Question: I’m developing a business plan to purchase real estate as an investment. This will be primarily single-family homes that will either be rehabilitated, flipped or lease optioned. I have been in contact with a Realtor who wants me to sign an exclusive buyer’s agreement. Is there a particular advantage/disadvantage in limiting myself to one Realtor?

If I do decide to work with this Realtor and restrict his fee to just the properties that are introduced by him, how do I handle a holdover period if we decide not to proceed with the agency at some future date. I want to be fair but I’m uncomfortable with the concept of protecting his fee in perpetuity.
P. Wilson

Answer: You bring up several good points about the real estate investment process. The fact that you’re developing a business plan is very wise. Many would-be investors I’ve met begin their investments in real estate by just showing up at the court house steps at a foreclosure sale with a blank check in their hands. The fact that you’re planning out your steps is to be commended.

When it comes to purchasing your private residence, it makes complete sense to sign an exclusive buyer’s agreement to guarantee you’re represented in the homebuying process. Some buyers are misguided in believing that they can somehow get a better deal on a home purchase by just working with one agent – the listing, or seller’s, agent. This could not be further from reality. When you have a buyer agent in your corner, you know that agent is going to negotiate on your behalf, let you know what it takes to make a good offer and help you line up the financing necessary to be successful.

For investing in real estate, it’s probably even more important to have a buyer’s agent working for you since you’re going to be doing this type of transaction again and again. A Realtor who understands the goals and pitfalls of investing in real estate is invaluable. You definitely want an investment Realtor on your team. Exclusive? I’m not so sure.

Unlike a homebuying scenario for a personal residence, where you’ll find pretty much everything in the multiple listing service, investment properties, many times, are not in the MLS. A Realtor who works with investors consistently knows they may not get all the deals from one investor. Some transactions are going to be through the courts, others through corporations and then there are the investment properties that will come through the traditional avenues – the MLS and a Realtor’s network.

I would sign an exclusive buyer's agreement with an agent to represent me on a particular deal, rather than for a prolonged, open-ended contract. One Realtor can't have his ear to the ground as well as three or four when it comes to investment properties. Be upfront with them and let them know you're working with several Realtors who understand investment real estate -- as they get good properties, they should contact you. THEN, as you're moving in to buy that particular property -- sign an agreement with them.

Again, I would not suggest this non-exclusive arrangement for purchasing your private residence. In the investment scenario, however, you're the investor with the money. You're going to buy property with or without this Realtor. You're the engine -- see if s/he wants to get on board. Work out the LONG-TERM arrangement that you're not going away after just one deal to assure loyalty on both your and the agent’s part, but you have to have a broader net to maximize your bottom line. A Realtor who doesn’t understand this part of your business plan should not be on your team.

Published: September 13, 2002

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