A Letter from Eric – Pricing the assignment of contract.

June 12, 2009

Hello sir.

I was wondering if you could give me a little bit of information referencing assigning contracts. Can you please let me know how to do this correctly. I think I get the gist of it I am just confused in one area. What if the seller talks to your investor about the original purchase price?  Next I wanted to know how you find your investors? And lastly how much should the whole transaction cost, and what is average profit? I notice that some say 1 to 3k but I have heard of 10-20k.

Best Regards

Eric

Hi Eric,

The basics on assigning a contract is that you are selling your position in a real estate deal for a sum of money. Setting that price really depends on how sweet the deal is and as they say in Economics class…” what the market will bear”

If you can put yourself if the position of the seller and it seems to be a great deal, then you should have no problem commanding a  premium for it.

As an example I have a blog post on a deal that one of my partners did where she got great terms on a property that had quite a bit of equity in it. The sweet part was that the seller was carrying back financing at zero interest.  In that instance, she was able to command $8500 for assigning the contract.

In essence, the better the deal is the more you should be able to get for it.

On your question as to what happens if the seller talks to the investor on the original sale price, I think you are getting at one of two things:

1) Can they go around me and make a deal without my help?

The answer to that is “no”, not while the property is under contract. However, they may try to wait you out, hoping that you won’t find an investor, or close on the property yourself. Once you fail to make deal, they can then go back to the original seller and do the deal themselves.

This is why you generate the buyers list first and have a ton of people that are ready and waiting for you to find them a house.

Or else you must mean

2) Won’t they be upset when they see how much money I am making off of them.

This is really a moot point as if you are assigning a contract, the buyer of the contract will certainly know what the original price is.  It also really doesn’t matter what you paid as long as the new buyer sees the value in the deal for themselves.

Now you may be talking about creating another contract to sell the property at a higher price, but this would ultimately involve two closings or a compressed closing,  the simplest and most straightforward way is to assign the existing contract you have with the seller to the investor/buyer and walk away. Let them worry about financing the deal, inspections and closing dates.  You just take the check and hand over your position in the deal you have created.

There is some legal jargon for a general assignment of contract found at: http://www.lectlaw.com/forms/f203.htm

Keep in mind that I am not an attorney and I recommend that you use one whenever possible. Getting connected with the right attorney will save you more money than they ever cost.

Wikipedia has a good section on assignment of contracts:

http://en.wikipedia.org/wiki/Assignment_(law)

As for finding deals….

I have a few posts under “finding deals” and “marketing” at the right, but the best one is probably the “finding deals on Craigslist” blog post  post  at:

Take care,

James


Here’s a Real Estate Marketing Idea…

February 13, 2009


Here’s a Real Estate Marketing Idea…
by James Miller

A few years ago, Luke Ploessl and his wife began to invest in Real Estate in the City of Cassville.  With the current situation on Wall Street, they can no longer afford to keep all their properties. They tried to sell them, but no buyers emerged. So they are giving six of them away to the people who write the best essays.

I am sure that part of the motivation came when the proposed 1.3 Billion dollar Alliant energy plant expansion fell though. The community had high hopes for this plant as the downtown is dying.

I had a lot of four commercial buildings under contract in Cassville late in 2008′ . When the Alliant plant fell through, so did the upside potential of the deal which gave our lender cold feet.

Desperate times call for desperate measures.  Mr. Ploessl certainly has a novel marketing idea.

I am guessing the essay is a requirement to meet some sort of Wisconsin law, otherwise I would think a raffle would have been a bit easier.

Besides generating $100 per entry.  They have already been given coverage on the local NBC affiliate,  Channel 15 .

check out the video coverage here:

http://www.nbc15.com/home/headlines/38828567.html#

I bet this method of marketing their homes is also getting them a pretty big buyers list.  Every entry is a potential home buyer.  He is getting paid to generate a list of buyers.

As the English say:  “Brilliant”.

You can find out about the essay contest here:

http://www.winahouseessaycontest.com/


Real Estate Investing – The Greater Good

February 6, 2009


Real Estate Investing – The Greater Good
by James Miller

So much of the focus on Real Estate Investing seems to be on making money. That is the first and truest motivation for what we do.  I feel that there is nothing wrong with this. Being a capitalist, I think anything that gets the Money moving in our economy actually does us good.

