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:
Spend some time making your property shine before you put it on the market. Doing it yourself is better than giving an allowance. Spend the effort to find a good listing agent, and sign a listing agreement at least a week before you want people to know your property is for sale. Consult the agent as to what can be done to make the property more attractive before anyone sees it. Agree to pay your listing agent for the good they do, and offer buyer’s agents at least an average commission – you don’t want them trying to sell someone else’s instead property to the people who like yours.
The property is only worth what someone will pay. Price it correctly from day one. You’ll end up with more money, faster, than if you start too high and reduce the price. Not all goods are in the form of cash – decide what’s important to you, what’s not, and how much money it’s worth, before you have an offer.
Once the property hits the market, make the property as available for showing as you possibly can. If you don’t show it when people want to see it, they might not come back. If you possibly can, don’t be there when your prospective buyers are.
Negotiations are give and take. You shouldn’t expect to get unless you’re willing to give, and a stubborn attitude can sabotage your sale. Remember, you have a property and you want cash. There are lots of other properties out there
How’s that?
PS: You might want to give this guy a chance to earn your business!
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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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Saw a sign driving: “Negative Equity? Sell and Get cash!”
Notice that it doesn’t claim that you can do so legally.
I saw another of these signs on the way to the office this morning.
When things are going sour, there are any number of scam artists who will promise the moon. We had them in the early nineties, and we have a lot more of them now.
Perhaps the largest number of these are flat out liars. They have no ability and no intention of actually delivering whatever they’re dangling out there as bait. They’re just putting something out there to get you to call, so they can get you into their office and try to do whatever it is that they do. Most of these are probably fishing for victims of a “subject to” scam. Notice that they didn’t say they could do it for everyone? “Subject to” deals are illegal, but quite often the lender will let you get away with it. Of course, if they don’t, they go after the person who signed the Trust Deed, not the scamster who talked you into it. Note that if they’re reasonably careful, the people who are dangling “subject to” deals are legally in the clear. Nor is it illegal (as far as I know) for them to use an advertising hook they have no intention of delivering. Even if it is illegal, it’s not like anybody gets charged for the initial handmade sign by the side of the road that’s long gone before there’s any investigation into what happened.
Even if these people are telling the truth as far as they go, there is something wrong with this scenario.
Either 1) you weren’t in a negative equity situation in the first place – you really could sell for at least what you owe on the property, or 2) You are going to commit fraud, and the lender is not going to be happy when they find out. Expect a very unpleasant visit from the FBI, large legal defense fees, and an extended vacation courtesy of Club Fed.
There is no lender in the world that is going to accept a short payoff where the borrower walks away with cash. End of discussion. That’s the entire bargain you make with a lender when you borrow money. They get paid every penny they are due first – and you get only the excess, however much – or little – that may be. If their payoff is short, they will not accept you walking away with a single penny from the sale of that property. To do anything else is a violation of securities and banking regulations. The Wicked Witch of Wall Street may be politically dead, but this is one issue that the financial world has developed extreme sensitivity to.
If the lender did not know about this cash that you are supposedly getting, you are going to be committing fraud. The person who sold you this scam is very probably committing fraud as well, but you definitely are committing fraud if you do this. That lender is going to require you, the owner of the property, to sign a statement to the effect that you are not receiving any money that the lender does not know about. So let’s add perjury to the list of charges against you, and quite likely conspiracy. Your defense lawyer is going to cost more than any cash you’re going to get out of it.
I had someone ask me whether an agent can volunteer to just give you some money from their commission. I’m not a lawyer, but as far as I am aware, it is legal. However, if they’re bringing you into their office and getting you to sign up with them to sell their house based upon such a promise while the lender ends up with a short payoff, you are still committing fraud, perjury, and conspiracy when you sign that document that says you’re not getting any money from the sale from any source, and that agent is committing at least fraud and conspiracy as well. The whole set-up is pre-arranged, and that give-back is a condition of the transaction that you and the agent are both aware of, but the lender is not. This makes you guilty of those three crimes. My understanding is that In order for the “gift” to pass legal muster, it has to be a pure gift, conceived by the agent with no pre-arrangement, executed for no consideration and no exchange of value on your part. Since that is not the case – they’re luring you in with the promise of cash from before they even saw you – it’s not going to get past the courts. Furthermore, even if such a gift was a pure gift on the part of the agent, it’s not likely that the courts or a jury is going to believe you when there are well-known scams like this going on.
People put these scams out there because they figure they’ve got an angle whereby they can still make money. I can think of several ways to do so off the top of my head, from using the property as bait to meet buyers (see Tina Teaser) to having you sign an agreement for a very large listing commission, and several ways in-between. All of them involve a violation of that agent’s fiduciary duty to you. Show of hands: How many people would sign up with an agent who straightforwardly told you he intended to scam you, and that as a consequence of this transaction, you would be likely to spend several years in prison? Anyone?
It is kind of elegant in a way: The victim of the scam (that would be you) can’t complain without putting themselves in line for several years as an involuntary guest of the taxpayers. But it’s amazing how often some outside factor causes the whole thing to unravel. Actually, cancel that. It isn’t amazing at all. Real estate and mortgage operations are all a matter of public record, and audits and record keeping are a part of life for anyone in either field. Failure to keep complete records is in itself an offense that practitioners can and do lose their licenses over, and the escrow and title companies have their own record-keeping requirements, and the lender will most certainly keep records. Matter of fact, if they can show you’ve committed fraud – and you have, make no mistake – then any legal shelter you may have had from their ability to collect the money they lost simply vanishes. This means, among other things, that even if your loan would have normally been non-recourse, the act of committing fraud means it becomes a full recourse loan.
You don’t want any of that to happen, and once you do it, you have no defense except to hope that you get unreasonably lucky, and nobody notices until the statute of limitations runs out. The only justification for doing a stupid stunt like this is if it gets you out of a worse predicament. It doesn’t. If anything, it makes any existing predicament worse.
Caveat Emptor
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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
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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
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