As a real estate investor, you understand that one of the biggest costs is the transactions themselves. When you’re buying a property in Texas, the closing costs are relatively small at 1.5% of the purchase price. But the cost of selling is significantly steeper, coming out to around 10% of the sales price. That’s a hefty portion of your potential return.
For your real estate investment ventures to be profitable, it’s critical to whittle down those expenses as efficiently as possible. While you may not be able to eliminate title insurance costs, closing fees, and the buyer’s real estate agent commission, you can immediately reduce that 10% to 8% by managing the transaction yourself without the help of a listing agent.
Listing agents typically charge 3% of the home purchase price as their commission. So, on a $350,000 listing, they’re pocketing $10,500. If you adopt a flat fee listing service to get your property on the MLS at a much lower expense, you get to keep the difference in your business to fund more investments.
The savings are significant, and most real estate investors can handle transactions without a realtor by their side. Take a closer look at common real estate scenarios that may or may not require an agent, as well as indications switching to self-management is the right choice for your investment business.
Self-Management vs. Professional Management: Common Situations in Real Estate Transactions
When you’re considering making a real estate transaction, either as a buyer or a seller, there are three general “levels” of management you can choose between.
- Complete self-management: As a buyer, you search properties, make offers, and negotiate deals alone. As a seller, you handle every aspect of the transaction without professional services. This means listing and marketing the property on free, non-MLS pages, marketing and holding your own open houses and handling every aspect of negotiations. The only part of the transaction that cannot be entirely self-managed is the title work.
- Working with a realtor: As a buyer, your agent can create a customized home search for you, schedule showings, put together your offer contracts, and manage the negotiation process. You don’t directly pay for your agent; the seller pays the commission for agents on both sides of the transaction. As a seller, your listing agent offers services to guide the entire process of pricing, staging, and marketing your home, as well as managing offers and negotiations until the transaction closes. You pay for both the buyer’s agent and your listing agent, which typically comes out to 6%.
- Blended approach: This method is geared more toward sellers and investors rather than buyers. You don’t utilize a realtor (or pay their 3% commission), but you do use some paid professional services. This may include a flat fee listing service, professional home photography, and software for accessing market data or organizing offers. It’s more hands-on and cost-effective than hiring a realtor but not as slow or manual as doing everything on your own.
With these three core strategies in mind, let’s take a look at which one is the right fit for the following common real estate situations.
If you’re completely unfamiliar with the real estate industry and you’re buying a property, having a real estate agent often makes the most sense.
- Agents offer in-depth guidance so you can more confidently navigate the market alone in the future.
- Many sellers and listing agents are nervous about offers from self-representing buyers (aside from experienced investors) because it increases the risk of complications.
- You don’t directly pay for the agent, so you can consider it a “free” service. Not using an agent may give you leverage to negotiate a lower price for the home, but this is a risky move for first-time buyers.
This situation is a little more complex. Suppose you purchased a property as an investment in another state or you have since moved away from a state where you own property. How can you manage the transaction as efficiently and profitably as possible? There are two things to consider in this scenario:
- The market: If you don’t need to be physically present to hold open houses and prepare the property, you can manage the entire enterprise off-site. However, if the property needs more attention for marketing, showings, and open houses, an agent might be a good investment.
- Your familiarity with the state’s real estate industry: Different states have very different rules, so a local agent may be advisable or even required. However, if you purchased the property in Texas and you’ve made sales here before, you can easily—and remotely—manage every step of the process.
When you flip properties as your primary investment strategy, you’re going to have a lot of investment transactions in a very short period. Within just a matter of months, you’ll likely have a lot of the experience and market insights you need to manage the entire process to your satisfaction. When this is your business model, it makes sense to take a hybrid approach of representing yourself and using a handful of professional services like flat fee listing. This strategy makes it easier to reach the following goals:
- Meeting or exceeding the typical flipping ROI of 26.9%.
