Myth stakes

Pricing Above Market Value to “Allow” for Negotiating

This is one of my favorite Myth stakes.  It is one of the most common seller AND agent mistakes and very, very expensive!

When you think about it I am sure you see that the basic premise is that neither the seller nor the agent knows the fair market value of the property.  If they did know it they would price it to market and sell the property quickly and easily.

Over pricing for any reason is a sign of seller and agent weakness.  Over pricing is an invitation to come and negotiate and “take money from me”.

Over pricing is a very blatant challenge to buyers that you are playing a game.  The immediate response from buyers is two fold.

Response number 1 is for the buyer to be insulted.  The buyer categorizes the seller as foolish and unaware of the market and by over pricing the seller is disrespecting the buyer’s intelligence.  The buyers with this approach walk away without even making an offer.

I offer a gold star to anyone who can rationally explain how this helps the seller sell the property.  As the saying goes, “It takes two to tango”.  No buyer, no contract, no sale, no money, and the seller and agent have failed.

Response number 2 is for the buyer to accept the challenge of the game.

This is going to be a win lose game not a win- win game.  The die is cast.  It is mano a mano, a fight to the bitter end.  So what is the buyer’s first move? You hit the bull’s eye.  The buyer’s first move is to make a ridiculously low offer.   Now the seller is insulted and angry.

Does this sound to you like a great way to go about asking someone to give you several hundred thousand dollars or several million dollars?  Do you really believe this game is going to have a winner and a loser, or do you believe it is going to have two losers?

You are right again.  It is going to have at least two losers!  How can there be more than two losers, easy!  Most of the time the seller and the buyer is a family.  Perhaps you know of a couple or two who hit a really rough spot in their relationship arguing over buying or selling a house.

We have seen this happen too many times.  It is not nice.  No matter how the transaction ends people are upset, angry, disappointed and hurt.  What should be a joyous occasion and a time for celebration on both sides is now a nightmare.  If it happens on the buyer’s side, the house may even become a poisoned well.  What a terrible and unnecessary outcome.

There is a much better and much more profitable way to sell your property.  Price your property to the market!

Every study ever done shows that properties priced to the market, sell faster and for more money than those not priced to market!  What the studies do not measure but we have seen over and over again is that the entire transaction is smooth because the parties respect, honor and trust each other.  That is a huge emotional and financial reward.

Think about your own buying process.  When you see what you want at a fair price you buy it.  The seller is happy and you are happy.   Why didn’t you negotiate?  You did not negotiate because it would have been insulting and would have cost you the deal.

There are only two major areas in life when people “negotiate” for high priced things, cars and houses.  What do the studies show?  People hate car sales people and the car buying process.  Why? Because they feel they are not being treated fairly and honestly.

What industry is shifting to fixed sticker price non- negotiated sales?  I know you said the auto industry.  Why?  The dealers and manufactures learned they sell more cars and earn customer loyalty and make more money.

As a seller did you just have a major “aha” moment.  I hope so.

The studies of pricing real estate to market show exactly the same results.  The property sells faster.  The properties will sell closer to, at, or even above market, depending on the market.

There are hidden profits in real estate when you have a quick sale.  A fast sale means you save on mortgage payments, taxes, insurance, maintenance, condo fees, and the like.  Often these items are $2,000-$3,000 a month.  If you do not have a quick sale they mount up quickly and become a very expensive hidden cost of sale.

By over pricing did you realize and intend to take thousands of dollars out of your pocket and therefore off the price?

Experience has proven that fairly priced properties mean smooth transactions.  There is always “stuff” in any real estate transaction.  The seller wants to keep the chandelier and the buyer wants it.  The seller needs one closing date and the buyer another.  There are potentially hundreds of “stuff” items.  When the parties easily agree on price they will always easily agree on “stuff”.  It always happens that way because the game is win-win, not win lose.

Sellers always remember nobody can make you accept an offer you are not satisfied with.  There have been times we counseled sellers not to accept offers of 99% of the asking price because we understood and knew the market with that much certainty.  There have been times when the market changed and we suggested accepting offers of 97% of the asking price.

The decision to accept or reject an offer is always the right of the seller and buyer.  We will give our best advise on the immediate state of the market.  We will help you make an informed decision that will give you your desired outcome.  We will support you in everything you are willing to do.  We will always tell you what you have to hear and never make you do what you do not want to do.  We support rather than pressure.

All of these reasons combine to make “Pricing above Market Value to Allow for Negotiating” one of my favorite Myth stakes.

Did this make you a believer about fair market pricing?

Did you realize how expensive overpricing is?

Are you ready to sell at fair market value?

Think Value

Yesterday we began a series to help sellers understand what they must do to get the highest available fair market price possible in the shortest time and without hassles.