But before I turn this into  Gordon Gekko’s Greed is good speech, I want to talk about the other side of what we do, when we buy or sell a place using creative real estate techniques.  I want to talk about how it helps people and the overall good it does.

Think of the benefits to our local economy and community when we do the following investing action:

When we buy a fixer upper, repair it, and resell it with seller financing:

1) We are saving this home from further ruin that time can create. At some point homes become so deteriorated that after enough time only the only choice is the wrecking ball. By saving these homes we are indeed recycling them and keeping a large amount of material out of the landfill.

2) We raise the property values in the local neighborhood. This may or may not happen to any significant degree, but it makes it easier to sell your house if it is sitting next to a freshly  restored Victorian, as opposed to being next to something that looks like a haunted house.

3) We increase local tax revenue. While we never like to see it coming, we benefit the community by creating more assessed value in a home that benefits the tax roles.  This is a dollar savings that  minutely lowers everybody elses taxes.

4) We minutely lower the cost of housing by providing another viable living space.

5) We give hope, usually to a family that is transitioning from renting to the American dream of home ownership.  We are providing renters a way to start building equity in their home even though they may not be able to qualify with a bank right now.

6) We give hope, to the seller we buy from who could not move their home otherwise. This is especially true in this tight market.  I have talked to Realtors who have sold nothing over the past six months.

With our ability to sell via lease options and other creative means, we are constantly and consistently able to sell homes.

7) We are good for the economy. I believe that if there were a massive push from our government to educate it’s population on the ways of creative Real Estate Investing we could pull out of this economic slump without the need for huge bailouts.

The banks would still have to take a hit, but a nation of savvy and creative Real Estate Investors and home buyers could eliminate the inefficiencies in the market.

If you think about all of the people out there right now who would gladly rent or sell their property with creative financing, just to get out of it, but they don’t know how, so they are letting it go into foreclosure.

Compare that against the amount of people that are ready, willing, and able to come up with a little money down and make the monthly payments in order to get into a home of their own… but they don’t know these options exist.

If you compare these two things then we know that there is room for us to make a difference in our economy without a huge infusion of bailout cash.

…..Then again, maybe I am just an idealistic dreamer.

Since posting this I have read Francine Hardaway’s open letter to two mortgage companies. In her blog, she talks about how much better things would be for her and her lenders if  they would accept a reduced interest rate as opposed to her only other option…Foreclosure.


How to Market your property in this Market

January 23, 2009


How to market your property in this Market
by James Miller

I am assuming that you are in the same boat as a lot of Real Estate Investors. There are plenty of deals out there to buy, but how do you unload the ones you already have.

Here are a few of the techniques I use for unloading properties in this market.

Tip#1:   You have to make it easy to buy your property.

If you try to sell your home or investment property traditionally, and by that I mean looking for offers that completely pay you off the day of the closing by being either the all cash, or bank loan types.  you will have severely limited the market that you can sell to.

Things have already gotten tougher as 720+ FICO’s and 20% down are now virtually standard. You can also bet that appraisers are not as lenient with their property valuations as they once were.

Here is a list of my alternative selling methods.

Lease Option
You can think of this as a rent to own type program where you get a substantial down payment as option consideration and in exchange you agree to sell the property to the buyer at a given price within a certain time frame.
The tenants are buying the home and tend to take better care of it. You can also get higher than market rents, by agreeing to put some of their monthly payment toward equity build up.
Since the Deed does not transfer until they cash you out with a bank loan, you get the added benefit of being able to write off the depreciation.

Carry back a Second
In this scenario you agree to hold a note for some portion of the purchase price.  This amount can often times be credited toward the down payment amount that they need to bring to closing table making it easier to buy.  The amount of a seller second is often limited by the lender of the first mortgage to a certain percentage, typically 5%, or 10%.
The Deed will transfer so getting your money back if the sellers default can require a foreclosure action. You are also second in line behind a lender who may eat up all the equity in the property in a foreclosure.

Carry back a First Mortgage
If you own a property free and clear, or if the buyers are putting down enough to eliminate any mortgage you have on the property you can hold a mortgage in first position, essentially becoming the bank for the seller.
The Deed will transfer so getting your money back if the sellers default can require a foreclosure action. You are in much better position by holding the first.

