General Real Estate: April 2007 Archives

One of the things the place I work does to attract clients is advertise foreclosure lists to our clients. Several times a week, people call and ask for the lists, and we say, "Great! Just come on down, fill out a loan package and an agency agreement, and we'll get them to you fresh every morning, and when you see one you might be interested in, we'll help you get it!"

Before the end, over 95% of the people have stopped us, saying they are already working with someone. "I just want the foreclosure list. Can't I get it?" Well, we pay money for that. Why should we give it to someone who is not our client and has the ability to pay for it on their own? Why didn't their agent get it for them? (Everyone can get a weekly list for free from the county - but that list is worthless except as a timewaster, because that list is three to ten days out of date and they've already been swarmed.) If they want to work the foreclosure market, they should have signed up with an agent who has daily foreclosure lists. They haven't even found a property they are interested in yet, and already they know their agent isn't cutting the mustard for their purposes. But they are still stuck with them.

Another trick high margin ("expensive") people use is social groups. Nothing wrong with social groups and using people you know there, but make certain you're not paying three or five times the going rate for a loan, and that your agent really knows what they are doing before you sign on the dotted line. Church groups, soccer coaches, scoutmasters - I can't tell you all of the social acquaintances I've rescued people who became my clients from. These predators look at other members of the group as a captive audience. It isn't so, of course, those people have the option of going elsewhere - it's just difficult socially, and many of them are unwilling to make the effort.

One of the worst of these is family. Your brother, sister, aunt, or nephew is in the business, and your family makes it difficult not to choose them. "You simply must use your sister Margaret!" Well, if subsidizing Margaret to the tune of two points more than anyone else would get is your cup of tea. Around here, that's $8000 or so for the average transaction. You are not writing the check for the extra to Margaret directly, but you're paying her just the same.

Lest I be misunderstood here, there is nothing wrong with using friends, family, members of your social group. Please do check with them. The mistake is not in giving them a shot; it lies in giving them the only chance. That's what you call a monopoly situation, and the chances of you getting the best possible treatment are horrid. But if Aunt Marge or Uncle Bob know you're shopping around, they have more incentive to do their best work. If they know you're not, well I hate to break it to you, but the average person is looking for a bigger paycheck for the same work, and this includes friends, family, and social acquaintances, particularly because you are not the one writing the check, but you will pay for it, guaranteed. The worst mess I've ever had to clean up was caused by my client's uncle, who had been in the business twenty years, and was trying to extort just a little too much money for the deal to work.

On the other hand, when my cousin calls me out of the blue, I can cut him a deal because here is a transaction that I didn't have to spend time and money on wrestling it in the door; it walked in of its own volition. This is far and away the toughest part of any transaction, and one of the most expensive to any real estate practitioner - getting a potential client into your office. It's why the "big names" spend so much on advertising nationally, and give their folks half (or less) of the cut a smaller place will give them. (Hint: just like in financial planning or any other service, what's important is always the capabilities and conscientiousness of the individual performing the service, not the company).

So here's how you live up to the social expectations. Give them a shot, but not the only shot. If you are looking to buy and they are an agent, sign a non-exclusive buyer's agreement with them. This gives you free rein to work with other folks as well; just don't sign any exclusive agreements. Most agents, unfortunately, want to lock up the commission that your business represents and so they will present you with an exclusive agreement. The harder they argue for an exclusive agreement, the more you should avoid them. All an exclusive agreement does is lock you in with one agent. If they are a lazy twit, you either have to wait until the agreement expires, use them for your transaction anyway, or hope you can get them to voluntarily release you. There is no way for you to force them to let you go. I get search phrases like "breaking an exclusive buyer's agreement" hitting the site every day. The only two ways to break an exclusive agreement are 1) wait for it to expire, or 2) get them to voluntarily let you go. I've never heard of the latter happening. So don't sign an exclusive agreement in the first place. Sign a non-exclusive agreement. This puts all of the motivations for work on your side, where they belong. The one who finds the property you are interested in will get the commission, but they have to work for it, as your business isn't locked up.

This also gives you an out if Aunt Marge or Uncle Bob doesn't cut the mustard. You can tell anybody who gets their nose out of joint, including them, that you gave them the opportunity to earn your business, and somebody else did a better job. The other guy saved you money, the other guy found you the property you wanted, the other guy got you a better loan. You wanted to do business with them, but they didn't measure up. Case closed, and Aunt Marge or Uncle Bob will drop it if they are smart, because the more stink they raise, the more likely it is that another family member, friend, or social acquaintance will pass them by in favor of "Could you give me the name of that guy who helped you?"

The only exception to the non-exclusive buyer's agreement is if they are giving you a service that you would otherwise have to pay money for. I am not talking about Multiple Listing Service - those are free and plentiful. I'm talking about real time information not available to the general public - like daily foreclosure listings. Our office pays hundreds of dollars per month for that as a way to bring in business. It is reasonable for someone working the foreclosure market thusly to be asked to sign an exclusive agreement, because otherwise there may be no way to determine who introduced you to the property (Lawyer's Full Employment Act strikes again!)

For sellers, unfortunately, you've got to make a commitment to list with one agent. It's just the way it has to be, economically, in order to get them to commit to spending the kind of money it takes to get a good result. But you can interview more than one agent. What are they going to do to sell your property for the highest possible price? Put it in the contract when you do sign. Everybody can put it in the MLS, and during the bull housing market we had for years, where unless the property was obviously overpriced you'd get multiple offers within a week, a lot of monkeys masquerading as agents made a good living doing that and only that. That doesn't cut the mustard any more. I work more with buyers than sellers, but there are venues that sell the property, venues that bring people to open houses, venues that generate people looking for the cheap bargain (which you don't want) and venues that generate people looking for property like yours in your neighborhood (who is your ideal buyer). Especially in a major city, these are all different venues, and the agent who knows which one is which is worth more than you will pay them, and the cheap agent who doesn't is likely to cost you a lot more money than their cheap asking price saves you.

For loans, I've written about this before, but shop around, ask questions of every loan provider you interview, beware of red flags, and stick to your guns. Try and find someone to act as a backup loan provider if you can, and do the work so both loans are ready to go when you need them. If you get multiple volunteers for backup provider, that would tend to indicate that they know that the loan you're telling them about isn't real. That's the question I ask before I volunteer to put in the work of a backup provider. "Could the loan they are telling me about be real?" If the answer is no, I volunteer to act as backup. Every single time, it's been my loan the person ended up getting. Your prospective loan providers should know the market if they are competent. Make use of that knowledge. And lest you be tempted to quote something at those loan officers that is not real, it's a self-defeating strategy. Honest loan officers will tell you point blank they can't do that, while the scamsters are going to get into the spirit of the situation, by which I mean saying anything it takes, no matter how fanciful, to get you to sign up. And those who are knowledgeable about the state of the market always know what is likely real and deliverable, and what likely is not.

Caveat Emptor.


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