You do what you do best and we do what we do best… in other words, You run a business, Brokers Negotiate Real Estate.
Today I walked into a wedding planning facility, the wedding planner was meeting with some clients. For every idea, every obstacle, every detail, she had a solution. Why? Because she planned weddings on a daily basis.
You need a hair cutt… you go to a hair stylist. Why? Because you don’t want your hair looking like a rag mop.
You need your car repaired… you go to a mechanic. Why? Because you don’t want your car to be improperly repaired.
SO, when you are looking to buy or sell real estate, WHY would you not use a broker?
Answer- you think you will save money.
Result- chances are you don’t save a dime.
Let me explain.
Ed wants to buy an apartment building. He does his research, gets pre approved financing, and begins a property search on his own. He finds the perfect building. He calls the listing broker. The broker says “if you use a broker we are going to add their commission into the sale of the property.” True? Yes… OBVIOUSLY.
Ed decides to negotiate without a broker. He puts in an offer for 25% below the asking price. The seller instructs his broker to not accept the offer and counter with a 15% discount. Ed thinks it is a good deal and goes under contract. The Listing agent draws up the contract and tells Ed he needs to put down a 15% Option fee but will have a 90 day free walk period to Examine the building. Because of the free walk period, Ed will not be given a finance contingency.
Ed remembers a friend telling him he got a 90 Free Walk and had to cancel the agreement… when he did so on time, he was released from liability from the contract and all the money he paid was refunded to him. Knowing this, Ed agreed to the terms and paid the 15%.
Durring the examination period, Ed found several issues with the building that needed repairs. He told the Sellers that he was going to drop the contract if they were not repaired. The listing agent replied with a letter stating that they would not repair the problems and Ed was welcome to drop the contract. He then sent a letter to the listing agent asking to drop the contract and recieve his money back.
The listing agent replied by saying that Ed could drop the contract but would not recieve any money back because the money down was in the form of an option fee and NOT escrow money. Ed only had enough cash from the beginning to put 15% down on his investment. Ed was now going to loose the entire amount.
Ed decided to move forward with the building. He went to the bank to tell them he needed the financing he was prequalified for and was ready to close. The bank said “no problem Ed, we’ll get started right away” The bank sent an appraiser out to the Apartment building and a week later denied his loan amount and said they could only finance 70% of the building. Ed was shocked, he said “I talked them down 15% what’s the problem?” The bank replied “well we ran the numbers and the NOI doesn’t supply adequate cash flow for the required DSR.”
Ed couldn’t believe it, he was getting a good deal on the building and they wouldn’t finance it! He was now 15% short on his deal and out his entire down payment if he could not close. Ed was in a pickle.
Here is how the deal would have worked if a broker were involved.
The broker would have contacted the listing Agent and told them he had an interested party and would be sending them a commission agreement. The broker would reply with the appropriate cutt of his commission to the buyers agent.
The buyers agent would then ask for all information regarding rent rolls, expenses, operations, etc. Before any negotiations take place, the buyers agent would review the information and run a Cash Flow analysis on the property. He would also run a CMA on other like properties in the market to determine Market Rents, Sales Prices, and Vacancy Rates.
Before sending out a “Purchase Agreement” the Buyers Agent would have negotiated the entire deal through an LOI before making the official offer. The Buyers Agent would have a good understanding of what the NOI is and would have based their reccomendation on the offer based on Numbers, and not what they “think” the property is worth. The Buyers agent would also never have gone under contract on a property where the Buyer could not get his money back if any issues came up.
Chances are, on this transaction, the Buyers Agent would have saved ED a considerable amount of money. What is a 3% commission really worth if a broker can save you 15-25% in negotiations?
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Tags: Buy, Buy Commercial Real Estate, Commercial Real Estate, Investment Properties, Negotiate, Negotiate Commercial Real Estate, North Carolina Commercial Real Estate, Real Estate, Sell
