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THE SIREN SONG OF REAL ESTATE, PART II By Yank Elliot, MBA & IAHBE Staff Writer
In Part I, we discussed the fact that although selling real estate is portrayed as a glamorous and lucrative career for entrepreneurs—and it is, for a few—our research suggests it pays only about one quarter of one percent (0.025) of agents enough to make comfortable livings. We also discussed some of the desirable and many undesirable aspects to selling real estate. In this installment, we'll discuss the primary issues in my "Five Thorn Theory of Real Estate." "Thorn" No. 1 is your customer. The great majority of customers falls into one of several categories of "time wasters." Friends and locals will ask you to show houses from one end of the county to the other and sometimes in other towns. Why do they do this to you? They are planning to build a new home and they are looking for floor plans. Others will look at many properties with the sole idea of trying to determine the value of their own property. Some will even list homes or other real estate to see what it might bring on the market with no intention of selling. These last people are hoping to avoid paying an appraiser. If a prospective buyer shows up from out of town, you should avoid them unless you have a reason to believe they really want to buy something in your area. People on vacation often use realtors to show them around an area. This is always done at the realtor's expense and in their vehicle and includes wining and dining at the realtor's expense. It takes a lot of experience and determination to say no to any prospective customer. Who knows when a prospect who looks and acts like a time waster will make your day and provide that big commission you've been pursuing? In these cases, though...trust me—JUST SAY NO! Buyers will sometimes make an offer and later suffer what is called "buyer's remorse." They begin to think about what they have done and decide not to go through with the deal. About the only way do discourage this is to insist on an "earnest money deposit" large enough to cause discomfort if the buyer purposely reneges on the deal. Even this may not ensure the deal will close. One of my buyers forfeited $25,000. On his flight back to Atlanta he decided there was no way he could live in a secluded coastal area. A final problem a buyer is likely to present is to get all parties close to a deal and then try to get the realtors to reduce their commissions in order to close the sale. They know that no one will be paid unless there is a closing. Who wants to pay an agent? The other realtor is the second "thorn." Unless you are the agent who listed the property, as well as the one selling it, there will be at least one other realtor involved. What do these fellow realtors do to each other? To give you an idea...I once had another realtor (also the buyer in this case) who told my seller to back out of his contract with me; that was not a problem. What was a problem was the contract clause which specified that I, the selling agent, would be due my commission if the property were sold within 45 days of termination of the contract. The realtor bought the property from my seller only about a week after termination. I could have sued but the cost and time were more than my lost commission. Some realtors will go to great (and often unethical) lengths to steal a listing or sale. If they find you are about to obtain a listing, they will go to the seller and try to obtain the contract for themselves. When they hear you are talking with a customer, they will approach your customer themselves. The managing broker of your office is just as guilty as any agent of doing these things. The manager is interested only in making money for the firm. If you get cut out of a deal, that's tough. To succeed, you must be as secretive with other realtors as you can. Loose lips sink ships! Sometimes you will discover a deal that can be made in a place far away. If you know a realtor there, you may be able to negotiate a "referral" with the other realtor. This is great because you don't have to do any work and you'll still be paid! Just make sure the agent doesn't "forget" about their referral. Now comes "thorn" number three, the lender. Most people who buy real estate need to obtain some kind of mortgage to finance their purchase. My feeling about this process is that it is one of the most difficult, time-consuming, and generally unpleasant things a person ever has to do. Mortgages are bought and sold just like stocks and bonds. You no longer deal with local people you know. Every loan must be just like all the others with respect to collateral, insurance, credit ability, and appraised value. This takes a lot of time and requires much information...The last application I made consisted of 25 pages, back and front. The fourth "thorn" is the seller. Every seller believes he has a jewel worth at least twice the actual value a buyer is willing to pay. Agents spend a lot of time negotiating a proper selling price. The best way is to hire a qualified appraiser, but who will pay for it? Certainly not the seller. So the realtor uses their best judgment and tries to agree with the seller on a reasonable