Intermediate Information: March 2007 Archives

Continued from Part I



Interview lots of agents. Once again, my experience is that the agents at small independent brokerages tend to be sharper than the ones at large chains, but that's only true in the aggregate, and the large chains do have lots of suckers wandering into their offices, which translates to captive audiences they can direct your way. You may be more likely to get a quick "lay down" sale with large chain, but if you don't, the agents who work the independents will almost always serve your interests better. I know that I speak most strongly against Dual Agency, but that's from a buyer's point of view. If the buyer is silly enough to go in unrepresented, as someone using a dual agent is, that's no skin off your nose. Matter of fact, it's likely to be less skin off your nose. On the other hand, many agents push unqualified buyers on their listing clients precisely because they will get both halves of the commission if it actually closes. Me, I'd want to remove that incentive. Put it into the contract that they agree to do this listing for a flat 3% contingent upon successful close, and if the buyer is unrepresented, I keep the buyer's agent commission, or all except half a percent, reasonable considering the extra work they will do (You don't want them shooing away a sucker, either). This also removes the incentive such agents have to discourage viewings by people they don't represent, sit on offers represented by other agents or not pass them on, or all sorts of other games that get played because they want both halves of the commission. So if they won't agree to work for the listing commission only, I'd advise you to cross them off your list. I'll admit this is guilt by association, but there is no way of telling that any one listing agent won't play any of the games that discourages other agents from bringing their clients to your property, which you want to get sold, and for the best possible price, not to the one who causes your agent to be paid double.



You want an agent who knows where the buyers are, and where the good buyers are. About 70% of people searching for a home start their searches on the internet, but these are not necessarily the best buyers. The ones who look in the internet are looking numbers. The ones who start by driving around your neighborhood want to live in your neighborhood. The ones who start with the monthly shill magazine are usually somewhere in between. The ones who start with the Sunday paper are vary over the spectrum from absolute sucker to moderately savvy, while clumping at the ends of it. And the ones with buyer's agents vary also, depending upon the attitude of that buyer's agent. Some of them (grin) are absolutely the most dedicated to getting the best bang for the buck there is to be had, while other agents' devotion seems to be primarily towards obtaining a large commission check soon. I actually know a couple traps for encouraging the latter sort, but pardon me if I don't share them. Some things a guy's just gotta keep to himself. It's my job!



One of the things you want to use to interview agents is how to stage your property - what to do in order to make it show better. In general, you want it to be uncluttered, have nothing in it you can't live without on a daily basis (if you're living there), and nice clean walkways and lines of sight. All of this makes it feel bigger. Some agents will tell you they hire professional stagers, while others will want to wait until after the listing contract is signed. First off, you're not going to hire the stager if you don't hire the agent. Second, what you're looking for is some evidence they really know what they're doing. It costs me nothing to walk through a property and tell you how to make it more appealing to buyer's and their agents, and it demonstrates product knowledge to someone who has no idea whether I'm the best Realtor ever or the most recent product of Shake and Bake Real Estate School. Before a good agent will do that, however, they're going to ask about your budget in time and money for staging. If your budget is less than a stager costs, it does no good to say they'll hire a stager unless they also pay the stager, in which case you're liable to be reimbursing them if the listing fails. You don't want the agent who pussyfoots around and flatters you - you want the one who tells the bald truth. This is not about flattering your ego - it's about your wallet. If your ego is more important to you than that kind of money, you're looking for the wrong professional - you want a sycophant. Your search for a listing agent is not just a fact check - it's an effort check and, most importantly, an attitude check.



You want to interview an agent for what they're going to do about publicizing your property. Most searches start on the internet, but putting them in MLS automatically or semi-automatically puts them in most of the biggest property sites, including IDX, which is the thing most members of the general public mean when they say MLS. The major difference is that IDX doesn't have information that the general public doesn't need to know, like showing instructions. Many of the larger, national houses for sale sites are based upon local IDXs. There are exceptions. I have a rule here about not mentioning specific providers, so I won't. Over seventy percent of all house hunting searches start on the internet, so even the smaller providers can be worthwhile, but it has to be some website people make a habit of visiting that site for that reason in order to predictably do you good. Agent and Agency websites are not likely a source of good traffic. Searchlight Crusade gets 4000 to 5000 visits most days, and www.danmelson.com averaged 635 this last week - almost 20,000 per month. These are far more than most agency websites, and I got not one contact from my website on my last listing, because that's not why people visit my sites. I did get traffic from the other places I advertised, of course. What I'm saying is that websites under the control of any given agent or agency are not likely to be where people go. I've got an IDX link on my site - but people don't use it that much. Even if it's Major Chain Real Estate, web searchers don't want to make a habit of going there, preferring some place "more comprehensive" or "more neutral." Individual websites such as www.1234mainstreet are a joke for selling a property. Unless they are already looking for your specific property - in which case they'll find it easily anyway - they're not going to find a "Selling my house" website. You're just not going to get very high on more general search terms unless you're darned lucky, or control another high page rank site or two. This is not to say "don't bother." This is simply to say that individual agent, agency, or "selling my house" websites are not something to pin any significant amount of hope on. If I thought www.1234mainstreet.com was worth such hopes and likely to sell the property, it'd make a listing agent's job much easier. You might get lucky - but that's not a bet that's likely to pay off. Kind of like buying a lottery ticket. Someone always gets lucky, but for every lucky schmoe who wins the grand prize, there are forty million poor dumb schmoes out there with worthless paper. The odds for smaller websites selling your property aren't that bad - but they're not great, either. For example: I've had one worthy property on my agent radar for eight months now in case I found a buyer for it, and I just found out it's got a website. Does that website seem like something you want to invest all your hopes in? Didn't think so.



You also want to make sure your agent hits all the relevant dead tree publications. They may not be as powerful as they once were, but paper media is still important, and the buyers from there are often buyers you'd rather have, as opposed to internet junkies. Whatever the prospective agent says they intend to do, insist that it be incorporated into the listing contract if you choose them. You are betting a large amount of money upon their competence, whether you realize it or not. All they have at stake is a paycheck. You have your biggest investment on the line.



