Buying and Selling: July 2008 Archives

I had actually started writing this last month, but one of my favorite blogs just ran a picture of a listing sign that included the caption "REDUCED But Not Stupid or Desperate". I beg to differ on the former. On the latter, time will tell.

Most successful real estate investors are really skilled desperation prospectors. They make their money when they buy the property - the actual sale only confirms the success they previously had.

Here's the really good part: Most of the folks they buy from did it to themselves, by letting irrational greed rule them.

For buyers, there are three parts to this game: Persistence, a good buyer's agent, and being willing to move on the the next if this one won't deal yet.

For sellers, there are three failures: Failure to consider your property's real position in the marketplace and price accordingly, failure to consider your resources, and failure to consider your fallback options ahead of time.

The fact is that most buyers shop for homes by the value to them. There may be an explicit budget involved or there may not, but most people have a decent idea of what they can afford. The smart ones shop by purchase price, the silly ones based upon payment. During the Era of Make Believe Loans, many got burned even worse than usual by that, but it's still around. The point of the matter is that if there's a house down the street priced at $350,000, while you want $400,000, you are going to have to convince someone who doesn't have any ego invested in the property that your property is worth the extra $50,000 to them. If they won't willingly pay the extra, you are doing nothing but wasting your time. If, on the other hand, you can get them to pay the $50,000 extra, you have won. But people don't shell out $50,000 extra for stuff that's only worth $10,000 to them. They go buy the other property, and spend $10,000 making it into what they want. This is different only in degree from the folks you see comparing different bottles of aspirin at the supermarket.

So if you're not offering something worth $50,000 extra to one particular set of buyers, you are wasting your time as long as there are any competing properties on the market - and there are always competing properties on the market. Even during 2003 when the average time on market locally got down to about three days, there were properties that spent months languishing, and never did sell. I don't think it's news to anyone that this situation has become more likely rather than less.

Now, if you've just been transferred and can't afford to keep this residence, or your loan has reset and you can't keep making the payments, or any number of other situations, you have a deadline for action. Not only that, but your backup or alternative plans are the pits. It is critical to understand that if you need to sell, all of your hopes for getting a good price hinge on the first few days on the market. If it's priced appropriately and you don't make it too difficult to view, it'll draw visitors. If if is properly and attractively maintained and presented, especially vis a vis the competition, it will get offers, and probably good ones. If any one of these four conditions fail in the current market, the property will sit unsold. Once it's got thirty days or more on the market, buyers become decidedly less interested in the property. Most of them won't even look at it on-line. The only way to get that interest back is to lower the price - and I mean significantly lower than it needed to be in the first place. The feeling on the part of most buyers is that "there has to be something wrong with it" Most people trust the collective wisdom of the market perhaps a little too much, because it ain't necessarily so, but you can't tell them that. They're not listening to you. They aren't listening to me, either, and there's nothing I can do that will change that, except for individual buyers whose trust I have earned, on individual properties. Instead of trying to change what you can't, change what you can. Most people don't want to, but that's the difference between success and failure - overcoming that reluctance. Yes, it means you agree to hope for less money, or you agree to spend money you were hoping you wouldn't, but those hopes were illusory from the first, like a short fat kid with no ball handling skills who hopes to play in the NBA. One thing I can absolutely, positively guarantee you is that prospective buyers don't care what you need to get to make a profit, or what you'd "like" to get for a property. If they did, I'd tell everyone I'd "like" to get two million dollars for that one bedroom condo in the 'Hood sandwiched between the methadone clinic and the Pawn Shop. They care about how the property and the asking price compare to the competing properties.

It is critical to understand a property niche before you put it on the market. What are the competing properties? What do they have that yours doesn't? What does yours have that they don't? Where do you fall on the pricing scale? One of the critical functions of a good listing agent is to critique your property soundly and fairly, and if you choose the agent who says only things that make you happy, expect to pay for that happiness with ten times the misery later, not to mention much less money and significantly greater expenses. The biggest red flag I know for a failed listing is an easy listing discussion. Mind you, you shouldn't end up mud-wrestling in the street and kicking and punching each other through walls, either, but if your agent isn't willing to argue with you and point out property deficiencies, and overcome your objections, how are they going to overcome the objections of the buyers and their agents?

