Buying and Selling: May 2009 Archives


The first thing to consider is that maybe you shouldn't. You never want to get involved in a bidding war. There's a classic riddle I ask every single one of my buyer clients at least once.

"How often does the Deal of the Century happen in real estate?"

The preferred answer is "About once a week." I'll give full credit for anything under two months. Yeah, you might not get this one. But another bargain just as good will be along soon. My point is this: There just aren't any properties worth getting into a bidding war over, and part of a good buyer's agent's job is keeping you from going overboard because you've got tunnel vision for this one property.

The second thing to consider is that just because the listing agent tells you it's a multiple offer situation doesn't mean that it actually is one. Quite often, agents don't understand that lying about this is a good way to scare desirable potential buyers off, and they say they've got four (or fourteen, or four hundred) offers hoping to shake a better offer out of prospective buyers. Ladies and gentlemen, if these offers were any better than the one you just sent over, they'd be in hot and heavy negotiation with the other offer, if not in escrow. I've been told this on December 24th when the property had been on the market for six months. Neither Santa Claus nor the Real Estate Fairy are real. Yes, sometimes it may be the truth. See the answer to "How often does the Deal of the Century happen?" above. The rest of the time, it hurts the seller more than the buyer, scaring off good offers and puncturing credibility. Credibility is like a balloon - if there's one path for the air to escape, what you've got is nothing. I don't understand agents who do this to themselves, especially as it hurts their clients also.

The third thing to consider is that you're always subject to how the the seller and their agent want to handle the transaction. You can't force them to do anything, even act in their own best interests. I'm coming up against an awful lot of horrible listing agents who respond as effectively to offers made as any other black hole. Put in a good offer and you get all the response of someone dropping it into a black hole. If you're not familiar with black holes, there's only three pieces of information it's possible to get on a black hole: Mass, charge, and spin. The real estate impact is similar; We can see it's still listed "active" on MLS, but no matter how many phone calls, emails, and faxes we send over to the listing office, we never get a response to our offer. And some of these listing agents have the gall to complain when they do respond six or eight weeks later that all of the prospective buyers have moved on. So be aware that you can't force the listing agent to respond at all. Fiduciary duty is supposed to accomplish that, but real world experience tells us that it often fails. I can point to many agents and brokerages that are completely incompetent at anything other than getting signatures on listing agreements.

In neither case am I saying that you want to walk away from all multiple offer situations. What I am saying is that the situation is rife with potential for disappointment and other morale busters. But if you can keep a healthy attitude and not let the idiocy and failings of those you cannot control bring you down, it's still an attractive property that you obviously want. If you put in an offer, you might get it. If you don't, I can guarantee you won't.

The next thing to consider is trying to find something other than money that the sellers want, and offering that in lieu of a certain amount of cash. There are as many possibilities as there are scenarios. Short sales often want certain specific things, lender owned properties usually want different things, and regular sales still others. There is always the possibility that something other than money will win the day, and the smarter the seller and the better their agent is, the more likely this will be the case. Something like forty percent of all escrows have been falling apart locally, and with the new appraisal standards, anecdotal evidence already has that proportion climbing.

Some sellers and their agents just stupidly choose the apparent highest offering price, and nothing I nor anyone else can say is going to dissuade them. The most probable explanation is that listing agent's commission check - since commission is paid upon official sales price, they will advise their client, the seller, to take whatever the highest offer is. Some of these agents may have ten or twenty years in the business and just consider it "bad luck" that all of their listings have the same exact problems after they have a contract. Problems are always with us, as well as the potential for problems. If it were easy, anyone could do it and there would be no need for real estate agents. But an agent where the vast majority of their accepted offers have these problems isn't luck - and the one common factor all of their problems have looks them in the mirror every time they walk by one.

There are strategies available to buyers that take advantage of this stupidity. Most of the common ones are variants upon the classic sales trick of the sales "take away". Get the seller wanting your offer, then make them work for it, doing things they would never have done for what they end up getting. Once the seller has chosen one offer and everyone else wanders off feeling demoralized and let down, that chosen buyer has a lot more power than they had previously, at least if they use that power carefully. The property goes back on the market two or three weeks later, and everyone looking at it in MLS is going to wonder what's wrong with it. I don't like using these strategies and definitely prefer not to, but some listing agents practically beg me to do so.

