By Tod Snodgrass
For those who are new to buying investment real estate properties, it is vitally important to learn early what works (and what doesn’t) when it comes to dealing with the different parties (facilitators, service providers) involved with the typical transaction.
Major players include the listing agent, escrow officer, attorney, title company, appraiser, inspector, lender, etc. There is an old saying in business: Either you control the deal, or the deal controls you. And that goes just as much for the different parties involved in any transaction.
If you think about it, being the buyer puts you into a very unique position. Without your purchase funds, the seller can’t sell, and none of the facilitators will earn their fees. After all, it is the buyer’s dollars (not the seller’s) that actually pays all those fees to all those parties. Some call this the “Golden Rule of Business”, i.e. he who has the gold makes the rules. Sometimes all you have to do is ask, say for lower fees or a better deal, and the other side may just say yes.
Dealing with Facilitators
1. Sellers and listing agents, for example, can actually have different agendas. Property owners naturally want to sell their property for top price; listing agents want to earn their commission ASAP. Usually the needs of the seller and listing agent mesh pretty well. However, since their needs are not identical, this can leave open the possibility of a potential conflict of interest. That can in turn lead, in extreme cases, to a deal not coming to fruition for whatever reasons–through no fault of the buyer.
Potential solution: If you (as the buyer) feel strongly that you need to step in and deal directly with the seller, you are legally allowed to do so. In fact, while I don’t advise it, you can actually go around the listing agent altogether and negotiate with the seller, on a one-one-one basis. However, what you cannot do is cut out an agent’s well-deserved commission.
2. When contract negotiations bog down, what to do?
Potential solution: As another old saying goes: When in Doubt: Do Nothing. Of course, you only want to take this tack after conferring with your buying broker and any other parties who can possibly shed some new light on what the problem is. However, here is why taking a pause can pay good dividends: Despite what some listing agents say, rarely is it the case that there are multiple back up cash offers waiting in the wings to scoop up the property you want to buy. These are usually fantasies that the listing agent uses to comfort the seller and bluff they buyer.
3. Dealing with unknown service providers can be risky; especially if they are not investor-friendly
Potential solution: Whenever possible, insist that all the facilitators be ones of YOUR choosing (escrow, title, lender, appraiser, inspector, attorney, etc.). Again, it is ultimately the buyer’s money that winds up paying for these services. Early on in your investing career, you want to cultivate relationships with investor-friendly types at all levels in order to ensure that you (and the seller) get treated fairly.
4. Watch your costs (for service providers).
Potential solution: Virtually all fees are negotiable, in one form or another, in the real estate business: broker commissions, escrow, lender rates, etc.
NOTE: Make sure the lower fees you are able to secure, result(s) in those cost savings getting passed along to you, on a dollar-for-dollar basis, when escrow closes. Insist that all fees be disclosed in advance from all service providers.
The more clarity you can have about what you need from a real estate deal, the better. Take the time to first learn, then figure out, and/or discover exactly what it is you want (lower selling price, reduced fees, better investor-friendly services, etc.). Once you know what you want, it’s easier to ask for and obtain it.
What We Do: Quickly provide short-term, first position funding, in smaller amounts, to: wholesale contract flippers, or to investors who own a property free/clear but cannot or will not use hard money lenders or conventional funding sources. See more info below.
Contact info: Tod Snodgrass, firstname.lastname@example.org, 310-408-7015