The first rule is that the seller must find out what the buyers wants and how they want it. Hiring the best realtor solves this problem for the seller. Then the seller must give the buyers exactly what they want in the way the want it.

The second rule is the sellers must focus on value not price. All buyers approach a purchase by understanding how much money they feel comfortable spending on the purchase.

Regardless of price range almost all buyers want to buy more than they can afford. Yet, you would be amazed at the number of times we have helped people buy who could afford more but did not feel emotionally comfortable spending more.

ALL BUYERS WANT TO GET THE MOST FOR WHAT THEY CAN AFFORD.

Sellers must also remember that even in cash transaction the buyer is usually borrowing from a bank. The bank is going to determine how much it is willing to invest in your property via the buyer.

While the buyer will have a strong emotional connection to your property, the bank has no emotional connection at all. The bank will make a risk reward assessment and only a risk reward assessment. The bank will analyze both the quality of your property and the quality of the buyer. The bank will require that both be worthy of the risk.

If the property is AAA and the buyer is not, you will not make a sale no matter how much you want to sell and the buyer wants to buy. Likewise if the buyer is AAA and your property is deemed by the bank not to be, you will not make a sale no matter how much the buyer wants to buy and you want to sell.

It is extremely important that your listing agent takes reasonable and prudent measures to make sure the buyer is qualified. Even in cash transactions this is important because everyone knows that the deal really is dependent on the buyer getting a loan. While forfeiting a “cash” buyer deposit sounds like a windfall and a great idea, it is not. As a seller you want sale not a deposit and lost time. Time always is money. Time lost is money lost.

The buyer is always going to look for the maximum value for the amount being spent. Nobody buys the second best value.Nobody wants less than the best their money can buy. Everybody wants the biggest bang for his or her buck. Nobody wants a whimper for the buck.

The seller has three main ways to increase the value of their property. The seller may improve the physical condition of the property, lower the price, or improve the terms of the deal.

Sellers hate to think in terms of lowering the price. They focus on their needs and become fixated on their needs rather than on what it takes to make the sale they want. A bird in the hand is ALWAYS better than no sale. 95% of what you want is hundreds of thousands dollars more than 100% of nothing, a no sale.

Increasing the value of the property by improving its condition is the most overlooked method of the seller maximizing profit. We had the opportunity to help a seller achieve all his goals by improving the property’s physical condition.

The seller was fixated on a price of almost $2,000,000. The property’s actual value was in the 1.700,000-1.750,000 range at best.
The house had been listed with another agent for a year with little interest and no offers.

The seller took our advise and repainted the exterior and interior, updated the kitchen appliances and the “look” and “feel” of the property, and made some landscape improvements. With an investment of $72,500 dollars the seller quickly received an acceptable offer of $1,975,000.

The investment of $72,500.00 returned a gain of $250,000, the difference between its old “unselling” value and actual sale price. More importantly the investment of the $72,500 returned almost $2,000,000 because it made the sale happen.

Improving the condition of the property always gives the seller the biggest bang for the buck. The drawback is that it may take time and will take some money. If time and money are not at issue this is the best way for the seller to go!

Lowering the price is always the fastest and easiest way to increase the value. If our $2,000,000 seller had reduced the asking price to be the fair market value of $1,700,000 a sale would have happened. Interestingly, studies and experience have proven that buyers will pay much more for a “spit and polish” house that they do not have to work on than for a fair market value house that needs their time and money.

Retired people usually have had experience with remodeling and all those experiences were bad, over budget, over time line, and over aggravation. They have no interest in repeating those experiences.

Our belief is that you reduce your pool of potential buyers  by refusing to do the upgrades yourself AND of course you are reducing your profit as well.

Giving favorable terms of sale is the third way to improve value. This may take the form of allowing a long delay till closing, agreeing in the contract to doing remodeling and repair, and similar adjustments. This approach has a slow rate of return as it is predicated on finding a buyer before you can make the concessions the buyer wants. You are in the dark as a seller.

The most common way to improve the terms is to offer seller financing. In today’s financial climate this may be a very high -risk solution.  There are risks to the seller in seller financing.  As the market improves the risks decline as do the number of seller financing opportunities.  If the market were to drop again the risks and opportunities would increase.

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Finding Love in All the Wrong Places

Finding Love in All the Wrong Places is a great song and great song title and what does it have to do with real estate?  Everything!

Yesterday we dialogued about the tremendous financial and emotional pressures that often accompany the selling or buying of a property. Finding Love in All the Wrong Places highlights one of the greatest dangers resulting from those pressures.