Another thing that can help quite a lot is your Buyer's Agent Presenting The Offer In Person. Theoretically, listing agents are required to honor this request or show written instructions to the contrary signed by their client, the seller (Clue to a certain nameless agent who knows who I'm talking about: A forwarded email is not acceptable for this). All too often, however, listing agents throw roadblocks in the way. It's actually in everybody's best interest for buyer's agents to present their client's offer in person, but many listing agents obsessed with control (or with getting both halves of the commission) throw so many roadblocks and so many delaying tactics that it's not worth fighting over. This is yet another excellent reason for sellers to write into the listing contract that the listing agent will not get the buyer's agent half of the commission! Maybe an extra half percent as a concession for doing the other agent's job as well as their own, but not the entire thing. I never accept dual agency, and every agent I respect agrees with this position. If someone insists upon me writing an offer on one of my own listings, Winforms has a very simple one page form called a Buyer Non-Agency Agreement that spells out that I am acting solely on behalf of the seller, and I'm just doing whatever it is because that seller's interests require me to, not because I'm accepting agency on their behalf. Nor is the buyer's agent presenting the offer something you can do on every property - the chances of it happening on lender or corporate owned property are pretty small. But if your buyer's agent presents your offer in person, that's an opportunity for humanization - making you into a human being that the seller can empathize with, not just a faceless pile of paper with markings on it. It's also an opportunity to stress the desirable parts of your offer.

As far as money itself goes, every client I have in a multiple offer situation gets asked two important questions:

1) If you got the property for this price, would you be happy or not?

2) If someone else got the property for $1000 more, would you care?

The proper answer to the first is "ecstatically happy!" If the happy part isn't in there, they're offering too much and need to reduce their offer. It doesn't matter if similar properties are selling like hotcakes for twice as much. If the client isn't happy, it may mean they need more discussion of the market, or alternatives to that property, but they shouldn't be offering that much money. The answer to the second should be "no", an indication that they really are offering what the property is worth to them. Not that they have to offer that much, just that they might. If they want to offer some lesser amount, I'll still do everything I can to get the offer accepted, but in that circumstance my clients are accepting the increased likelihood that someone else gets the property for a price less than they would have been willing to pay.

A question that's never misplaced is "Are we wasting our time with this offer?" It communicates quite plainly to the listing agent that under the current circumstances, this is the best they're going to get from you. You just have to be willing to walk away without hesitation if they say "Yes." It's not necessarily the end of the line for you and this property, it's just the end of the line for now. If the property is still on the market weeks later, a renewal or even a lesser offer can often move it Pending in your favor. It has to do with credibility, and steadily worsening circumstances for would-be sellers of real estate. Quite often the agent or seller who isn't willing to talk rationally in April is desperate in July. It's their own fault, if they had negotiated in good faith in April the problem would have been solved on terms more favorable to them.

Caveat Emptor

Article UPDATED here

I have been asked by more than one person how to measure desirability of real estate objectively. Fortunately, the Phoenicians did all the hard work for me three thousand years ago when they invented money. Precisely what that measurement unit is varies from country to country, but here in the United States that measurement unit is dollars.

A more desirable property will sell for a higher number of dollars. It's as simple as that.

Consider: The same property, moved to a more desirable neighborhood, will sell for more. This difference is nothing more or less than the premium for living in the more desirable neighborhood than the less desirable one.

A four bedroom property with X square feet will sell for more than a three bedroom property with the exact same number of square feet right next door. This difference is the premium for that fourth bedroom, so that one or two more people in that family now have a private place to retreat to - a private place they don't have to share.

A newer property will sell for a higher price than an older one, a well-maintained property for more than one with significant deferred maintenance, a well laid out property will sell for more than a poorly laid out one. I can go on and on, but the difference in all of these cases is precisely the desirability premium for the good thing as opposed to the not so good one. This difference is - you got it - measured in dollars. If it's worth more money to have the laundry room upstairs, the selling price between two otherwise equivalent properties will reflect that difference. If it's not, then the selling price won't be any different.

(In this case, you can figure the difference is a couple thousand bucks in the case of most two story properties around here.)

