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Conflict of interest

Question:

On page 88 [course manual] Raising Capital you state using a RE agents be careful not to create a conflict of interest, can you elaborate?

-Student

Answer:

You have to be careful when you work with agents because you get very close to working with listing agents and the agents that are going to hand you the deals. It could be a conflict of interest for them if they’re getting too close to you, in other words, if they’re going to lend you money because sometimes those agents have a ton of money and they want to participate in the market, but they don’t know how to do these deals, believe me. And I know some of this may sound silly. I borrowed money from some and used it on another agent’s deals. NEVER use it on the same deal they’re selling you. You have to be careful with stuff like that, that’s what I mean by conflict. You get a smoking deal from an agent and the agent calls you and says, “Hey, you know I want to be on this that’s why I’m giving you the deal,” WALK AWAY! Tell them thanks, but I can’t do that. It’s a conflict of interest for that agent but believe you me when the mustard hits the fan, you’re both getting handcuffs and free food and living arrangements for a while. So, you have to think before you do stuff, just do what’s proper.

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How do you train an agent to know what’s a good deal?

Question:

When you first start working with a new agent, and he sends you a prop that is not a good deal, how do you “train him or her” on what is a good deal??

-Student    

Answer:

You think they don’t know?! I think you probably have an inexperienced agent, meaning that the agent is new, not the relationship. That’s just a process of really taking them by the hand and really explaining to them and being respectful and sensitive to not insulting them. Sometimes it’s like walking a tight rope when you first start working with an agent and he sends you a property that is not a good deal. When you’re dealing with a professional agent it’s tough. I explain this in my presentations and in the course that you have to go in there and sit with them, show them your stuff and say you can’t make this work, but if these numbers change, I will make the deal happen. Always leave an agent, especially a professional agent, with the possibility of making the deal if they get the numbers to change, because the numbers are going to change. Let them know that you will buy this if they get the price to a reasonable number. You never say “no, I don’t want this deal.” You say you can’t buy this deal because there’s no profit and you show them why. You want to show them that you calculated it and that you know what your fix up and carrying cost is, but if it’s a new agent, that’s even more simple. Unless they have a large ego, then you got to be careful about not stepping in it. It’s basically just a function of spending time with them. And geographically with a map, showing them these are the zip codes I want to buy in, even taking the time to show them some properties that have already sold. That’s why I tell you all to look at the MLS as to what sold because you have investors that have already bought stuff and you look at deals and go “how did I miss that?!” Then you rub salt into your wounds. It’s a very educational process. And you’re able to explain to someone else, it’s a great instrument. I use this in my mentor programs. I use actual transactions, deals that have actually happened to make a point. I say, “Look, this was happening at the time that I was buying this other thing.” You can use that same kind of stuff to train your agent and the more you train that agent, the more you develop that relationship, especially if they’re new, the better they’re going to be for you. Because, you want to get to the point where you guys are working like it’s a symbiotic relationship. I hope I explained that thoroughly for you.

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Agents “slipping” deals before listing

Question:

Is it considered fraud for a RE agent to “slip” us deals before they are listed? Bruce Norris posted an article on his FaceBook page recently, describing two brokers who were arrested for giving their investors preferential deals, before they were listed.

Just to clarify, the Brokers had other offers, but presented only the low offers of their investor, leading to a low sale and a resale for a profit. Do asset managers demand the property receive broad exposure before accepting offers?

-W.A.

Answer:

Here’s the clincher on this and I want you to understand, this is really important. ABSOLUTELY it’s fraud! Put yourself in the seller’s shoes. You’re going to list a property with an agent. You’re done rehabbing it, you bought it. You went through all the work, now you list it with your agent and you trust him to get you the highest and best deal and your agent sells it to his cousin and takes a low offer and then calls you and says, “Hey I didn’t get any other offers.” You know, I’d want his head smashed like a coconut. So, why shouldn’t the government be upset about that? That’s absolutely fraud!

But what makes it fraud is they purposely held offers. They had higher offers and only gave them this low ball offer for this investor. They should go to jail. Now, when I tell you that an agent will give you a tip on a listing that’s not even listed yet, he’s giving you a heads up. That’s called “prelisting favoritism.” But that doesn’t mean, by any stretch of the imagination, that he’s not going to submit all of the offers that he has on his plate. He will however, when he gets the offers, tell the asset manager, “You should consider this offer, even though it’s lower.” Why? “Because I know this guy’s a closer. Let me give you thirty-five other deals he’s done. Well let me explain to you why I think you should do it. The lender he’s using is solid. And I’ve spoken to them already. It’s a hard money lender it’s not a conventional loan. We’re not going to be in escrow for 30-40 days.” You know, that agent can do a lot of things that are considered proper without violating any laws, without doing anything underhanded. Without, by the way, including you in this scheme because, you’re going to be an accessory to that. I’m surprised they didn’t go after the investor on this. I’ll be surprised if they didn’t because, that’s just down right fraud. This is the criteria I use whenever I look at something; whether it’s improper or not. Do I want it done to me? How would I feel about it if I was on the receiving end of the situation? I’ve made a lot of money in my life in this business. I’ve never once stayed working with somebody who would come close to do any stupid thing like that. Uh, hello? You put your offer in and the guy knows it’s not going to close; he’s got the chance to be a hero. You know, asset managers don’t want those deals falling apart any more than anybody else. They don’t mind eating crow if they screw up and took a high offer and never had the chance in hell on closing.

The answer to your question is yes. It is fraud for an REO agent to slip an investor a deal before they’re listed, but not to give you information before it’s listed. An agent can give you information on a listing any time he wants. But he also will tell you it has to be listed. Some lenders, not all of them, but some lenders require the listing to be exposed to the multiple listing for a certain amount of days. Other lenders have more flexibility. Listen, you have lenders out there that’ll tell an agent “hey I’m listing this listing with you; get me somebody who’s going to close.” They’re really interested in closing. So, if the agent says “hey I can’t get you a $100,000 and it’s an all cash transaction.” A lot of times they’ll say “get that guy in here. If you know the guy’s solid, it’s a done deal.”

-TA