On the buyers side, the best way to successfully mine desperation is to zig when everyone else is zagging. Unattractive presentation? I'm there. On the market for six months or serially listed? I want to see that property! Viewing restrictions difficult enough to make the most exclusive nightclub ashamed? I will figure a way to see it. Obviously overpriced? No obstacle. Why? Because each and every one of these properties is making themselves unattractive to everyone else. Some of them will lose the property to foreclosure before they do something smart, but others will deal with me and my desperation mining clients. But nobody else is going to make an offer, so barring foreclosure, eventually they'll deal with me and my clients or someone else doing the same thing.

You do need an eye for property if you're going to do this, something a good agent will help you with. There are more Money Pits than potential winners out there. Vampire properties that will suck your wallet dry without returning a profit. Neighborhoods where the surrounding properties won't support the price level you need to make a profit. I know I said that buyers don't care what sellers need - but at this point you're a buyer. If you know ahead of time that you're going to spend $40,000 by the time you're done fixing it, and the neighborhood won't support the acquisition price plus costs of selling plus $40,000 plus your profit margin, that is not the property you are looking for.

There's a very old saying, "Before you find your prince, you've gotta kiss a lot of frogs." Nowhere does this apply more strongly than desperation mining. You've got to deal with something more far more unpredictable than the Heisenberg Uncertainty Principle: whether this particular seller has had the epiphany that this is about the best offer they're going to get yet. A good buyer's agent can do quite a bit to cause that epiphany, but if the listing agent is stuck in the Land of Happy Thoughts, it becomes decidedly unlikely to work. I don't have much mercy on the subject of enlightening them; they willingly did whatever it was to their client and cost that client at least tens of thousands of dollars. What's a little professional discomfort as compared to that? The ones who learn from the experience become better agents (one actually called just to thank me a while back), the ones who don't, I'm not likely to encounter very often. To be fair, I was this sort of agent once. Briefly.

But the point is that the hit ratio on these offers is not anything like the ratio on the more standard buyers who are looking for the beautiful, fresh on the market property. Famous desperation mining advice: "Some will. Some won't. So what?" There's always a fresh desperation assay to perform on another property half a mile away. There are always property owners who put themselves into the position of having no better option than to accept your offer. Whether they actually will or not right now is uncertain. Eventually, most of them will accept someone's offer. I don't resent it when they accept someone else's offer later. My clients benefit just as often from someone else's set up offer, and everybody has their limits on the number of properties they can handle and the money they have available. The supply of such properties is always being refreshed by wishful thinking and bad agents who cater to it.

How can sellers avoid this? By understanding their property and where it falls in the market, and pricing it accordingly. This number has to be modified for showing restrictions, presentation, and many other factors, almost all of which have a negative influence. The listing discussion you have with prospective agents should not be easy - that's a sign of an agent who's just telling you whatever they think you want to hear. There should be some arguments, perhaps even heated discussion, as to what is appropriate and obtainable by comparison with the competition, but trying to get more is much worse than drawing to an inside straight. You can hope for that winning card in defiance of all rationality, but if you lose that bet - and just about everybody loses it - you're setting yourself up for a far worse situation than you really can get if you act correctly in the first place. Overpricing the property is not a "no lose" event - it's a situation where a very few win an extra $10,000 or so, while the overwhelming majority lose several times that amount. Planning ahead and knowing your time-line, and being up front about it with your prospective listing agent, will also save your backside. If you can only make three more payments, or if it's already in or close to default, you need to price accordingly. Nothing happens instantly in real estate. If you need it sold inside of ninety days, you need a solid fully negotiated contract in under sixty, and you're most likely to get the best offer within the first thirty days, if not the first week or so. Wasting your first couple of weeks or months overpriced because you "want to get more than that" is the best way I know of to end up with much less by putting yourself squarely in the crosshairs of desperation miners, because nobody else is interested in your property.

Caveat Emptor

Article UPDATED here

Dear Mr. Melson,

If you sign two or more non-exclusive buyer's agent agreements in your search for a home to buy, how do you avoid putting yourself at risk for a procuring cause situation from either agent, or even the seller?

Thank you,

A Fan

The first thing I've got to say here is that I am not a lawyer, so for specific legal advice for your state and your situation, consult one. That said, here's a broad brush picture of what I've been given to understand.