- Building your company brand, which means having complete control over marketing, staging, pricing, and prospective buyer interactions.
- Avoiding pricey commissions. The 3% fee for a listing agent is too steep when you can handle many aspects of a listing agent’s role and hand off others at a much lower cost.
Renting Out Your Current Property
There are many different styles of investments, ranging from flipping and short-term holdings to long-term rentals. One path many entrepreneurs take to enter the real estate investment industry is buying a new home and holding onto it as a rental. In this approach, you might self-manage—choosing tenants, answering repair calls, etc.—or you might hire a property management company. You can also hybridize the process by listing the property on rental sites or MLS via a flat fee listing service.
Self-Managing the Transaction as an Investor: How to Know When It Makes Sense
Choosing to self-manage your investment transactions offers several financial and business benefits, especially when you select professional services to fill in the gaps. By using a flat fee listing service, you can market your property on the MLS, where most agents go to find potential properties for their clients and reach a much wider audience. You create your property description, decide which images to use, and manage your own pricing strategy.
Adopting this approach as an investor saves you money and gives you more control. You can also work faster because there is no realtor intermediary. Consider the following indications to know that it’s the right time to start using a flat fee service.
You Have Experience With Real Estate Transactions
One of the major points of hiring an agent is that they have market experience that typical property buyers and sellers don’t. But if you’re familiar with the negotiation and transaction process and you have a pulse on the market, you can manage your investments without their advisory services.
Your Investment Approach Involves Multiple Transactions Over Time (Flipping, Wholesaling, Acquiring Multiple Doors, etc.)
Hiring an agent is expensive. It’s even more expensive when you have multiple, fast-paced transactions. For example, if you flip five properties at $300,000 this year, you’re on target to spend $150,000 just on closing costs as a seller—and $45,000 of that will be on a listing agent. Making the switch to self-management with flat fee services makes more financial sense.
The Desire to Make Your Cash Flow and Costs More Predictable
There is a lot of variability in hiring listing agents. Some cover photography and staging as part of their services. Others have referral partners but won’t cover the costs. While no agent can sell your home for a price you don’t agree to, some won’t work with you if you don’t agree to their pricing strategy. Hiring individual professionals can end up costing you far more than 3% on the deal.
But when you use your own expertise along with a flat fee listing service, you can eliminate many of the surprise transactions that come with agents. In addition, the cost of each service is transparent from the start. Through the hybrid approach, you can systemize your process of preparing properties, putting them on the market, and managing the transactions into a completely scalable workflow.
Retaining Full Control Over the Sales Process
Another key service an agent provides is they shield the seller from minute details. They talk to agents on the other side, ask questions, and prepare offers for the seller’s review. But perhaps it’s more beneficial for you to see the detailed offers as soon as they come in, ask and answer questions, and directly steer negotiation conversations. In this case, a listing agent isn’t just superfluous; it’s something that goes against your business goals.
Build Your Investment Processes With the Right Flat Fee Listing Service
As an investor, it doesn’t make sense to have a listing agent in most scenarios. However, access to the MLS and other line-item services that fit your business strategy are crucial. Using a flat fee listing service is a Goldilocks scenario. It’s a just-right mix of hired services when you need them and hands-on control when you don’t.At ListingSpark, we provide flexible flat fee listing services and supplemental professional services options. This includes photography, open house resources, smart software for managing your pricing strategies, and more. When you know it’s time to use a flat fee real estate listing service, reach out to start streamlining your transaction process.
Real estate investing can be a profitable industry. Buying and holding rental properties, purchasing raw land in areas with predicted growth, and flipping run-down properties in popular neighborhoods are all excellent business avenues. In fact,…
Real estate markets across the country are normalizing, but the industry is still incredibly profitable for new and experienced property investors. Texas continues to represent one of the strongest markets, home to two of the…
Property sales are incredibly complex. Even for property investors who have years of experience buying, improving, and selling homes, there are a lot of different people involved in the behind-the-scenes work of property transactions, and…