around why agents are worth their 6%, but not enough on what the customer really wants.

That issue becomes even more significant when the customer is a real estate investor.

Real estate investors are different.

Here are five angles to consider when you're comparing a real estate investor with a typical homebuyer or seller:

Service: Many standard customers will need to be led through the scary and unfamiliar processof buying/selling a home. This will require a lot of personalized, time consuming attention on the part of the Realtor. An investor, however, isn't looking for reassurance. An investor, generally speaking, will have been through this drill before. She'll need help making sure the paperwork happens right and on time, but in general will require less handholding. Which means less time.
Advice: The standard customer doesn't buy/sell a home frequently. He won't have a good checklist of things he should consider, and will need help in organizing, prioritizing, and getting to a good decision. The investor, on the other hand, won't need generic pointers. What he will need, however, is good market intelligence from you. The investor is probably a part timer, whereas you're a full timer. You'll sometimes know about news before it's news, and that's gold for your investor client.
Buying: The standard customer is looking for her dream home, and many turn to a Realtor for help in finding it. The investor, on the other hand, will generally not be looking to a Realtor to find properties to buy. If the investor is worth his salt then he'll be doing this himself.
Selling: Selling a home is an emotional experience - which means it can be painful (and time consuming) for the Realtor. The Realtor will have the fiduciary responsibility to tell the seller that her sense of style and decorating (read: clutter and bling) are not exactly helping the sale. For an investor, on the other hand, a sale is an economic decision. The Realtor should end up spending less time as amateur psychologist.
Negotiations: As a Realtor, your job is to save the client from himself when it comes time to negotiate the deal. Investors, however, should be able to fend for themselves. In my experience - having to work through a buyer's agent and a seller's agent makes it more difficult to successfully negotiate a good deal.

Bottom line: Investors think and operate differently from the standard homebuyer. Their value proposition is different, and you'll need to think differently about how to meet their needs.

Posted by Christopher Smith on 05/23/2007 05:11 PM

Comments (9)

real estate investor, invsting, negotiations, commission, business model

9 Comments on Realtors and Investors :: Are you speaking the same language?

MAY

2007

Good points! I typically enjoy working with owner occupants more....

Chris,

Solid blog. With a standard home buyer' seller it's an emotional experience and with an investor it's all business. Or should be for best financial results.

MAY

2007

Hi Chris,

Great distinctions you make here. Do you think most investors still find us to be worth our full 6%, given that our role is different when working with them? Or do they just look at it as the cost of doing business?

Have a great day.

Maureen

Watch out - the REALTOR police will get you for that "full 6%" comment! According to the NAR, the "standard 6% commission" is an evil plot by the media to convince consumers that a Realtor's commission is fully negotiable, not protected by monopolistic tactics.

But you, of course, are 100% correct. 6% is a market standard which the Realtor industry strives to protect, and which market forces are trying to erode. But Realtors shouldn't feel picked on: every commission structure in every industry is always under attack - that's the nature of supply and demand in a free market economy. The NAR, in my opinion, does a terrible job of dealing with this issue...but that's a subject for a different post.

In answer to your question; I think that what the investor needs is quite different from what the average consumer needs. Most investors don't need a "full service broker" as it is currently defined (and priced), and we don't need for agents to spend all of the time and effort doing the sorts of things that they do for standard customers.

Investors, unless they're brand new and inexperienced, aren't looking for service, consulting or reassurance. They dont' need you to run the numbers and they don't need you to negotiate the deal. These are things that are highly valuable to the standard customer, but add little value to the investor. You should spend your time and effort to provide these service to standard customers and they should pay for that time and effort; that's what the 6% is all about. But investors, increasingly, will be unwilling to pay for services that they don't use.

That said, investors are great clients - once you weed out the bozos, of course (and there are a lot of bozos out there). They value Realtors, the're repeat customers, they know the market, they'll help you build your business, and they're easy to work with. In this competitive market, specializing in a niche is the way to build a solid business that keeps on growing, and investors are a niche that isn't going to go away.