I am a big fan of the non-exclusive buyers agency contract. Consumers give someone a chance to get the job done, and they have only themselves to blame if they can't. Nor does it tie consumers to one particular agent. There's no way of telling if any particular agent is any good until they've shown you some property. They could be a bozo, they could be a commission grabber, they could have any number of potential problems with a buyer's agent. Consumers who limit themselves to non-exclusive contracts can have any number of agents they want working for them, as any counting number is possible. Finally, they can fire a bad agent simply by not working with them any more. The only thing you possibly give up is the ability to buy houses they introduced you to, and if you liked any of them, you would have made offers already. Nor is even that an absolute prohibition, as we will see a little later on.

The simplest way to deal with this is to tell whomever you're working with if you've seen a property before. You tell the agent you're with before they take you out there that they're not the procuring cause. I give every client a full list of what I'm planning to show them at the start of every hunting trip - and you should insist on this anyway, for this and many other reasons. I want my clients to have ready made paper for taking notes and writing down questions they may have and answers they get, even if that answer is, "I don't know yet but I will find out." If the clients don't want to see a particular property, if they've seen it before with someone else, etcetera, they have an opportunity to say so right away. If an agent takes you to something like that knowing they're not the procuring cause, they have no grounds for complaint when they don't get the commission. The easiest way for consumers is, "Joe with the office down the street already showed us 1234 Main Street, and we're considering it. We want you to show us something better if you can." That serves notice that there is no commission there for them, and it's going to be a rare exception that bothers with that property. If they start talking it down at that point, get out of the car, and tell them that their services are no longer desired. Here they were planning to show it to you as something they thought you should seriously consider, and now they're telling you it's a bad property because someone else will get the commission? They aren't out for your best interests, and they've just told you that in terms anyone should be able to understand. Fire them immediately, without any appeal. Nonetheless, dealing with the issue in this manner is more than sufficient to stop problems before they start as well as dead simple.

Note that I said it's sufficient, which is a logician's term that means it's at least enough. It's not the minimum necessary in this case. The entire thing about "procuring cause" is that this is the agent who made you want to buy the property. Therefore, sometimes I'm willing to disregard "I've seen it before" for clients I've got a good rapport with, if they tell me that they're not interested in that property for whatever reason that seems to them good and sufficient. "Please trust me with fifteen minutes of your time, because I think I've seen something that may change your mind." The essential point is that they've given me evidence that the other agent is not the procuring cause, because they did the exact opposite of interesting them in the property - they turned them off of it. If I can turn that around because I understand something about the property and their situation that causes them to see what I see, I am the procuring cause, and I have demonstrably provided value to those clients. It's rare, but it does happen. Two elements that are always necessary before I want to show a property: That I believe it will satisfy the client's needs and there's a good chance they'll like it enough to make an offer I can sell to the owners.

I should also mention that it's bad business for agents or brokerages to sue clients for commissions. Not only is it bad publicity and a good way to scare off future clients as well as probably more money to prosecute than you'll win if you're successful and half a dozen other disasters, but I've never heard of any agent or brokerage actually winning such a case. This is one reason why the incentives are there for agents to want to tie up your business with an exclusive agreement, but from a consumer point of view, exclusive buyer's agency agreements are a disaster in progress for no gain. You're tying your ability to buy a property for the next six months to one particular agent based upon their behavior in their office? I don't think so. I wouldn't do that on a bet, and neither should you. The games that can be played when one particular agent controls the transaction are too numerous to mention. The vast majority of my clients never talk to another agent, but that's by the client's choice, because I demonstrate I've got their best interests foremost in my mind every time we talk, meet, or correspond, and that they'll be lucky if the other agent is half as good as me. The knowledge that they do have a choice is one more motivation to do the best possible job I can, and a consumer can never have too many reasons why their agents want to do their best work possible. Which do you think is likely to do better work: The agent who knows that a commission is in the bag (eventually) as soon as he's got a signature on a piece of paper, or an agent who knows that the client always has a choice to try out the competition? I put it to you that the agent who's willing to be in the latter category will not only work harder, but that they're much more likely to be a capable agent, confident of their ability to make that client happier than anyone else.

This example may be fictional, but the character portrayed has one thing in common with a good agent, or anyone who really is good at what they do: He's not afraid to be measured against the competition.

.

I may not be Lancelot (he's fictional. I don't have the author writing fiats in my favor), but I'm more than happy to measure myself against the competition in the only way that counts: the actual battle to make my clients happy. This is what the non-exclusive agreement allows the consumer to do - find their Lancelot, or at least Bors or Percival, instead of being stuck with Mordred. It's easy for Mordred to talk the same game as Lancelot, which is why you need to get them out in the field to observe them at work. Non-exclusive agency agreements let you do that. They doesn't bind consumers to the first agent they meet for six months that might as well be forever, because most people aren't going to wait that long if he isn't as up to the task as he might be. Furthermore, it's a lot easier to manage than trying to get out of that exclusive contract Mordred talked you into.

