Finding Bargain Real Estate: Work With the Buyer's Agent Who Actually Finds The Bargain!

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Several times a month I get calls and emails. Sometimes, it's even people stopping in. "I've heard you're good at finding bargains." Well, yes I am. "Please tell me the addresses of some bargains so I can drive by."

Well, facts are cheap in the age of transparency. I will quite joyously look at stuff on the internet, even set up an MLS Gateway or feed for someone on the speculation that they'll come back to me later for a showing or to make an offer. Setting up such a feed takes very little time, and about the expertise of an eleven year old that has learned to fill out internet forms. Oh, and MLS access. Can't forget MLS access. We've got a system that lets me custom define the search area now - I can click the corners of a search area I want on a map, and it will return only the results within that area. It's a really neat feature, and using it takes about ten seconds of training, and maybe ten minutes to do the whole thing. I'll happily do it as the possible prelude to a limited service commission, and even if the prospects end up using another agent, I've risked and lost nothing significant. No agency contract required, or even asked. I've even done it for folks who didn't want to give me their phone numbers so I could follow up. If they come back to make an offer, my compensation will be set in the offer paperwork.

But good analysis, experience, and expertise are not free - or even cheap. Furthermore, my time is valuable - and you're asking for a lot of it. I might find three or even four real potential bargains when I spend a full day searching - and that's in a target rich environment. Furthermore, I've got a lot of experience and a lot of knowledge to draw upon that many agents don't, and I look at a lot of properties. I can winnow 100 listings on the internet to twenty possibles in about an hour, go through them in about five hours, of which I might show a client who has made the commitment to work with me six, with usually one or two standouts among those. The rest will have something that to experienced, knowledgeable eyes, will have reasons why it is not a viable choice for these particular clients. Maybe it's overpriced and I have reason to believe the owner won't negotiate. Maybe the location or surroundings have an unsolvable issue - one reason you can only tell a bargain by getting out of the office and looking at property. Given the area I work, most often there's something going on with the property itself that's not worth what it's going to cost to fix. I love the older East County suburbs of San Diego - they are good places to live, and when you consider what you get for what you spend, they blow the rest of the county away as far as value. Furthermore, I think the conditions are getting right for the housing buzz to rediscover them. But anytime you consider structures that mostly vary from thirty to eighty years old, you have to watch for maintenance and repair issues, and it really helps to know what you're looking for. Furthermore, it is always necessary to understand the market the property is being listed in. The only way you can do that is by having been in the properties that have sold recently, and the only way you can do that is to go out and look at them while they are still "for sale" because it's not likely the new owners will let you in after it sells.

What I'm trying to say is that the fact of the existence of a listing on MLS is cheap - basically free. You want me to send you addresses of properties for sale meeting certain criteria, that's easy and I'm happy to do it, no strings attached. Anything like that, that can be done by automated computer search, is not a part of what I'm really offering for sale, and I'll give it away on the speculation that sometimes, I'll make something when that person comes back to me to write an offer.

But the ability to recognize a bargain and equally important, what is not - that's the largest part of what I'm really selling as a buyer's agent. Winnowing those 100 listings to a few standout values is a valuable skill. If you don't agree with this, you shouldn't need or want that skill, and you shouldn't be talking to an agent about finding bargains. For people that want access to that skill, there is a fee - they must sign a standard non-exclusive buyers agency agreement. This is precisely equivalent to the difference between a computer programmer giving away some old boilerplate code for free - but they want to be paid for a brand new custom program. This requires all of the same things: Expertise, analysis, experience, knowledge of the area and the current market, the time it takes me to build, run, and debug the bargain-finding program in consultation with the client, and everything else that's involved. The mental ability to do those things did not suddenly appear one morning and it does not maintain itself. Furthermore, the liability for doing this if I make a mistake is huge. Agent mistakes cannot be undone by simply re-writing a few lines of code to work correctly, and having the ability to sue me and my insurance company if I do make that mistake is a huge benefit to the client in and of itself. If they make the mistake, they're stuck - and to be blunt, the probability of a non-professional making that mistake is both much larger than most home buyers believe and many times the probability that I will make that mistake - while if I make that mistake, they can get a lawyer and sue me for everything they might have lost, plus court costs, plus other damages ad nauseum. The idea isn't to sue, but rather not to make that costly mistake in the first place. An amazingly large percentage of buyers make mistakes of a magnitude that I find incomprehensible, all in the name of saving a fraction of what the mistake costs.

The ability to recognize a bargain property is a valuable skill. If you disagree with this, what reason do you have for looking at properties before you buy them? Why don't you simply pick out the cheapest property that meets your specifications on MLS, make an offer, come to an agreement, and pay the price, all sight unseen? Remember, you're claiming that the ability to recognize a bargain does not have value. Why would you want to take the time to look if there's no value in it? When there are ten thousand identical items in a warehouse or on the grocery store shelves, you grab one and get on with your life. You might look at the label to make certain it was manufactured to fill the need you have. You don't bother opening the box - if it's defective, you can just exchange it for another. They're all interchangeable.

But that isn't the case even on everything in the grocery stone. There's a reason they wrap meat in transparent plastic - so you can see the piece of meat you're buying. To view the cut, how much fat is on it, how large a piece of meat it really is, how fresh it is - in short, the value of the meat. If you know what good meat looks like, you've seen people that have no clue as to what to look for choosing crummy meat that you've just rejected. It happens most of the times when I'm at the meat counter, as a matter of fact. It's why the grocery stores keep putting out bad cuts of bad meat. Somebody who doesn't know any better will buy it.