One of the reasons why you want to interview multiple agents is pricing advice. Some agents have no clue where the market really is. They'll be happy to take the listing at any vaguely reasonable price you want, or even above. But we know what happens if you overprice a property - it sits unsold. This costs money. Others will tell you it's not worth as much as it is, so they have an easier sale, but you end up short-changed. Others will take the listing at any price you say, but start arguing you to reduce it way earlier than they should. What you want is evidence. You want strong solid examples of recent sales in your market and what's out there available right now - the properties you are competing against for the available buyers. You want someone who is going to compare your property to those with a cold calculating eye. You don't want to be high on the asking price, but you don't want to be low, either. Preferably this someone will be an agent who has actually seen and been in at least some of those other properties before they sold. Compare and contrast. I know it's a lot to ask, but try to step aside from pride of ownership and approach it from a buyer's perspective. Unless you're some kind of a celebrity, the fact that it's yours means nothing to the prospective buyer.



The critical point I'm trying to make is that pricing is not easy, and the pricing discussion should be cause for some real give and take. Pricing discussions without evidence, without serious examination of the property and comparables, and pricing discussions that don't end up with as many good arguments for going lower as for going higher are likely to result in bad pricing decisions. Maybe a couple of agents get hot under the collar. Maybe you do, maybe more than once. So long as it is for the right reasons, this is a good thing. The agent who argues persuasively, even passionately, and with evidence, for setting a different listing price is likely to be a much better agent than one who accepts a listing for whatever price you want. The agent who's too high and mighty to justify their reasoning should be informed that their services are not desired, and in your snootiest English butler accent. Don't choose the agent who promises or agrees to the highest listing price. That's called "buying a listing," and it's a recipe for disaster. Pricing is part science, but part art as well, and it doesn't have to be perfect for an optimum result - just close. What you're looking for here is not only product knowledge, but attitude. The one who cites the most evidence and argues with you the hardest may be the very best agent to list with, even if they are thousands or tens of thousands below other agents. Then again, they may not. It depends upon who displays the most evidence, the most knowledge on the state of your market, and the right attitude. The agent who tells you your property is worth a little less is not your enemy. They may just be lazy, but if they can provide evidence for their contention, that's not the way to bet. They may be your very best friend in the entire world. If the market won't pay a higher price for your property, they are saving you the expense of having the property sit unsold - thousands of dollars. When is the last time one of your friends saved you that kind of money, at the risk of not getting a paycheck? They are risking their paycheck, make no mistake. Because out of every ten price discussions, six people in your shoes won't want to hear it and won't consider hiring them. Takes no small amount of professionalism to tell you anyway, don't you think?



You do want to ask about is whether an agent shows their own listings to their buyer prospects, and why or why not. I'm not talking about the people who call out of the blue about your listing, I'm talking about people they have an existing buyer broker agreement with. I would actually prefer a "no" answer, were I looking for a listing agent, but the reasoning on why is more important. My answer is that I don't unless the sellers are so desperate that they want to price that low. Most of my listings do not, the way things are, need to be priced to attract buyer's agents like me. Therefore, I'll freely admit - to contracted clients - that there are better bargains out there. I don't ever want to let my listings get that desperate that they need to attract my buyers. My job is to sell it for the best possible price as soon as possible, and if it gets that far, I haven't done either half of that job. If all listing agents had this attitude, it'd make life a lot more difficult for buyer's agents. Nor is it my job to be fair to prospective buyers when I'm listing - unless I've already got a contractual obligation towards them. If a prospective listing agent is willing to hose people they have a buyer's agreement with, that's not a good sign for how they're going to behave towards you. But absent that exception, my job as a listing agent is to get the property sold for the best price in the shortest time. I have a listing contract that spells out my responsibility to that owner - and listing contracts conquer all, as far as agent loyalties go. I can refer even my contracted buyers to someone else for negotiations, releasing both of us from obligation, if they're sure they want to put an offer in. I cannot do that for the people I have a listing contract with. Whether you are buying or selling, you should know that the seller has a right to expect the listing agent's absolute loyalty within the confines of the law. They can't lie about the property. They have to tell the truth as they know it. Beyond the reservations set down in the law, their job is to get the most money out of the quickest sale. Period. Anything else translates as a way to hose your listing clients.



No matter how good any one agent sounds, no matter how much pressure they put on you to get you to sign the listing contract right now, don't do it. There's nobody that much better than the competitors. Take your time and make your decision when there's not anybody pushing you. Unless you have a short deadline to sell, you'll come out better. If you do have a short deadline, you might want to be more intensive and more concentrated in your search, but cutting down on the number of agents interviewed is not a good response to the situation. It's even likely to be counter-productive. Don't let the agent's urgency to get the listing infect you or stampede you. Until you hire them, that agent has no reason to hurry. Their motive for building urgency is to stampede you into listing with them. Rhinos stampede. So unless you're a large blundering near-sighted herbivore with small sycophantic hangers-on, don't let yourself be stampeded.



One technique some sellers with plenty of time might consider is the short term listing. Sixty days with an agent to see what kind of traffic they drag in, sixty days for that agent to demonstrate exactly how well they look after your interests. Takes all the pressure out of choosing an agent, right? You can always change to someone else, right?



