How To Get A Good Deal Without Using A Realtor Myth
Can you get a good deal by shopping for real estate alone? Without hiring a reliable real estate agent? The short answer is not really. It's almost impossible, except under a really rare scenario which I shall reveal below. But before I tell you about this wholesale pricing trick, let me quickly explain how this all works so you can better understand the real reason why shopping solo rarely saves you money. Read on.
It all starts with what's called:
To make learning it even easier, let’s take a sister analogy from the stock market. Believe it or not, there are striking similarities between the transfer of new stocks—as there are with the transfer of real estate.
- You have a Seller
- You have a Buyer
But how do they find each other? Answer: they find each other via a middleman of course. And bear in mind that the middleman is sometimes a buyer. Yes indeed, the middleman may choose to be the buyer.
Ironically, it’s not the Seller who finds the middleman. Rather, it's the middleman who attracts the Seller via marketing. So let’s take our stock market example one step further. Imagine. If the owner of your favorite company (eg. Facebook, Amazon or etc) wishes to bring shares of their stock to the public. How does this commonly occurring process happen?
Well, it happens in one of these three ways:
- Firm commitment underwriting
- Best efforts underwriting
- Strict underwriting
Collectively, they're called negotiated underwriting arrangements. And the owner (aka. "Issuer”) of the asset chooses one of those three arrangements. Simple enough.
Here's a little picture.
Notice how there's a middleman (green box) between the Issuer and the general buying public...
Simply stated, it's a negotiation directly between the Seller and the middleman regarding a market price, marketing method, commissions, fees, legalities and more. Likewise, the middleman will oftentimes conduct their own background check on the asset.
This all occurs well in advance of the offer ever being publicized or presented to the public. And that’s the point to nail down here; this doesn't merely apply to new stock issue...
It's Identical in Real Estate.
And nine times out of ten, best-efforts underwriting is the method of choice for Seller's wishing to sell their home.
(note: to offer best-efforts underwriting as a middleman in America, requires a real estate license)
Therefore, in residential real estate, the broker commissions are already negotiated—into the deal—well in advance of the property ever hitting the streets.
Here’s an example, legal language included in an Exclusive Listing Agreement—between Seller and broker—provided for by the Chicago Association of Realtors.
From this marketing agreement, you can quickly realize that properties don’t just magically appear on Zillow, Trulia or the MLS. It doesn't occur by fortuitous happenstance... not at all.
Properties are featured on those luxury home search sites because there’s a written listing (negotiated underwritten) arrangement signed well-before the buying public ever sees the news flyer. And the home owner has agreed in advance to pay the listing broker a commission, per that listing agreement.
Commonly, the listing broker will split the commission 50/50 with the buyer's broker, if the buyer has a broker. So, if you’re buying any property without a broker, thinking you’re getting a great deal… think again.
What’s actually happening is: the listing broker is keeping more total commission.
You might be saying to yourself…
“yeah but, what about for-sale-by-owner? Can’t I save there?”
For Sale by Owner—if you're seeing it on the MLS, Zillow or Trulia—is also an underwritten arrangement by a middleman real estate agent.
The only difference is, the listing fee negotiated with the listing broker is what’s called a flat fee (example $600). Like a newspaper ad. Only the Seller publishes it via a real estate agent who has licensed access to syndicate the listing on the MLS (which will then push the data to Zillow and Trulia).
Meanwhile, the commission to the buyer’s broker is already included in the flat fee For Sale by Owner arrangement, as I earlier explained with the Exclusive Listing Agreement scenario. There's no difference.
As an example, the Seller pays a Flat Fee to the listing broker for $600 plus a 3% negotiated commission to cover the buyer’s broker. Simple. Upfront. Honest.
It's in the signed marketing contract—well before the photographer ever shows up to take pictures for the Ad. That's how it works. And yes, the flat-fee-broker could in fact represent the buyer under the flat fee scenario.
Repeat: in a for sale by owner listed thru the MLS... the listing broker only publishes the listing for a flat fee... like a newspaper Ad.
Therefore, it's not uncommon for the flat-fee broker to earn the buy-side commission, if perhaps the buyer did not yet have a hired agent. Here's the legal language you'd find in an actual flat fee for sale by owner contract.
Obviously, the issuer (the “Seller”) includes an incentive for the buyer’s broker... a specified amount... well before the property ever hits the mainstream outlets.
Now Here's Your Opening Answer As Promised.
The slim scenario where you—as a retail buyer—might buy at wholesale prices…
Answer: by becoming the middleman yourself!
And find the Seller yourself, before the Seller approaches (or is approached by) another middleman. Easier said than done because unless you intend on knocking on every doorstep, a more modern way to scavenger hunt for off-market motivated sellers before they ever advertise is by purchasing public data from big data providers.
(which ain’t cheap for one: could cost you thousands of dollars to procure just one quality list.
And for two, since these data companies merely aggregate and pool data, it would still be your job to tell the data machine which types of homeowners to target. Plus, keep in mind that many property owners don’t actually live in the State in which the property is located—Yikes!
And for three, assuming you can successfully filter thru the data maze to isolate the people who might be interested in selling, it's then necessary to reach them with advertising, so that you can have a phone call with them;
which implies you expertly know local pricing trends and market data—so you can have an intelligent negotiation and not freak them out when they call you).
Unless and until you can run this expert marketing solicitation to find homeowners, then you're likely not gaining any edge whatsoever when shopping without hired help.
Arguably, one might even say you're costing (risking!) yourself time and money.
If you’re interested in buying downtown Chicago property wisely, then you can take a load off and hire HK Luxury Realty. I’ll personally make sure you’re not overpaying when you buy here.
Disclaimer: these broker commission examples are for educational purposes. The examples contained herein should not be taken to imply that a set brokerage commission rate exists. There is no such thing as a usual, typical, customary or general realtor commission.
Peace of mind! That is what HK Luxury Realty inherently provides to its clients through diligence and preparedness. Harry is versatile, adaptable and has the ability to tailor his approach to client needs, even with every curveball thrown his way. True passion without a doubt, which is why we let go of the wheel and trusted Harry to be our compass when coursing through our real estate needs.Bill & Kathy V., Client
Before working with Harry, I had worked 3 other people and organizations that warranted no movement or forward progress. Harry was able to not only get the ball rolling, but able to complete the process for me flawlessly. What is important to note is the level of integrity and honesty and knowledge Harry brings when working on a case.Jimmy B., Client
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