Land Contract, or Contract for deed

Similar to a rent to own scenario, but the buyer has a much stronger ownership position.  Many banks will allow a Refinance after a buyer has proven himself or herself under a land contract. The deed does not immediately transfer, but you may need to bring a foreclosure action in the event of a default sue to a stronger ownership position.


Tip #2: Your property needs to have an edge

Anything you can do to differentiate yourself from the competition will help in this respect.  This is kind of like my “why houses need a hook” post.
One of the properties we rehabbed started as a four bedroom one bath home.  We decided to turn one of the bedrooms into two bathrooms making it a three bedroom three bath home. While losing a bedroom is not something you typically want to do, I knew the three bathrooms would give us an advantage over other homes of the same caliber when listed on the MLS.

There are a lot of three bedroom two bath homes out there, but not nearly as many three bedroom three full bath homes.

Tip #3: You will need to spend more on marketing
It is easy to sit back and blame the down market for a lack of results, but the truth is that we are still getting calls on our advertising and the number of calls is always a direct result of how much advertising we do.
It doesn’t feel good to be less results for the same amount of money, but advertising is a cost that directly relates to sales. If the sales numbers for the same marketing dollars spent are dropping,  it is harder and more of a waste of time to try to come up with better, more creative advertising, when you know that increasing your marketing budget will bring you the traffic you need to sell a property.


What a Real Estate Agent needs to do to sell to me.

January 20, 2009


What a Real Estate Agent needs to do to sell to me.

by James Miller

The best thing I think a Real Estate agent can do is to be in constant contact with their Buy/sell list of clients.

As a Real Estate Investor, a lot of Realtors put me on the auto-mailer that emails me when they have what their program thinks fits my buying criteria. It is usually way off, as they are often just sending me things like “commercial properties over $500,000”. Or any residential income properties in a certain zip code.

Besides being off target with what I am looking for, these e-mails get to be overwhelming, and I tend not to keep up with them.

What is effective is what only Ed, one of the dozen or so Real Estate agents that I have worked with, does.

He calls me on the phone.

It is short and sweet and usually goes something like this:

“I’m not sure if you’ll be interested in this, but I see [some property] has come on the MLS.”

We don’t spend a lot of time on the phone, but he does let me know in a very personal way, that he is still looking for properties for me and what’s out there.  He also always asks me what I have “going on”, or “what’s new”.

I am not even sure If he knows how effective this is for him. Every time he calls (and he has the sense not to overdo it) he forces me to remember that he is a Realtor.

He puts himself in a position to hear about what I have going on and what I am interested in doing at that moment.   If I have a property that I am thinking about selling, I am sure going to tell him. If I have a need for a tenant, he will know right then. If I know of someone who might be interested in buying or selling He will find out about it when were talking.

There is also the possibility that I may like the sound of the property that Ed is calling about.

By taking the time to call me, Ed has positioned himself on the top of a very long list of Realtors I know.

Want to hear a little secret about Ed?

He’s not the best Real Estate Agent that I know.

Don’t get me wrong, he’s a very good Realtor, but he‘s not the best one I know. He doesn’t have a big list of letters after his title  like a lot of Realtors and Brokers. There are questions I ask him that He doesn’t immediately know the answer to. He is consistently at the top of the list for sales, but he is not yet #1.  But none of that matters because he has done the one thing that no other Real Estate Agent does.

He has taken the time to learn about me, and what I am doing, by picking up the phone.


Hedging your bet, multiple exit strategies.

January 18, 2009


Hedging your bet, multiple exit strategies.
by James Miller

When we analyze a property, the emphasis seems to fall heavily on the front end.  We try to figure out if we are getting a good deal.  If we will have some equity, or cash flow left after we spend our hard earned cash on down payments, closing costs and contractors.

This will often revolve around one assumed exit.  If you are buying a fixer-upper it is usually to sell and take a profit, If you are holding for the long term, it is often that we want to use the property as a rental.

My suggestion in this post is that you take the time to learn about and examine all possible exit strategies as you evaluate your purchase.   The reason for this is that when we get into a real estate transaction things rarely, I dare say never, go as planned.

I am currently holding rehab properties (fixer uppers) that I had intended on selling when we were done with the repairs and remodeling. In this market I have had to expand my exit horizons. We are now looking for Lease option tenant buyers for the properties a the next best exit and hav enot eliminated the idea of just renting them out.

