Is Your Investment Property Realtor Qualified to Protect Your Interests?

Qualifying Your Investment Property Realtor
Why qualify a realtor? Aren’t they all sufficiently trained before they get their licence? Don’t all realtors have a licence to conduct trade in investment properties? Yes, all realtors in Ontario are licensed to conduct trade in any kind of real estate, including investment properties. But they’re also required by law (REBBA) and the industry regulator (RECO) to provide a level of duty and care to act in the best interests of their clients. That means they shouldn’t be assisting you in buying or selling an investment property if they don’t know what they’re doing. And you don’t want to wait until after you’ve made an investment to discover that your realtor wasn’t acting, or in a position to act, in your best interests. In all other professions, licensing and certification is designed to give the public comfort and recourse that the professional is trained and ready to assist you in whatever service they provide. Almost all professions and trades also require every person to spend time as an intern or apprentice. That’s not the case with realtors.
Questions to Ask your Investment Property Realtor
If you do an Internet search on questions to ask a commercial realtor, they generally suggest you ask about reputation, size of office, specialties and other marketing fluff. That’s all it is—fluff. Forget about the ‘strength’ of the real estate brokerage. They’re all the same. The difference is in the care and skill provided by the individual realtor, just like other service industries.

If a realtor can’t answer the following questions satisfactorily, they’ll almost certainly do you more harm than good, and the realtor's brokerage won’t protect you. Most brokerages require their realtors to sign indemnification clauses as part of their employment agreement, which essentially leaves the realtors on their own if they mess up.

How many commercial investment properties have they bought or sold? Of course, everyone has to start somewhere but should you be the person that finances their trial-and-error learning curve?
Is being a realtor their full-time job? With hundreds of thousands or possibly millions of your investment dollars on the table would you want anyone that was moonlighting and not fully committed to the real estate profession?
Have they owned or managed any properties? If they don't know the pain points of being an owner how can they spot the best and worst opportunities. If they don't know tenancy law, I can almost guarantee that they--or you--will become a victim of it.
Have they owned a company or had profit and loss responsibilities in a company? If they don't know financing and they don't know whether a particular expense or claimed income stream is reasonable, how do you spot inconsistencies, mistakes, innocent or negligent misrepresentation and intended misrepresentation such as fraud?
Ask them to explain return of investment and return on investment. If they can't do this then how can they possibly know whether the buy or sell deal is a good one?
How do they determine the value of a property? If they use the comparative approach (these other two properties sold at this price, a la residential house sales) ... run! Not intimately knowing the Income Approach, cap rates, capital costs and a number of financial ratios that determine whether a property is cash flowing positive could cost you your cash investment, the property you're buying, and possibly a lot more.
Ask them to name some of the ‘pain points’ or challenges that an investment property owner faces. If they haven't walked a mile in the shoes you'll be wearing then odds are high that you'll soon be shoeless.
What makes them different from, and better than, the other realtors, and especially other commercial realtors?
What can they tell you about the legal obligations a landlord has and legal challenges a landlord might face? Tthey should give you some highlights of the Human Rights Code (HRC), Residential Tenancy Act (RTA), and possibly other concerns such as the Electrical Code, Fire Code, Building Code and local municipal by-laws.
Should you hold the title to the property in your personal name or in a company name? Why? Your accountant may say one thing and a lawyer the complete opposite. How do you decide?
Aside from listing on, or searching, the MLS, what else will they be doing to sell your property or help you find one? Most of the 77,000 Ontario realtors have access to the MLS. These realtors are nothing more than gatekeepers of information. Investment property realtors have personal networks of contacts, suppliers and trade knowledge.
Will they list the property on the MLS? If not, why not? This marketing approach almost assuredly won’t guarantee you maximum market exposure and such realtors are almost certainly not acting in your best interest to get you the highest sale price or the lowest buyer price.
     Some brokerages advertise ‘Principals Only’. This means they want to take the commission on both ends, sometimes called ‘double-ending,’ multiple representation, or dual agency. Multiple representation has recently come under significant scrutiny and criticism and, in my view, rightly so. I believe it is  not possible for one representative to act in the best interests of two parties (same as lawyers). The role switches from obtaining the best price to arbitrating a price between two known limits. The buyer can’t get the lowest price possible and the seller can’t get the highest price possible. The representative is automatically trying to negotiate a price, perhaps a fair split, between these two limits. That is not providing their client with the duty of care and skill demanded by the Real Estate and Business Brokers Act (REBBA). Such brokerages and representatives also may not list your property on the MLS since the MLS requires a commission to be paid on both sides. These brokerages are not acting in your best interest to market the property to the widest possible audience in order to command the highest possible sale price.

What is cap rate? Many realtors will tell you how it's calculated (easy enough) but they don’t know what cap rate actually is. Most importantly, if they don't know what it doesn't tell you about an investment property then you could end up with a property that is a financial sinkhole.

