Buying Cheap Real Estate In Today's Market. Reality Check.

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Buying Cheap Real Estate In Today's Market. Reality Check.

OK so my head is exploding today!!! So much going on and so many posts that need to be written. Including my year end market report for Poinciana Florida. But today I want to write about BBAs (Buyer Broker Agreements) and why they have never been more important that they are right now.

I expect I'll get all the usual responses about "My clients would NEVER buy a house behind my back" and "The commission doesn't matter to me". If you believe these things to be true this post may not be for you OR maybe it's EXACTLY for you!

This post gives one reason why a BBA should be important to the Buyer. In fact, it's my opinion, that a BBA is MORE important to the Buyer than it is to the REALTOR® and here‘s why.

I spoke with a Buyer, earlier this week, who has cash and is ready to buy. It seems he has been trying to find an agent to assist him but everyone is too busy. Of course, after reading how slow the market is, he finds this hard to believe. So being the good little Broker that I am I explained it to him.

His problem is....he is looking to purchase a deal, a foreclosure, a cheap rental property. And he should. There are some good properties that he can purchase for less than $50,000. As an Investor, these properties are the ones he SHOULD be buying. The only issue is the prices are so low, that the co-brokes (commissions being offered to sell the property) aren't worth the time involved in helping him find the right property. So he gets placed on the back burner. We may help him.....but only when we get some extra time.

In fact, I have the same problem. He wanted me to go look at a property before he made an offer and I said I would......tomorrow. Today I was busy doing other things......that have a higher return.

The reality is I can't afford to spend hours previewing cheap foreclosures that he may or may not be able to or want to purchase.

This is where the BBA comes in. If an Investor is truly wanting to get a deal, in the very low price ranges, then it is to his advantage to give his Broker/agent an incentive to put in the time. Maybe he'll have to chip in $1,000 or so to meet the minimum compensation outlined in the agreement but surely, by agreeing to this, he'll get better service and therefore a better deal on a property.

I have always been a firm believer in getting the commission out of the equation right up front. The best way to do this is to get a BBA signed. Unless of course you like working for peanuts. I don't. And won't. My Buyers deserve better than that. Do yours?

Here's a sample BBA.

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Posted by Bryant Tutas Broker/REALTOR(R) Tutas Towne Realty, Inc on 01/14/2009 07:49 PM

Comments (57)

foreclosure, buyers broker agreement

Originally posted at: Selling Poinciana One Property at a Time.: Buying Cheap Real Estate In Today's Market. Reality Check.

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This post has been included in Florida Real Estate News Polk County, FL Real Estate News Poinciana, FL Real Estate News

57 Comments on Buying Cheap Real Estate In Today's Market. Reality Check.

JAN

2009

Most of the foreclosures I have sold ... even the cheap ones have a minimum commission that I have been happy with getting. We did recently sell a FSBO where the BBA provided that the buyer pay us. Glad we had that piece of paper too.

Same problem with lots too. Why do I want to go look at 20 lots when I'll shell out more in gas than the 200 bucks I might make at the closing? This is a nice way to get good service and get paid.

Bryant,

A great start. It's time to get paid by the buyer! On those REO and lots you should be working by the hour and billing for time and expenses! Collect a retainer, charge a professional fee plus accrued expences and see how both your attitude and the clients sincerity improves!

All our best to Billy!

Bill

Dear Bryant,

I appreciate your truth saying! Good idea about a buyer broker incentive.

I will do almost anything when I have the time. When I don't I will refer, or gift it, to another agent.

I have one investor who has been buying very low end bank repo's. I told him his best bet was to work with the listing agent. He is a very savvy person and doesn't need hand holding.

Barbara

BB.....as usual, you are right to the point! (okay, that property just looks so sad!)

I hope Billie is feeling better.....hard times for you guys, I know! Please let her know I am thinking of her! I know she's tough....but going through more than anyone should have to!

Yup...no peanuts here for sure.

BB - That's not such a bad idea for him to chip in $1,000. I think Realtors will at least spend more time with him.