If you were a landlord a few years ago when anyone and everyone was getting qualified for a mortgage, you know that the rental market was hit pretty hard.  You waiting list of reasonably qualified tenants disappeared and your found yourself letting in the less than desirable crowd.

Some landlords took a different route and did condo conversions on their properties, taking due advantage by capitalizing the loose lending market. This was an exciting alternative to renting during that time.

Right now we are doing a lot of advertising for homes we have available for sale using a lease option.

A lease option is essentially a “rent to own” agreement in which the seller allows the tenant to purchase at a predetermined price within a predetermined time frame.   We typically allow the potential buyers two years to exercise their option to buy, and get an above market rent and sale price for this privilege.

This also works for the buyers as they are often not able to get into a home otherwise.  This is especially true today in this difficult lending environment where near perfect credit and 20% down are hurdles too high for many new home buyers.

Outside of Lease Options, I am willing to hold a second mortgage on many of the properties I have. This sometimes allows the sellers to come to the table with less of a down payment as the banks’ LTV requirements are still being met.

While I don’t like these as much as lease options, I am also willing to sell on land contracts, or contract for deed.  Very similar to the lease option in that the deed stays with the seller, but it gives the buyer more ownership rights to the property.  In a nutshell, it is harder to evict a land contract buyer than it is a lease option buyer.

Tried and true, renting a property may be a viable alternative to selling. I would surely try one of the two aforementioned alternatives before this, but I can’t deny it as a plausible option.

I should take a moment to mention that many  of these exits where the seller continues to retains ownership for a brief period of time is due to long term capital gains.

If you own a property for more than a year you only have to pay taxes on the profit at a rate of 15% as it is long term capital gains. If you hold it for less than a year, you will have to pay taxes on the profit at the same rate of ordinary income.  This can be as high as 35%.

This reason alone should make you want to make sure you have your property titled in your (or your LLC, or land trust) for longer than a year.

Another viable exit and probably one of the best is the ability to flip a contract. Unless it is otherwise explicitly spelled out in the offer to purchase, you can assign your position in the contract to another party.

This may not be as sexy as rehabbing and reselling the property for the big bucks, but it has the best return on investment, as well as, having the benefit of eliminating your downside exposure.

If you have multiple exit strategies lined up for your property, you have hedged yourself against getting caught in the many potential pitfalls that having only one exit strategy can expose you to.



The +/- theory of showing a home

January 16, 2009


The +/- theory of showing a home

by James Miller

We all hear about how important the first impression of a home is when showing it.

I actually break it down a little further into my own sort of pseudo science.

It is pretty much common sense that when a potential buyer goes through a home everything they notice will be looked at as a benefit or “positive” thing, a determent or “negative” thing, or will have no impact at all on them.

On rehab projects that I take on, I like to keep this theory in mind when I am considering buying a property and I certainly keep it in mind when I am deciding what features to add or fix on a property.

It goes a little something like this:

As I walk through the property I evaluate things that catch my eye.  Is there a chip or crack in a floor tile? (-1 )  Did they just refinish the hardwood floors (+1 for each room).   Are the colors in the bathroom dated? (-2).  Is there a deck on back (+5)

For the most part these numbers are pretty arbitray, but I stick with a few rules:

1) The first thing you notice get weighted by 5. So if you pull up to the property and the first thing that strikes you is an unkempt lawn, then that is a -5.  If the first thing is spectacular landscaping, then it is a +5

2) Most things are a +1 or a -1, unless they strike you as severe, in which case I will assign a somewhat arbitrary point value.  For example a home that has a significant slope in the floor would get much more than a -1, I would probably put that in the -4 or higher category.

3) Things noticed at the end of the walk through are given a weighted value of 2.  So if it is something like a nicely contrasting wall it becomes a +2, if it is a very noticeable crack in the wall it becomes a -2. The thinking on this is that the last things you see, much like the first things you see, will be the ones that are most memorable, and therefore carry much more impact when thinking back on the property.

4) Things of average quality should not be given a value. For example new appliances would be a +1, and damaged or very old appliances would be a -1, but if they are in good condition and acceptable, there is no value to score as there would be no visual impact one way or the other.  You need to score only the things that make you go “Ohhh” or “Ewww”.