asking price. After haggling over the asking price, the seller may then try to get you to reduce your commission. This may be because they have no knowledge of the expertise and expenses the agent brings to the table...and so, don't appreciate the reason for the commission in the first place. In addition, sellers often list a home to include furniture, appliances, and various decorations. The problem with this comes when, after accepting a buyer's offer, a seller doesn't tell anyone and enters the home to remove some piece of furniture or an appliance they have decided they just can't live without. These items are no longer the seller's; they've made an agreement to sell them. Such actions always make a buyer angry and often entirely kill the sale. If discovered after closing, a lawsuit could result, which unfortunately may include the realtor. Many times property owners will have trouble selling a property quickly so they begin to include options in their offer to entice buyers. A common provision is to offer owner financing. So a buyer comes along and accepts the offer giving full price. The seller realizes they won't get a whole lot of money at closing and tries to back out of the owner financing provision. The buyer threatens to sue and everyone may lose if the sale fails to close. As another "thorn" example, once I represented a seller who had title to a beach front property and wanted to sell. He said he had bought it at an IRS sale. At the time I did not know such a sale only means the buyer paid somebody's taxes. There had been no title search, no survey, no nothing. The Feds make no warranties of any kind. But I got an offer with some earnest money and advised the buyer to be sure and get a title search, which showed there was not even such a piece of property on the ground. A couple of people had "quitclaimed" themselves the alleged lot hoping to sell to a sucker. Of course, my buyer backed out and got his deposit back. But that's not the end of the story. The "thorn" seller threatened to sue me for the earnest deposit! I could have taken him to court and easily won, but the attorney's fee in this case was much more than the deposit. I paid the seller out of my own pocket. The lawyer is the last "thorn" on the rose bush. A few people want to represent themselves and some large property developers want to use their own in-house attorneys. From the very beginning as a full time realtor, I refused to be involved in any transaction that did not include an attorney who specifically represented the buyer. Too many things can go wrong and this was my way of covering my back. An example of what can happen was part of a large purchase one of my "very picky" buyers made involving a big developer. The tract was on the water at the end of a six mile dirt road. But who owned the road? The developer did not know and failed to make any provision for the buyer to access his property. There was also an old mining lien still on the books at closing. When these were disclosed to my buyer, of course, they would not close until the company attorney could arrive and rework the deed, a matter of three hours. In this area, attorneys usually don't get as large a fee as the realtors. In most cases they don't put in near as many hours as the realtor and bear no expense other than regular office overhead. And they do get paid by the hour - realtors do not! However, attorneys usually draw the deed for the seller, perform a title search for the buyer, prepare the mortgage documents for the lender, and record all these items—a situation that some would consider a conflict-of-interest, representing three separate parties in the same transaction. More thorns to come. These five "thorns" aren't the only considerations between you and a closed deal. In this time of great emphasis on the environment, there are many problems every realtor must face. You have underground storage, hazardous materials disposal, wetlands, protected species, and historical sites. Most of the time, the mere mention of any of this will immediately kill a sale or project. And how do you truthfully answer questions about area mosquitoes, animals, and the weather? In popular areas, several of these are issues. Wrong answers may easily result in litigation. Can you afford to defend yourself? It's very hard to give absolutely truthful answers to a lot of questions from a prospective buyer. Hard cold truth destroys commissions. "Buyer's agency," a concept allowed in most areas, is something of an oxymoron; "no man can serve two masters." In this case, there are really three masters: the buyer, the seller, and the predominant need for a sale to be made before a commission is paid. Even if a fee is paid by the buyer to take the place of a commission, someone is likely to be angry at the result. Buyer's agency opens the door to misunderstanding and, in our litigious society, the realtor faces yet another possible lawsuit. Even so, if you're determined to try real estate selling, little can probably change your mind. Realtors do perform valuable services and I would not buy or sell anything without employing one. But look before you leap...you may thank yourself later.
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