Wrong. The agents in the area with any kind of a clue are going to know that you've been through 4 agents in the last eight months. There are also complications in when a given buyer may have been introduced to the property, so which agent is entitled to the commission becomes a bone of contention. Most contracts give the agent the commission for ninety days after their listing expired, if they provided the introduction. Meanwhile, you've got someone else who now has an exclusive right to sell. It's bad business for someone to insist upon a commission they haven't earned, but I am continually reminded how many bad businesspersons are out there. If you've got to do it, insist upon some short hold over period of no more than seven days, and don't list it again until that period has expired. It may be overcautious, but it could save you being in the middle of a nasty court fight. Furthermore, this is a tactic that's completely unsuitable for people with a limited time in which to sell. Every time you change the listing agency, the promotion is essentially starting over from scratch. Finally and most importantly, most people suffer inertia. They'll renew that listing contract whether or not the agent has actually done enough to earn their business. Agents know this; that's why they propose the short term listing. It's a trap into which most people are only too happy to fall - the trap of not making a decision, or making it on the cheap, under the guise of postponing the day of reckoning. Most folks are better off getting into all of the issues right up front, and making the difficult choices. If you're really looking hard in the first place, with an eye towards committing yourself, you still may not make absolutely the best choice. But the hard choice will be better than the choice which really isn't a choice, as short term listings are. Why? Because before you commit yourself, you're going to know that agent is at least competent.



Let me go over some of the agents you might meet.



Our old friend Martin MLS figures putting a sign in the yard and the listing in MLS is enough. Most of the searches come off the internet, right? He's right as far as he goes, but that's not how to obtain the buyers who are interested in the property because it's where it is or because of something it has. That's the way you find the buyers who want the lowest price. Furthermore, if listing it on MLS was all there was to it, there would be no reason to pay your agent more than $100 or so. Martin's a rotten agent. I know, because I used to be Martin. Briefly. I know better now.



Tina Teaser uses her listings to make contact with buyers. That's what she really wants. She'll tease you with showings while talking up other properties when you're not there. Unfortunately for you, when yours goes into escrow she doesn't have any other means of attracting buyers, so she doesn't want your property to actually sell. Showings are good, but then she has a whole stable of properties she wants to show them, rather than losing her opening wedge with the buyers who really furnish her income. Unfortunately, there's no easy way to spot Tina. Only a very careful examination of her attitude when you're vetting agents, or watching her in action. If you get dozens of lookers and no offers, something is likely to be wrong. That something could be that you're overpriced, or it could be Tina.



You may remember our old friends Gary and Gladys Gladhand, who get their business by making it seem like a social obligation to give them your listing. Repeat after me: "I don't owe anyone my listing." Now repeat it over and over again until you can look into Gary or Gladys' eyes and demand, "What are you going to do for me?" With that said, Gary and Gladys can be very effective listing agents if they pass all of the attitude tests. That social pressure approach works wonders on most people. Just remember that Gary and Gladys get their pool of suckers from the same social pool you swim in, and aren't always smart enough not to poop where they eat. Most buyers aren't savvy enough to realize what Gary and Gladys did or tried to do - but it only takes one who is. You also need to be concerned about them turning into Sherrie Shark or Tina Teaser.



Billy Buy is remarkably amiable about the list price. Whatever you want to ask, he's certain he can get it. Owners see dollar signs, and sign on the dotted line. For about the first two weeks of the listing contract, you may wonder what he's actually doing. Then he walks in and starts pressuring you to drop the price, after wasting your period of highest interest. Billy's worse than a rotten agent. He's a menace, because after he's "bought" your listing, you're going to have to drop lower than the price you should have set in the first place, in order to attract the same kind of traffic and interest you should have had in the first place - if Billy knows how to attract them, which is highly doubtful. Most Billys make most of their sales after they've gotten the owners to drop price below market. Only way to spot Billy is to have that hard talk about pricing. You may not ID the agent as Billy, but you'll figure out you're wasting your time with him.

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Sherrie Shark is a variation on Billy. She's okay with you setting the price too high, because once you get desperate enough, she or someone she knows will make a low ball offer and turn a flipper's profit on your property. Sherrie regards any offers that do come in for what the property is worth to be poaching on her turf - she earned this payoff fair and square by her lights. Fortunately for her, she can dismiss them as "low balls" - right up to the day she thinks you're desperate enough and springs her trap, Sherrie is also the Agent Most Likely To Pretend Offers Never Happened. Offers come in and go directly from the fax machine to the trash can - if they get printed out in the first place. This happens with just about every agent who wants both halves of the commission, but with Sherrie, it's an automatic reflex. The only way to spot Sherrie is to have all those pricing discussions I mentioned earlier. By the way, you should never sell to your listing agent. They're not a disinterested party. I know of places that advertise they'll buy your property if it doesn't sell. Once you know about agents like Sherrie, you should realize the nature of that trap. If an ethical agent wants to make an offer, they'll refuse the listing in the first place, or wait until you're listed with someone else. If you really want Sherrie's kind of low ball offer, I can bring in any number of people and save you the time and money in between listing with Sherrie and the springing of her trap, and they are even happy to pay my agency commission, so you come out ahead in every way.



Donnie Discounter may actually be the way to go in a voracious seller's market like we had three years ago. Sign in the yard, listing in MLS, and presto! It sells quick and for less commission than you would have paid. Of course, if your property is curb-appeal challenged, or if the market isn't a strong seller's market, Donnie is worse than useless, he'll be a waste of your time of highest interest. Nor will he be a strong advocate on your behalf. He doesn't really understand your market. He's just turning numbers in the computer. He isn't going to help you stage, he isn't going to do much to set your property apart, and he's definitely dependent upon internet based bargain shoppers to get his listings sold. Chances of you getting the highest practical number of dollars in your pocket: Not good. If a property sells for $510,000 full commission, you end up with more money in your pocket than if it sells for $500,000 through Donnie. Strong buyer's specialists love Donnie. He makes their clients so happy!



Sometime during this process, somebody may recommend you just sell it yourself. Possible, I must admit. Some people do a creditable job, if they prepare enough. But not likely. Most people have a deadline that's too short, and won't spend the effort required. They don't have time to prepare and they'll try to shortcut the process, in which case they either sit on the market unsold, or make some buyer's agent very happy. Listing property is a job, and it does take work. I'm learning more with every property. I figure I'll have it completely wired sometime around 2117.



Fannie Friendly isn't particularly hard to spot. She just makes you feel like you're her special friend, and that you'll be essentially kicking a puppy if you tell her know. All she is saying is give guilt a chance. Not really much different than Gary and Gladys Gladhand, except buyers are rarely guilted into buying a property. You've got what is likely to be your biggest asset on the line. Forget guilt, and forget Fannie.