The obvious question that occurs to most people right about now is, "Do I get a package deal by holding out for a property with everything I like?" The answer is "not usually." Every desirability factor you add on pulls that much more interest to the property. Large lot? Downstairs bedroom? Great view? One of these or many other factors seen as desirable pulls in a decent amount of interest. Put two together, the interest level more than adds, because you're dealing with people who have to have both as well as those who would be happy with one or the other. Put three or more common desirability factors like "gourmet kitchen" and now everybody who even has a chance at affording it is making a bid, especially in a hot market. This is how Flippers and Fixers make lots of money. A good agent with enough time and who knows how to negotiate can and will play them off against each other. They're going to get a hefty premium for that property, leaving the seller very happy indeed. The usual fight in my mind when I'm listing such a property is "how much over appraised value is this person willing and able to pay?", because the appraisal can only go, at the very most, 25% higher than recent sales in the area. Especially given the conservative nature of appraisals done under the new HVCC appraisal standards, the offer I'm going to recommend my client accept probably be from the buyer with the most room on the loan to value ratio and a willingness to do without an appraisal contingency. Sure those people over there may have a higher offer, but with just enough cash for the down payment if the appraisal comes in are not going to be able to consummate it. Because the appraisal is not going to come in for the full purchase price in such circumstances - bet on it. You might be pleasantly surprised, but if you plan for it, you won't be scrambling to contact people who made other offers four weeks out when the buyer comes back and says "We can't qualify unless you cut the price." The buyer's ability to add to the down payment (or finance a larger loan if their loan to value ratio is still good enough) is what gets the transaction done in such instances.

How do you use this as a buyer? It's very simple actually - keep your "must have" list firmly in your mind; don't get distracted by beautiful presentation or bells and whistles you don't have to have. Such properties are ripe for bidding wars. If you must get involved in such a bidding war, keep you maximum purchase price in mind and don't offer a penny more. If you haven't got a maximum purchase price engraved upon your soul before you go looking at property, check yourself into an insane asylum immediately.

You can always make the property better once you own it. There won't be a bidding war then - except maybe between contractors who want the job (the low bid isn't necessarily the best there, anymore than the highest offer is necessarily to one to take for sellers). You own the property, and it's difficult to force you to sell against your will. Doesn't matter how much they like it, they can't have it unless you decide the offer is worth taking even though you weren't planning to move again. But if sellers have twenty, forty, eighty offers there has to be a reason to pick your offer - and the reason is that they figure they'll net the most cash out of it. Your offer really has to stand out. If sellers only have one offer, though, there's a lot more room for meaningful negotiation. If there are even two offers, you can expect to get played against the other offer, at least to some degree.

Look for solid instead of beautiful. Look for improvable over perfect. Look for clear and reasonable upgrade paths rather than properties that are already highly upgraded. Your pocketbook will thank you. Yes, it's a bit of hassle to upgrade, but the dense, highly desirable areas like San Diego are headed for another period very soon like the one a few years ago, where it didn't matter what faults the property had, the buyers were glad to get into anything. Only unlike before, without unsustainable loans over-heating the market and setting things up for a crash when there's a subsequent reality check, the prices are going to stay that high this time. We're still going to have cycles, but the low point of this one is not something I would expect to ever see again. It took an awful lot of loans that were complete garbage to make this happen. The loan type that was the chief culprit has been regulated out of existence, most of the companies that provided other garbage loans are gone as well, and Wall Street and the global capital markets have learned a lesson about real estate loans that it'll take them a generation to forget. It wasn't that long ago I heard with my own ears buyers express gratitude that they had an accepted purchase contract on crummy little places where their family would be shoehorned into a fraction of the room they needed to be comfortable. Those days are coming back, and they're going to get worse over time.

Things that you're willing to put up with that bother most other folks are good wedges for a deal. Popcorn ceilings, power lines, and too many others to enumerate. You may think popcorn looks tacky, but it's pretty easy to remove in most cases. Many utility companies are in the process of burying their lines. If you bought before and it happens while you own, that's a price boost. Don't take the listing agent's word - do your own research, especially if someone tells you, "That airport's going to close." (there's an Act of Congress that makes it extremely costly to close down most airports. The city or county has to pay the federal government back every dime in revenue they've ever gotten through that land, plus interest). But if it's likely to improve, or if it's something you can live with regardless of whether it improves, that may be the property for you. Let the other buyers fight to outbid each other over one "absolutely perfect!" property. While they're distracted fighting over that "absolutely perfect" property over there, bidding the price up to something unjustifiable, it's time to grab a real bargain somewhere else.