Caveat Emptor

Article UPDATED here

I got this question in an email, and almost blew it off, but then I realized for every person who actually asks, there are probably at least a dozen who are unclear but don't ask, and I apologize that I almost blew off the question.

This is one of those questions with a deceptively simple answer. Transactions fall out of escrow because something goes wrong with the terms of the purchase contract as negotiated. This happens in all kinds of areas, not just real estate.

In real estate, it is usually not the fault of the escrow officer. I have encountered exceptions to this rule (I had one close in May where the escrow officer tried their damnedest to sink it), but they are rare. The escrow officer is simply a hired middleman that handles the actual exchange by verifying everyone involved has in fact done everything spelled out in the contract, and assisting in certain ways those items which cannot be accomplished until close of escrow.

It is possible to fall out of escrow on a refinance, but nobody talks about it that way because the issues are a lot more limited, so usually people describe this in specific terms, such as "Couldn't qualify for the loan," or "The appraisal came in too low." These apply to purchase escrows as well, but the phrase "fall out of escrow" enables agents to avoid finger-pointing, and agents never know when the target you point at today is going to be someone whose good opinion you want tomorrow. Ergo, the commonality of the phrase. It may make it seem like escrow is the bad guy, but that is only rarely the case. There isn't some group of Nazgul masquerading as escrow officers going around and doing evil things to your real estate transaction. It's mostly a way of avoiding any unnecessary bad feelings from a broken transaction.

The most common way a transaction falls out of escrow is the buyer fails to qualify for the requisite loan. For the buyer, this can be avoided by making certain ahead of time that you're going to qualify, staying within budget, and - the step that many are neglecting right now - following the market while you're shopping. For sellers, it's more complex because you can't steer business, but it is doable.

The next most common way transactions fall out of escrow is that the inspection reveals something that wasn't anticipated in the purchase contract, and the seller and buyer can't agree on what's going to be done about it. This is one of the reasons why I'm so fixated on finding all the issues I can before we make an offer. Sure the inspector is probably going to find other stuff, but if it's all trivial, normal wear and tear, we don't have a threat to the transaction. Put those on the table during initial negotiations, and you've already got agreement before you've invested days to weeks and hundreds of dollars into a transaction. You would not believe how much this changes your outcome for the better without trying it.

Even if you don't catch everything ahead of time, be reasonable in negotiations after you find the problem. You can't force the other side to be reasonable, but if you control what you can control, chances are better that you'll come to a mutually satisfactory amendment. Remember, you wanted this deal in the first place. For the buyer or the seller, trying to sweeten it unreasonably because of a new fact is going to lose that transaction. Furthermore, the buyer has the inspection contingency to protect them, while they can decide to carry through on the sale on the previously negotiated contract even if the seller won't deal at all. Both buyer and seller jointly have the ability to decide whether the seller is going to fix it, give the buyer an allowance (usually a small amount larger than cost of fixing to make up for having to be the one to hassle with fixing it), or whatever else strikes them both as reasonable.

As you can see, neither one of these is the escrow officer's fault, and they shouldn't be blamed for something that's not their fault. It's not due to this (sarcasm) scary mysterious (end sarcasm) process called escrow - it's that there really was an issue endemic to the situation that the principals and the agents could not resolve in a satisfactory manner. There are any number of possible issues that the escrow process is intended to prevent: Title, unpermitted additions, you name it, it probably happens and agents deal with these issues regularly. The process of escrow is intended, in large part, to shake these problems out so that the buyer doesn't have nasty surprises later, and the seller really does get the money they're due for their property. Without escrow, the incidence of real estate problems would rise dramatically, as would the cost for dealing with them. If you understand escrow, you know that the reason for it, and why it's usually a consumer's best overall protection from bad transactions.

Caveat Emptor

Article UPDATED here

Dear Mr. Melson:

My husband and I are great fans of your Searchlight Crusade essays. Excellent work!

In today's mortgage-mess market, will lenders reject loan applications from average buyers (not investors) wanting to purchase acreage with a teardown outside the city limits, with the intent of building a new home? Obviously, preservationists and neighborhood associations who might object to interference with the "character" of the area wouldn't be a major factor in this kind of decision.

