I’ve been saying this for a long time: Short sales are poison for buyers. I don’t know why people encourage buyers to look at short sales, because there is no advantage for buyers that I am aware of. In fact, there are several decided disadvantages. I’d much rather make offers on lender owned property, or anything else for that matter. Short sales are the absolute bottom of the barrel as far as buyer desirability.
For those sellers who desperately need to sell, which is pretty much every short sale, I really am sorry. But I have a fiduciary responsibility to my buyer clients, who come to me wanting a better property for less money, and less hassle. The facts of life in short sales work against getting a bargain, while sabotaging our (mine and my clients) ability to control the transaction. Therefore, I advise against. Much better for buyers to look for lender-owned or other property.
The main issues lie with the lenders, who are in denial of the situation. I’ve never come across anyone in any lender’s short sale department who didn’t have their head stuck in cloud-cuckoo land. Instead of making a prompt approval or disapproval of an offer, they sit and delay and hope for a better one. Most often, I’ve got the purchase financing ready to go in about two and a half weeks from the date of the purchase contract. For any other property, it’s pretty trivial for the listing agent to be ready to close by then. We’re done, and my client is happy.
For short sales, we usually won’t get word as to what the lender is going to do for at least a month after that. I’ve literally never had an approval from a short sale lender within what used to be a normal escrow period of thirty days. This has implications for the buyer’s loan. Mortgage Loan Rate Locks are more expensive for longer periods. Pulling a rate sheet at random, a 45 day rate lock adds a sixth of a point to the costs for a thirty day lock, while a sixty day lock adds four tenths of a point. On a $400,000 loan, this works out to roughly $667 and $1600, respectively. If you need an extension, a tenth of a point (roughly $400) buys five calendar days. Some lenders aren’t extending locks at all for loans above the conforming limits. Or buyers can float the rate, leaving themselves at the mercy of the financial markets as to the loan they might eventually get. None of these is an optimal situation from a buyer’s point of view.
When they do respond, the short sale lender will always try to squeeze more money out of the transaction. They’re in denial about their loss, with the practical effect of making that loss worse. The property is only worth what it’s worth. The first few days on the market are the best time to get the highest offer. If you didn’t get an offer then, you’re not likely to get more money later, as I said in How to Sell Your Home Quickly and For The Best Possible Price. But loss mitigation departments are congenitally clueless about this – and they will forget whatever you manage to teach them within 4.3 nanoseconds. They are structured towards shaking the most possible money out of the transaction, and seem completely unable to learn that all this does is result in a failed transaction, no matter how many times it happens. What’s that definition of insanity again?
So what usually happens (after 45 to 60 days – weeks after my buyer clients could be living in any other property) is that the lender wants two things: A higher price out of my buyers, and a commission reduction on my part. I’m not going to say that I’m in love with commission reductions, but I’ll agree in order to make clients happy. But the deal-killer is that they want the buyer to make a higher offer. Ladies and gentlemen, I went out and negotiated a good deal that my client is willing to accept with the seller, despite all of the delays and problems in short sales, and here’s this third party essentially vetoing the purchase contract. If I did get a heck of a deal, it’s now gone. In any case, my clients are going to be unhappy, being presented with what amounts to an ultimatum: Pay more money or lose the property. Show of hands, please: Is there anybody reading this that would be happy to get such an ultimatum? Unilaterally attempting to alter the purchase contract is forbidden with any other transaction. Why in the world would a rational buyer want to subject themselves to that? Why would any but the most clueless of agents not discourage them from doing so? I’m not going to say it’s impossible to get a great bargain on a short sale, but it is highly unlikely.
I do consider my clients being willing to deal with a short sale to be worth some serious concessions in the purchase contract, as does every other agent with any experience in dealing with them. So it’s not difficult to negotiate a pretty good bargain initially – but it’s extremely difficult to keep that contract intact when the short sale lender gets involved, because their priority, the only thing that’s on their radar screen, is shaking as much money as possible out of all the participants.
Nor is there anything I can do as a buyer’s agent that’s going to make the transaction fly faster, or prevent the short sale lender from sabotaging it. I can argue until I’m blue in the face. They’re not going to listen to me. They might listen to the listing agent, but not the buyer’s agent. I can help the other agent with what to say, but I’m still relying upon someone else to convince that short sale lender. Whatever they do, they’re going to take their own sweet time responding, hoping for a better offer.
The cold hard statistics is over eighty percent of all short sales fall apart, and most often it doesn’t even get as far as whether the buyer is qualified. The short sale lender wants more out of the buyer, wants the seller to come up with more money than they’ve got, the buyer gets tired of waiting and moves on – something. No matter what is is, my buyer isn’t going to be happy. Quite often, I get the blame, at least in my client’s mind, for the transaction failing – even if I warned them as to why this was a bad idea in the first place.