Caveat Emptor

Article UPDATED here

Articles like this one:

Foreclosures: 'April was a shocker'

have gotten an awful lot of play in the media these last couple weeks.

Here's what they're not telling you - or not explaining why it's important: This particular article actually mentions it in passing "That's due, according to Saccacio, to the many legislative and company moratoriums that have prevented the foreclosure process from starting on delinquent loans." However, they don't really explain what it means. Yes, Virginia, there was a moratorium on foreclosures in effect. Actually, there were several, some voluntary, most not. Most were related to what happened when Fannie Mae and Freddie Mac were taken over by the federal government last year, and one of the conditions was a moratorium on foreclosures for six months. These days, Fannie and Freddie hold just about every sort of mortgage paper there is except "hard money." Everything from the bluest chip mortgage given to people with immaculate credit, a huge down payment, and three times the income they needed down to the iffiest subprime loans ever. So when the moratorium on foreclosures hit, it cut a broad swath through the market, slowing down the process and delaying it by months for absolutely no improvements from the borrower. Didn't matter how many payments they missed; there was a moratorium on foreclosures in effect. Many of these borrowers took full advantage of this and several miles beyond; they didn't send a single dollar in for those months. This didn't help their situation any.

(How Fannie and Freddie got so deep into subprime, which was never their mandate and in fact was supposedly forbidden them by their charters, is a story guaranteed to make you hate Congress, and particularly, certain members of Congress, if you research it. After all, it's your taxpayer dollars that are going to make good the bad debts those clowns got them into, short-circuiting, obstructing and frustrating the regulatory oversight that was in place.)

So when that moratorium expired during March, Fannie and Freddie started moving forward on foreclosures that had been delayed six months or more, it took them a while to get up to speed. March was way up, but April was even more up. Shouldn't be a surprise. When a logjam breaks, there's going to be an abnormally high amount of water (and logs) going downstream for a while until the backlog gets dealt with. Those borrowers that just skated on what they thought was good fortune were the first ones in for a rude awakening.

Look at what they're telling you: "filings inched up 1% from March and rose 32% compared to April 2008." April 2008 wasn't just after a months-long foreclosure moratorium was lifted. It's a rotten, intentionally misleading comparison without that datum. They weren't going gaga over the drop in foreclosures in other months. I remember reports - buried deep in the "who cares" middle of the financial pages. Average out the numbers over the months the moratorium was in effect, and we're actually seeing a statistically significant decline in average foreclosure activity.

There is good news in the background. First, in the past six months, lenders have finally gotten serious about mortgage loan modification. No, they're not writing off grievous amounts of principal for everyone who asks. That's actually quite rare, and correctly so. But for borrowers making a serious effort and who can maybe kind of afford the properties they bought, the lenders are modifying interest rates downward for long periods of time - more than enough to permit the markets to recover, and long enough to prevent a future huge wave of foreclosures from hitting all at once.

Second, there's a minor but still helpful group of programs now being used to refinance people who formerly couldn't refinance: Both Fannie and Freddie now have programs offering up to 105% refinancing (maybe) without PMI in effect. For those who were otherwise able to finance, but prevented by deflating values, this is all they need to make it good and be able to keep their property. Particularly with sub-5% loans available right now.

Neither of these covers everybody, nor do both of them together. Nor do they help those who went the most overboard in terms of seeking out new and innovative financing forms, to paraphrase Star Trek. But they don't have to cover everyone. All they have to do is make enough of a dent in the future foreclosure market to keep the markets from being foreclosure saturated. Both of them are taking huge chunks out of the short sale market already. People don't (or shouldn't) do a short sale if they have another option, and these alternatives give a large number of people those other options.