Would the mortgage needed for such a purchase have to be a combo "jumbo" loan, or what? We are in DELETED and would be using a VA loan.

Okay, let's deal with the peripheral stuff quickly. The "jumbo" and "conforming" labels don't apply to VA loans. They're for conventional A paper financing only, and VA loans having a government guarantee attached as well as the ability to go up to 103% of purchase price with no PMI, there's no need to split the loan amount or to pay PMI at all with a VA loan. I know of at least one lender who'll do VA loans up to $1.5 million.

Now as to the main question: Buying teardown property.

All residential real estate loans require two things: 1) an interest in land, and 2) a permanently attached residence where people can live. Condos and PUDs qualify, because they do have an interest in land held in common, as well as the residence itself. But bare land does not qualify for standard residential financing, because it has no residence.

So the essential question here is: Is the building actually condemned? If it is, what you have isn't a residence at all, but bare land that it's going to cost you money to scrape clean. If you hear an agent talking about "land less demolition and haul away", this is the type of situation you're in. You can't get a residential loan on it because you can't live there. You have to go to one of the other loan types, which means higher down payment and usually higher rates, as well. You've still got the utility hook ups, and you might be able to use the original foundation, so you're not starting from nothing, but property with a condemned building on it is generally less valuable than bare land, because you've got the expense of getting rid of the condemned building. Condemned buildings also have the virtue of short-circuiting most concerns of historical preservation - not always, but most of the time. If the City of Philadelphia were to condemn Liberty Hall as unsafe, I'm pretty certain that wouldn't be the end of the matter. On the other end of the scale, there's a house on the same block I grew up designated historical because it was built in 1895 and by the time anyone in the City of La Mesa looked around, it was one of the oldest buildings remaining in the City. But it wasn't really anything special at the time, so if it was ever certified unsafe, I imagine there wouldn't be much fuss about actually tearing it down.

If the building is not actually condemned, however, you do have the ability to get a residential loan on the property, but you also have to be careful it's not designated historical in any way, shape or form - and that there's no one with any interest in designating it so. Once designated historical, it's like the labors of Sisyphus to try and get permission to get rid of it, and even the attempt to designate it as historical (whatever that attempt may be motivated by) can cost years and many thousands of dollars in expenses. Just because it's outside city limits doesn't mean that nobody has an axe to grind.

People do want to tear down existing buildings for other reasons than condemnation. They want to do something else with the land, or they just don't like what's there. In the meantime, they can still buy with a regular residential loan, until they're actually ready to tear it down. In such a situation, your lender would probably have the right to call the loan, so your destruction and construction financing should take cognizance of this fact. Even if your state law and loan contract do not give the lender the right to call the loan, one should be very careful that you're not misrepresenting your intentions in any way. In other words, if you're buying with intent to demolish, don't hide it from the lender. That's FRAUD. If you refinance out of the loan before destruction begins, it shouldn't be a problem. But if you sign loan documents today, and tomorrow the bulldozers start flattening, a reasonable person is going to see it as deception.

There are also the permits to consider. No matter where it is or what you want to do, it's going to require building permits. This is often a paper trail for preservationists of whatever stripe, as well as for the lender who wants to show fraud. You told the lender by signing the loan documents that everything was hunky-dory on the 15th, but you had applied for demolition and construction permits on the 14th. That's what is called a "smoking gun." Permits for single residence construction are both costly and byzantine, and often so contorted that the only practical way to get them is to commit an illegality. Poor civil servants, how else are they going to live in ten bedroom mansions and take a dozen foreign trips yearly?

There are a couple of commonly used alternatives. The first is to leave one or more walls standing. When you do that, it's not new construction, it's reconstruction - the same as after a fire or earthquake - and the permit process is far more streamlined, but you're still going to watch it as far as the original financing goes. Check with experts in your particular area as to the ins and outs. The other is to retain the old residence while you build a new one, then demolish the original structure after you've moved into the new. The advantage there is you can definitely keep the original financing in place during construction and only worry about the money you need for actual construction, but the disadvantage is that you've got to deal with zoning issues, as well as being unable to use the original site for the replacement residence - so you have to pour a new foundation and clone the utility hookups, and quite often, the lot is just too small to have a second site available that meets setback requirements, etcetera.