You should not only try to come up with a total, but more importantly review the order in which these items are seen.  The most desirable distribution of pluses and minuses is to have the negatives mostly in the middle and most of the positives when first entering the property, and just before leaving so they sandwich the negatives.

This is, of course, a pretty subjective and arbitrary way of evaluating a property.  It should only be used to understand how other people may view it when they walk through.

The highest benefit obtained for doing this evaluation is that you can identify the problem areas of the property and decide how important it is to take care of them.

While It is true that the goal should always be to fix everything until it is perfect, in my experience, there is a sort of triage that sets into a project when there is pressure to start marketing the home, yet not enough time to get everything done. This +/- list can help evaluate what will be most significant in the minds of the potential buyers.

One thing I have to point out is that there will be some people who will feel that the weighting of each item will depend on the route you take when walking through a property, and that each person may choose to walk through it differently.

In my experience, most single family homes tend to have a natural path or flow that is followed as people walk through them for the first time.  You can alter this path, but will only want to do so if you can stack more positive items toward the front or very end of the showing.

Also keep in mind that these numbers are not intended to adequately reflect how easy or difficult  it is to repair an item, but rather the aesthetic aspect of how heavily it will impact a potential buyer.  A deck might be a +5 but it may also be out of the range of the budget.

A good exercise would be to have a partner of friend go through the property with you to compare totals and distribution.

Below are some numbers that I would assign for certain items. This is far from a comprehensive list, but does give a general idea of how I tend to see it.

Remember to weight these items heavier if they are seen at the beginning or end of the walk through.

Dishwasher + 1

Garbage disposal +1

Stained/ dirty carpet -1

Deck +5

Two car or larger garage +3

Fireplace +2

Hardwood floors +1 per room

Tile floor +1 per room

Bad odor/ pet smell -2 (depending on severity)

Clutter -2

Small sized rooms -2

Poor layout -3

Attached garage +1

Any needed small repair ( I.E. drippy faucet) -1

Overgrown landscaping -2

Marks on walls -1

Small crack in window -1

Wainscoating +1

New appliances +1



Practice seeing both sides of the deal.

January 14, 2009


Practice seeing both sides of the deal.
by James Miller

It is common to analyze a deal from only our own perspective,  after all, watching out for number one is pretty important, but in doing so we may be cutting ourselves short.

In order for a deal to work it has to benefit both sides.

We all know about win-win negotiating, but do we really do it?   Or do we really just focus on what will benefit us? Do we ask how the deal affects the other side and what they are trying to get out of it,  or do we bury our heads in the spreadsheet, trying every combination and permutation to make sure we will come out on top?

Now I am not against doing your homework, I am just saying you may want to do theirs as well.

This doesn’t involve a financial analysis of their situation, but instead centers on asking the right questions. Here are a few of my open ended favorites.

If I am buying:

Why are you selling?

This cuts right to the motivation of the seller. In my experience the answer can often be a lie.  Your best bet is to ask it three times in different ways over a few different conversations with the seller.  Often times the truth eventually comes out that they are behind on payments or taxes and are going to lose the property  if they don’t sell it.

If this is the case you can be looking at a short sale, “subject to” or  a myriad of other creative ways to purchase .

What are you going to do with the money you make off the sale?

Sometimes they kick back on this one as “it is none of your business.” but it can often be breached after you have established some rapport with the seller. It lets us see what their needs are. If you find that the seller is going to live off of the money or invest it in a CD or other low interest security, you may be able to negotiate that they hold the note for yo in exchange for a reasonable return on their money.

Are you just trying to get out from under the debt?

Will you sell it for what you owe?

These two are beautiful. They reveal whether or not the seller is in dire straights and how badly they want out.  They can be tough questions to ask, but you will get more comfortable with them when you have asked them a few times.

Any “yes” answer indicates a possible “subject to”, land contract or lease option type purchase.

How long have you owned the property?

This question can reveal their mental and financial position with regard to the property.  A short time can mean they are trying to flip it for a profit, and if it is less than a year I know that a higher capital gains tax will be a factor for them.   If they have owned it a long time, they have probably been depreciating it out the whole time and will likely be facing a low (or no) tax basis on the property.

If I am selling:

What are you looking for?