I've been lurking. Now I'm officially parked. This looks very interesting (LOL). If I can't turn a prospect into a client with a BBA, then I simply let them go or refer it out. I learned the hard way. :-)

Sherry, I'm curious - how is this post an example of "buyers being liars?"

I like the idea of putting the commission problem on the table up front with a low-price buyer (and an investor at that). Brian Schulman and I both get these types in Lancaster City and the time is just not worth the hassle, given what we know to be the complexities of navigating a FC for them.

Bryant- This is way below our price point. I would have to move or market another area if 50K houses were to become the norm. I have been there, done that, paid my dues, years ago for that. No way, no how, even with a BBA, not interested, refer them out is what I do.

I won't even let our buyers agent work that hard for so little. Even $1000 is not enough for the work involved. I am a firm believer in figuring out what you want to be worth per hour, then do your math to find that pricepoint of property that will fit the bill. I make more coaching than that, from my home, on the phone.

I guess that is just one of the many reasons I don't work with buyers.:)

The old adage of you get what you apy for is always appropriate....quid pro quo

Simple philosophy

BB I agree that the buyer would be best serve by having an agreement about the commission up front. This is a business and we have to pay close attention to our revenue and expense.

JAN

2009

Good morning. OK so I'm also curious what this post has to do with "buyers being liars"? I do not in any way agree with that statement. Buyers may be uninformed and allowed by their agents to roam freely but rarely are they liars.

Katerina, There are times where I feel I certainly need to move :) However Poinciana is my market. I like the people and I like working with them. It's not all bad and it's certainly not all about the money. I have money. I've done about 500k in business this week thus far and I have yet to leave my house. Most of my investor buyers buy sight unseen. We look at the properties during the inspection period. I am however taking a short sale listing in Key Largo early next week!!!! No kidding.

As always I appreciate each and everyone of you stopping by.

Your article illustrates once again that real estate (and practices & customs) are local. Many of our area home buyers are looking for homes in the price range you spoke of. If I dawdled in showing those homes I would be out of business. (No, I'm not a pop tart agent, but I do believe time is of the essence in many of our lowered priced homes, they sell so quickly)

BB I really enjoyed this topic. You said it perfectly for me. Everyone has their own opinion and also enjoyed reading this discussion.

Bryant, Thanks for the lively discussion and also for the sample BBA.

I don't see anything wrong with getting the buyer to pay us a few bucks if we are willing to run and jump through hoops for them.

"My clients would NEVER buy a house behind my back" and "The commission doesn't matter to me".

Say what? I am not sure what planet a person who makes that statement is inhabiting but it's bizarre. I do like your points and the fact that you stay grounded in the reality of this situation!

Wow. I wish I did business in an area where I could afford to turn away clients because the commission was too low. The reality in my area is that every buyer is valuable. I think you have to take the snowball effect into consideration when dealing with clients looking for a bargain. If they are an investor, hopefully, they will buy more properties w/ you. If they are a first-time buyer, do a great job and they will call you when it's time to sell and buy up. If you give your $50,000 buyer the same courtesy you extend to your $500,000 buyer, they'll remember and give you more business.

I have a logical question. If there is a minimum commission shouldn't there be a maximum commission? Should broker commissions be a flat fee instead of a % of the sale price?

When the market was hot I didn't hear any complaining about the commission %. Now the market is down that % translates into a lot fewer dollars. Is this a case of brokers having to take the bad with the good?

Julie, I agree with you completely! That is the way my mother and I have ALWAYS ran our business.

We feel that, As an investment buyer, it's in our best intrest to retain this client through promt exemplary service, rather than 'charge him extra' for our time and possibly leave him with a bad taste in his mouth.

Investment buyers very soon become investment sellers!

Hello Bill,

Great concept and virtually exactly what we should do in getting BBA's with upfront fees toward our time, efforts and expertise. Curious, how many agents out there use BBA's today all the time, some of the time, or dont use at all?

Meant to say Bryant...look for your replies!

Dear Bryant,

Great Blog and an important one. But I had a difficult time reading it because of your blue "framing" on your blog page. Can you adjust that so your text is within instead of bleeding into it?