How does the market determine the cap rate? What causes the cap rate to change? These two questions could be a huge qualifier. I believe most realtors can't answer these two questions.
Why does property value go down when the cap rate rises? If the realtor doesn't know the answer, how can they possibly provide you with the guidance and advice you need to properly protect you? Isn't your protection the realtor's first priority?
What requirements do lenders have and what financial ratios do they rely upon? If the realtor can't provide this kind of knowledge and insight then you could be wasting your time as a buyer looking at properties for which you'll never get financing or wasting your time as a seller tying up your property with a buyer who won't succeed in getting financing. A realtor should know beforehand whether a buyer has a reasonable chance of obtaining financing.
Can they determine a property’s true NOI? A lender's calculation of Net Operating Income (NOI) can be quite different from that of an investor. The lender wants to know their mortgage investment is protected. A property owner wants to know how much money is going into their pocket.
Can they explain the breakeven ratio, cash-on-cash return, and why a buyer can fail to get financing even if they’re a multimillionaire?
Will they tell you not to buy something if the financials don't make sense? Will they tell you why you might consider making a conscious and well-informed decision to over-pay? Many realtors depend solely on their commission. If they don't sell then they don't eat. Despite the law's embedded Code of Ethics, this situation can put a realtor's needs at serious odds with their client's investment needs.
What makes them qualified to tell you how to spend your money, especially since they have no vested interest in the property beyond making the sale?
Do they know what an estoppels letter is? It can be a very useful tool for keeping a seller honest. If they don't know it then they're not doing the best they can to protect their buyer's interests.
What were the first questions they asked you? Those initial questions can give you a lot of insight into the realtor’s motivations and whether they’ll be acting in your best interests, especially if your interests don’t align with theirs.
How do they determine a selling price for your property when they ask for your listing? Any realtor who accepts whatever price the seller wants has an agenda different from seller's, or they're desperate for any listing regardless of how unreasonably priced it might be.
Does the realtor know the appropriate governing law for the type of investment property? Most type of properties have specific legislation that applies to the property type and all real estate is affected in some measure by municipal by-laws.
If they quickly offer a discount on commission, ask yourself why? Will you be getting what you pay for? Most likely ... yes.


Why Do You Need an Investment Property Expert?

The answer itself is a constantly moving target. An expert must stay on top of the trends and factors that affect what the answer is at the time the question is being asked. Every investment property investor's requirements is different at any given time and the market can change literally in a matter of days. An expert can ask the investor the right questions to factor in a client’s personal circumstance to modify the answer, which could actually be the opposite of what the expert might have said without knowing the person circumstances.


For example, a doctor might have prescribed a certain medication under ‘normal’ circumstances but learned from their patient that they are allergic to corn. Many pills use a corn derivative as a binder so most pill medications would have to be ruled out. The same type of investigation about a buyer or seller's specific circumstances should be done by a realtor too.


Another key differentiator or realtors in the real estate industry is how well the industry itself is monitored and regulated. The medical, engineering, accounting and surveying professions have done an excellent job in Ontario. Consequently, the odds are high (but not guaranteed) that the person you speak to will be qualified and have some level of experience and expertise. These industries set a high bar for education and for obtaining a license to practice their profession. Unfortunately, that’s not the case with realtors. A realtor can obtain a license by taking five two-week courses over six months and is then officially licensed to sell any kind of real estate from an oil refinery and a farm to a factory, home residence, retail plaza or cemetery. It's impossible for a realtor to provide the competent skill necessary to be all things to all people.


Skill is Knowledge and Experience ably Applied.

It's not enough to have experience. There are veteran realtors with 20+ years of experience who don't have the requisite skills and knowledge to sell an investment property. Knowledge is the single greatest mitigator of any kind of risk, whether as a general fighting an enemy army or a doctor recommending a resolution to an illness. Real estate markets change constantly. Knowledge is power and properly applied knowledge is a powerful leverage in buying and selling negotiations. Experience alone won't win the day but a lack of experience will assuredly lead to client disappointment and possibly worse


You Gotta Know When to Hold up and When to Fold Up.
Some realtors list a high-demand property and then wait for buyers and their reps to bring them an offer. Multiresidential and retail plaza investment properties are in super-high demand and virtually no supply. So it's relatively easy for realtors to receive multiple offers for these types of investment properties. Multiple offers are generally desirable for a seller but the due diligence period is often measured in months so knowing which offer to accept can have significant consequences. The highest price isn't always the best offer. There may be significant hidden upsides that an inexperienced realtor may overlook, not know, or simply 'leave on the table.' Locking up a property for several months of due diligence only to later learn that the buyer didn't obtain their financing still remains the number one reason investment property deals fail. An experienced investment property realtor will minimize the chances of that happening

Meet Aztech's Broker of Record
Christopher (Chris) Seepe, Broker of Record, Aztech Realty Inc., Toronto, Ontario, Canada

Chris Seepe


Chris has considerable experience as an owner and operator of many multiresidential investment properties. He teaches a course and has written a book that covers everything from finding an income-generating property (very difficult in today’s market) and managing its operation to protecting yourself against tenant abuse and government bias, setting up property legal and accounting structures, embracing the power of digital management, and ultimately extracting  value to finance the next property.


Chris has over 30 years of executive-level business experience and can provide business model investment analysis services, go-to-market strategies, real estate business plan implementation, and has a personal base of over 4,200 real estate-related contacts.


Use the tabs at the top of this page for more details about the Landlording in Ontario course and the book of the same name. Click on the Articles tab to see a large number of articles on a range of landlording and investment property topics.


Before entering real estate, Chris worked in various technical, marketing, and business capacities for companies including American Express, Geac Software Systems, and Honeywell Information Systems. More recently he worked at the forefront of the geospatial technology industry as General Manager of Web Mapping Services – bringing the Google Earth Enterprise relationship to Canada, and pioneering the development of geo-referenced 3D building model cityscapes from aerial imagery.


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