We're not out of the woods yet; particularly not if the federal government persists in the sort of undesirable meddling in the markets they've been doing way too much of for the last year. But absent that interference, the trees are definitely thinning out, especially in the markets that took off early, crashed early, and have economic reasons to drive their housing demand back to where it was a few years ago. San Diego is one such. I am certain there are others.

Caveat Emptor


And I don't know why people expect it to be.

Cancel that. I do know why. Popular media. It's not all that common in popular media, but on the rare occasions I see someone buying a house in the movies or on TV, it's glossed over in terms that amount to the Fairy Godmother waving her magic wand. Partly, this is because the writers don't understand it, but mostly, it's because that if it's not your house, there isn't the necessary degree of emotional involvement to make it interesting. In short, it's boring, something studio and programming executives understand very well. Even on the real estate channels and shows, it's glossed over in ways as to render it basically into a simple magic spell (to the detriment of those agents who pay attention to those shows, and their clients). To an audience, all this stuff is boring, the cardinal sin in the entertainment industry. They can handle repetitive, they can handle stupid, they can handle insanely dangerous - they can handle pretty much anything except boring. To expect an accurate depiction of something so fundamentally boring to an audience is asking the impossible. When you add in how long it really takes (weeks if you're lucky, sometimes months), how are they going to possibly depict that in a 30 or 60 minute TV program or 90 minute movie? Not to mention the fact they have no desire to because it's boring, and boring programs don't keep the audiences the advertisers pay for. There's no money in showing it accurately - the money for the media is in somehow being able to make it interesting. Even if they have to make up stuff that isn't there - and leave 99.99% of what is there out - to do it. Of course, by then what they show bears little or no relation to the actual process.

There is nothing simple about an intelligent, informed decision as to which piece of real estate to buy, or securing any necessary financing. You can choose to do it the easy way, hoping that in your "ignorance is bliss" state of mind nobody takes excessive advantage of you. How many millions of people are in foreclosure right now who had that attitude? I have documented pretty extensively on this site exactly how easy the basic research that allows you to avoid the traps these people fell into is. Unsustainable loans aren't the only problem, though, only the biggest problem we're dealing with en masse right now. All of the individual con games that get played with real estate itself are still there, and nobody's proposing to pass any laws that will have any kind of real effect upon the problem.

Here is the situation: Here is a major asset, worth several years of your family's total income. Comparatively minor differences in perceived value make a major real world difference to how much money the seller walks away with. If that seller can net $10,000 more, that's roughly two months of free income from any regular employment they may have, and around here, a $10,000 difference is pretty trivial - the usual bar for quick turn fixing is at least $50,000, more like $80,000 to $100,000. Just because it's money borrowed from the lender doesn't make it any less real - in fact, it's all the more dangerous for that.

Given the high payoff for extremely minor games, people will play those games. People will lick the bugs off a car for $20. People will cheat on their taxes and risk nasty fines, penalties, and jail time for small amounts of money. 419 scams continue to make millions of dollars off their victims daily. People will bear professional false witness for dirt cheap amounts. 7% of the people surveyed said they'd murder a stranger for $10,000. On that scale, how likely do you think it is that they'll make things appear a little better than they are to net $50,000 extra out of a real estate transaction? With several times the amount at stake that takes 7% of the population to murder you, do you really want to take that risk?

There are friendly, amicable real estate transactions where everything goes easy, everything required is disclosed, the people concerned negotiate like reasonable adults, everybody keeps what is reasonable foremost in their minds and deals with the other people involved on that basis. I wouldn't bet on it. Nor are many transactions something like the picture painted by Churchill's most famous speech, "I have nothing to offer but blood, toil, tears, and sweat. We have before us an ordeal of the most grievous kind. We have before us many, many months of struggle and suffering." But if you're mentally prepared for trouble and it doesn't happen, you're going to be pleasantly surprised. All too often, people think they're in for the media "magic wand" version, and freak out when they're confronted with reality. I'd like it to be easy, but frankly, if it were I'd be out of the most interesting part of what I do. Nobody would need an agent if it were easy. Those people who do business with me and through me know how often I use the phrase, "If it were easy, anybody could do it." The context is almost always something has come up, and I have to do some work to make it right, but I'm also making the point that that's exactly what I'm paid for. It's an inalienable part of the job. If it were all peaches and cream, the vast majority of all new agents wouldn't quit (or essentially quit), would they? One of the nice staff people down at my local Board of Realtors tells me that significantly more than half the registered agents do zero or one transaction per year. You can't survive on one transaction per year unless it's maybe a ten million dollar property. You can't even keep up with changes on one transaction per year (but nobody can really do fifty or more transactions per year, either - not and guard their clients interests as you're supposed to)