You really make some great points--you have inspired me to try to get some more BBA's on some folks that my partner and I have looking at houses with us! www.GotReal1st.com

-Julie in Western South Carolina

It's already been said, but a great reason to work with the investor is for the repeat business. Sounds like you've explained it pretty well to him and he should be willing to sign on the line to get some professional help. After you close one transaction, subsequent deals should go pretty smoothly as you each learn what the other needs to do a good job and make good decisions. I wish I had a steady investor to work with - that's one less buyer I have to attract thru advertising and one less cold call I'd have to make to get a listing.

BB-Great article, not what I expected from the title, but glad I stopped by (maybe that was the point???). I also checked out your 3 videos on the sidebar, HILARIOUS, loved them, nice job! Those were worth coming for themselves.

I have to agree with Julie here. I never pass a buyer up no matter what price range they are buying in. Sure in the short term I am probably going to be losing money especially if I end up showing every house in the area but in the long run if I treat all buyer's the same regardless of the price range that they are buying in then they will remember me and call when they are ready to buy and sell later. Not to mention referrals that I could get. I have one client who purchased a $60K house from me 2 years ago and since then I have received 3 referrals from him, 2 of which have already closed on their homes. So that little bitty sale has turned into much more plus I have the potential to receive more referrals from the new clients. It really is about thinking about the snowball effect and the long term business plan.

Some good thoughts for sure. I don't do business exactly like that, my style is different. However, I think Realtors in general are frequently guilty of not thinking of themselves as professionals.

Great Job, When we as professionals place Value on our time and talent, so will the public.

We work on contingency for 1%-5%. Trial lawyers get 30% of the take- plus expenses. Nuff said.

I've always loved the idea of a BBA. As difficult as it may be to present it to a regular home buyer, with real estate investors it is almost impossible in our market area. We've approached a few of our real estate investors (including those that have bought through us) about signing a BBA with us. Absolutely none of them are intereted. They want to be free to deal with whomever they want to and will go with the agent that they feel will get them the best deal they can. We don't take it personally. That's just the way they are. We stopped sweating the fact that they may end up going to another agent. The majority of real estate investors have no brand loyalty unless you can ALWAYS get them a steal.

If anyone has ANY ideas as to a better approach to take with real estate investors, I will appreciate hearing from you.

Sorry, I wasn't logged in when I made the previous comment. :-(

If anyone has ANY ideas as to a better approach to take with real estate investors, I will appreciate hearing from you.

I recognize the points you are making, Bryant. I'm headed that way as far as investment properties. This from an agent who dislikes the Buyer Broker under most circumstances. Notice, I said "agent," becuase the Buyer Broker Agreement is basically unenforcable UNLESS the agent's broker pursues the issue in any instance of breach. I know, I've been there. Initiated a Buyer Broker with a client, made an offer on a house the same day. When the Sellers countered the next day, my "client" said she wanted to think about it and wanted to "drive around" a bit more on her own. The alarm bells in my ahead almost drowned out my voice when I reminded her she had signed the Buyer Broker, a legal contract. And that if "accidenttally" happened to bump into any other realtors while she was driving around, she ishould inform them she was represented. Needless to say, she did indeed bite on another realtor's sign and purchased that listing. She then went into hiding. When I surfaced her a couple of days later, she confessed--but insisted she had told the other realtor, who allegedly said it was okay not to involve me. She was shocked to hear I was inclined to take legal action. I reported all to my broker, who spoke to both the "client" and the other realtor/broker. Their stories conflicted, of course. Any case, I was up for going after EVERYBODY. The broker declined, citing aggravation, legal cost, and--incredibly--that the other agent/broker explained that since she had taken a flat fee for the listing, there just wasn't money enough for compensation. I consulted an attorney who confimred that without the broker, there was no action available. I fired the broker and turned my back on the buyer broker agreement. But again, gotta agree with your suggestion for use with low end investors.

Our prices are not that low but you are right, each market has to decide what their minimum effort price would be. Buyers just don't understand how we get paid or what our job is. He thinks for a 50K PP you should be doing back flips to get the business because - don't forget we're starving in this market according to the media and every seller is desperate too!