If you do get an approval from a short sale lender, quite often they’re written on a ridiculously short deadline. Given all of the facts above, I’m not going to advise my buyer clients to spend their money on appraisal, inspector, etcetera until we do have an approval. That’s just money thrown away if the short sale lender doesn’t approve it. But waiting on them means it’s likely to take more than a week to get the loan done once we do have an approval – and dealing with a one week deadline was an actual experience I had once. Not to mention the effects of waiting for such an approval on the buyer’s due diligence period, and possible exposure to loss of my client’s deposit (at the very least, it’s sitting there tied up in escrow while everything gets sorted out).
Seller paid closing costs, integral to most transactions currently is also extremely difficult to get approved. These are money out of the lender’s pocket, and they’re going to require a higher than what they consider “market” price in order to compensate them. This is intelligent and reasonable, but if you’re looking for a bargain due to them not understanding their bottom line, it’s not going to happen, and in fact, when one or both of these things are part of most transactions, the “market” is priced to include them. Result: The buyer who needs one or both of these is likely to have to pay more for a short sale than any other property they might fix their eye upon. And those buyers are wanting me to find them a better property, cheaper. Are you still in doubt as to why I advise buyers against short sales?
Since I originally wrote this article, another category of problems has become endemic as well. Listing agents are playing “bait and switch” on the price – advertising prices far lower than any offer the lender will likely accept. Such a sale isn’t going to happen, and the agent knows it – but that’s sure a good way to get prospective buyer clients to call, giving the listing agent an opportunity to gain a new client! Furthermore, because there are so many of them and they are time intensive, many brokerages are delegating the negotiations with the lender and asking prospective buyers to pay for it.
It is far more fruitful for most buyers to focus on properties in other categories. For this particular property, better to wait until is is lender owned, at which point the bank is on the hook, paying money out of their pocket, and usually the money tied up in this non-performing asset costs that lender heavily in leverage on their working capital. Lender owned properties get turned over to different employees, with different performance incentives, with the instruction of getting that property off the lender’s books! The money this costs the lender is their own management’s fault.
For any lenders reading this and not liking it: The responsible party is you. If you don’t want them to become lender owned and cost you much more money, get real about your short sales! Publicize your criteria so buyers and their agents will know they’re not getting into a “black hole” situation, and respond in a timely and reasonable fashion without trying to leave people who weren’t involved (the prospective buyer and both agents) holding the bag for your mistake. It will save you money by dealing with the situation before it goes to Trustee’s Sale.
As far as writing this article goes, the only one I have any sympathy for is the current owner, who really does need to sell. No matter what past sins they may or may not have committed, that owner is currently trying to face reality and deal with it. As the buyer, however, unless you believe that seller’s plight is worth wasting several tens of thousands of your dollars, there’s nothing you can do. Buyers should avoid short sales. They’re not likely to end up happy.
Caveat Emptor
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From an e-mail
I’ve been talking to agents lately and I ask them about the things I’ve learned about from your site. I thought I would say things like “I want to apply for a backup loan” and they would say “Good idea!” instead of “Why would you do that?” I try to answer the why and next thing you know none of my why’s make sense anymore. Here is a summary of that conversation:
Me: Okay, so I need to get a “pre-approval” or “pre-whatever” from a lender so I can put an offer on this house . . . that sounds fair . . . but I want to shop my loan around and in fact, I want to get a backup loan.
Agent: Backup loan? What for?
Me: Because from what I understand what you are told at first isn’t what gets delivered and you are at the mercy of the loan officer if you don’t have a backup plan
Agent: They have to fill out the form and give you what they promise so you are protected.
Me: So it’s the law that they deliver what they fill out on this form?
Agent: No, it’s not the law but they wouldn’t dare change the terms or I wouldn’t recommend them.
Me: Well, most people don’t know they’re getting screwed until later and most of the ones that notice don’t do anything about it.
Agent: Well, if you hire me to be your agent then you should trust my advice . . . otherwise why would you hire me?
A similar conversation ensued when I talked about a “exclusive” vs “non-exclusive” buyer’s agent agreement. “There is no such thing as “non-exclusive”". What is the benefit to you? If I have multiple agents then they all work to find me the perfect house and the one that finds me the one I like is the one that get’s rewarded. Nope! If you tell an agent you have other agents he won’t work with you. Okay, well, I wouldn’t tell the other agents. But any good agent is going to make you sign an exclusive agreement.
Anyway, the sales techniques here are right up there with car salesman.
Let me ask you about your experience with monopolies? Your electric provider, mass transit provider, cable provider – do they furnish top notch customer service? Do you think someone might be able to do better, cheaper? Quite likely, because monopoly situations encourage rent seeking behavior. Monopolies are the classic example of rent seeking – do business with them, or not at all, meaning you’re stuck with whatever service they choose to give you at whatever price. Why in the world would you do that to yourself?