There is something to be said for considering a buyer's specialist. Actually, there's a good deal to be said. However, since I am one, I won't say it. We may not be the absolute strongest listing agents, but we're definitely a long way from the worst. Even if you don't want to hire us, it can be worth a couple hundred dollars to have one of us come in and price the property.



As a closing thought, when you are listing a property, time is not your friend. Even if you have a good long time in which to sell, agents in the area are going to know that property has been on the market forever. The longer it takes to sell, the worse the price. The whole notion of "let's just see if we can get a higher price" is the most common way home owners talk themselves into getting less money than they could, and taking longer to sell, with all of the costs associated with both. If you approach it with the firm idea that you are dealing with one of the biggest investments of your life, and ask the hard questions and take the time to hash out the hard details in the first place, chances are you will end up much happier. Don't allow emotion into the decision, don't allow ego in, don't allow friendship or love or anything else beside what is likely to have the best results for you color your decision. Odds are that you will end up much happier. If you're looking for a guarantee, I can't give it to you. One of the things agents learn is that weird stuff happens. But this is certainly the way the dice will fall the vast majority of the time.



Caveat Emptor




This is the final article in this series, and the most difficult. The reason is very simple: Unlike shopping for buyer's agents or shopping for loans, you have to make a binding choice - it is in your best interest to make a binding choice - before you obtain the result you want. With buyer's agents or loan officers, you can judge by actual results - the bargain properties they show you and the loan they actually deliver when the trust deed is all ready to go. Shopping for an effective listing agent is always a leap of trust. It shouldn't be a huge leap into the unknown, but it's a lot easier to talk a good game than it is to deliver.



Now, the important thought to remember as you read this article and shop for a listing agent is this: You might get what you pay for. You won't get what you don't pay for. Make certain you understand what the level of services provided are by a given agent before you sign on the dotted line, whether their fees are contingent upon a successful sale or are paid up front with no guarantees. I wouldn't sign on the dotted line without compensation being contingent upon a successful sale. If they're not confident enough of their abilities to bet their paycheck, I wouldn't bet on those abilities either. Of course, the contingency commission will be for a higher dollar amount, but ask yourself this: Suppose you got $10,000 for successfully completing a project at work, nothing for failing. Is your motivation to get it done, and get it done sooner, more or less than if you get a flat $5000 in advance whether you complete it successfully or not? Would you be willing to put in more effort? Spend more money? Be more aggressive? I assure you that real estate agents have basically the same motivational attitude as the rest of the world.



Most people do not take sufficient account of the time critical factor: Nothing happens immediately in real estate. If you have ninety days to get the house sold, you've really only got about sixty to get an accepted offer - maybe less. Just because some loan officers make it a religion to get the loan done in 30 days or less doesn't mean it's common. I have seen many articles in financial publications advocating sixty day locks at a minimum, because so many people have been burned by shorter locks. Not only does this waste money, it gives incompetents way too much time to not come up with the loan they talked about. Based upon no other information, I will bet you money that a loan funded in thirty days or less is a better loan than one that takes sixty days or more. I'm not a gambling man. I've just seen enough of the industry to understand that I'll win way more than fifty percent of these bets. The quicker everything moves, the better off everyone is, but even in the most optimistic scenario, this means that if you need the property sold in ninety days, you need an accepted offer within sixty. If you need an accepted offer within sixty days, you need an initial offer you can negotiate within forty-five to fifty days. I just opened Escrow March 21 on a negotiation that started February 7th (all of my responses were same business day, but the other side wasn't nearly so punctual). Forty-two days is definitely on the marathon end of negotiations, but you do need to make allowances for the time it takes. Furthermore, all of your advertising (except MLS and internet) takes anywhere from three days to thirty to appear. So from the time you know you need to sell in 90 days, you may really only have thirty to forty-five days to make it happen.



You need to have figured out what your time frame for selling is. If you need the transaction done in ninety days, we've already seen that you really have about fifty at most to attract a buyer. If you have to sell in thirty days, you really waited too long to list it. If you have to sell in sixty days, you've got maybe three weeks to get an offer. If it's rented with tenants and your cash flow is positive, you don't have a real deadline, but having tenants in a property you're trying to sell raises its own issues. Otherwise, until the whole thing is finished, as in grant deed signed, loan funded, old loan paid off and you get your money and your Reconveyance, you are paying mortgage and property taxes, either insurance or homeowner's dues, and possibly several other monthly fees. To pick lower than typical numbers, on a property in California that you bought for $200,000 and has a loan for that same amount at 6%, that's roughly $1600 per month it's costing in money out of your checking account. Most folks can't add $1600 to their monthly cost of living for very long. A $400,000 property with a $400,000 loan would be roughly $3100. If it doesn't sell before your reserves run out, you've got yourself a real problem.



The absolute first thing people look at is price. If your asking price is more than people are willing to pay for a property of those characteristics in that neighborhood, the buyers and their agents are going to ignore you. In fact, your traffic will largely be governed by the relationship between your asking price and everyone else's, in conjunction with your days on market counter. Price it right in the first place, and you get lots of traffic your first days on the market. Wait until later, and you'll not only miss out on your time of highest interest, you'll have to go lower to attract the same level of interest. So if you've got a short deadline, I'd be careful to price under the market. What's a short deadline? That's determined by how long properties are taking to sell. If it's selling in three days, you're likely to be okay as long as you don't overprice. If the average property is sitting for ninety days or more and you need to have it not just in escrow but sold in ninety, I'd offer it up below the comparables were I you.