MAY

2007

Hi Chris,

Too funny. It just slipped out. I'll be more careful! But you know what I meant. And your interpretation is a point well taken. Thanks for your response; I'll be reading the links you provided... working in a rental market I encounter investors all the time. I am trying to learn more about their unique needs so I can better serve them, but it's tough in this area due to high prices and relatively low rents... time will tell, I suppose.

Have a great weekend!

MAY

2007

Chris,

As always, great post with food for thought. As you know I base my entire model on working with investors. I have a set commission I charge and believe I'm worth every penny. However, given any set of circumstances my stance can change based on what is before us.

Example: I have one client whom I've helped turn a $30,000 initial investment into about $112,000 in just under two years. He had a smaller house he needed sold and then asked me for a discount. I just explained to him that A) a smaller house would mean smaller commissions and I do have a certain amount of fixed expenses that I need to recover and B) I've multiplied his money by 4 times...just on the deals he's done with me...THERE'S YOUR DISCOUNT! And I said it all with a smile and he understood.

Another Example: I have a guy that turns property on a regular basis and is really only looking for access to the MLS without the headaches of being a real estate agent. We have a special arrangement where he pays very little to me directly but in turn I do very little actual work. And he sends me his referrals, which have been substantial.

So house agents need to learn to negotiate when it comes to working with investors.

Wow - I didn't realize I was writing a blog... Sorry about that!

MAY

2007

Chris...I am an investor, and you comments are sound. Personally, I avoid real estate agents when I am purchasing, as they want to control the negotiations, the showings, the closing, the title company, the financing and on and on. And then they want to charge the seller a commission on top of that, which gets passed on to the buyer/investor.

However, when it comes to listing a property for sale, I love real estate agents, only because of the MLS, which exposes my property to many more buyers that I could otherwise reach.

Beyond that I view real estate agents as a middleman who is out for a piece of the pie. If you want a larger piece of the pie, you must become an investor. I prefer 5+ multi-unit properties for the "passive income" aspect, though I started with SFR's. Commercial loans are usually in place on commercial properties, and are usually owned by other investors. Many commercial loans are assumable, with a ballon payment. Most investors get rid of the property before the ballon comes due, or if it makes sense, they do a re-fi. But due the 27 1/2 yr depreciation on investment property, it makes sense to do a 1031 XC into a larger income producing property. As investors we all speak the same language and are more open to creative forms of financing, wherein we can "assume" the current loan, have the owner do a "carry-back" on some of the financing, place a Master Lease on a property, similiar to a residential lease w/ option to purchase.

Bottom line: Investors think and operate differently from the standard real estate agent.

As an investor we focus on the needs of the seller, more than the location of the property. Some investor/sellers need a big money cash close for other investment purposes, while another is looking for tax avoidance on capital gains, while another seller is looking for a monthly cash flow.

Real estate agents are boxed in by commissions.

I refuse to get a real estate license as I do not want to work for commissions, which requires a steady stream of buyers and sellers. As an investor I do not flip properties, I prefer to buy and hold for passive income. I deal w/ a much smaller number of sellers and buyers, as an investor, and generate more income than relying on commissions.

I couldn't agree with you more on the differences btwn your typical buyer/seller and an investor. I found my investor clients to be throughly firm on what they were looking for, what their expected ROI was and I also found that investors tend to stick to a particular strategy or style of investing. I was relatively new to the industry and found myself with a plethora of investor clientele. Now, the fact that they keep coming back to me makes me think I did right by them. I'm a quick learner and I read up everything I could to be able to gain the knowledge I needed.

Cheers,
Uzi Husain
Arizona Realtor, serving Goodyear & The Phoenix metropolitan area

I could reduce commissions with an investor of proven loyalty, on repeat business if I felt that I did not need to provide advice.

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