Only two possible reasons: You don’t have a choice or you don’t know any better. You do have a choice in real estate, no matter how much various people may choose to pretend you don’t. I certainly haven’t noticed any shortage of real estate agents or loan officers. There’s something like 7500 licensees in San Diego County alone. That leaves you don’t know any better. It doesn’t matter whether it’s through ignorance or not following through on the knowledge.
In fact, if you think about it, someone who insists upon exclusive rights to your business is telling you they’re worried about comparisons to other professionals. They’re telling you they’re afraid they can’t compete and they’re not willing to try. Does this sound like someone who’s likely to give you the best service? Someone who’s not willing to compete?
Just because an exclusive agreement isn’t in the consumer’s interest doesn’t mean that it isn’t very desirable for agents. In fact, most agents take a lot of classes in learning how to lock your business up and cut out the competition before anyone else gets to the starting line – several times more training than the average agent ever takes in learning how to actually give good service and good value to their clients. Look at the average agent symposium sometime. There will be easily ten times more offerings in how to get clients and cut out the competition than there will be in how to get your clients the best value. If the average agent doesn’t offer a non-exclusve buyer’s agency contract, they can pretend such a thing doesn’t exist. It does exist; it’s available in every state. In California, it’s form BBNE in WinForms, the standard computerized package. But if they can persuade you to sign an exclusive contract, they’re guaranteed to get whatever buyer’s agency commission is due – before they’ve done any real work, before they’ve demonstrated that they are really going to guard your interests at all. I’ve written about the drawbacks of an exclusive agreement before, and even given examples in shopping for an agent, and the games that get played with consumers by agents. If you’ve signed an exclusive agreement, you’re stuck. If you don’t, you’re not – indeed you keep far more control in your own hands.
Some agents will try to sidetrack you with an exclusive agreement “but you can fire me any time you want!” The first question is where is that written into the agreement? Show me please. In fact, the standard exclusive contract is written to be very difficult to break for any reason. The second question is that even if it is written in, how is that not functionally equivalent to a non-exclusive contract? The answer to that is they’ve still got your business locked up until and unless they make an obvious blunder. As long as they don’t make that obvious blunder, they’re still in the driver’s seat. But this doesn’t mean that they’re a good agent – you have no standards for comparison. Indeed, you are agreeing not to acquire any standards for comparison. Matter of fact, they can be the worst excuse for an agent ever and still not make any mistakes that most people are going to fire them for. Plead for one more chance, and most people will give it – dozens of times. The bottom line is that they still avoid any chance at having to compete.
Now just because your agreement is non-exclusive doesn’t mean you have to go find other agents. At least half of my clients never talk to another agent. But they have the option of doing so, and that knowledge is one of the things that motivates me to do the best job I can for my clients, and why I keep the list of clients I’m working with at any time short enough so that I’m certain I can handle them all with no deterioration of service. If I don’t, they can fire me and find another agent as easy as crossing the street. That motivation just isn’t there if you give someone an exclusive agreement. Do you want the agent whose motivation is to concentrate on giving a few clients the best job they can possibly give, or do you want the agent who’s a half-notch above getting fired, whose motivations are to lock up as many clients as possible, secure in the knowledge that none of those clients are likely to actually fire them? And if they’re confident they can give you such a terrific job, why are they requiring an exclusive agreement? If they’re really that good, they should be eager to compete. That’s the best confirmation of their abilities possible – the fact that someone else tried and couldn’t do it! As I’ve said, most of my clients see the job I do and never talk to another agent, and most of those who do end up telling me how much I shine by comparison. But it takes confidence in my own ability to offer that non-exclusive agreement. The ones who won’t are telling you that they don’t have that confidence. Do you think there might possibly be a reason for that lack of confidence?
Probably the largest number of agents and loan officers compete by being what I call “Social predators” Involved in Boy Scouts, Soccer, Little League, the church, PTA, whatever. They try to make those they come into contact feel obligated to do business with them, because they are after all, a good guy (or girl), they help the cause, etcetera. Surely such a person is worthy of trust? Surely they will treat you right? They lock up the business with an exclusive agreement or a large deposit, raising the barrier to competition as high as they can. This effectively sets you up for the kill. My personal experience leads me to believe that such agents and loan officers are responsible for a truly outsized proportion of the people who are losing their property to foreclosure in the current crisis. It seems like everyone I come across who’s in the process of foreclosure has a “social predator” story to tell. Most of them have no clue what happened until I dissect the entire process and show them that their “little boy’s wonderful scoutmaster” bent them over and took advantage. The thought process is natural, but the conclusion does not follow from the premise – a thing most people don’t understand until how it bit them (past tense) is plainer than the nose on their face.
Ronald Reagan loved a very applicable phrase: Trust but Verify. It’s not accident that this principle, which he applied as President, served him and the country very well. On a more personal level, you are willing to trust agents with your business (otherwise you wouldn’t be talking to them), but you want to verify that they’re earning it. You’re not willing to take trust to the level of the spouse who’s clueless about their spouse telling them they worked late when they come home at 3AM six nights in a row smelling like someone else’s perfume or cologne. This is the best function of a non-exclusive buyer’s agency agreement. This means you still have the right to go out and get the only valid standard of comparison: Another agent who has the same opportunity to do the same job as them.