Buying real estate is a fantastically good idea and great investment, as this and this and this being just the major articles directly on point that I can think of off the top of my head. There are also obstacles, I will admit. Hell, I pretty much proclaim it in big bold type and explain many of those issues in detail. Credit issues, debt issues, how difficult it is to save for a down payment. Unless you're eligible for a VA loan, there are no more "zero down" or "no cash required" loans at this time. I do believe they're come back within five years at the most, but it's better to act before the boost in price that's going to give the market. The point is this: Nobody can make up your mind to do what is necessary but you. I can and will gladly help with preparation and planning and budget and evaluating property and everything else, but you've got to first be the one to make up your mind that you want the benefits of real estate ownership, and will pay the costs required to get those benefits. Nobody can do it for you. Nor is pretending it's free or easy in your best interest. The buyers who tried to pretend it was all free and easy are pretty much getting smashed between a rock and a hard place right now.

My point is this: You shouldn't expect to buy or sell a half million dollar or more unique asset like real estate in the same fashion you would a loaf of bread or a box of paper clips. Especially not when there are major rewards for making it appear just a little bit better for the other side than it really is. Expecting to do so is an artifact of Hollywood, and it's worse than all of the horrible cliches in all the bad movies and TV shows that have ever been made about most other situations, because the people who get involved in those other situations know (or learn in short order) what a horrible crock of fertilizer it is, while people who get ready to buy real estate generally don't, and have only the one experience to learn. But that one experience often controls their life from that point on - even when they don't understand how, why, or the fact that it is controlling their lives. I don't think I've ever seen anything like an accurate media description of being an Air Traffic Controller or any of the other jobs I've done. I've been witness to or involved with several major news stories in my lifetime. Aside from sports, I don't think I've ever seen any events with which I was familiar accurately reported. The reason for the ability to accurately report sports is shared experience and widespread audience understanding of the key elements through repeated personal involvement, or at least personal observation. Not to mention that people are interested in sports or they just tune out. If you care about Antarctic Rules Underwater Basketweaving, you tune in to the station that reports it, while if it comes on and you're not interested, you pay attention to something else. If you're interested, you understand all the major points of Antarctic Rules Underwater Basketweaving - you've done it or watched it enough that you're familiar with what's important, as should any reporters. But with every real estate transaction, things are different from other real estate transactions. Not only that, if it's not your money, it's boring as hell unless you're at least a pretty decent agent who understands everything going on. But pretty much everyone who hopes for a secure financial future is going to have to buy real estate at least once in their lives. It's going to be a unique experience, and it's not all going to be pleasant. Quite often, it's frustrating as hell, even when it doesn't need to be - but you can't force the other side to be reasonable. Don't expect it to be like Hollywood depictions, and you won't be shocked. Whatever your job is (except show business itself, of course) I'll bet you serious money that Hollywood doesn't portray it correctly either. Why should real estate be any different? But here's one prediction I'll stake serious money on: The more time and effort and often disappointment and frustration you spend going through the buying process, particularly if you've got a good agent working in your best interests, the happier the eventual result will be.

My most spectacular, satisfying results have all come from clients who were difficult, or had difficulties, and kept going to the very happy conclusion. I don't have any objective measurements, but it sure seems like to me those were the ones who ended up happiest with their purchases in the end. The stuff you go through to buy a property is temporary. The benefits you get from having done so are permanent, and usually quite large, as discussed above. Even after you sell such a property, you've got more money than you would have had otherwise, money you can use for whatever is important to you. Real estate doesn't have to be your life to benefit from it - or be ruined by it. Keeping this in mind, doesn't it seem like a good idea not to expect it to be accomplished by a Fairy Godmother waving her magic wand?