Destruction of an existing building and construction of a new one are both difficult tasks, fraught with landmines, if you want to do it legally. One of the things many folks just never quite understand is that those costly hurdles and roadblocks they want to throw in the way of "commercial developers" apply just as strongly to the individual property owner as they do to that corporation. In fact, what the corporation may accept as a cost of doing business, thereby passing that cost along to its customers, as well as economies of scale and everything else, that corporation is much more likely to be able to afford to navigate the process than any but the wealthiest of individual homeowners. Furthermore, by artificially limiting the supply of housing, this has the effect of raising the point at which supply and demand are in equilibrium (i.e. market price) quite significantly. I've seen recent estimates for San Diego County that this cost of getting permits raises the cost of single family detached housing by anywhere from $130,000 to $200,000 over what it would otherwise be. Incidentally, for the developer who goes through the process for several hundred units, the economies of scale reduce the price of the permits to roughly $20,000 per unit. They make a profit off the situation, while the poor guy who wants to build their own property may end up spending hundreds of thousands of dollars just to get the little pieces of paper that say it's okay for them to actually start construction. So be careful, and plan ahead, and make certain that it's going to be possible within your means in the area you want to buy before you sign on any dotted lines.

Caveat Emptor

Article UPDATED here

And I mean that literally. Do it yourself with no begging for free property advice, free help, free negotiations help, free real estate location services, free answers to "how do I deal with this problem?" and not least of these, nobody to blame but yourself and nobody to sue when something goes wrong because you didn't understand something important.

One of the things I do to generate business is talk about bargain properties I've found that current clients aren't interested in, for whatever reason. Maybe it's a bit too much of a fixer. Maybe the location just doesn't work for them. Maybe it just looked so interesting I checked it out despite not having a current client it may be right for. It's not like a listing agent or owner with any kind of clue is going to object to having somebody else think their property is worth a closer look!

This is one e-mail exchange I went through recently. It's not at all uncommon.

Please tell me the address of this property in La Mesa so I could drive by and I will use you as a buyers agent.

This was my reply

Good to hear from you and I look forward to meeting with you!

Here's what we do: We get together, and we both sign a standard CAR non-exclusive agency agreement, which says precisely what you just typed. If you don't buy the property, no obligation is incurred. Neither of us has anything to lose by signing such an agreement. In fact, the only way I gain is by finding properties for you that really are better values than anything else - enough so that you want to buy them.

You don't like the property, you have no obligation whatsoever. This way, neither one of us is risking anything, and if you don't like my work, you can terminate the relationship at any time.

The reply is illuminating. This is the entirety:

I sign nothing but my paycheck

Note that he still has not so much as told me his full name. No phone number either. And when I note that being able to find and recognize this sort of property might be a valuable skill, and doesn't he think that someone who 1) recognizes a valuable commodity that no one else has, 2) points it out to you and 3) enables you to get an all around better bargain deserves some compensation, this was the reply:

Just what I need another low life realtor. You guys are a dime a dozen. YOu mean years of ripping people off for every nickle that you can squeeze out of them. Get a real job I have one. Don't bother responding your trash.

Aside from his desperate need to repeat eighth grade or invest in a better word processor, the charitable interpretation of this reveals an all too common mindset: that of unconscious incompetence. Less charitable but happens constantly: This person is trying to make use of my ability to find and recognize bargains without paying the price for that expertise: Using me as a buyer's agent. And make no mistake - in either case, this person is trying to prove that agents are worthless by getting me to provide one of the major reasons you need an agent, free of charge. Suppose I asked you to work for a week without pay, or your employer volunteered you for a week of unpaid work? That's the equivalent situation. And to accuse real estate agents of being lowlifes because they won't do this is different because...?

If you don't think finding and recognizing such a property is a skill - and a valuable skill at that - do it yourself. The fact is that if you could, you wouldn't be asking me to do it for you. The times when I search places other than the publicly available MLS to find real bargains are vanishingly rare. I can find bargains there because 1) I know what to look for, 2) I know what to avoid, 3) I am very good at spotting problems, and 4) When I don't spot any big problems, I've got a reasonable basis to believe that this really is a bargain. If this describes you, you might not need me. Mind you, any number of people who don't need a full service agent still prefer to use one due to time and liability concerns, but if you know everything a conscientious agent does about property and negotiating and the law and the market you are looking in, why haven't you got a license of your own? That you haven't taken the test is a "fooling yourself" answer - California's test doesn't cover ten percent of what a good agent or loan officer needs to know, and is one of the harder ones. The fact is that it is much easier to get licensed than to actually know what you're doing, so if you're not licensed, how could you possibly know what you're doing? In logic, this is called necessary but not valid. In other words, you don't know what you're doing. if you were on a game show, you'd be being told, "Thank you for playing," as they ushered you off camera in favor of the new contestant. (Many of my articles are aimed at helping you defeat the necessary but not sufficient condition of a licensee who doesn't know what they are doing, or won't do it despite knowing).