In your situation, I’d be very blunt: “What you’re telling me about requiring an exclusive contract makes me believe that you know very well you don’t measure up to a good standard. In fact, the harder you argue for an exclusive agreement, the less willing I am to believe you are worthy of one. I’ll willingly give you a chance to earn my business with a non-exclusive agreement, but I’m not going to sign any exclusive agreements with anyone. Since you’re not willing to sign a non-exclusive agreement, I am wasting my time. Good-bye.” They have as long as it takes you to get to the door to change their mind. Walk out and never look back – find someone else who will offer non-exclusive agreement.. In fact, taking this stand in your self defense is the first and most critical point of Shopping for a good buyer’s agent. The standard non-exclusive contract is truly a bet you cannot lose as a consumer. There literally is no risk. Doesn’t matter if they’re a freshly minted licensee who’s never done a transaction in their life (How often do you hear that from someone who actually has significant experience?). Go ahead and sign a non-exclusive agreement, and the worst that can happen is they don’t get the job done. You’re still free to use anyone else who does. You have lost exactly nothing – as a matter of fact, both you and that agent are mathematically, provably ahead for having signed that non-exclusive contract! Hiring them thus can only increase the probability function in your favor! This improvement may be marginal or even zero, but so long as you do your due diligence it cannot be negative.
The same thing applies to the loan officer an agent recommends. The reason they’re choosing that loan officer has nothing to do with the best choice for you and everything to do with the best choice for them. That’s a loan officer they trust not to screw up the transaction by telling you, “You know, I’m not certain you can really afford this property.” That’s the loan officer they trust, by hook or by crook, to have a loan ready at the close of escrow, no matter what it takes, so that that agent can get paid. Has nothing to do with how good their loans are, how competitive they are, or any other advantage to you – only that they trust that loan officer to insure their paycheck. That’s what the agent is really telling you. The loan officer may be really good, and very competitive on price. Then again, they may not, and the one thing I’d bet significant money on, sight unseen, is that they will never tell you that maybe you’re stretching beyond your means – that agent will never send them another client if they do! The only agents I’m certain could tell the difference between good loans and loan officers and bad ones if it bit them are the ones who are also loan officers themselves.
If an agent is recommending a loan officer on the basis of “This person wouldn’t dare cheat my clients!”, ask them for a copy of the initial MLDS (California) or Good Faith Estimate (the other 49 states) and a copy of the final HUD 1 for that loan officer’s last five transactions with their client. (sarcasm on) What, they don’t have them? What a surprise (end sarcasm). But if they don’t, how can they possibly know whether that loan officer does or does not quote accurately? You’ve just asked for the only possible evidence, and they don’t have it! Nor does this cover how well they compete on price, and as long as the terms are the same and the rate/cost tradeoff is better, a loan is a loan is a loan. I used to advise people to apply for more than one loan, but changes in the lending environment have put the kibosh on what was an easy and effective way of managing your loan thusly. Now you need to have a real problem solving discussion with several potential loan officers and evaluate the solutions – a much more difficult task for a lay consumer, because neither I nor any other loan officer is doing back up loans any longer. Rate shopping on the phone doesn’t cut it any more because loan officers can lie like rugs and low-ball worse than any remodeling contractorand now they can point to a federal form for false credibility
You’re right that these sales techniques have a lot in common with used-car sales. Everybody in any sales business wants to avoid competing if they can – it means they don’t have to work as hard, and get higher profit margins. Consumers, for their part, need to learn to understand what actions mean, and that actions are important, not words. That’s part of the reason why I’m writing this article.
Sales persons, properly handled, are your best friends in the whole world. Nobody solves your problems as well as an expert with the motivation of getting paid for their trouble, and there always seem to be problems that lay people don’t realize exist until they’re bitten, which is almost always far too late to avoid all the damage that’s coming down the pike. Kind of like having a Terminator after you. If you don’t have your own very special protector, they’re going to get you. I don’t like having my clients bitten – not tomorrow, not next year, not ever. One bad transaction can ruin you as an agent or a loan officer, and I intend to be doing this for the rest of my life. So I’ll do everything I can to keep it from happening before it happens, and you want someone just as dedicated working for you. The only way to be certain is to watch them in action over time. But if they’re asking you to sign that Exclusive Agreement beforehand, how in the heck can you possibly have the knowledge of their business practices to give it to them?