Condition can mean a lot more than square footage or number of bedrooms and bathrooms. Sometimes the first thought in my head when I drive up or walk in the door is, "It may be larger, or it may have this or that where the competing property doesn't, but I like the other place more because it looks better." I assure you that I'm not alone, and that "The buyer will be able to spend $20,000 fixing it and have a million dollar property," does not justify a $980,000 price tag in anyone's mind. Get that whole idea out of your head. If you want the money fixing it up is going to bring, do the work yourself. Price the property for its value and condition now. In other words, even if you're right, you have to spend the $20,000, and be the one to deal with the hassle of making it happen yourself, in order to get that $980,000 net. But it's hard to quantify condition. Even most agents don't look at enough properties to be certain. I'm out there looking at a minimum of twenty per week, which means I know what the ones that sold recently looked like, but if you're outside my normal stomping grounds it's going to take me at least two trips looking in your area to figure the optimum listing price. That's a cold hard truth. I see something listed with an agent outside the county or even a different part of the county, the odds are that agent has no clue what they should have listed it at. In urban areas such as San Diego, even a few miles away can be bad news. I'm not certain which is worse: an agent thinking "La Jolla" when the property is in Santee or an agent thinking "Santee" when it's in La Jolla. The former will overprice the property, resulting in the property sitting unsold, and possibly all kinds of unpleasant consequences. The latter will underprice the property, resulting in less money than you could have gotten, and usually way less net. There aren't any rules of thumb you can follow - you just have to know the neighborhoods, and even though these neighborhoods are only fifteen miles apart, anyone who tells you they know both is lying. There's too much for one agent to know. I've lived here essentially my whole life, and it takes me two "fishing trips" to neighborhoods I've known my whole life in order to start really understanding enough about that neighborhood professionally, that I can start spotting which properties are bargains and which are not. The markets change way too fast for anyone to keep track of too much area. I might believe someone could understand the entire Manhattan condo market. Doubt it, but I might, although I'd be more inclined to trust the agent who said they specialize in a smaller area. I wouldn't believe they could understand Brooklyn or the Bronx as well. Where population is less dense, which San Diego definitely is, I'd say about quarter million population, tops. Out in rural areas, probably less than a third of that. I'd want to see something that indicates your neighborhood or area is one the agent really makes a habit of working.



Your time of highest interest is right when your property hits MLS. The vast majority of buyers are out there looking at what hit MLS this week, or today, not what hit six weeks ago. The feelings I hear most buyers articulate is that the good stuff gets found quickly. This is something which is generally true - most of the good stuff does get found quickly - but not universally true. Some of the good stuff slips through under the radar. Some stuff becomes a worthwhile bargain when the seller gets real on the asking price after their deadline to sell has already passed. It may be crazy, but I've heard people talking about blowing off properties that looked like great bargains because they saw that the "Days on Market" counter was too high for their tastes. So you want to keep this in mind. Your agent is required to put your property in as quickly as possible once they have the listing contract, unless you instruct them in writing not to. If your deadline to sell is not looming too quickly, it can be a good thing to delay the actual listing until your longer term advertising is ready to appear! You don't want the advertising to appear first, but the property gets stronger traffic if the "days on market" counter says 4 when the ads appear than it does at 45 when those potentially interested see the ad.



Open houses are worth doing, but not worth doing too often. I want to do one the weekend after a property hits MLS without fail, and before that I want the neighborhood to know there's going to be an open house. When the neighbors bring you a buyer, that's a good way to sell the property for more than the typical MLS searcher. The latter is looking for a bargain. The former wants to live in this neighborhood, and already has a connection to it. I may also do an open house aimed at brokers and agents that first week, during the week, and a caravan is a good idea also - which is another possible reason to delay the listing appearing on MLS if either takes more than a few days to arrange. On the other hand, if there's an open house every weekend at Joe's house, there's no urgency. Many agents do open houses to meet new buyer prospects - that's really why they want a listing. I used to space them about four weeks. Now, I'm most often waiting at least six, and it seems to work better for actually getting interested buyers.



Broker caravans and broker open houses can help also, but the require the agent be willing to actually share the commission with a buyer's agent. If they're not, you're wasting your time, and likely turning off prospective buyers as well. If you can do these the week it hits MLS, you're ahead of the game.



If you're getting the idea that agents shouldn't list more than one property per week, you're getting the right idea. Actually, one listing per week is likely too many to service well in the current market - because if they price it right, the average property is not going to sell in three days. In strong seller's markets where things do sell that quickly, yes, one listing per week is doable. In buyer's markets where things are sitting ninety days and more on average, you are begging to become neglected with a listing per week agent unless you're paying the highest commission to your lister. If someone has more than four to six listings at any one time, I'd cross them off the my list.



Continued in Part II

Yesterday, I spent several hours showing properties I had found to a couple of investors. One was a lender owned fixer, fairly priced at $440k. It needed carpet, paint, landscaping, and some facade work. The last comparable sale in the neighborhood was $575,000. There was also another lender owned property in a neighborhood where similar properties in good condition were going for $460,000 to $480,000. This one was also pretty fairly priced at $380k. The first one needed maybe $30 to $40k in work, the latter about $20k. It took me a lot of hours to find properties where there was a good profit to be made buying near or even at the asking price in this market. Not enough for these people. They had to put in offers for eighty thousand less. Needless to say, these offers were dead on arrival. Complete waste of my time.



The reason these properties were fairly priced was that the owners had taken a realistic look at the state of the market and the condition of the properties, and decided they wanted to sell the properties sooner, rather than later. They were justifiably upset at the low-ball offers, given that they had actually priced the properties correctly, a rare thing in this market. Even if these people now follow up with a reasonable offer, I have reason to believe that these wells have been poisoned. It's going to take something basically equal to the asking price from these people. They have marked themselves as being unable to be dealt with on a reasonable basis. Other folks might be able to start the negotiations lower, but not them. Maybe not me, either, despite the fact that I was just the agent, making it worse than a complete waste of my time, a likely destroyer of some of my most valuable information - the location of profitable properties.



Low-balls are not the way you acquire the property you've got your heart set on. Low-balls are not the way you acquire property that is already bargain priced. If it is already bargain priced, all you're going to do is deal yourself completely out of the picture, where you could have made a nice profit if you had offered something reasonably close. Low-balls are the way to acquire property where the owner is so desperate, they'll take anything and you can't hardly help but make a profit. Lest you be unclear on this fact, lender owned properties are not good targets for successful low-balls. That lender wants to get rid of the property, but they've always got money, and unless they're facing the regulatory deadline, that offer is going to be rejected 100 percent of the time. If they are facing a regulatory deadline, somebody internal will have already snapped it up.



