If you’re thinking of entering the rental market and are looking to buy your first investment property, a common question that comes to mind is, “Do I really need a realtor to buy a house?”
A lot of people will tell you to work with a real estate agent if you want to get the best deals in the market. This may be true, but that is not always the case. Keep in mind that real estate services come with a price, and part of what you’re paying to buy a home will go to agent fees and commissions. You can also be tied to a binding contract when working with some real estate agents.
To help you come up with a decision on whether to work with a realtor or not for your investment home purchase, here’s what they usually have to offer.
Realtors make things easier—not possible
Realtors are extremely helpful in most cases, hence the reason why so many buyers and sellers choose to use them. Great and experienced realtors:
- Know your local area like the back of their hands.
- Can give great advice on what to look for when buying.
- Refer you to local contractors such as roofers, pest control, mold remediation or handymen.
- Help you narrow down the list of homes to physically visit when buying.
- Perform administrative tasks including paperwork and calling prospects.
- Use commercial real estate software you (probably) don’t have access to.
At the end of the day, buyers tend to use realtors because they help remove the burden of a lot of time-consuming tasks including research, drafting paperwork and working with sellers and their agents.
The average real estate commission rate as of 2023 is 5.37% of the home’s final sale price.
But a realtor’s service isn’t cheap. At about six percent of the home’s sale price, you are actually paying a significant amount of money for the convenience that hiring a realtor brings. So if you’re on a tight budget or just don’t mind spending the time and energy to do all of these tasks yourself, you may want to consider going without a realtor.
Buying an Investment Property on Your Own
There are a few things you’ll need to do before you close on your investment property. This step-by-step guide gives a short explanation of how to make a home purchase without a realtor.
Step 1: Get a mortgage pre-approval letter.
Unless you intend to buy an investment property with cash, you have to assure sellers that you’re capable of paying for your home purchase. If this is the case, you’ll need to approach lenders and get approval for a mortgage loan.
A lender will provide you with the requirements for getting a pre-approval letter. This typically consists of income statements and debt obligations, bank statements, investment accounts, and at least three years of tax returns.
Based on your documents, the lender will determine how much you qualify for and what payments you need to make over the term of the loan. With a pre-approval letter, you can now begin searching for investment homes that fit your budget.
Step 2: Check out a good number of homes.
A good realtor will make sure you don’t fall in love with the first house you see. This is a common mistake first-time investors make when searching for properties on their own. You don’t really need a realtor to buy a house, but part of the job is to protect you from yourself! So make sure you don’t make an offer on the first house you fall in love with.
Be sure to look at a lot of homes. With today’s technology, you don’t need to leave home to do this. If possible, search up at least 100 online before making a few choices. This will help you get a feel for what’s on the market, what you like in a home, and what makes for a good deal. Also do some research on the locations to find out if they offer lucrative investment opportunities. Take into consideration critical factors such as rental demand, vacancy rates, population growth, proximity to schools and work areas, etc.
This can get time-consuming especially since you won’t have a realtor helping you filter out homes, but it’s a critical step to finding the most suitable investment property.
Step 3: Compare properties and analyze profitability.
Once you’ve filtered out a number of homes to check out, it’s time to compare them to determine which one will give you the best returns on your investment. You can come up with an estimate of your total monthly expenses and weigh that figure against your potential income from the rental.
You can check out our other resource article on how to determine the different types of expenses incurred when renting out an investment property. This will give you a detailed explanation of the real cost to run a rental home whether your property is occupied or not.
Step 4: Make your offer.
Once you’ve zeroed in on a property that will make for a profitable investment, it’s time to submit an offer. Typically, most buyers who don’t work with a realtor will offer less than the list price since there isn’t a need to pay a buying agent for the commission. Another tip worth looking into is to lower your offer if the property has been in the market for quite some time.
Two things can happen once you’ve submitted your offer. The seller will accept your offer outright (which rarely happens) or submit a counteroffer, especially if your offer is way below the list price. You’ll need exceptional negotiating skills here, so it’s best to be prepared to justify your figures and come up with a compromise.
Step 5: Find a reputable home inspector.
Once your offer has been accepted by the seller, a home inspection is ALWAYS recommended—period. You need to know if there have been past issues with the house that haven’t been addressed, along with present issues that are unseen to the untrained eye.