This question is great at establishing some hot buttons. Hot buttons are the sales term for the items that a buyer is interested in.  By getting them to tell you what they want, you can direct them to the aspects of the property that best fit their needs.

While some will try to verbally bend the property to fit these hot buttons, I think it is often times better to just let the buyers off the hook if what you have doesn’t fit their needs.  I don’t buy into the “if the man wants a blue suit, you turn on a blue light” mentality.  I think buyers are savvy enough to know when you are trying to sell them on something.  It can be a real turn off, as well as, kill any potential future deals you may have with them.

If you honestly keep their interests in mind, people will respect you for it even if you don’t have what they need.

For example, if a buyer were to absolutely need a two car garage, I mean, if they can’t live without it, and I  don’t have one, there isn’t much I can tell them about the property that will get around this issue.

With that being said, I will always give them the option of seeing the place if they still want to.

When are you looking to purchase/move?

This question actually reveals motivation.  If they have no set date or time frame, they are probably just “kicking the tires” on a few properties.   The more specific they are, the more serious they are in my mind.

How much do you have to put down?

Do you need help with financing?

Often times I will be marketing my properties using seller financing,so I may already know if they are looking to be financed. These questions reveal the relative financial ability of the buyers and segways into a conversation about whether or not they need help in purchasing.  In order to sell quickly,  you should always be open to some sort of seller financing.  Don’t think that you aren’t they type to be open.  Everything works at some price and if you knew you could get a 10% premium by waiting a short time for your money, I bet most of you would do it.  I know I would.

The value of these questions is that it gets us to understand the other side. Instead of focusing on what price and terms that we want, we get to know what their needs are.  In exchange for this effort we are often rewarded by a much better deal.

If you are the one person who will take the time to look for their pain and can take it away, you will be miles ahead of the competition.  Besides potentially making a friend, you will end up with the best deal possible for both sides.



Why Houses need a Hook.

January 11, 2009


Why houses need a Hook.
by James Miller

When I started in rental houses,  I took to noting how people went through an apartment and what they focused on.  I had, at the time  two properties with fireplaces.  While fireplaces aren’t on the list of favorite things for my insurance agent, they did get the attention of those looking for an apartment.  I also noticed that they tended to rent faster.

I realized that apartment hunters and home hunters alike, might look at a lot of places in one hunting session.  My fireplace made the place I had to offer stand out. It made it different from the rest.

It was the “hook”.

I am sure people like the idea of curing up in front of a fireplace, but I think there was  a little more to it than that.  First off, my fireplace became a focus of their walk through. Their attention turned to it and possibly made them miss a few of the less desirable things, like how the refrigerator was from circa 1960 or how the carpet could really use a shampooing. Or maybe they did see these things, but discounted them because “this apartment has a fireplace.”

The other thing I believe happens is that my apartment becomes different than the rest of the places they looked at.  I have been though a lot of the apartments in my area.  I know how the other landlords stick to a strict pallet of pure white, for walls, trim, and outlets alike,  making it look like everything in the place was hit by an albino tornado. I realized then that the nice couple with good credit, the kind who can take their time to pick instead of taking what apartment they can get, when they  got home that night the way they would refer to my apartment would be:

” You mean the one with the fireplace?”

After that, I started to look for places that had a hook, or ways to create one in my existing apartments.  I found that it didn’t have to be much, just something memorable.  Although I don’t consider it much of a hook, A wall with a contrasting color would often do.  Hardwood floors and claw foot tubs get all A’s for their ability to set the hook.

One of the simplest hooks came about by rather serendipitously.  I had installed a dimmer switch on some can lights by the entryway door of one of the apartments. I had committed to some  expensive high wattage bulbs which made the entry area very bright.  I could have replaced them, but I had a cool new dimmer switch on hand, and as an Electrical Engineer by trade, changing out a switch was easier than four bulbs and a ladder. Besides the switch was a newer illuminated one with the slider on the side.  I thought it might add a little class to the place.

When we were showing the place, I demonstrated how to adjust the dimmer switch to the woman who was thinking about renting.  I didn’t place any particular importance on it, or think much about it until she asked for a second viewing of the place.

This time she brought a friend.

When they arrived, the woman who I had shown the place to the day before took over my role and reiterated much of what I had told her to her friend.