If you're going to insist upon low-balling, the way I found those properties is not the way to do it. No need to invest time driving around inspecting the properties, or the effort of going into records. Just write an offer. Write lots of offers - no need to be picky. At that price, you'll make a profit if they accept, have no fear. But, if you're going to offer that far below market, you're going to have to kiss a lot of frogs before you find one that's desperate enough to turn into a prince, and most of the frogs are going to be mad. Real quick now: What's your first reaction to being told you're not worth what you think? "You're not a college graduate, you're a high school dropout!" It's more effective to write dozens of offers sight unseen, and give yourself a few days after acceptance for inspections if you're really worried about it. 99 out of 100 will just be angry and insulted, and that's all the further it will go.



You can raise the hit rate, of course, and a good buyer's agent is invaluable for this. But the best targets for this are not those who have priced the property reasonably. Hit the people whose properties have been on the market for a long time because they're overpriced. Best is if they've expired off MLS at least once, and if they've changed listing agencies. Twice is better, more is ideal. Multiple drops in the asking price are also a good indicator of a good time to low ball. Of course, you've got to watch the market over time for that information, because even most MLS registries don't give you this information directly. There is no way around market knowledge, but the way to get a low-ball offer accepted is to be the first under the wire after the the owners realize they are desperate. There is no universal indicator of desperation, or everyone would be doing it. If you're going to do this right, you have to have some things going for you that everyone doesn't - patience and persistence, and the ability to slave away on those offers. It takes as long as it takes, and likely candidates can and will be pulled out of the the available pool at any time. Even if they aren't, the owners can and will simply refuse your offer the vast majority of the time. If you get frustrated, you're doing it wrong. This isn't like being a used car dealer. The marks have an alleged professional on their side. If the listing agent were a real pro, they'd have persuaded them to price it right for the market and condition in the first place, and it would have sold before you got to it, but they're going to be good enough to recognize your desperation check when they see it. In order to consider accepting the offer or even seriously negotiating, the owners have got to have suddenly realized how desperate they are. That's the magic ingredient to getting a low-ball accepted. There is no magic way to telling when this has happened, or everybody would be doing it. Think of yourself as a telemarketer with a very low conversion ratio, but when it does hit, you've got one heck of a paycheck.



Caveat Emptor

Continued from Part 1: Preparation



I am considering buying a home, although I have not made up my mind on the subject. This is not due to indecision, but rather due to a lack of necessary information. There are many factors to be considered in my case, and in order for me to make an informed decision about buying, I need to solve for several variables involving cost.



My questions to you involve what steps I can take to solve those variables. Should I begin with a pre-qualification or loan approval? Will a lender invest time and resources in me when I have no specific property in mind, and I may ultimately decide to continue renting? Should I start by speaking with realtors in order to guage what is available in my price range? Will realtors invest time and resources in me when I have no loan arranged and I may ultimately decide to continue renting?



Also, what is the proper sequence of action for someone who is seeking to collect all the relevant information in order to make reasoned decisions about buying a home?





Well, as I said in Part I, a major question is whether you can trust real estate agents to answer the question honestly. Some will, most won't. If they tell you to buy, they make money. If they tell you to keep renting, they don't. Mind you, if you can afford to buy, the numbers are overwhelmingly in favor of that, as we'll see in Part 3. Nonetheless, one trusts that you see the potential for abuse.



Nobody should have a specific property in mind when they first approach an agent. Smart buyers won't make an offer without looking at a certain number of properties first. The only exception is if you're buying the old family home from your parents or something. You've agreed on the price, and the terms, and now you're going to pay an agent to make sure all the paperwork is done and filed correctly and the inspections are done and all of that sort of stuff. This is a smart thing to do, by the way, but most people in this kind of transaction seem determined to save money when a low percentage agent's fee or some flat fee would be an astoundingly good investment.



You needn't worry about whether lenders and agents will "invest time in you." Those who are unwilling to spend time on you in such circumstances should be avoided. Yes, I want my time to be spent on people who really want to buy and are capable of buying, which is why a basic prequalification is among the first things I usually do. I don't want to waste your time showing you stuff you can't, or shouldn't, afford any more than I want to waste my own. But there's a lot you can do to qualify yourself, so that you know how strongly you're inclined to buy, and approximately how expensive a property. This way, you know that the agent or lender isn't leading you down the primrose path with properties you cannot really afford. This is a severe problem right now, especially in expensive areas. I've said it before and I'll say it again. You need to know how much house you can really afford in a sustainable situation, and you have to make certain your agent knows and sticks within your budget. The one who shows you the five bedroom house, when you can really only afford the three bedroom condo, is not your friend. I'd fire such an agent the first time they showed you something you could not reasonably get for your known housing budget (which is one reason I recommend against Exclusive Buyer's Agent Agreements, and don't ask for them unless I'm giving clients something beyond MLS listings for their exclusive commitment). The agent who shows you the three bedroom condo you really can afford when everybody else is showing you the five bedroom house you can't, is your friend, whether the "Oooohhh" factor is there or not, and even if the "Eeewww!" factor is there. Curb appeal is how sellers sucker buyers (and yes, when I'm a listing agent I'll help you with that in every way I can. It's the most important part of my job to help my client get the best deal they can. But right now I've got my buyer's agent hat on, and my job is to help buyers see the diamonds in the rough and not pay more than they're worth).