Well hi there everyone. First the problem with the outlining on my blog is an AR issue usually if you refresh your page it will correct itself.

In my market the average price right now is about $110,000. In 14 years and hundreds of closing I have only had 3 sales higher than $500,000. Most are in the low 100s so making it up on another deal ain't happening. Working with a BBA is a business choice an may not be for everybody.

I completely agree that enforcing one, if challenged, would be difficult. Bottom line is whether I have an agreement or not a buyer/agent relationship should be built on trust. Which is another reason why signing a BBA should NOT be an issue. If there is mutual trust then why not? Wouldn't they want to be loyal and wouldn't they want me to get paid for my services?

I wrote a follow up post here that will answer most of your questions and will help explain this further.

And here's more

The questions I always have to ask when we have this discussion are:

Would you work with a seller without a listing agreement?
Why is working with a buyer any different?
Why would you let a listing broker control your compensation?
If the buyer trust you and you trust them then why is getting an agreement signed an issue?

Just food for thought.

Bryant,

Trust doesn't work by it self in real estate. You've got to take the Reagan approach: "Trust, but contract." Or something like that!

I had a friend that took my real estate and math classes twice, back to back. He lived only 1/2 mile from Brenda and I we use to baby set for each other, we had Eric they had 8 kids. His wife said he only had one hobby. I had sold him two duplexes and a single family rental when they wanted a home of their own. I had a list of home and appointments to show them. When I arrived at their house I found a note taped to the door.

"Bill, please pick the kids the schooks are excepting you. We're going to be a little late please feed the kids."

What could I do? I couldn't leave 8 kids ages 1 to 9. So I went to the two grade schools and the preschool, they were all excepting me my friend had told them when he drooped them off! Back to their house. feed the kids and wait and wait and wait! Several hours later they got home all excited! It seems they met a real estate salesmen the Sunday before show him my list and then took the day off work so that he could show them my selection. Best of all they bought a FSBO for 108% of the asking price, with their new friend collecting 8%. Three weeks later they ask me to help them with the financing, I told them that I'd help for $10,000.

Ask your attorney for a copy of his retainer agreement, it's almost perfect for real estate, almost.

Bill

Aloha, Bryant... I'm considering asking for a retainer fee up front from buyers like these...in the time honored tradition of the legal profession. So many "prospects" come to Hawaii on vacation and then decide they suddenly want to look at property, then they never buy anything... that's when we become "Real-Tours" instead of Realtors. It's a challenge, but I never ever put a prospect into my car without getting them to sign a rep agreement - otherwise, they're just wasting my time and adding to my (already very large) carbon footprint (the Big Island is VERY big!). Warm aloha, Katie Minkus, R(B).

Is there a house back behind that grass? Seriously though, having a buyer's broker agreement is the only way to go. It is just too much work to end up getting paid little to nothing on a deal.

Hi BB

I love your posts. They are always so great! Even if I didn't agree with you (which I do), your posts always have a way of making people really think! They are so entertaining! Nothing Boring here!! LOL (especially the videos).

How is TLW?

Sorry I have been out of the Rain these days, had LOTS going on and trying to keep up.

Your friend in Tampa

Katrina Madewell

BB, I like the idea of getting the buyer to chip in on the commission. A serious investor will realize the importance of having a great buyers agent, that could save him much more than the small investment it would cost him. GREAT idea:) Hope TLW is doing well. We are all thinking of you both and praying for her!

Some great points. We get some of those calls in our area as well, sometimes someone looking for a rural piece of land for $50,000. With all the driving and time involved in a transaction like this, it might not be worth $1500. The problem is you never know when these are going to turn into larger transactions or good referrals. The key to me is qualifying effectively in the beginning and not spending alot of time until you do have some form of commitment.

I haven't been able to get a commitment to guarantee a commission over what the seller would pay. But if you are able to do this in today's market, more power to you.

Wow, this post has really taken off.