In real life all of us have our own issues with self worth, self esteem, feeling comfortable with who we are, how we look, the impressions we make and more. We all seek out people who support and encourage us, who believe in us and make us feel good about ourselves. Happily this often results in true love by both people. Sadly, it usually results in one person taking advantage of the other for his or her own selfish reasons.

Considering divorce rates in America over 50% of all first marriages end in divorce and in some states over 50% of second marriages end in divorce! These statistics don’t even consider the many more non-marriage relationships that fail. Some psychologists believe that the number of truly happy marriages is about 10-15%.

How does this relate to real estate? The number of happy seller agent or buyer agent relationships is also in the 10-15% range! There have been studies which show that six months after the closing neither buyer nor seller could even remember the name of their agent. Other studies show that over 90% of the time the seller does not hear from their agent until it is time to renew the listing agreement. It makes no difference if the agreement is for three months, or six, or nine or a year. Once signed the agent “disappears”. Buyers have the same issues.

There is a saying in real estate that “you want to be the first born son, the second wife and the third realtor.” Why is this? It is human nature. We all want to be told what we want to hear not what we need to hear. In real life it take some mistakes and lesson learning until we are ready to listen to what we need to hear rather than to what we want to hear. It is not about right or wrong it is just the way we are.

We all want to sell for at least 25% above the market. Yet, the market is just that, a market, a meeting of the minds and minds don’t meet when they are 25% apart. Buyers always want to buy for less, much less. Agents tell them the market is soft and they can “steal” properties. I am not talking about the difference of asking and selling price but about the true fair market value of a property.

Yesterday one of my consulting clients was approached to represent a buyer who has $800,000 and is only trying to buy properties worth $1,500,000. The buyer has worked with 2 different agents for more than nine months. My client asked what to do. I told him to sit the buyer down and in a kind and clear manner explain that he can achieve his goal in two ways. He can pay the market value of $1.5 or he can buy the market value of $800k. Last night my client called and told me the buyer was excited to understand and today they are going to look at and buy $800,000 properties.

What can you do to avoid Looking for Love in All the Wrong Places? Interview your agent careful. Make sure they are a professional and talk about market conditions and currents. Be sure the agent is focused on your goals. Be sure the agent gives you a “market reality check”. Ask for a list of references and check those references. Be sure the agent is not “over promising” which will only lead to “under delivering”. Be careful the agent always places your interests ahead of their interests. Be sure your agent is not competing with you and is not a builder or developer with their own properties to sell. Be certain the agent loves your property as much as you do and at the same time is aware of what needs to be done to maximize your value and gives you a plan to do it. Is there a plan to identify the most likely buyer or seller? What are the agent’s experience, knowledge, professional accomplishments and recognition? What is the size of the agent’s database and how is the data based used to generate business?  What % of their business comes from past client referrals?

There are many more questions you can ask, too many for this article today. If you have an immediate need for more questions please contact us and I will give them to you. If you ask these questions you will Find Love In All the Right Places, I guarantee it.

What Buyers Want

The most fundamental rule of all sales is “Find out what the buyers want and give the buyers what they want in the way they want it.”

This is a rule of sales. Obvious how true it is and how important it is. In every area of sales this rule is mandatory, except in real estate sales. The mystery is why sellers of real estate almost always choose to ignore the rule and then wonder why their property has not sold.

We hear so often, “I will not make changes to my property, I like the way it is, I do not care if buyers will not like it. I like it just find someone who has my tastes.” The list of non- business approaches to selling real estate goes on and on and on.

I recently watch a “make over this house” TV reality show. The house was an abomination by any standard. Finally, the frustrated TV host turned to the owner of the cluttered, filthy, piled high with junk home and said, “I have seen barns cleaner than this house.”The homeowner replied, “Oh good, my dream house was to live in a barn, I am so glad you like it.”

How many people do you know who want to live in a barn? By refusing to listen to the want and needs of the potential buyers that homeowner reduced the potential supply of buyers for her home to zero. Not a good approach to selling your home.

The house designer of course through out 98% of the junk, painted, cleaned, scrubbed and polished, and presented the home in the best possible manner and it sold for full price in two weeks!Once she got her check the “barn/homeowner” got over her anger at the designer for getting her “barn” sold.

Buying a home is about emotion, selling a house is about business. Sellers cannot afford to be emotional about the sale.Committing to selling should be a statement to the world that you are in business mode concerning your property. You have made a decision to take the emotions of your home and attach them to your future residence not your current residence.

The dreams attached to the property are going to be the buyer’s dreams not the seller’s dreams. As a seller you are going forward not staying stuck. If you loved a color of paint or tile in your old home put it in your new home. Do not make the mistake of insisting the buyer accept your taste. Take their money and let them have their dream while you go on to your new home with your new dream.

