Real Estate and the Tale of Aesop's Dog (Greed Envy)

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At a very young age, my parents bought me a book of Aesop's Tales. Aesop has gone out of style, probably because these are stories with a moral lesson, and it seems the modern society is actively averse to moral lessons. But one of the ones that has stuck with me was the tale of the dog with a bone and the reflection in the water.

It happened that a Dog had got a piece of meat and was carrying it home in his mouth to eat it in peace. Now on his way home he had to cross a plank lying across a running brook. As he crossed, he looked down and saw his own shadow reflected in the water beneath. Thinking it was another dog with another piece of meat, he made up his mind to have that also. So he made a snap at the shadow in the water, but as he opened his mouth the piece of meat fell out, dropped into the water and was never seen more.

It is precisely this mistake that I'm writing about, and it applies to all real estate transactions. The dog's mistake wasn't that he wanted more. That's normal and natural, and I've certainly never done business with anyone who didn't. The dog's mistake was wanting the other benefit as well as his own, and not realizing he placed the benefit he thought he already had on the line in order to obtain it. But, as he discovered, the goodie that the dog in the water had was only a reflection of his own goodie. In order for the dog to have his own goodie, the dog in the water had to receive his. The same applies to the benefits the seller and buyer believe themselves to be getting. They are mirror images of the same thing, and one cannot exist without the other.

A lot of what gets written alleging to be good financial advice violates this very simple lesson.

Some things are a cost of doing business. If I don't pay for all the things that enable me to serve my clients, I'm out of the real estate business. Yes, they cost money, but if I didn't spend that money, my income would be zero. For consumers, this includes things like property taxes and HOA dues and Mello-Roos. If you want that property, they are inseparably attached. It is correct to include them in calculations as to whether a property is worth acquiring or worth keeping; it is not only pointless but counterproductive to try and get out of paying them.

This applies to the costs of acquisition and selling, as well. Be certain you understand the real costs involved. They may be large, or seem large, but doing without any of the professional services that have evolved is likely to end up being a lot more expensive in the end. If one is cheaper than another, there is a reason. Find out why; and while it may be that someone is just comfortable making less money, other explanations are such as they do not provide important services that really do make a difference are more likely to be closer to the truth. Don't expect them to tell you this, though, especially since most people will just believe fairy tales like "full service - discount price", and won't investigate why prices or loan quotes are lower. It shouldn't surprise any adult that sometimes it's worth paying extra. If this were not true, none of us would have our own cars, let alone seven seat luxury model vehicles. Cars are about the most expensive mode of transportation there is, but the vast majority of all adults in this country own and drive at least one. Including me. The reason is because the abilities they convey are more valuable than the costs they entail. if you don't pay the cost, you don't get the benefit, and yet many people will fool themselves into trying.

Most importantly, though, the lesson applies to negotiations for the sale of real estate. There's nothing wrong with making the best deal you can, but once you have the contract, honor your end of the bargain. Negotiate issues revealed later reasonably, and in good faith, based upon their own merits. It sometimes happens you find out the other side is getting something fantastic out of the deal. That's not a problem. It's a benefit. Insurance they're going to carry through with their end of the deal, which is a good thing because you wouldn't have signed off on it unless you thought you were getting about the best deal possible, right?. Real estate transactions are based upon making both sides happy with their side of the deal. You can't force someone to sell a property to you or buy it from you. Even attempting that is a felony. There can be circumstances that make it more likely someone will accept a proposal that they might not in other circumstances they would not, and very few people have unlimited time, money, or energy for a transaction to happen. But whatever the other person - other people - in the transaction are getting out of it, those benefits belong to them, and if it appears as if those benefits are in jeopardy, the other side can usually get out of a purchase contract. It may cost them something in some instances, such as the deposit, but successful suits for specific performance are rare, and more so where there's a competent agent involved on that side. Not to mention all those court costs.

The practical upshot of all this is that if you fail to act in good faith, that good deal that you thought you were getting is completely gone, and there's a significant chance you'll end up spending thousands of dollars on legal action as well. All voluntary transactions flow from perceived mutual benefit. The other side has to believe they are getting a benefit in order to want to consummate the sale. Figure that if the other side wants out, they can get out. In fact, many over-aggressive later negotiations give the other side grounds to exit the contract without penalty. Nobody's going to buy a property where they can't run the water or flush the toilets, but once the sellers agree to fix that problem in an acceptable manner, don't try to get anything extra out of them. If the septic system is bad, they can either install a new one, (maybe) fix the existing one, or hook the property up to the sewer. Asking them to re-plumb the entire house is not (usually) reasonable, and asking them to re-wire the entire house on top of that is, in the immortal words of Monty Python (Book of Armanents, chapter two, verses nine through twenty one), right out - and going that far has the same effects as holding onto the Holy Hand Grenade too long. If you find out you're not getting such a great deal, then you're likely to be the one looking to exit the contract, and if they fail to give you satisfaction with a newly discovered issue, maybe you should want to. There's nothing wrong with exercising the inspection and appraisal contingencies, assuming you have them in the contract, or forcing the buyer to consummate the transaction or get out of the way of someone who will, or getting the lender to deliver the loan they said they would.

Greed envy is one of the banes of a successful transaction, and if you don't have a successful transaction, you don't have anything positive, and you quite likely have significant extra expenses. To go back to the dog and the bone, a failed real estate transaction is worse, because not only have you lost your bone, you've lost everything you spent in obtaining it, and you still don't have what you wanted, whether it is your new property or cash for your property or new financing. If you make your initial choices based upon the benefits to you, the fact that someone else is getting a benefit as well is not something to cause you heartburn and make you want to take it away from them. That way lies disaster. Instead, think of it as insurance that you're going to be getting that benefit that you wanted enough to sign the contract or loan application in the first place. And if you're not going to be getting the benefit you thought you were, maybe you're the one who's going to want out.

Caveat Emptor

Original article here


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This page contains a single entry by Dan Melson published on July 27, 2020 7:00 AM.

Mortgage Loan Rate Locks was the previous entry in this blog.

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