Caveat Emptor
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Way back when I was just out of high school, I was doing a lot of things with my time. Working, dating, competing on the fencing team, gaming of various sorts. But every once in a while, I dropped in on one of those math courses I was registered for at UCSD. One of those courses was Math 110, “Introduction to Partial Differential Equations and Boundary Value Problems” Bozemoi. That was the course that convinced me that I was not, after all, cut out for a career as a mathematician. All the other undergraduate courses, I got a handle on fairly quickly, but the way my mind works made that one course something like having those alleged brains pounded out between two large gold bricks wrapped in lemon.
I eventually got through it. But one thing I took out of that class in no uncertain terms is the form a real solution to those equations took, and the fact that if you were missing terms (“parts of the answer” for those less mathematically inclined), your answer was wrong. Not incomplete. wrong.
One of the standard ideas of internet commerce is “cut out the middleman and their fees.” You can find this in lots of fields. Some of them begin far earlier than the world wide web. “Discount” brokers have been going for decades, for both stocks and real estate. The internet certainly helped them, however. Loan quote services were probably one of the first ten business ideas on the world wide web. On-line this, on-line that. Do business with the faceless on-line corporation with cheaper fees (or none!) and you can’t help but be better off, right? It’s easy to illustrate that difference to just about anyone. There’s money they’re not spending, that anybody can point to as a savings earned by doing business in that fashion. But is that the whole story?
Indeed the whole discount proposition cannot succeed without an implicit or explicit assumption that the value you receive from having paid that fee is zero. But if that were the case, these professions would never have gotten going in the first place. Who wants to pay money you don’t need to? Anybody want to raise your hand? I certainly don’t. The world, humankind, and even our financial markets survived for millennia without stockbrokers, real estate agents, travel agents, or any other sort of business that is now being subjected to disintermediation. Why did these professions come about? It wasn’t because our great grandparents were stupid, uninformed of the alternatives, or had no choice. They could and did buy and sell stock and real estate directly. The reason these professions, and others (such as journalism) arose is because they added value to the entire process. The people who made use of these professions profited by their choice. Not necessarily directly in dollars with every transaction, but statistically, the people who spent that money emerged notably better off in one or more important respects, and therefore, our predecessors made a choice to do so until essentially everyone did so.
There you have it: An explicit refutation of the assumption underlying the entire discounter promise. It neglects an essential term in the answer as to whether you end up better off. Was the money you didn’t spend really the whole answer? What if by spending that money, you end up better off?
Suppose you save three percent by not having a real estate agent sell your property. Seems like a great idea on the surface, doesn’t it? On a half million dollar property, $15,000 in your pocket for what you think is a few hours of work. I’ll even start by granting you the same ability to market that an agent has, which isn’t the case for the vast majority. But what happens if the price you pick isn’t right for your market? I’ve gone over that. What happens if you don’t disclose everything you need to? Then let’s consider negotiations. Trying to match wits against a buyer’s agent whose been in everything that sold in your neighborhood in the last six months is a guaranteed lose. Do you know what’s appropriate for contingent sales? What about negotiating repairs disclosed by inspection? These and many other things need to be negotiated, and just telling the other side to do it your way will result in a failed transaction. Do you know how to find out if a buyer is qualified? The two months you spend waiting to find out that your prospective buyer can’t qualify costs you roughly six thousand dollars all by itself. I could go on and on.
The same applies on the buyer’s side. In the current environment, any decent buyer’s agent who tries can make at least a ten percent difference by suggesting the correct property, negotiating to their strengths, and using the seller’s weaknesses against them. Usually it’s more than that. My average was running about twenty percent when I originally wrote this. Even when the market turned crazy for about nine months it stayed about 10% – when everyone else was having appraisal problems due to Home Valuation Code of Conduct, I didn’t have a single property that failed to appraise for value. Sound like a good bargain to you? Spend ten to twenty percent to save three? If so, come on into my office, and I’ll give you $30 for $100 until you’re broke.
The intelligent question is: Does spending that money save you more than it costs? Most people will spend $10 to save $100. That’s rational. Most people will spend $90 to save $100. That’s still rational. Some people will spend more than a hundred dollars to save $100, though, and that’s not rational. Not spending the $10 or even $90 to save $100 isn’t rational either. Nor are all of the costs in money. How do you quantify not making a mistake that most people don’t know is there until and unless it bites them, after the purchase?
That’s really the whole question, isn’t it? Furthermore, it has to be answered individually, because few situations really subject themselves to this kind of analysis Admittedly, with the internet, it’s gotten easier for consumers and more difficult for members of those professions. But the internet can only help you with questions you actually think to ask, and you still have to do the work to make certain you debunk wrong answers to find out where the truth really lies. It’s not going to tell you any of dozens of reasons why this freshly remodeled home of your dreams is going to turn into a nightmare.