Once you've done your self-qualification, that's when I'd go find a real estate agent. I wouldn't worry about an actual lender's prequalification as long as you know what your credit score is. A good agent is going to do a prequalification anyway, and if they're a loan officer as well, they'll set you up there. An agent who doesn't do loans should be able to provide recommendations for someone to do the prequalification, and if they don't recommend the same loan provider for the loan as did the prequalification, I'd go back and check with the provider who did the prequalification anyway, as well as finding other prospective loan providers, not to mention pointedly not accepting the new recommendation for a loan provider. Despite the fact that I'm a loan officer who also does real estate, I'm not sure I'd trust a real estate agent with my only loan application. I came to being an actual real estate agent from being a loan officer for several years first - and then I went and learned how to do real estate. The average real estate agent who does loans never spent an apprenticeship doing loans, never learned the ins and outs, and has no clue whether they can deliver what they put on the Mortgage Loan Disclosure Statement (California's replacement for the federal Good Faith Estimate). They just figure "It's the same license, so I can, and it's an easy way to earn a lot more money from the same clients!" They don't really know loans, they've just figured out that it's a way to make more money. Furthermore, there are too many shady personalities out there, and way too many real estate agents think they know how to do loans but don't. There are a fair number of crooks and incompetents and just plain gladhanders, who only care about whether they're getting a commission on this particular offer, out there, but most of what I do as a real estate agent can be plainly seen and understood by my clients. What a loan officer does is much less transparent to even the most sophisticated borrowers until it is too late to change to another provider. I've seen way too many people burned by only applying for a loan with one provider. I've only ever not been able to do one loan on the terms quoted and locked (and I did my darnedest to help the provider who could, where most loan providers in my shoes would have obstructed to the best of their ability, as I've also learned by bitter experience), but I've seen a lot of people who applied with the loan provider who talked a better deal but who couldn't deliver any loan at all, much less the one they talked about. Many times they have come back to me in desperation two days before escrow expires, or seven days after it was supposed to expire, and I can't always help them in time then. Always apply for a back up loan, especially if it's for a purchase.



Take any newspaper advertisements you see about rate, however, with great heaping cargo ships full of salt. I'll cover what's really available later on, but for now what you need to know is that loan companies advertise with teasers like Negative Amortization Loans and short term ARMs and hybrid ARMs that takes five points to buy the rate and you still won't get it when it comes time to sign the final papers. The whole idea is to get you to call, so that they can get you to sign up, and when they deliver something different at the end of the process, your choices are poor and their accountability is practically nonexistent. I don't think I've ever seen a real rate on a real loan that I would be willing to get for myself advertised anywhere, in any medium. Even the so-called "best rate" websites and newsletters are notorious for cheating. I've gone right down the line calling them and asking about loans that were supposedly the standards they were quoting to, and gotten not one answer that was within half a percent of the rate quoted on the website or in the newsletter. Nor were any of the websites or newsletters I've complained to (or my company complained to, when I worked for an internet lender that was signed up with them) interested in enforcing the rules. I don't know one single loan provider who advertises actual rates that they can actually deliver anywhere. Those few companies who are actually willing to do it have all quit advertising in disgust and gone to finding clients in other ways.



Continued in Part 3: Consequences

This is something I probably should have dealt with some time ago.



A seller carryback is when the seller agrees to "carry back" some part of the purchase price themselves. In other words, instead of getting the full sales price of the property (less outstanding liens), the seller accepts a certain amount of the purchase price in the form of a promissory note from the buyer. This note is usually secured by the property, making it a "purchase money" loan for purposes of determining recourse, which means there usually isn't recourse on the buyer. Furthermore, the seller's trust deed is usually in second or third position, behind the primary loan and possibly a secondary loan.



The reason behind doing this is that some buyers cannot qualify for a sufficient loan, or have credit sufficiently bad that no lender is willing to loan them the necessary percentage of the value, considering the down payment they have (usually zero). But in the current environment, every last potential buyer is heavily sought after, and some sellers are willing to do whatever it takes to make the transaction happen. Particularly as being willing and able to do a seller carryback is one tool for being able to get full price from a buyer who needs one.



As an example, let's consider someone with a 520 credit score and less than 5% down payment in the current lending environment. They might be able to get 80% financing full documentation, or perhaps 70% stated income. But all they've got is less than 5. If the seller wants to do business with them, it takes a carryback to make the deal happen. If the buyer needs a carryback, he's got to be willing to meet the seller's terms for making it happen. This gives the seller who is willing and able to do a carryback access to potential buyers that sellers who are unwilling and unable to do so do not have. Furthermore, it gives those sellers who are willing and able to carryback part of the purchase price leverage in negotiations to get a higher price than they otherwise would have. Not every seller has the option of a carryback. Matter of fact, right now relatively few have that ability. The ratio of buyers to sellers is in the high 20s right now locally - but the ratio of buyers to sellers willing and able to do a carryback may be 1:2 or lower.



Lest there be any doubt, a carryback is not something you keep secret. You don't need to shout it from the rooftops, but at a minimum, all of the lenders involved have to be notified in writing as to what's going on, and have to accept it, also in writing. There are some lenders who will not permit them at all, even though their loan takes priority. There are other lenders who will accept them but impose conditions. They are all going to want to see a loan repayment schedule, and include that in debt to income ratio calculations. It may be possible, in theory, for a "silent second" type carryback to be approved, but the lender wants to see something that seller is getting in return for extending financing, and most such loans will not meet the underwriter's "smell test," particularly not in the current loan environment, which has gone within a couple of weeks from being far too permissive to completely paranoid, as the lenders scramble to avoid consequences of years of bad decision-making. Trying to game the system in this environment in order to get a higher debt to income ratio through the system is highly likely to be interpreted as fraud.



I've mentioned that sellers' trust deeds will be occupying second or even third position, which means that in the event of default the loans occupying higher positions are paid in full, before there is one penny paid on the seller's. It therefore behooves sellers to be extraordinarily careful about extending financing, as if the people were able to qualify for the full amount of financing they need with regular lenders, chances are that they would have done so. Furthermore, if the holders of the higher priority trust deeds foreclose, your deed will be wiped out by the action of the trustee's sale. Concrete example: A $500,000 purchase is financed 80/10/10: 80% ($400,000) on a first trust deed, 10% ($50,000) on a conventional second trust deed, and 10% ($50,000) on a seller carryback. The seller discovers that they're in over their head, and even if prices don't recede the property only nets $450,000 at auction. Less the costs of the trustee's sale, that first trust deed gets all of their money (or at least most) the second trust deed might get some of theirs, but there is no way that you're going to see a penny of yours. Even if prices go back to ballooning like they were three years ago and the property is now worth $700,000 after two years, you might not see any of your money unless you go to the trustee's sale armed with cash to defend your interests - just like any other holder of a junior trust deed.