How offering a skill for sale makes me - or anyone else - a lowlife is beyond me. If you don't need the skill, don't buy it. But if you need the skill, you are expected to pay the price. This is called commerce, and the fact that you may think it is a worthless skill does not make it so, especially as you try to trick the person into performing it for free based upon a false promise. This person, and many others, has tried to get me and other agents to perform it for free under false pretenses. Does this sound like a worthless skill when it is so apparently valuable that people try to scam you out of it? Actually, I'm not certain there is such a thing as a worthless skill, but there are skills that aren't worth anything to me. I don't need anyone to make candles by hand, and am definitely not willing to pay anything for it. This doesn't mean there aren't quite sane people willing to pay a high premium for hand-made candles, but you don't find me among them, trying to get hand-made candles for free. If you really don't think what agents do is valuable, don't try and scam them into doing it for free. Do it yourself.

I do have some small element of understanding for some of these people. The NAR and various state realtor organizations have positioned the profession as a bottleneck or a tollbooth upon a highway. Trying to make people pay the toll because it appears they don't have any choice. Guess what? People have a choice. There is no legal requirement whatsoever to use an agent at all in any state I'm aware of. I can't make you pay me and I certainly won't even try to force you, but neither will I work for free. I have to feed my family somehow, and if I can't make money being an agent, I'll go do something else - but I certainly won't work as an agent for free in my spare time! I will give you reasons why I'm worth a lot more than I make in terms of the client's bottom line, and I will certainly put myself forward as being a particularly good example of an agent and loan officer. Not only is it objectively true in my case, that's how businesses succeed. But if you don't want to pay for my expertise, that's fine. I'll keep looking for those who are willing. But don't accuse me or anyone else of being a lowlife because we won't work for free.

Here are some cold hard facts: if this guy was finding this sort of bargain on his own, he wouldn't be emailing me. He'd be in escrow, if not already moved in to the property of his dreams. If what I was offering wasn't more attractive to him than what he has found on his own, he would never consider emailing me. If he was able to recognize bargains like I can, he wouldn't be looking where I advertised. In short, everything about his response and the fact that he did respond shouts out that he does consider what I do valuable. So which is correct: The cheap ego shot when I won't give him what he wants for free, or his desire for the results of that skill? Is the skill worthless and am I a lowlife, or is the skill valuable, do his actions tell the world that he considers it to be valuable, and is his response when he can't get it for free entirely too much like Aesop's "Fox and the Grapes"?

If you really don't believe you need an agent and that you can do it on your own, you shouldn't be looking for an agent willing to work for free like this. And like any other situation where someone is pretending an answer is different from the real answer, pretending doesn't make the answer any different, political spinmeisters notwithstanding. All pretending otherwise does is give the pretense needless opportunity to damage you and everyone around you. In the case of a real estate transaction for half a million dollars or more, that's quite a bit of damage indeed.

There are those who would have you believe agents don't do anything, or don't do anything valuable enough to warrant what we make. Some of them are themselves sharks that agents protect you from. Some of them have competing products of their own to sell. Some of them just look at the raw number of dollars and don't understand what anyone could do to earn that sort of money or don't understand how much a good agent who wants to stay in business needs to do. You're welcome to believe any of them. But if you do believe them, go do it yourself. Don't try to get agents to work for free - all that says is that you do recognize the value, but are unwilling to pay for value received. And don't get upset when anyone with more than an hour or so in the business recognizes the game you're playing for what it is - a scam intended to defraud them. Finally, if you're tired of playing this game because all it does is cause frustration, stop playing it and start working honestly with one or more agents. The good ones who know what they're doing are more than willing to bet their skills and their time that they will get the job accomplished, with no upfront cost to you.

There are lots of things that any intelligent agent will happily do for free, on speculation of eventually landing a client. I certainly do. But there comes a point where there is real skill and real time and real liability on the line, and if you're not willing to sign up with them at that point, any agent with more than about an hour in the business is going to realize what you're up to.

