What Do You Know That I Don't Know?

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Whenever I go scouting in public forums, somebody is always asking, "What's the secret? How do you get rich in real estate?" The alternate to this question is "What do you know that I don't?"

These people are sure there's some magic formula for getting rich quick in real estate, but nobody is willing to share. They're a good person, they're a smart person, and in their mind, they deserve to make money as much as the next person. Why won't anyone tell them? No con artists need apply, of course.

The reason nobody except con artists will tell them is that there is no such secret. There are no mystical secrets of the universe that make you an overnight success in real estate or any other field. Like any other investment, it takes money to make money in real estate, and the more money you have and are willing to risk, the more money you can make. Leverage in real estate is a fantastic instrument, but in order to get the lender to loan you money, you have to be able to convince them you can repay it. This takes money, and it takes income. It can also be overdone, as many people have. Even if you win the bet about your property increasing in value, if you cannot make the payments you can bet on losing the whole thing.

Other people are skeptical of the value of real estate agents at all. "What do they know that I don't know?" is the question that I see asked the most, when they don't proceed directly to an assumption that the answer to this question is "Nothing," and from there the bashing begins.

Until somebody hits a real world snag, of course. "My house isn't selling. What do I do?" "A buyer offered me $X. Should I accept?" or "This happened. What do I do now?"

The issues are mostly preventable, and had even a brand new agent with the ink on their license still wet written the contract, chances are good that the potential problem would have been foreseen, and safeguards against it devised. This is, after all, what we're trained for and what we do. If people could learn your job by reading a couple books, nobody would need to pay you for whatever you do - real estate is no different. Well, I know enough about many subjects to know that I can't learn everything I need to know by reading books, and that any pretense otherwise on my part would be foolish pretension. It might be one thing for me to pull my little girl out of a 5 foot deep swimming pool when she gets in over her head. It would be something else again to try an open ocean rescue of a 200 pound adult.

And a financial lifeguard is an entirely apt analogy. It's not that you don't know how to swim, for crying out loud. It's that you got in to a situation beyond your capabilities, beyond your experience, and now that you're there, you can't get yourself out. Unfortunately for those who ignore "no lifeguard" signs in real estate, it's very difficult to go find that lifeguard while the trouble is going on. It's not like you can get a time out, and many times the fact that you are drowning may not be apparent until you breathe in water, months or years later. If there is a agent present the whole time, you can sue their insurance carrier for your losses, but most often, they will prevent the deadly misstep in the first place. Any agent with a lick of sense won't get involved when there's already an existing problem. That's where attorneys come in, and attorneys get much more expensive than the agent in a hurry.

It's not what good agents know, but what they know. Anybody can read the financial press, and it's not too difficult to understand what they're saying. But knowing it and understanding what it really means are two entirely different things. Being able to formulate a plan of action to come out as well as possible is a whole other level beyond that. What good agents understand down deep at a level of calm certainty that nobody with an expertise less than theirs stands a cell phone's chance in an IED of talking them out of, and that is a system of approaching the transaction that debunks the hype, the nonsense, and makes certain that the numbers all work and the traps are all evaded. If you're not willing to pay the agent what it takes, spend a couple of years of your life familiarizing yourself with all of the issues, and you'll still likely fall short, because it's not just book learning, but experience, and even a new agent has a supervisor with a wealth of experience to draw upon. Nor is it just "sticks". There are an awful lot of carrots out there that are very valuable if know when and how to use them, and will cost a lot of money if you do not know when and how not to.

Here is a fact: The vast majority of people who claim they did fine doing a transaction without an agent say things that inform me and everyone else who understands the way things really work that they got taken for tens of thousands of dollars. Most often they say them while attempting to brag about how well they did, when they're really saying something like, "I threw the seller (or buyer) thirty thousand dollars extra because I don't really understand what's going on!" The number of dollars wasted can quite easily amount to a third of the property's actual value - well in excess of $100,000 for middle class homes here in the San Diego area.

There aren't any huge and critical secrets. But there is a wealth of experience and understanding and little tricks that make big differences. People who do not deal with the real estate and mortgage markets every day are unlikely to have this knowledge. Whether you're a computer programmer or any of a thousand other occupations, ask yourself if someone fresh out of college could do your job correctly on the first attempt, even if that's what they spent four years studying it (which you almost certainly have not done for real estate). You know the answer. It doesn't change because you're the one who wants to do someone else's job.

Caveat Emptor

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About this Entry

This page contains a single entry by Dan Melson published on February 14, 2014 7:00 AM.

The Bank Wants Their Money - And They Are Entitled To It was the previous entry in this blog.

Games Lenders Play, Part V - Selling a Low Payment is the next entry in this blog.

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