Servicing can be a real issue as well. Do you know the proper way to service that loan in the state you are operating in without missing any i-dottings or t-crossings? If not, you could lose most or possibly even all of your rights under the loan contract. Professional servicing organizations exist, but they 1) cost money that cuts into your margin, and 2) make mistakes anyway, which you are responsible for. Not too long ago I fought and won a battle with an out of state servicing company that was violating California law. If I had wanted to, I could have sued both them and the holder of the note as well as making criminal complaint. Servicing requirements are deadly serious.



With all that said, many sellers right now are in a situation where a carryback means, "Hey, I might get the money, where if I didn't, I definitely wouldn't." If this describes your situation, a carryback might be something you should consider.



Lest you not understand, most sellers want cash, not a loan. It's very hard to use a loan, particularly a private loan of dubious quality, to assist you in buying your next property. You can't just spend a promissory note like you can cash. There are loan buying services out there, but most of the time the amount you get will be heavily discounted, particularly if you cannot document a history of on-time payments and you are in a bad credit situation. It is this fact which sellers who are able to offer carryback financing leverage in order to get better deals.



There are those out there who like carryback financing. Most often, they are real estate sharks. What they are hoping is that they will get their twelve percent for a couple of years, during which time value will go up, and when they turn around and foreclose, having not only been paid their above market interest but also having leveraged that loan into renewed ownership of the property at an appreciated price. Another one of the tricks is to use the existence of the carryback as leverage to get a price significantly above market for the property from desperate buyers who can't get anything else, and as soon as the buyer has made the payments for a few months, sell the note. However, the note buyers have caught on to that little trick, and in the current environment of decreasing or stagnant prices, they are balking at paying full price or anything like it for those notes.



And that's where I'll stop, lest I inadvertently release more scams into the wild. Suffice it to say that there is sufficient potential for abuse in the practice of carrybacks that lenders have become very sensitized to the possibilities, and have taken what they feel are appropriate steps to limit their potential for losses due to the abuses that have taken place in the past.



Caveat Emptor

One of the things I have to deal with on a continuing basis is people calling me because they like something they saw on one of my websites, but they have no intention of doing business with me.



Most common is would be buyers calling me, "Just tell me the address of that Hot Bargain Property." That's not how it works, as I explain in literally every one of those posts. It isn't luck I find those properties. It's dedication and skill. I spend a lot of time looking, not just in MLS, but in public records and physically going out and looking at them. I've spent a lot of time learning what to look for and how to look for it in all three places. Maybe, if I had personal need of their professional services, I might consider a barter - mine for theirs. But in point of fact, I suspect a large percentage of the calls I get of being lazy agents (A receptionist answering the phone in the background saying the name of a certain major chain is a dead giveaway).



There is a reason these properties are of interest. I'm going out and finding properties that are noteworthy bargains, even by the standards of a buyer's markets. If it could be done by any random person with MLS access, anybody who could type realtor.com could do it. I can do it, in large part, because I make a habit of doing it and most others won't. It is work. If George digs a ditch, you don't pay Charlie. You pay George. Same principal here. The reason I'm worth more than the discounter, in terms of what I find, how well I negotiate, and everything else, is a function of all of the work I do that helps me find good properties, spot problems, know the micro-markets I work in, understand what is critical and what is not. If you find the property yourself without any help from me, yes I'll discount my services for negotiation and facilitation because you're not getting the largest part of the value I provide, and I'm not risking the largest source of agent lawsuits. Otherwise, I am providing more value to you than the discounter and am therefore worth more pay. And I'm providing it, not that discounter. I'm not going to give out the locations of the special bargains I find to anyone not willing to work with me. Like I said, George digs a ditch for you, you pay George, not Charlie. You want to pay Charlie, get Charlie to dig the ditch. But he not only can't, he won't.



Borrowers will call about my Real Loans for Real People. They want to know what lender that's with. Well, I hate to break it to you, but the loan I have is the loan I have. Credit Unions, National Megabank, etecetera may use the phrase "cut out the middleman" to try to get you to avoid brokers, but that's not the way it works. Even if I gave you the name of the lender, very few of them give their loan officers actually get rates as low as brokers from their headquarters. Why? Because they're not paying my overhead, and my clients aren't captive to them. They regard their clients as captive because comparatively few people shop loans effectively. They go to big name lenders, who have no more programs than other lenders, and comparatively little imagination. They may or may not have the most appropriate loan program for a given client. Usually not. Big lenders mostly compete on the basis of name recognition and consumer comfort. A broker may be a middleman, but we function more like discount outlets. And the specific stuff I get is for my clients. If you want it, you've got to be one of them. If you weren't interested, you wouldn't have called.



What I'm trying to get at is this: Trying to cut out the person who provides the value you're interested in is counter-productive. Even if I told you what lender a particular loan was with, rates change at least every day, and it's unlikely they will offer as good a deal through their dedicated loan officers, even if they are the right fit for your loan. Trying to cut out the person whose market knowledge and work enabled them to recognize a bargain means that even if you know what property it is, you're in a weaker position on negotiations. Net result, you get some money back, but you also paid a higher price than you needed to in order to get it. The latter is almost certainly more than the former - probably by a good bit. Once again, if you want George to dig a ditch for you, or if you want George's ditch, pay George, not Charlie. You'll come out better, even if George wants a few bucks more than Charlie. If Charlie's ditch was something you wanted, you wouldn't have needed to get George involved. Chances are, even if you buy Charlie's ditch, you're going to want George to fix it, so the money you paid Charlie is wasted.



Caveat Emptor

 



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