The big focus?  You guessed it.

The dimmer switch.


Ten things to do before listing a property with a Real Estate Agent.

January 9, 2009


Ten things to do before listing a property with a Real Estate Agent
by James Miller

1. Ask around to find a good agent.
I read about a study where most people think of Real Estate Agents as all being pretty much the same. In reality nothing could be further from the truth. The skills and abilities of Agents vary wildly.

In order to quickly sort the chaff from the wheat, ignore the slick advertising and fancy signs. Talk to people who have had luck selling their house recently.  Word of mouth is still the best way to locate good dentists, auto mechanics and Real Estate Agents.

2. Find out how they are ranked.
Real estate agents are ranked regularly by the dollar amount of sales they have been a part of.  See if you can find out how they rank in comparison to other agents.  It doesn’t cost any more commission to have the #1 ranked agent as it does to have #25, so you might as well go for the best.

3. Find out about your agent’s marketing plan.
The MLS is a given, but which newspapers will your property be advertised in and how often?  Do they send out mailers or post cards? Do they have any Radio or television spots and is it possible for your property to be mentioned on one of those?   All of these things cost the agent money and their goal is usually to spend the least amount possible to sell your property.  I could get into why that thinking is really self limiting on their part, but the point of it is to get them to commit to what they will be doing for you up front, and in writing.

4. Does the agent have a “go to” person to fill in for them?
We all have emergencies from time to time, but you don’t want you property to get passed up on a showing because your agent had an emergency root canal.  Most good agents do have some sort of agreement with the other agents in the office.  Often times it is the Broker who fills in, but you will want to find out how plugged in these other agents really are as to what is going on with your agent’s portfolio of listings. It may be beneficial to establish rapport with another agent who is in the office, just in case you need to get through to somebody who can make things happen.

5. Find out if the Real Estate Agent you are considering has been involved in any lawsuits.
Litigation is commonplace today, with property managers being most sued profession.  As Many Real Estate Agents do property management on the side, don’t be surprised if you see them listed on the court house records. While this may not affect their ability to market your home, it may taint their image in the eyes of the buyer.  It is best to know their background and be comfortable with it.

6. Does your Prospective Listing Agent have an existing Buyers list?
All good Agents and brokers are in constant contact with their list of potential buyers and sellers. They should have at dozen people who they will call right away after they get your listing.  A good buyers list is instrumental in creating an immediate sale.

7. Find out the Average Days on Market for their listings.
This is so you can get a feel for how long it will likely take to market your property. Their Days on Market should be at or below that of the local average.

8. Find out the average discount that the agents listings have sold for.
This number is usually inversely correlated to the days on market, as the deeper discount your give the quicker you should be able to sell. This is also just to get you prepared for what sellers may be coming in at and how your potential Listing Agent stacks up.

9. Ask what it will take to get out of the Listing Agreement.
They really cringe at this question, and there is a lot of back pedaling on this one.  What it comes down to is that you want to be comfortable that you can do two things; first, get out of the agreement if you are unhappy wit the service, and second, get out of the agreement if you find a buyer yourself.
They will fight at each of these points and you will likely have to concede the second, but a good Agent will be comfortable in their ability to sell your property.

10.  Ask if you can list your property for three months if you pay a 7% commission.
This may seem like we are paying more for less marketing time, but for a moment put yourself in place of the Real Estate Agent:

You get a new listing. The first few days are spent getting the listing in the MLS and into the papers. You may even call up the buyers that you know are looking and tell them about the property.  The next couple weeks you field some calls on it that were generated by the advertising, and do a few showings, maybe even an open house.  While there is some modest interest from tire kickers and looky-loos but nobody is biting. You get a call for a new listing and you are now excited about that one.  You lose excitement over this now “old” listing, as you attention turns toward this new possibility.

After about a month of limited action on a listing their attention turns elsewhere. It’s just human nature and I’m sure I would be the same way.  What we have to do is compensate for this by getting the listing for a shorter time and try to keep their attention by raising the amount of commission.  The listing sheets that the other Realtors get contain information on how the commission is split. Everything else being the same you property with the higher commission stands out from the rest.  I have even gone so far as to offer a $1000 bonus if the property is sold within the month.  You can see how that can motivate Agents and have the added benefit of making your property stand out.