The same thing happens in real estate. I have dealt with people who bought into just about every bad situation imaginable - and now they're trying to unload the results of that onto someone else at a premium price. When I list a property, it's even my job to help them do so. But a significant percentage wouldn't even be selling if they had made the right choice in the first place!

The point I'm trying to make is this: Because the ability to find and recognize a bargain is a valuable skill, if you want it, you're going to pay for it. You can either pay me consultant rates by the hour, or you can pay me by doing the transaction with me. In either case, you're going to sign a contract that spells out exactly what that pay is. If you want bargains I've already found, those are valuable also. I can use the basic information as a lure to attract other people willing to work with me. If you buy it and you are not my client, the simple physical reality is that it's not available for people who are my clients. You got the benefit of my expertise without paying for it - and those who are willing to pay for it didn't. Contrary to something I read by a listing agent the other day, I have no responsibility to market the property - I haven't accepted agency, sub-agency, or anything else. When I'm acting as a buyer's agent, I have no obligation to any owner to sell their property. And until some prospective buyers sign my agency contract, I have no responsibility to them as far as locating and evaluating property. So if they're not going to sign my contract - and a non-exclusive agreement is all either one of us needs - I have no responsibility to give them the benefits of my expertise for free, any more than a lawyer or a computer programmer does.

As a matter of fact, that non-exclusive contract is me betting that I will find something sufficiently above and beyond the market that they want to buy it - because if they don't buy it, the contract says I don't make anything because they don't owe me anything. It's me betting that my expertise will cause them to want to stick with me - because if it doesn't or they don't want to, there's no reason they have to. If that bargain I find isn't a bargain, they can walk away with no obligations. But if it is a bargain, they use me as buyer's agent. The only reason to refuse to sign a non-exclusive agency contract is if you're not willing to work with the agent who brings you the bargain.

And that describes most of those who call or email. When asked to sign my non-exclusive contract, they'll say, "I'm working with someone." To which the answer is, "No, you're not. They're not doing the job. If they were, you wouldn't have come to me. What you are asking for is no different than asking one lawyer to do for free what you're paying another lawyer to do, or asking one computer programmer to do for free what you're paying someone else for. If you didn't think that what I do was somehow valuable to you, you wouldn't have contacted me and we'd both be doing something else right now. So your choice is this: Do you want to stick with someone who isn't doing the job, or do you want to work with someone who will get the job done, and will give you permission to fire him if he doesn't?"

Loyalty has a place. It's perfectly fine to give your Uncle Harry a chance to earn your business. But if Uncle Harry gives you his business card and tells you to call him when you've found the property you want to buy (or a property you may want to buy), he hasn't earned your business. In fact, he's told you he's unworthy of it. That's not an agent. That's a transaction coordinator, which most agents will charge you extra for so that they can go out prospecting and gladhanding for other business while the transaction coordinator does paperwork - the only real work their office does. But full service should be a lot more than a transaction coordinator doing paperwork in the office - and the office should pay for that coordinator out of what they make, not charge you extra for it. In this scenario, what expertise are you really getting? The ability to fill out all the paperwork on a checklist? It is important - but is it worth the thousands of dollars to you? Or is the ability to find you a bargain while discarding properties that aren't bargains what's really worth what a buyer's agent makes?

If you want a bargain on real estate, work with the buyer's agent who finds bargains you want to buy. The principle is the same one that says if you want the ditch Charlie digs, you pay Charlie to dig a ditch, not George. If you want the haircut Jane gives, you go to Jane's shop for her haircut - not down the street to Mary. And if John the mechanic isn't fixing your car correctly, you don't pay John and then ask Dave to do the work for free. You take your car away from John and take it down to Dave, and pay him for the work he does. It doesn't matter that John's mechanic shop has nifty uniforms, a funny advertising campaign, or anything else other than the mechanic who fixes your car so it runs right, which they don't. Dave fixes your car so that it runs right, you pay Dave, and you go back to Dave the next time it breaks down. If the funny advertising campaign is worth giving John some money, that's fine. But you're still going to have to pay Dave to fix your car, and he's going to want you to sign his service contract before he does any real work. The same thing applies to when you want to buy real estate. If Uncle Harry isn't doing the job you need him to do, you fire Uncle Harry and start working with someone else. Don't tell me you want me to find bargains for you but you're working with Uncle Harry. Get Uncle Harry to find you the bargains. If he's not doing that, your choice is really very simple: Suffer with Uncle Harry, or start working with someone who will do the job that he isn't.

When I'm looking to buy professional services, I don't look for the office with the lawyer with the neat ad campaign, computer programmers who act friendliest, or the doctor who talks about how to draw customers into their office. I look for the office who will demonstrate their expertise, keep me there by demonstrating their knowledge of the expertise I need, explain everything I need to know (preferably before I need to know it), advise me as to what my best choices are and the consequences of those choices. I want the office that finds other, better alternatives and offers them to me. That's sanity. That's what's valuable to me.

The same principle applies to real estate. If you want to do the searching yourself, that's fine. Here's your MLS gateway, call me when something pops up that you want me to get involved in. But if you want real expertise on the buyer's side of the transaction, that gateway is not what you want and you're going to have to agree to pay the agent who gives it to you. Because it is valuable, and if you didn't think it was valuable, you wouldn't be asking for it. I am not what most people think of as cheap - no good agent is. But I'm a lot less expensive than using a cheap agent.

Caveat Emptor

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About this Entry

This page contains a single entry by Dan Melson published on June 5, 2014 7:00 AM.

The Perfect Time To Buy Real Estate was the previous entry in this blog.

The Basics of 1031 Exchanges is the next entry in this blog.

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