When I originally wrote this, I was closing on a property right now where the folks contacted me with information from a popular discount model brokerage in their hand, and those were the first properties they wanted me to look at (which I did). The difference in value they are receiving for their money is such that they never went back to that discounter, because I went out and looked at properties, I gave them reasons why this property was or was not one that they were going to be happy in, I gave them reasons why this property was a Vampire while that property was not. I explained to them how the surrounding environment was going to impact them in the property. I showed them what needed to be fixed, and gave them an idea what was involved. When I found an especially good value for their money, I got them out there and told them to act fast if they wanted it – if I hadn’t, it would have been gone by the weekend. I’m not going to talk about why, but I can truthfully say that I wrote an offer that the seller chose to accept even though it wasn’t the highest offer they had, and the difference was a lot more than my company’s three percent commission. If those kinds of services aren’t worth money to you, then you’re not a good candidate for my services anyway. But all that discounter had to offer was how cheap they were, while I gave my clients more value than they would have saved before they put the offer that was accepted in, and they knew it. Once the clients started thinking in terms of what they were receiving by giving up that discounter’s commission rebate, the discounter never had a chance. By CMA of all comparable properties in the area at that time, my buyers saved over thirty percent, and that’s just by square footage – not including all of the amenities the property had that the competing ones don’t.
I’m not going to pretend this one isn’t an above average bargain, even for me. I’m not going to pretend that every full service agent can make that kind of difference on every transaction, because I know it isn’t true. The best agent in the world strikes out occasionally – in which case you are still no worse off than without them. But making more of a difference to the client than the three percent a full service agent makes around here is an awfully easy mark to beat for the agent who tries.
Caveat Emptor
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Here was an idea I had: Pack a list of the most important things consumers need to know about buying real estate, as packed into the words I can say in sixty seconds without sounding like an over-clocked squirrel. Here goes:
Figure out what you can really afford before you do anything else. Shop by purchase price, not payment, and refuse to look at properties which cannot believably be obtained within your budget.
Listing agents are contractually and legally obligated to sell the property as quickly as possible for the highest possible price. They represent sellers, not buyers. If the listing agent can sell you the property for $100,000 above comparable market price, they have done nothing except their job. Never allow the listing agent to represent you as a buyer.
Buyer’s Agents represent buyers, not sellers, and having a good buyer’s agent will make more difference than anything else to get you a better property value for less money. Get at least one buyer’s agent before you start looking. Sign only non-exclusive buyer’s agency contracts, insist they cover bad points as well as good on every property, and fire any agent that won’t, or any agent that shows you a property that cannot be obtained within your budget.
There is no such thing as a perfect property, or the perfect time to buy real estate. Properties in immaculate condition command premium prices because the owners can get more money. If you want a bargain, be prepared to do some cosmetic work. A good buyer’s agent will help you know what’s cheap and easy to fix, versus what’s difficult and expensive.
How was that?
Caveat Emptor
P.S.: This guy is one of the best buyer’s agents there is
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Or: Please don’t believe everything you read on the internet!
Rarely a week passes by that I don’t get a request from someone to link to their website or article. I’m happy to link to good sites and good articles with real consumer information. Unfortunately, this is not the majority of what’s out there.
I got three requests in the last day. Two were obvious spam sites, one didn’t even address me by name. The third was a little harder, an article that claimed to be written for consumer benefit. Unfortunately, its five main paragraphs were wrong on every point of substance, and so vague as to be useless on everything else. But when I sent them an e-mail suggesting they improve it, I got a three letter response: LOL.
For those of you who may not understand geek speak, this stands for “Laugh Out Loud.” In other words, my request was laughable to them. They wanted free links to the site, and were willing to research email addresses and such, but weren’t willing to produce actually informative correct content. My primary hypothesis, which I’m not going to bother to test as it involves motivations I don’t care about, is what they did write fit their own agenda better than something closer to verifiably correct. I see people writing – or who have written and are flogging – articles with similar points to that one every day.
Unfortunately, this attitude is far too common. People build these websites to optimize their chances of getting a relevant search term hit. None of the search engines tests any site for reliability of the information it contains. A search engine referral is not a guarantee or even indicator of reliability – it means they found the relevant search terms there. Testing the veracity, correctness, completeness, and usefulness of the information contained is left as an exercise for the potential reader.
I also get e-mail from consumers. One recently thanked me, saying it’s easy to find real estate information, but it’s difficult to find good loan information. Actually, it’s just as difficult to find correct real estate information. More of what’s out there is somewhere in the general vicinity, but just because it’s apparently closer to the truth does not mean it doesn’t contain deadly traps, made all the more plausible by association. When you’re talking about real estate and mortgage loans, there’s a lot of money at stake. This is all the reason necessary for some people to say whatever it takes. Remember, none of the search engines tests for reliability of the information, and failure to examine everything you read – particularly in an area where few people have competence but many people think they do – can often lead to a situation which appears to be successful until years later. Real Estate is one of those fields. When I originally wrote this, I was going through a transaction where it was more and more challenging not to speak ill of the listing brokerage as a whole. I’ve had the buyer’s end done and there was no termite clearance, no zone disclosure report, none of the other required disclosures, they took the lockbox off without informing me or my clients (itself a violation of MLS rules) so we couldn’t do our walk-through, and that’s not all by any means. That seller is sitting fat dumb and happy – and liable for basically everything in the known universe. Yes, it’s a discounter. Why do you ask? Oh, right. Because I’ve got to do their work so that my client is aware of what they need to know before we actually consummate the transaction. But I don’t have any legal liability to do so as the buyer’s agent. It’s simply my desire to prevent my client from unknowingly walking into a bad situation, and if I didn’t, it could be ten years from now when my client discovers something, and goes to court for a fat settlement from sellers and listing agency, or even forcing them to buy the property back. Apparently successful for years, but in the end a disaster. Not to mention a couple of things that I can’t talk about until the transaction records.
