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

By
Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

Cheap Florida houses 407-873-2747

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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 Tutas Towne Realty, Inc handles Florida real estate sales, Florida short sales, Florida strategic short sales, Florida pre-foreclosure sales, Florida foreclosures in Kissimmee Florida Short Sales, Davenport Florida Short Sales, Haines City Florida Short Sales, Poinciana Florida Short Sales, Solivita Florida Short Sales,  Orlando Florida Short Sales, Celebration Florida Short Sales, Windermere Florida Short Sales. Serving all of Polk, Osceola and Orange Counties Florida. Florida Short Sale Broker. Short Sale Florida.

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Rainer
17,976
Katie Minkus
Hawaii Life Real Estate Services, LLC - Kamuela, HI

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).

Jan 15, 2009 11:14 AM #40
Rainmaker
1,025,971
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

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.

Jan 15, 2009 12:27 PM #41
Rainmaker
251,783
Katrina Madewell
Charles Rutenberg Rlty- More than 5,000 agents(813) 777-1196 - Tampa, FL
Tampa FL Homes for sale | Tampa Bay - (813) 777-1196

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

Jan 15, 2009 01:28 PM #42
Rainmaker
394,850
Elizabeth Cooper-Golden
Huntsville Alabama Real Estate, (@ Homes Realty Group) - Huntsville, AL
Huntsville AL MLS

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!

Jan 15, 2009 02:08 PM #43
Rainer
33,537
Rick Evans - Sandpoint Idaho Real Estate Waterfront, Ski, and Resort Property
Sandpoint Sothebys Intl Realty - Sandpoint, ID

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.

Jan 15, 2009 02:54 PM #44
Rainmaker
334,635
Jeff R. Geoghan
Coldwell Banker Residential Brokerage - Lancaster, PA
REALTOR, Marketing Manager

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 15, 2009 03:01 PM #45
Rainer
74,375
Dan Magstadt
Paramount Residential Mortgage Group, Inc - Lake City, FL

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.

Jan 16, 2009 12:42 AM #46
Anonymous
Catherine C. Capasso

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".

Jan 16, 2009 01:19 AM #47
Anonymous
Catherine C. Capasso

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".

Jan 16, 2009 01:19 AM #48
Rainmaker
314,256
Carol Culkin
Reece & Nichols - Leawood, KS
Overland Park

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!

Jan 16, 2009 03:31 AM #49
Rainer
11,307
Kevin Comerford
Coldwell Banker Preferred - Media, PA

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?? :)

Jan 16, 2009 06:42 AM #50
Ambassador
605,385
Brian Schulman
Coldwell Banker Residential Brokerage, Lancaster PA - Lancaster, PA
Lancaster County PA RealEstate Expert 717-951-5552

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.

Jan 16, 2009 08:32 AM #51
Rainmaker
707,765
Erika Rogers
Red Rock Real Estate ~ Southern Utah's Largest Independent Brokerage - Saint George, UT
St George Utah Real Estate & Relocation Specialist

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.

Jan 16, 2009 10:59 AM #52
Rainmaker
760,844
Thom Abbott
MyMidtownMojo.com |770.713.1505 | Intown Atlanta GA Condo Living - Atlanta, GA
Midtown Atlanta GA Condos For Sale

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!

Jan 16, 2009 12:21 PM #53
Rainmaker
75,702
Samantha Nichols
ERA Belsito and Associates - Plymouth, MA
Massachusetts Real Estate Specialist

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 16, 2009 01:05 PM #54
Ambassador
2,008,677
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

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

Jan 16, 2009 04:19 PM #55
Rainer
63,274
Sonja Adams
Samson Proprties - Purcellville, VA

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 17, 2009 05:57 AM #56
Rainmaker
466,354
Eva Aliaga
Partnership Realty Inc - Boca Raton, FL
Boca Raton & Delray Beach: SE Florida Real Estate

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 17, 2009 06:10 PM #57
Anonymous
Anonymous

Thanks for the information.

Jan 19, 2009 12:37 AM #58
Rainmaker
149,251
Linda Lohman
Fonville Morisey Realty - Cary, NC
Former Teacher/Broker

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

Sep 27, 2009 12:55 PM #59
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