Does Your Listing Agent Really Work for You?

For whatever reason, there will come a time when you will sell your property. When it comes to selling, there are two choices. One is to hire a real estate agent to list and market your property. The other option is to sell it yourself. I do not have experience doing the latter but the influx of tools such as redfin.com and zillow.com are making me consider selling without a listing agent in the future.

Let me start by saying that some real estate agents provide value and work diligently to make the sale as smooth as possible. But any homeowner has to keep in mind that while the listing agent ostensibly represents his client, his personal interests come first. That's natural and completely understandable. But as a homeowner looking to sell, you must educate yourself in addition to the information given from a biased party.

Here are some nuggets of wisdom from my most recent dealings with a listing agent:

1. The agent presented "comps" from 3 months prior to benchmark what my home was worth. But I was selling in a rising market and felt that the comps were already outdated. Always do your own benchmarking with tools from websites such as redfin.com (if it serves your location)

2. The agent wanted to list my investment unit for $260,000. I felt I had a more accurate pulse on this particular market. I thought that $285,000 was more than reasonable based on my own research. The agent said that a similar unit sold for $260,000. I said that unit was 100 sq ft. smaller and faced a busy street. An agent would rather get a quick sale, even if it's under market value. $20k to $30k does not make much of a difference in the agent's commission but it will make a BIG difference in your bottom line. My home ended up selling for $293,000 with multiple offers on the first week. The market sets the price, not the agent.

3. The agent asks how urgently you have to sell. There are good reasons why your agent would ask, but I would generally advise you not to lay all of your cards on the table. If the agent knows you are a "motivated" seller then guess what? They will let the buyers know. Remember, what you say can and will be used against you.

4. I would never pay more than 5% commission on both buyer's agent and listing agent combined. But I don't advise to shoot for 3.5% combined because the agent on the buyer's side will not have much of an incentive to take their client to your home. 2.5% per side is more than reasonable, and be sure to have the listing agent include complementary professional photography to list your home.

My Condo Investment Criteria

The bulk of your short term profits/losses will take place at the time you purchase your investment property. I've established a set of criteria with conditions to be met prior to my investment.

1. Rental parity - Will my monthly mortgage/taxes/HOA dues undercut the rental market, and if so, would it be enough to cover projected vacancies and maintenance? This is the first and most important factor to consider.
2. Building age - I only purchase units built after 1970. There is no precise science to this, but based on my observations on plumbing and electrical problems with older buildings.
3. HOA matters - Your investment will be in jeopardy if the HOA's finances are in peril, or if the HOA enters litigation. If an HOA is under litigation, then most lenders will not finance purchases of units under that HOA (in other words, cash only). This drops the price of each unit tremendously. Conversely, if you have the cash, you may WANT to purchase a condo under HOA litigation because once the lawsuit ends you may profit handsomely from a sudden spike in values.
4. Nearby primary residence - While I outsource the majority of maintenance issues, there are times where my direct involvement is necessary.
5. Would I want to live there myself? - I only invest in areas where I can envision a family member living in my unit if I decide to step away from the landlord business. This means a safe area, decent neighborhood aesthetics, and good schools. Whether the housing market booms or busts, a place to live in a safe area will ALWAYS be useful.
6. Regulatory climate - I only invest in areas where there is no rent control, no section 8 housing, and a legal environment where the courts do not predominantly view the tenants as the victims. I am by no means elitist and I hope it doesn't sound that way, but that is the honest truth. I know many well-intentioned landlords who have been ruined by bad tenants and courts that see them as slumlords despite receiving no rent for months. I want the world to be an affordable place to live, but rent control and section 8 do not really alleviate this issue and usually results in neighborhoods that get worse over time.