I think buyers have a different outlook on the agent relationship in general than sellers. Sellers are schooled in thinking that they need to pit agents against each other and ask for the moon, so the contractual deal becomes the only sane way to secure compensation, among other things. Buyers, though, typically fall into a realtor's lap as a function of their search, usually online. They don't know to pit agents against each other - in fact, they are often quite naive on the competitive nature of the biz. That's primarily why we can get away without a BA and not lose as many as we should...but when the buyers DO have an ounce of schooling they can become petulant, "sneaky", demanding - in short, like sellers.

JAN

2009

I agree with your premise - If you believe enough in yourself & realize your time is worth something you'll enact something like this & not worry that you won't have any buyers.

Thanks for this post. You asked some additional questions in the comments section and they are points I was going to bring up. We will only work with a seller who signs a Listing Agreement, why should the buyer be any different?

I am a New York REALTOR® and I have wanted to have my buyers sign contracts with me ever since Buyer Agency became a factor in the New York area. Last September, I completed a course that gave me the designation Certified Buyer Representative. I now have the education to explain why the Exclusive Right to Represent is as important to the buyer as an Exclusive Right to Sell is to the seller. I will only work with a buyer that has signed an agreement with me. One objection that I encounter is the state mandated disclosure form, "doesn't that define representation?". The easy answer is included in the heading of the form - "this is not a contract".

BB - BBA is the only way to go with this type of buyer. Why don't the other agents in your market get it? Good for you!

Hey Bryant, great post...I've been waiting to "find some extra time", you gotta let me know where to look...is there a link to that sort of thing or what?? :)

BB, I definitely like your idea of a minimum fee when you are dealing with low priced properties. A loyal and motivated buyer shouldn't have a praoblem with that.

Just read today's post (1/16/09) and had to read this one. I think it's a great idea to get a retainer from your clients.

Bryant....great post and some great comments as well.

First, I WISH our Brokerage Agreement was so simple. Ours is 4 pages and the print is 1/2 the size of yours! Goes into ALOT more detail....maybe that's a good thing.

I don't have the $50k people. I do work with Buyers' in the low $100's. Yes, it's more work. But I will never forget the statement a neighbor-friend of mine who was in real estate told me..."Don't ever forget your bread and butter. When the expensive real estate is sitting on the shelf, the lesser priced homes will be selling. You might have to sell 2 or 3 to make the same amount, but at least you will be selling." Words to live by, for sure.

It's an ROI thing also. Like some of the comments have said, this sale could lead to more sales and referrals and making it well worth the while. But, if if means hours and hours when there are other clients, that may be the time to refer it to another agent who does not have so much business.

I have a similar problem in my market place with condo rentals. You think $1500 is bad, try $60-100 for finding someone a rental!!!! I've had agents with listings at 10% co-op of the monthly rental tell me, "company policy, can't offer more." Bull....you just want to KEEP more for yourself. And when you try the retainer line, they look at you like you've just spun your head in a 360 degree circle and your eyes have popped out.....and I know an agent at the next office down the street WILL take them out for $60. But, there is that ROI again. What if they lease now, and are ready to buy in a year?

Such is the decisions we make in our businesses!

I would have to agree with Julie's point about things coming back around. Just because a prospect is looking at one $50,000 house for an investment now doesn't mean that they won't be buying another in the future, contacting you to rent out said investment or referring you to other prospects because of a job well done. Although I do agree that screening is necessary when working with potential buyers, I would offer caution when making decisions.

JAN

2009

A valid point and an explanation that shows the buyer why the broker buyer agreeement is an advanatge to him.

Fortunately or unfortunately, the area I'm in does not have any or shall I say many homes in that 50k price range...perhaps I should come to you and buy an investment property!

JAN

2009

Great point, especially with the lower priced condos here in FL. Spoke the other day with another Realtor who ended up $300 as her final commission I think it was a bank owned condo for an investor, this was her 1st sale.

I hope your wife is doing better and a speedy recovery.

JAN

2009

Thanks for the information.

SEP

2009

Really good point. We forget we can write in a commission. Thanks

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Bryant Tutas Broker/REALTOR(R) Tutas Towne Realty, Inc

Poinciana, FL

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