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There are two main sources of bargain properties. The obvious one that everyone knows about is properties fresh on the market where the owner doesn't realize what they've got. This is the largest single reason why potential buyers obsess over days on market: They think they're going to find something nobody else has, yet. Unfortunately for this mindset, everyone else has precisely the same idea. Everyone else wants to look at that fresh on the market property, hungry for the bargain nobody else has discovered yet. As a result, this sort of property is where you get bidding wars as everyone else jumps on the same bandwagon, making the owner and the listing agent both very happy.

The "It's so beautiful!" property is not where you get a bargain, especially when it's fresh on the market. Actually, it's only when they're overpriced and the owner won't listen to reason that they get to the point where they aren't fresh on the market. People go to great lengths to make properties beautiful precisely because they will then command premium prices, especially when they're fresh on the market. This is another one of those trade-offs: You can buy a beautiful turn-key property, or you can get a bargain. Choose one or the other - you cannot have both. Choose wisely, by what is important to you. There is no sin or mistake in choosing to spend more money for a property where the work has been done. You are essentially saying that it's worth the extra money to you, and that's fine. This mistake is choosing the fixer when it's worth the money to you to have the turn-key, or in choosing the turn-key when would rather have the money (or can't afford it!)

The second, superior source of bargain properties is usually properties that have been on the market a while. They're not beautiful, so Mrs. Average Buyer does not swoon with delight at the thought of that kitchen and that bathroom. It specifically doesn't grab prospective buyers by the throat and say, "Buy me or you'll never be happy again!" If it did that, it wouldn't have gotten to this stage; it would have been bought when it was fresh on the market.

It may be old, it may be filthy, it may be cluttered, or all three. But the basic construction is still solid. This is not a Vampire Property, it just hasn't been updated in a while. There are no cracks in the foundation, no rot in the wood, no leaks in the pipes. There's nothing really wrong with it; it's just not beautiful right now. As a result, buyers will pass it by. They're too busy looking at the surfaces, looking for brand new granite counters and travertine floors that they don't notice that's what is there is quite serviceable and usually pretty easy to update.

Buyers don't swarm these properties simply because they don't know what to look for. They see fifty year old now. They're looking at what the property looks like now, not what it will look like after some very simple renovations that cost a lot less than the difference in cost between this property and the brand new rehab that's just been put on the market down the block. Some people think they know what they're looking for in a bargain, but most of them are wrong. This is one of the many places a good Buyer's Agent comes into the process. I've been around this particular block a few times, and I do know what I'm looking for and what it looks like. Lots of buyers will tell you they're looking for a bargain, but when the time comes to make an offer they just won't move off the dime. They're still hoping to find something for the same price with the work already (and freshly!) done. That's not going to happen. The reason the owners did that work was to be able to get more money for the property. You can pay the extra money (and the interest on it if you're getting a loan!), or you can go shopping for properties where the work is waiting for you. The folks who just remodeled in order to sell are likely to be disappointed anyway, but until they face reality, you're wasting your time.

Don't get emotionally attached to any property, especially if you don't own it yet. I tell people that if they're going to get emotionally attached, the best time is as I'm handing them the keys. Until the transaction is done, be willing to walk if it's called for. You're making an investment of several hundred thousand dollars. If that investment is going to be a problem or the owners don't want to let it go on reasonable terms, leave it to be their problem. They're trying to sell it; that's a representation they don't want it any more. If they make life too difficult for people who want to buy, that property is still their problem unless and until that transaction closes. I'd rather find my clients something else that's not going to be that kind of problem. Go through the purchase process with the mindset of, "I think I'd like to live here." Make the offer, reach the contract, apply for the loan, do the investigations, and go through subsequent negotiations and everything else with the idea that you think you'd like to live there - and be prepared for something to change your mind. many sellers, listing agents and loan officers all take advantage of people who aren't prepared to change their minds - and not a few buyer's agents as well.

The ideal bargain property is the same one it's worthwhile to remodel: Old, unfashionable, with poor lighting. Most folks won't even consider such properties, which is another reason why they go for attractive prices. Nor do a lot of sellers want to deal with the updates - putting cash out of their wallet for someone else's enjoyment. I'd say inherited property is probably the quintessential example of this. The heirs just want money; they don't want to come up with the cash that enables them to get a better price. This makes it a high supply, low demand situation. You're not going to be the envy of all your friends at the housewarming party the weekend after it closes, but a couple years down the line they're going to be asking how you got such a steal.

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