The Best Way To Create Problems For Yourself In Real Estate

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Have a "looking for cheap" attitude, especially on services meant to protect you.

It's great to have a "looking for value" attitude. If I cost more than someone else, it is in your best interest to ask why, and ask me to justify what I make in terms of value provided to you. I don't resent people that are looking for value. If I can't show them something they agree is more valuable to them, then I can't blame them for going with the person who offers the same exact thing cheaper, and truthfully, I'm probably not the agent they should use. There's plenty of room for all levels of service in the industry.

But to have the attitude that "cheaper is better" presupposes that there is only one possible level of service, and therefore, anyone who provides it any cheaper must therefore be a better value. This is preposterous. I just finished a transaction where my brokerage made about $7000 grand total for the purchase of a condominium and the associated loan. Somebody else might have rebated close to half of the buyer's agency commission - but somebody else didn't get my client a condo for $75,000 less than a model match in the same complex that sold six weeks previous - over a 25% difference in price. Furthermore, that $7000 was the grand total of what the brokerage made. That's not what I got to put in my personal bank account. That's got to pay office rent and electricity and all the costs of staying in business for the brokerage. Once I get my share, I've got to pay taxes and mileage and licensing and continuing education and all the costs I have as an individual of staying in business.

You may get the idea that what's left over isn't as much as most people assume it is. Now you know why discounters cannot afford to provide the same level of service a full service agent can. There are full service agents out there providing discounter service for full pay, but there are no agents providing full service benefits for discounter pay. Even if they were doing twenty transactions per month per agent, they simply aren't making enough to stay in business by doing it that way.

If you're working with an agent who doesn't have the time to do the same due diligence (and may not have the expertise), you're either going to deal with it yourself or hope that the other side of the transaction isn't intending to do anything unethical. Even if they're not intending to do anything, that doesn't mean that nothing will have happened on its own. Sometimes, it really is nobody's fault. When I originally wrote this, I was working on a transaction where the septic tank failed the inspection and the inspector said it needs to be replaced. The seller is out roughly $20,000 in order to be able to sell the property. It was fine a few months ago, but isn't now. Nobody's going to buy the property if they can't flush their toilets, so this needs to get taken care of. If I hadn't done my full due diligence, my clients would have had a nasty surprise that cost over twice the total check the brokerage got for the transaction.

It's not just agents. Appraisers and inspectors are two allied professions where spending just not quite enough can mean they missed what you were paying them to find. Or the appraiser charges you $50 less, but takes three weeks to get it done, during which time you're out four tenths of a point in lock extension fees. On a smallish $200,000 loan, that's $800.

This also applies to loans. It's trivial - and legal - to low ball people who want to know what sort of loan they're likely to get. The lenders who want to low-ball know all the loopholes. Are they quoting what they actually intend to deliver, or are they just getting into the spirit of a game of what amounts to liar's poker where the only way to call the bluff is wait until the end of the process? In such a situation, there's no real reason not to say you've got, "Ten nines," but nobody really has ten nines - I just looked and dollar bill serial numbers are only eight digits long. But if there's no proof until final documents are ready, what happens when they deliver a loan that's pair of ones? I'll tell you: Most people are still going to sign those loan documents. I've gone over how much lenders can legally low-ball quotes in the past. If they can't deliver their quote, they can't deliver it, and it gets you no benefit. I get many people hitting the site every day asking questions that indicate to me that their lender presented them with an entirely different loan than they initially told them about to get them to sign up. Consequences to the lender: Zero. Consequence to the borrower: Now you have a choice between signing the documents for this loan, or doing without. Chances are that you're going to sign their papers anyway, which means that lender will be rewarded for lying to get you signed up, and the attitude of "looking for cheap" is what did it to you. I dealt with any number of people who metaphorically plugged their ears and refused to listen to the downsides of the negative amortization loan. It doesn't change the fact that there are enormous downsides, or how bad they are. It just means you don't know about them. But they sure do have that low payment (for a little while).

In real estate, breaking the law is only the second best way to create problems for yourself. Since in the current environment, you can count on law breaking being discovered, that should tell you how bad looking for cheap is.

Caveat Emptor

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About this Entry

This page contains a single entry by Dan Melson published on August 22, 2013 7:00 AM.

Refinancing Your Property with Less Income Than You Had When You Bought was the previous entry in this blog.

Asset and Income Rentals - Borrowing Trouble at Usurous Rates is the next entry in this blog.

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