I see this misconception happen all of the time. “Well my realtor says ____________ about the market.” That blank is always something like “Buy now or you’ll miss out” or “The market won’t go down anytime soon” or my favorite “This isn’t 2008.” Yet, guess what? Realtor’s were saying that in 2008 as well ha.
Now, before I go any further there are a small percentage of realtors that go out of their way to learn from people like me and they do understand the market, but I would say that is less than 5% of realtors. These realtor’s are amazing assets to you and you should cherish them. I would assume most of you think this is your realtor, so I am going to show you a test I recommend people do with any realtor before you work with them any further later in this article.
I want you to understand 2 key items
- Realtors have no formal real estate training
I know what you’re thinking… “What do you mean Ken they go to Real Estate School and they sell property all day long. How can you say they have no experience in real estate.” I will sit here and tell you they have no experience in real estate. In school, they are taught about contracts, rules, and regulations. They are never formally educated about the actual markets. They are taught to price units, obtain customers, and commission splits. This is the exact thing they do in their daily job. They don’t forecast market cycles, follow economic trends, and most don’t even own rentals themselves.
- They work on commission
If you went into a car dealership would you ask the car salesperson “Is this a good time to buy a car?” or how about “With the increase in unemployment, do you think the price of this car I am considering may go down this time next year?” Of course you wouldn’t ask them that because you know that they don’t have a clue on how the economy will relate to car pricing and also they are going to tell you “Yes, it’s a great time to buy a car.” every time. Why? Well of course Ken they get a COMMISSION on the sale, so they will never tell you not to buy it! Well I am here to tell you realtor’s are the same way. I can’t say I blame them. This is their livelihood, but all too many times people believe their realtor’s perspective on whether or not now is a good time to buy and their perspective has a big motive to be skewed. Or frankly, they don’t follow real estate cycles and just don’t know. The same reason a car salesperson doesn’t follow car pricing trends based on the future of the economy.
So where does that leave you?
Well to start, you need to be educated and do your own research and not blindly trust people when they tell you it is or is not a good time to buy. If you don’t know how to run your own numbers I discuss this in my book “The ABC’s of Buying Rental Property.”
Secondly, an educated and honest realtor can be a great asset. This person will only send you true “deals” they come across and will really be educated on the market. Now I always say “Trust, but verify.” So you will still always want to run the math on the deals they send, however you need someone like this on your team.
How to Know What Kind of Realtor You are working with…
This is a test I recommend you put your realtor through upon hiring or continuing to work with them. I want you to find a property where the numbers obviously don’t work. It’s clearly overpriced or it needs too much work and you know it. It’s so obvious. Now, I want you to send this property to your realtor. Email them stating you really feel like the numbers could work at this property and say how excited you are. Tell them you are ready to make an offer on it, but first want their opinion on if it’s a good deal, since they are the expert. See what they say. If they tell you they don’t think it’s a good deal and you should walk away then you have someone on your team. If they confirm to you it’s a great deal and can send an offer letter over, you know they only care about their commission and you need to move on. 95% of you will be disappointed.