Your REALTOR®’s Advice Is Worth Every Penny

We have all been there: hiring a REALTOR® to represent us in a real estate transaction. As REALTOR®, my best advice to you is to… follow the advice of your REALTOR®. This is key to success in real estate.

Two cases in point.

CASE #1. Jim places a cash bid on a REO property priced in the low $60,000’s. After a few days Jim’s REALTOR® shares that there are six competitive offers on the property. Jim asks his REALTOR® what he needs to do in order to secure the property. REALTOR®’s advice is to go $8,000 – or about 12.7% – above asking price. Jim has to tap into his 401k in order to find the extra funds, and knows that the property will additionally require approximately $7,500 in repairs. Nevertheless, Jim OK’s his REALTOR®’s advice with no hesitation. Jim wins the bid and secures the property. Jim rents out the property at $1,000/month. Three years later Jim’s property is worth about $130,000.

Let’s do some quick math:

  • $72,500 (purchase price) + $7,500 (repairs) + $1,550 (tax penalty for early 401k withdrawal) = $81,550 (total investment)
  • $12,000 (yearly gross rent) x 3 years = $36,000 (gross rent)
  • $130,000 (property current value) – $81,550 (total investment) + $36,000 (gross rent) = $84,450 (Jim’s gain)

In short, Jim’s agent’s advice was potentially worth $84,450.

CASE #2. Louisa hires a REALTOR® to purchase a residential property. This is Louisa’s first time buying a home and she has never worked with a REALTOR® before. Upon finding the perfect property, REALTOR® advises Louisa that due to market conditions and in order to win a multiple-bid situation, she’ll have to offer about $10,000 – or about 6.7% – above the $150,0000 asking price. Property could potentially be worth $190,000 after three years. Although Louisa has the ability to write a higher offer, she chooses to play prudently, and against her REALTOR®’s advice: $5,000 above asking price but not more. Louisa is outbid and she loses her dream property.

Let’s do some quick math:

  • $155,000 (purchase price) + being outbid = $0 (total investment)
  • $190,000 (property current value) – $160,000 (potential winning bid) = $30,000 (lost equity)

These two cases are similar. In both instances a REALTOR® recommended an offer above purchase price. The former yielded a 100% return over three years, the latter a 0% over the same time span.

Your REALTOR® is working for you, and your best interest is her/his goal. Your REALTOR®’s judgement and experience are worth every penny!

Happy house hunting everyone!

GL

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