People have various reasons for building websites. In some cases, they’re trying to sell advertisements. In fact, there’s a lot of those sites, where the entire purpose of the website is to collect money from people clicking off of the site to one of their paid advertising links. I’ve got some of those; One direct, a couple more through AdSense and BlogAds. It pays my bandwidth charges, and usually some of my domain renewal. I’m far pickier than most about my ads, and I’d like to get to the point where I can tell AdSense to take a hike, because they don’t allow me any ability to reject individual ads that may be objectionable.
Other people build their website with the explicit intent of selling something specific. I’d like to sell something specific: My services as a real estate agent and loan officer. However, I’m nonetheless doing my best not to write anything that I could not defend in an academic thesis if I were a professor and tenure was at stake. I don’t get offended when people question what I write unless it’s in an obvious shill way. Furthermore, I’d like to think I’m as evenhanded and complete as possible in dealing with the pluses and minuses of everything. Everything I write is designed to be tested for its veracity. In other words, if you check out what I say, whether in an actual transaction or by checking with knowledgeable neutral parties, I would be very surprised if there were substantial points of disagreement. This isn’t to say I can’t make mistakes, but that I try very hard to make everything I say verifiable by independent test makes me highly unusual on the internet. Some people are every bit as careful as I try to be. Others are somewhat less careful. The vast majority do not care so long as it enables them to sell more of whatever they’re selling.
What I’m trying to say is that you should make every attempt to test everything you see on the internet, including my stuff, before you bet large amounts of money on whether we’re right by conducting a real estate transaction in accordance with what we say (Although if I’m your agent or loan officer I become responsible for what I say financially and professionally). That’s one of the reasons why I’m not hesitant to drag out a calculator or spreadsheet and show you the numbers. If it cannot be expressed in mathematics, it’s not fact – it’s opinion (Thank You Mr. Heinlein for teaching me that while I was still young enough to absorb it. This isn’t to say that if it can be or is expressed in mathematical terms that it is true. You’ve got to “crank the problem” and see if everything matches). Try to debunk it if you can. Does the evidence – independently gathered – confirm directly, confirm circumstantially or tangentially, confirm with exceptions, partially confirm, fail to confirm, contradict tangentially, contradict circumstantially, or contradict directly what is said? In the absence of substantial contradiction, is what we say at least internally consistent? If there is contradiction, how far does said contradiction unravel the claims? It’s very different if it contradicts the central point or points and causes everything to fall apart, versus if it only contradicts some tossed off side track. Logic and the scientific method are always your friends.
Another trick is to observe whether the source admits things that bolster an opposing case, or something against the point they’re trying to make. The more opposing viewpoints or evidence against their point they entertain, the more likely they’re honest. Especially if they’re scrupulous in the way they handle to evidence against them. None of this helps if the central tenet of what they’re telling you is flatly contradicted by a known and verified fact, but in the absence of such, honest treatment of the merits of alternate explanations is a very good sign.
The quality of the confirmation or contradiction – how credible and detailed the piece of information you use to check it – is also important. You could find yourself having to check out many different interpretations before you’re certain where the truth really lies.
Absolute truth can be a difficult thing to attain, there is often room for differences of opinion, and there are many logical fallacies to which even people of good intent can fall prey. The difference between a valid and invalid argument or statement can be very fine. Please, do not take anything you read on the internet as gospel truth without thoroughly vetting it for incorrect information, false premises, and false inferences. I don’t believe I’m infallible. I do see stuff on the internet every day which is thorough nonsense even though it may appear credible on the surface. Sometimes it’s with malice aforethought, sometimes it’s an honest mistake, sometimes it’s a simple misunderstanding of source material, and sometimes it’s even just viewing source material from a viewpoint that distorts the answer. For my part, I try very hard to get it right and to cover information that might disagree with what I’m saying, but there’s a reason why I end every single article here with
Caveat Emptor
Original article here
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One of the things that sticks out about buyer’s markets is that there are two sorts of listings: Those who are willing to do whatever it takes, anything it takes, to get the property sold, and the other who apparently just likes having the property in MLS.