Caveat Emptor

Article UPDATED here

A lot of advice gets given to choose a "top producing" agent. These highly corporate offices may have the name of an individual agent attached to them, but they are in fact transaction mills. They have done pretty well for themselves through the downturn by securing a lot of listings and waiting for something to happen. All they have to do is wait long enough, cut the price enough, and they will eventually get an offer on a property. If yours takes six months to sell, in the meantime they have sold 18 others that finally decided to cut the price enough to move. It's not that they did any work besides "sign in the yard, entry in MLS" to move the property, but their production makes it look like they're good to the consumer who asks the easy question, "How much real estate did you sell?" rather than "How well did you do for your individual clients?"

These agencies did well through the downturn by marketing themselves to lenders for selling property or advertising themselves as "short sale specialists." It's not like they did anything hard. Lender gets tired enough of carrying the property or close to the regulatory triggers for selling a property, they'll start taking ridiculously low offers. And their "short sale specialist" is more in the nature of "throw 100 transactions at the lenders. We'll close some of them." In case you didn't understand me, this is the old "Throw enough mud, and some will stick." Statistics on failed listings are not generally kept, and where they are, they usually excuse the agent for "lender wouldn't approve short sale". Sometimes the lender isn't realistic when they refuse the short sale - but more often it's that these nitwits wouldn't do the real work involved. Nor are there any readily available statistics on how well they did for individuals, rather than how many sales they produced or what dollar volume.

I have had more experience than I would like in dealing with these offices. Let me tell some experiences I've had very recently. I represent far more buyers than sellers, so they're going to be from a buyer's agent prospective:

I got to one property to show it, and the lockbox was open and the key was gone. I called the listing agent's number - just a courtesy call of the sort I'd like to have if this happened to one of my listings. I got their office phone tree instead - and no ability to get a live person on the line. Yes, it was still available, but all I could do was leave a message and hope. Actually, something similar has happened at least six times in the last couple of months: A problem making it difficult to show the property, or something that was a real issue with the property that had happened, and no way to get in touch with a live person to fix it. Once, I got there and the door was standing open and there was no way to lock it without the key that wasn't there, and neither the agent nor their office answered (I called the police switchboard after them). Okay, no problem seeing the property, but the ability to secure it afterwards was completely missing. You want this to happen to your property?

Upon several occasions in the last couple of months, I and my clients have made very good, strong offers - and the response we got was like dropping them into a black hole. In other words, none. I tried calling - phone tree of doom again. Leave messages every day for a week - no callback. I tried emailing several times - no response. I tried another fax asking if they'd gotten the offer - nothing there either. At least two of these properties have since had a closed sale for less than the amount my clients offered, both of them curiously enough with the listing agency representing the buyer as well, resulting in them getting both halves of the commission. Great for those buyers; not so great for the sellers whose fiduciary duty that agency failed in. I strongly advise against allowing your listing agent to represent the buyer as well, or at least no paying them both halves of the commission when they do. It's a fundamental conflict of interest to have a dual agency situation, disclosed or not. Nonetheless, the real point of this is that all of these agencies were too busy to respond to good, strong offers.

On several occasions, I've been told it was a multiple offer situation. That's fine. But rather than individual negotiation and counter-offers, I and my clients are given the incredibly weak line to "Send your best and highest offer" That is to save the agent and their assistant working time, not to get their client the best deal. To get the best results, you negotiate individually with at least the strongest three to five offers. For the others, who are way below market, the minimum response is a generic counter that tells them where the market for this property really is. Sure, some of them are likely to be low-balling with every intention of walking away if they can't get the property for that offer. But there's always the possibility that they will return a competitive offer if they're given more guidance. An agent who won't or can't spend fifteen minutes generating such a counter is not doing the whole job, let alone the agent who doesn't do individual negotiations. Yeah, the property will likely sell. But not for the best possible price. And it's amazing how many of these lazy agent "best and highest offer" deals fall through, putting the owner right back to square one with sixty days on market - which sixty days means that property will fetch less.