A home inspection will cost between $300 and $600 depending on where the property is situated, but the cost is well worth it. You can either ask friends or family who have recently purchased a home if they can recommend someone, or just go straight to the internet. Google, Yelp, and Angie’s List are all great sites to help you find a reputable inspector. Your lender or the seller may also have very good recommendations.
Step 6: Be present for the appraisal.
If you’re financing the purchase through a bank, an appraisal will be required. Even though you aren’t required to be there, it’s definitely a good idea to be present. You want to be able to ask questions and verify everything goes well.
Appraisers do a routine job day in and day out, so there’s a huge chance that they can overlook certain features of the home that could affect its value. With you around, you can point these out specifically to ensure you get a fair and accurate home valuation.
Step 7: Close the deal with a real estate lawyer.
Congratulations! You’re now down to the last step of purchasing your investment property—closing the sale. Even though you can buy a home without a realtor, you can’t do so without involving a lawyer. Their fees aren’t cheap, but they are necessary.
Buying a property is a major financial transaction, so it makes sense to have all the details documented and in place. All of the paperwork will be done by the attorney, but if you’re a first-time buyer it can be intimidating. Having your attorney at your side can help assure you that everything is going as it should as they will always have your best interest in mind.
That’s pretty much it! If you follow this step-by-step guide, you don’t need a realtor to buy a house and save a significant amount of money. Undeniably, however, realtors do make the buying process a lot easier.
Buying or Selling Investment Property Through a Realtor
Working with a realtor is something most buyers and sellers do. But managing agents is a skill, because most of us aren’t used to having someone help with a major project (like a multi-hundred thousand real estate deal!)
Here are a few things to keep in mind as the deal progresses. Most of this section is directed towards sellers, but buyers should take note as well.
Good realtors have a marketing plan
The most successful real estate agents have a comprehensive marketing plan to help connect buyers and sellers. In fact, the best will spend hundreds of thousands of dollars a year, because they know that good marketing is critical to sell a home in the Information Age.
Before you hire an agent, ask for a detailed account of their marketing strategy. They may not give you the exact scripts or marketing outlets that they’ll use, but they should be able to give you more than “I’ll list your house on the Multiple Listing Service and put a sign in your front yard.”
How do you know if their marketing plan works? Either you or your acquaintances would have heard of the agent before! It’s always a good idea to work with someone who’s had vast experience in the industry.
Have a meeting upfront to discuss marketing strategy.
Good realtors will advise you to hold a bit longer when it makes sense
Sellers agents will sometimes recommend they take they first offer given, assuming it’s reasonable. While that may make sense at times—for example, if the house has been on the market for months without a single bite—it can also be a huge mistake.
There’s a semi-famous Freakonomics study around sellers agents that found something interesting. The agent will often push their client to take the first offer so they can wrap up the deal and move onto other clients. But when those agents go to sell their own homes, they’ll often keep their house on the market for a while even after receiving the first offer, because they know there’s a good chance they’ll get a higher second offer later.
Is that to say you should never agree to take the first offer? No—just keep in mind that if your house has only been on the market for a few days and you’ve already received a few offers, you may be able to hold out and get an even higher offer later despite what your agent says.
Good realtors provide home preparation advice
Working with real estate agents is similar to managing employees. Because they work for you, some agents don’t always want to tell you the bad news. Instead, they’ll sugarcoat conversations, and hope that their marketing strategy will be good enough.
To make sure this doesn’t happen, ask specific questions when you do your home walkthrough. Carpet stains, paint colors, furniture, room layouts, etc. Your agent sees a lot more homes than you do, and can easily point out what will help or hurt your chances of selling the home.
For example, while you may think that carpet stain “isn’t too bad and shows the house is lived in,” most buyers will be turned off. The best agents will, in fact, take the reins when it comes to staging your property so your home can sell faster.
Curb appeal matters, and your realtor can help you with that.
There is a lot more to working with agents, from staying in constant contact with them to being very clear with what you’re looking for in a home. At the end of the day, communication and doing some of your own research on the market and how to sell or buy a home will go a long way.
Final Word
Everything boils down to personal preference. Those who’ve previously bought investment properties using a realtor can learn for their past experience. First-time investors can also choose to do their homework diligently and work on their own. Whether you decide to use a realtor or not, still the same—we wish you the best of luck on your purchase!