We like to think of the value of our house as whatever it would appraise for, comp for, or sell for on the open market. That’s never an exact number, but definitely a number that falls into a very small circle of values. We’ll call that value the “Appraised Value.”

That value, however, has a few assumptions built in. It assumes that the seller has a house that can be marketed to the world (put on the MLS) for an extended period of time and that buyers can finance the home in any way typically available to them (Cash, Conventional, FHA, VA, etc.).

In other words, the Appraised Value assumes the homeowner has the luxury of time and the house is both marketable and “loanable”.

Continue reading “What is a House Worth?”

As the broker for over 235 Realtors/Investors, I hear about it when an agent thinks they are about to lose their commissions. I take these concerns seriously and advocate for my agents and their rightfully earned fees. However, there are some things you can do to help avoid someone trying to skirt their contractual obligation to you and some things you can do to make sure your Broker is better equipped to fight for that recovery.

First, show your value to your client. When a client sees and hears what you are doing for them it is a lot more difficult for them to justify, in their minds, that you don’t deserve the commission they agreed to pay. You can start immediately at the first meeting and explain to them some of the services you provide & their value:

  1. MLS market statistics that are only available to licensed Realtors and not cheaply!
  2. Knowledge of sales process and required disclosures…they could find themselves in hot water if they fail to perform actions by a certain date or neglect to provide required disclosures.
  3. Ability to reach the broadest audience of buyers via MLS listing and syndication.
  4. Security. Someone to watch out for their best interests and removing the risk of attracting someone with bad intentions with a FSBO sign.
  5. If you are a StepStone agent, then the added network and knowledge of how creative and/or investor offers work.

Second, make sure the client understands their rights and responsibilities.

  1. Explain the commission rate, what an “exclusive right to sell” is and make sure they understand you get paid even if they find a buyer themselves.
  2. Educate them on what to do should a buyer, other agent or other party attempts to contact or negotiate with them directly. Ensure they know to direct EVERYTHING through you and they should never sign anything outside of your direction.
  3. Let them know that if they have concerns with your representation that they should bring it up sooner than later.  Make sure they understand that claiming you didn’t do your job as a reason to not pay you after they have signed a contract will not hold water and you will pursue a commission.

Next, do your job right. Nothing is more frustrating to me when trying to secure an agents commission when I discover they made an error in their paperwork. Don’t get sloppy, ever. If you do, it’s Murphy’s Law that that’s the one that will come to haunt you later.

  1. Properly execute a representation agreement. Make sure it’s signed and dated by both parties with all blanks filled in.
  2. Uphold the requirements placed on you in the rep agreement. Don’t delay in listing on the MLS unless the agreement says otherwise. If it says otherwise, make sure you stay on that date or amend if necessary.
  3. Provide an Information About Brokerage Services and have signed.  Don’t forget to get one from the other party to the contract if they are not represented.  
  4. Get amendments signed. Don’t just make changes based on a verbal or email correspondence.
  5. Stay engaged. Don’t let them have the excuse that you didn’t do anything. Even if there is nothing to be done still reach out to the client with updates.

If you’ve got yourself a slippery fish and think that your client is trying to side step their obligation to pay a commission, take these steps.

  1. Reach out to your Broker right away.
  2. Advise any and all parties you are aware of that you have a listing agreement.
  3. Consider recording a Memorandum of Listing Contract with the County. (Consult with your broker, first! There could be legal ramifications for this action).

If you are a StepStone Agent, then know that I have your back and will fight for you! Follow this advice and I’ll have a much stronger case to make when the time comes!

It is common for real estate investors to think that profit is generated through cash-flow. We pay $1,000.00 per month for property and collect $1,500 per month in rent. Every month we are “making” $500.00.

While this is somewhat true, it’s not always where “profit” truly lies. This is particularly true in owner financed wraps.

It is actually possible to be paying $1,000 per month, collected $1,000 per month and be reaping HUGE profits.

Profit in a wrap is not equal to the cash-flow, but rather that net interest payment. Sure, there can be profit just in the difference in the two notes. For example, if I take over a note of $100,000.00 and give a new note to an end buyer for $150,000.00, I have immediately created $50,000.00 in profit (equity).

But monthly profit is simply the difference of interest collected and interest paid. In fact, that is 100% of the monthly profit. Always. Every time. It’s never more than that. It’s never than less than that. It is always, forever, equal to the net interest. Always. Did I pound that point home?