Short sales are even worse than that. You make an offer for a short sale to corporate agents, and they usually intentionally don't respond. The last four I've made were all intentionally not responded to. Instead they just forward all of the offers to the lender. The black hole situation again, even worse because there's not going to be a response for six to twelve weeks. By that time, those buyers are going to have something else and the offers will be useless. Particularly the good offers. They want a property. You can negotiate with these potential buyers, choose one and give them a reason to stay with your property, or you can throw mud at the wall. Actually, it's more like throwing "no stick" mud at a Teflon wall - because it's not going to stick. Furthermore, the back and forth of negotiations with multiple prospective buyers is highly useful and likely to help result in an acceptance. This makes both the seller and the buyer happy. Yes, the chosen buyer can still walk away in the meantime - but you've still got the contact information on all the others. In other words, you're no worse off by picking one particular offer, and you're likely to be better because there's a much higher probability of that best offer sticking around. Of course, not accepting any particular offer means that the property isn't marked "pending" and it isn't marked "offer accepted pending lender approval of short sale" which means the listing brokerage can still use it to troll for buyer clients and a way to make themselves more money by selling those clients something else. Amazing how and why that that works, isn't it? But the listing agent has the responsibility to do what is best for the clients, not themselves. I think this trick violates the fair and honest dealing duty to those buyers as well, but there isn't any real way to argue it doesn't violate fiduciary responsibility to the listing client.

The point I'm making is that while these corporate agents do sell a lot of real estate, and they certainly make an awful lot of money, they're pathetically bad choices for getting the best possible price, let alone quickest sale, and you can kiss actual good service right off your list. There are equivalent issues on the buyer's agency side as well - agents too busy to show property, poor negotiators, high pressure tactics where they are never appropriate. How can you know the agent isn't too busy to give you enough attention.

Personally, I use a points system. A loan is four points from application to funding, a buyer client is fifteen from when they start looking to close of escrow, a listing is twenty points in preparation for market, ten once the initial work is done and the property actually hits MLS through close of escrow. Negotiating multiple offers is two points per offer while negotiations are in process, and is the only thing that can possibly send me "over the limit" involuntarily. I'm only allowed 100 total points; I don't accept business that would drive me over that total (Yes, I've done 100 loans in one month. But loans have become progressively more complicated since then, especially in the last few months, and it's not fair to prospective clients to pretend otherwise). I'm not claiming there's anything perfect or sacred about my system, and agents with more people working in their unit can certainly handle more business than I can with just a contract loan processor and transaction coordinator, neither of which are allowed to talk to my clients. The point is that I have such a limiting system in place; I can and have told people "I cannot work with you right now because it would mean I cannot devote enough attention to everyone else I'm already working with." I also offer them a choice of referrals or waiting.

Talk to most agents and brokerages about such a system or threshold, and they look at you like you're from another planet. Asking prospective agents and loan officers about whether they have such a system and how it works is a good test. Not that the existence of such a system means they're a great agent, but the absence is a real red flag. They can keep hiring office people all they want, but the office is not where the real work takes place. The real work all involves the agent themselves, and there are only so many hours in the day. And if they try and fob you off on some "associate agent" of theirs (in other words, they take a big cut of what that agent makes in return for feeding them business) consider that "associate agent" as if they were who is going to be responsible for your transaction - because they are. That "big name agent" has already done everything they're likely to when they introduce you to their associate.

What else can consumers do? Call their prospective listing agent and deal with their phone tree as if you were an agent with an offer, or even just an agent calling with a concern about the property. If you can't get through to a live person, that's a problem. If you leave a message and nobody calls you back within one business day at the most; that's grounds enough to remove them consideration totally. Pretend you're an agent, at least until you get someone on the phone. For buyer's agents, it's hard to see evidence of their responsiveness ahead of time, but so long as you limit yourself to non-exclusive buyer's agency contracts, you can fire agents who don't measure up at any time - making it a situation where you literally can't lose. Listing contracts, however, by their nature, need to be exclusive right to sell to get the best results. This means you can give any buyer's agent a chance and lose nothing except a little time; for a listing agent you need to be careful about due diligence ahead of time.

As this article should make very clear, there is a major difference between asking the question "Who sells the most real estate?" and "Who sells real estate for the best possible price, in the quickest time, and deals with issues promptly so I get the best results?" You want to make certain you're asking the right question, because if you ask the wrong question, you get the wrong answer.

Caveat Emptor

Article UPDATED here

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About this Archive

This page is a archive of entries in the Buying and Selling category from May 2009.

Buying and Selling: April 2009 is the previous archive.

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