When 43 deals are sent and 3 pass the screen, is the buy box broken or is it the wrong agent?

Question

Here is a situation worth working through. An investor spends six months with an agent who bills himself as investor focused and hands him a written screen: max purchase 180k, 8.5 percent cap on trailing actuals, 1.25 DSCR at 7.25 percent on 25 percent down, underwritten at 8 percent management, 5 percent vacancy, 8 percent repairs and capex, the actual tax bill, and insurance quoted rather than estimated. The agent sends 43 properties. Three clear. Of the 40 that do not, most die on expenses, because his sheets carry a flat 6 percent total expense load and call it conservative. Two die because the actuals are a seller typed rent roll with no tax bill attached. He then proposes one of two structures: a $500 a month retainer credited against commission at closing, or $2,500 flat per closing on the buy side regardless of price. His argument is that screening for a tight box is real labor he has been carrying unpaid. Paying him is not out of the question. What is hard to settle is whether a 7 percent hit rate is evidence he does not understand the numbers or evidence those numbers are simply not present in that market at that price point. And if the investor pays a retainer, what exactly is being bought that is not already being delivered?

Rena Expert · Accepted Answer

A 7% pass rate tells you almost nothing until you split the 43 by source. If 40 of them came off the MLS, that pass rate is roughly what an 8.5% cap on true actuals produces on-market in most metros right now, and it says your screen is doing its job. If a meaningful share came from his own off-market pipeline and still failed on expense load, that's a different problem, because off-market flow is where an investor agent's value actually sits and he should be pre-screening it against your sheet, not his.

Ask for the split before you decide anything. It's one question and it resolves the argument.

The expense fight is worth having on one line only, and it's taxes. A 6% flat load is a listing-side habit. But your "actual tax bill" input is also wrong in a lot of states, because assessment resets or loses an owner-occupied exemption on transfer, so the current bill understates your year-two number. Which states and by how much varies, so get the county's post-sale estimate in writing before you underwrite it. That single line moves cap rate more than the management percentage anyone argues about.

On the two structures: a retainer credited against commission converts him into a volume sender, because sending you 30 more listings costs him nothing and protects the credit. A flat per-closing fee is the cleaner incentive, and it needs to be in a written buyer agreement his broker signs off on, since broker policy and state rules govern how a buy-side fee can be charged. Either way, what you should be paying for is list position, meaning you hear about his pocket inventory before the other three investors he works with. If the retainer doesn't buy that, you're paying for MLS emails you already receive.

joe_delgado5 · Answer

Split matters, agreed, but I'd bet money it's 40 MLS and 3 he actually worked. On-market at 8.5% on real actuals is basically extinct where I'm buying unless something is wrong with the roof or the tenant. My screen is 1.15 DSCR and I eat a thinner cap because I'm exiting in 18 months, so I see stuff you'd never look at. Different game though.

megan_doyle15 · Answer

What does "cap on actuals" mean as opposed to whatever the other kind is? I've only seen cap rate as one number.

luis_carrera · Answer

@megandoyle15 actuals means the last 12 months of real collected rent and real bills. The other version is pro forma, which is what the rent could be after doing things that have not been done yet. @hannahwest29 the piece worth building is the screen on one page with the expense lines pre-filled, so his sheet and your sheet are the same sheet. A screen that lives only in the buyer's head cannot be enforced on anyone, and a lot of investor agent relationships stall exactly there.

samantha_ruiz · Answer

The agents I know with actual off-market flow don't run a screening service at all. They call whoever closed cleanest last time, in order, and the third call gets nothing. That's the thing you can't buy with 500 a month. I hit this ceiling at four properties, where I was clearly on somebody's list but not at the top of it, and the fix wasn't a fee. It was closing in 12 days with no financing contingency once, on purpose, so I'd be the first call after.

nataliehsu · Answer

Genuinely curious from the other direction: does an agent get paid anything for the 40 that didn't pass? Because as far as I can tell the answer is no, and 43 underwrites is real hours. I'm trying to figure out whether the investor side of this business is a volume game with a lot of unpaid analysis in it.

carlos_nunez · Answer

The seller-typed rent roll with no tax bill is the one to walk on rather than negotiate. A typical example is a listing-side T12 with the water bill split across two line items, one of them labeled "misc." Also seconding the reassessment point. A county's post-sale estimate coming in over 40% above the bill on the sheet is common, and it varies wildly by state, so ask the assessor's office directly rather than trusting anyone's screenshot.

aaron_fitz10 · Answer

If 40 out of 43 fail, the market may be telling you the product is wrong rather than the agent. Are you set on single family in that price band? Operators who consistently hit 8.5% on trailing actuals tend to be in small multifamily or in a market three hours from where they live. Which of those two suits you is the real question, and it is worth answering before the next 43 arrive.

raj_mehta14 · Answer

Slightly off the main line of the thread, but if the numbers never clear at that price, buying the paper on those properties is a different answer. A note earns from the discount and the coupon rather than the operating line, so a house that fails as an equity buy can still work as debt. It is a real alternative with its own problems, mostly servicing and collateral valuation.

chriswalton8 · Answer

@hannah_west29 once capital partners have been told the money deploys on a schedule, hit rate stops being an abstraction, because dead deal costs land on someone. Inspections and third party reports on the ones that die past LOI are real dollars. Who eats those in your setup? That question says more about an agent relationship than the commission structure does.

gregpowell66 · Answer

A screen needs a rehab line, and it is the one agents leave off entirely. Plenty of listings marketed as turnkey carry 8 to 12k of deferred work sitting in plain view, a water heater at 14 years, a panel with cloth wiring behind the cover, and the agent's sheet shows a zero on that line. That is rarely dishonesty. The agent simply does not see it, because he has never paid an electrician.

When 43 deals are sent and 3 pass the screen, is the buy box broken or is it the wrong agent?

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