As an example. If I pay $1,000.00 in principal and interest to an underlying lender, but collect $1,000.00 in principal and interest from the new buyer (now the new borrower), I have $0.00 per month in cash-flow. But I can still have monthly profits.

If my $1,000.00 payment to the underlying lender breaks down such that $500 is applied to principal and $500 is interest, but the amount I collect is $900 in interest and $100.00 in principal, then my profit is $900.00-$500.00 (the net interest) or exactly $400.00.

But I received $0.00! So how can that be true? Well think of the difference that was just created in equity. Remember, I owed $100,000.00. Now I owe $99,500.00. I was owed $150,000.00. Now I’m owed $149,900.00. Instead of $50,000.00 in equity, I now have $50,400.00 in equity.

Another way to think about it is this: I have put $400.00 into a savings account and $0.00 into my pocket. Sometimes, there is cash-flow. So perhaps I pay $1,000.00 but collect $1,200.00. If my payment is $500.00 to interest and $500.00 to principal, and the payment I receive is $700.00 to interest and $500.00 to principal, I’m actually making less money than in the first scenario, even though I’m collecting more! That’s because there has been no change in the equity, although I get $200.00 cash.

So when evaluating a possible Sub2 to Wrap scenario, it’s important to always look at net interest. While cash-flow seems like profit, it’s not always where the profit lies. Even worse, sometimes, your equity can go down even as you cash-flow. Look at the PI payments, compare and make sure your deal generates a profit, not just a cash-flow.

Every year, StepStone Agents come together and sacrifice a Saturday earning no money for themselves. They aren’t at the river, enjoying family or friends and certainly are not having a nice lazy weekend.

Instead, they are setting up tables, registering golfers, conducting games and running credit cards. Instead of planning their next project, they are helping to raise money for someone else’s home construction. Instead of showing buyers around or selling a house, they are helping to build a free house for someone else.

Continue reading “Why We Do This…”

Yesterday I was teaching a class to some of our agents called Understanding Agency for the Investor Agent and we were reviewing the Texas Real Estate License Act as it relates to agents as principals in the transaction. Most of us know that the Act prescribes that agents disclose their license status to the other party prior to entering into a contract. But, there is an additional subsection (c) at the tail end of RULE §535.144.

It states: (c) A license holder acting on his or her own behalf or in a capacity described by subsection (a) shall not use the license holder’s expertise to the disadvantage of a person with whom the license holder deals.

Continue reading “Investor Agents… Negotiating for Yourself OR Taking Advantage?”

If you search the internet for “Should I get a real estate license if I’m an investor?” and you will find a whole host of lists of reasons NOT to get your license.

I find that most of those lists, though, tend to be based on rumor and “conventional wisdom” rather than facts or grounded in the law.

So here is my Top 5 Reasons an Investor SHOULD get a real estate license!

#1 Monetize More Leads

Leads are not cheap. And let’s face it, not every seller we meet is ready to make a deal that makes sense from an investor-perspective. But when you have a license, you can also revert to listing the property when investing doesn’t make sense!

Continue reading “Top 5 Reasons Investors SHOULD be Licensed”

For decades, Real Estate Professionals have had to choose between the path of being a Licensed Agent or being a Creative Real Estate Investor.

As a Real Estate Agent, you likely have been told that investing techniques are illegal or unethical. These myths have led to an environment today that has caused brokers to institute archaic rules on you such as a prohibition on wholesaling, listing your own property or wrapping “sub2” deals.

As an investor, it’s very likely you have been told that you should avoid getting a real estate license. You might have heard that by having a license, you will have to treat sellers differently which can cost you good deals. Or worse, that a broker will trap you into a J-O-B and make you show buyers around.

Continue reading “StepStone Realty: The Home of the Black Sheep”

As Realtors, we have certain rules of thumb that we are comfortable with when helping a client evaluate an offer. However, if you are working with a distressed seller you should also be familiar with the rules of thumb that investors work with to help your client complete a successful sale to an investor.

Over my 12 plus years as a real estate broker practicing traditional real estate and as a creative real estate investor I’ve seen plenty of conflicts between investors and Realtors that were usually the result of the Realtor being unfamiliar with investor strategies and methods.  Not to say that investors are always the good guys but knowing where the other party is coming from will put the Realtor in a much better position to ensure their distressed seller doesn’t go into further distress! This article will shed some light on the differences AND offer advise on how the Realtor can best look after their clients’ interests when you are dealing with an investor offer.

First, when should your client consider accepting an investor offer? Continue reading “Investor 101 for Realtors”