Many listing agents have made a habit of telling people that they can get more for the property than the next person over. Well, some can. But there really is no secret as to how they do it. They have the discussion to price the property correctly in the first place, and if the listing price isn’t appropriate, they will not take the listing. I don’t list many, but if someone is insistent upon a listing price that is too high for the market, I am better off not being part of that listing. Even if it does sell after two major price reductions for less than I likely would have gotten straight off, that client is going to be angry, not happy, and tell everyone it’s my fault.
Indeed, if there ever is a market where listing agents can reliably get more than the value of the property, something I am pretty sure doesn’t exist, the buyer’s market is the furthest thing from it. What a good listing agent can get you is the full value of the property, but that’s a very different value, and a very different mindset, in a buyer’s market than it is in the seller’s market San Diego had for most of the last decade.
Now, you need to ask yourself, “Why is this a buyer’s market?” The answer is as simple as supply and demand. High supply and Low demand. Many people who want to sell, not very many at all who want to buy. Result: Those few buyers who are willing to be out there have all of the power. If this particular seller won’t take the offer they make, the next one over, or the one after that, will.
Most sellers would agree that this is a challenge. Buyers think it’s great. When I originally wrote this, sellers outnumbered buyers 44 to one. It’s a real challenge to have a successful sale in such an environment.
What’s a seller to do about this? Quite simply, ask yourself if you have to sell or if you have other options. If you have to sell, make up your mind that you are going to do whatever is required to make a transaction happen. This can be a lot: cleaning your house up, making it attractive, pricing it better than the competition, and not kidding yourself. The offer you are going to get still won’t be anything like what you might have gotten when the market was hot, but that was when the ratio of sellers to buyers was about three to one, often less. You will be much more likely to get an offer, and remember, you decided that you need to sell.
Lest you think you aren’t competing with other sellers, go find a real expert in your area to help you right now. In the entire history of United States real estate, no buyer ever bought a property because it was that seller’s “turn.” You are always competing against other sellers, but a buyer’s market makes it far more obvious. Buyers make offers on your property because something is attractive to them where other properties are not. This can be features, this can be location, this can be willingness to do what other sellers are not, or this can be price. Usually it’s a mixture. In the sort of market like when I originally wrote this – remember that 44 to 1 ratio of sellers to buyers – it’s likely to be all four in great heaping gobs.
If you don’t need to sell in a buyer’s market, get it off the market! If you are not going to accept a much lower price than it might have gotten when the market was hot, you are wasting your time. Those few buyers who are willing to get off the sidelines are bottom feeding and bargain hunting. If you have a better choice than feeding the bargain hunting and bottom feeding buyers, take it. If your property sits on the market, then when the market does turn back, the fact it sat on the market is going to count heavily against you. The agents in the area know that it sat, believe me. I was in a half day class the day I originally wrote with several hundred other agents. Everybody I talked to agreed that the only transactions that were happening in that market were all happening completely on the buyer’s terms. If you are not willing to meet those terms, you are not merely wasting your time, but actually sabotaging your future prospects of selling for a price that you would like.
If you are not willing to do what it takes to sell, get it off the market. Not only are you sabotaging your own future plans, you are adding to all of the excess inventory that’s out there as a glut on the market. Indeed, for every additional property for sale in the neighborhood, people who are willing to do what it takes to sell the property are going to have to do a little bit more. Most often, this means “settle for a lower price than they might have gotten otherwise.” Just the fact that there are 238 three bedroom houses listed in the same zip code gives buyers substantially more leverage than if there were fifty, or twenty. This drops the market that you are hoping you can use to sell the property two or five years from now, and gives it further to come back, which means that the pricing level will be lower when you go to sell your property for real. Individually, extra properties on the market may not make much of a difference, but collectively, they certainly do.
If you do need to sell in a buyer’s market, get all traces of the “they’ll do what I want” mindset out of your head. This isn’t about pride, this isn’t about profit, this isn’t even about breaking even. This is about getting out with the least practical amount of damage. We have established that if you do not need to sell, you shouldn’t have your property on the market in this environment. But you do need to sell, which makes the alternative of taking less than you think the property might be worth better than the alternative of losing it completely. And make no mistake, for as long as buyer’s markets last, that is the attitude I (or any good buyer’s agent) am cultivating in my buyer clients. If you won’t sell, I’ll talk to your lender after the foreclosure – if someone else has not already sold to me by then. When I wrote this, in San Diego, the only power sellers really had was the power to say, “no,” and if your alternative is losing the property to foreclosure, a rational, informed person will pay thousands of dollars out of their own pocket instead, accepting offers way below what they owe on the property. And if that or something similar is not your alternative, then why is your property on the market at all? Why are you contributing to the apparent glut of supply to no good purpose?
(The market is much better now. Properties where all the ducks are in a row from day one – price, condition, staging etcetera – are not merely selling, they are seeing heavy action and multiple offers. Last summer things got really ridiculous again for a while, but that has largely gone away now and we’re back in a more balanced market again)
Caveat Emptor
Original here
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