The Differences Between a Real Estate Agent and Investor
While talking about real estate, we usually hear the terms “Agent” or “Investor” interchangeably.
However, there are several differences between the two. Both agents and investors deal with the selling and purchasing of real estate and make money from their sales. Although they generate revenue the same, here are some key differences that exist between a real estate agent and a real estate investor:
License
When it comes to obtaining the license for making real estate transactions, the real estate agents are required to be licensed.
On the other hand, there is no need for real estate investors to possess any license. For the real estate agents, it is mandatory to hold the license of the particular state in which they will be doing the business.
If you are unsure whether you need a proper real estate license for buying and selling properties, understand that you do not need any license unless you are planning to represent someone in the picture of buying or selling properties.
Commissions
Both Agents and Investors share a common interest in real estate; they want to make money!
However, their methods of doing so are different. For instance, the agents are able to earn around 1-5 percent of commission on every sale facilitated by them. Investors are usually offering cash for properties, which can allow them more control on what they can earn from a deal.
Agents might be relying on the sale of the property (preferably at some higher price) to make profits, while an investor might do several things to pull out cash or profits from a single real estate deal. An investor who is serious might:
- Selling the property for cash at the market value to the potential home buyer
- Flipping the property by selling it at some discounted rate for ensuring quicker sale, usually to some another investor
- Seller Financing where the buyer is able to make monthly payments to the real estate investor rather than to a bank
Real estate investors are use to moving deals quicker, making them good at finding various creative ways of turning any real estate property into positive cash flow.
Integrity of the Brand
Real estate agents usually rely on the integrity of their names or brand in order to promote any real estate project, while the real estate investor does not have to do so.
There is no denying the fact that both agents and investors invest in marketing. Agents usually have websites, professional business cards and do effective marketing through direct mail campaigns, and other strategies.
Investors are simply known through their signage. You must just observe simple single sentences expressing their campaigns including “we buy houses”.
Broker Involvement
Real estate agents are usually employed by the real estate brokers. However, this is not the case with real estate investors.
In case of the agents, once they are licensed by the state, they are required to work under the guidance of a real estate broker in order to make profits.
Real estate investor are not required to work under a broker because they are not required to be licensed. Investors are usually independent individuals buying for themselves or through an LLC.
Key Differences:
Now that you know the basic differences between agents and investors, when it comes to actual dollars and process, the key differences are:
- Time To Sell: Agents use the MLS (multiple listing service), it takes more time and effort to sell a home based on its appearance to the right buyers in the market. An investor buys individually, so there’s no listing or showcasing involved.
- Closing Costs: A traditional sale goes through a title company, lawyer, and a mortgage company, this piles up closing costs that can range from $3,000-$10,000. An investor usually covers the entire cost.
- Closing Time: A normal property sale can take 30-60 days, depending on the time in each stage. An investor is able to close within 7 days.
- Total Value: An investor usually makes their money by purchasing for a discounted price, rehabbing, selling at market value. With all the other benefits, you can expect the investor to come in lower than market value, sometimes 30% less than the market value. However you won’t be paying commissions or closing costs out of your profits. Listing with an agent, they’ll be able to offer you the highest market value they believe your property will sell for. The down fall to this is the waiting game, this could be an issue if you find your new home but the current one isn’t selling.
- Fees: Investors have no fees. Agents (both on the seller and buyer side) will generally require the standard 3% commission on the sale price.
Knowing the difference between an agent and investor can really help a homeowner sell their home in the way best suited for them.
If a seller is looking to get top-dollar and time isn’t an issue, then an agent is generally the best way to go.
But for those that are on a time crunch or simply don’t want to deal with the house, an investor will buy the house “as-is” and quickly.