When you commit to selling, prepare your home to be attractive to the largest possible number of potential buyers. The more buyers you attract the greater your chance of a top dollar sale.

If you love purple walls paint them to a more neutral shade. If you have a run done garden, clean it up. If you are afraid the hot water heater will explode any day, put in a new one now. Put your self in the buyer’s shoes ask what would you want as a buyer. Do not ask what your are satisfied with as a seller, you will not get a check and will not achieve your goals or move to your new home if you do!

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It is a great day on Bonaire. Fill your day with abundant health happiness peace and prosperity.

Price Condition and Terms Equal Value

The seller sets an asking price. An asking or listing price is a statement of the seller’s wishes, needs and dreams. After 45 years in real estate and negotiating over three thousand contracts of sale, wishes, needs and dreams are NOT a reflection of the market.

Every realtor should be brave and honest and caring enough to tell seller’s the truth. The truth is the seller’s wishes needs and dreams are NOT the fair market value of a property. Buyers do not care about the wishes, needs and dreams of the seller. Buyers only care about their own wishes needs and dreams.

Think about it. When you made any major purchase did you care about the seller’s wishes dreams or needs? Of course not, you cared only about your own.A fair market value is determined when and only when buyers and sellers have the same wishes needs and dreams. That is when a contract and sale happen.

Both buyers and sellers must be cognizant of the wishes needs and dreams of the other in order to make a sale. When any one of the components is out of alignment nothing will happen, a sale will not happen. The seller will have failed in the goal of selling and the buyer will have failed in the goal of buying.

There are three main components which sellers and buyers must assess from their own perspective and the perspective of the other side. The three areas are price, condition and terms. Together they create value. While most people use price as a short hand or substitute for value, price and value are not the same.Price is a component of value, while value may be a component of price.

A perfect property will have a high price because it has a high value. A condemned property will have a low price because it has a low value. Price is a part of value.

Condition of the property is critical. Over the years we have developed and entire program about condition. Our program consistently produces higher sales prices because of improvements we suggest. Most of these improvements are very low or no cost. We will be sharing these in the weeks to come.

Terms are an area that few people ever think about in determining value yet it can be pivotal. The most common term attention getter is a cash offer by the buyer. That is a term that always gets the seller’s attention. Likewise, a seller’s demand for a cash deal cools the market.  Most markets are mortgage driven.  Second homes and strong seller markets may be cash only.  Cash definitely reduces the number of potential buyers.

Length of time till closing is another important term. Sellers usually want fast closing and buyers slow ones. Furnished or unfurnished is another common term bargaining point.

What action will you take with this information?

Choose to have a day and life of abundant health happiness peace and prosperity.

Simple Math Leads To Great Success

Buying and selling real estate is always about money.  Money is always about an exchange of value.  In the grocery store, on line or in the world of real estate a sale happens when the seller and buyer agree the fair market value of the item is equal to the price of the item.

In very simple math terms P=V=S.  When Price equals Value they equal a Sale.  No matter what the buyer or sellers says about the value of the thing a sale will not occur unless and until the buyer and seller agree as to value.

After more than 4,000 transactions I can assure you that I have heard all of the arguments buyers and sellers make as to why the buyer should pay more or the seller accept less.  Often the seller or buyer is right!

Experience shows that on average about half the time the seller is right and half the time the buyer is right.  There is no magic to the process.  Being right does not mean that a sale must occur.  Being right is irrelevant. It is irrelevant because it has nothing to do with making the sale.

A seller may be absolutely right about the value price relationship for his or her property.  Only time will show the rightness of his or her opinion.  If after a reasonable time the property is sold at or near the asking price the seller was right about the price value relationship.

On the other hand if the property does not sell at or near the asking price after a reasonable period of time then the seller was wrong about the price value relationship.  Flip the process around and look at it from the buyer’s perspective and you get the same results.  If the property does not sell the buyer was right. If the property does sell the buyer was wrong.

Another basic critical formula is P>V=NS.  If the Price is larger than the Value it equals No Sale.

The consequences of being right or wrong are very significant. The consequences are almost always measured in the tens of thousands of dollars.  There is no formula that will automatically tell you the dollar consequences of being wrong.

A rule of thumb that is fairly consistent around the country is that price reductions must be at least ten percent in order to be meaningful.  Price reductions of less than ten per cent simply do not register with the buyers.

Over pricing is a compounded problem because one ten per cent reduction may be inadequate.  Most sellers are reluctant to make multiple price reductions.  Generally sellers take six months before realizing their property is still overpriced.

How does a seller know when the price is approaching value, P=V?  It is easy.  There will be an increase in showings and there should be some offers.  After one or two negotiations if the seller and prospective buyers have not signed a contract the seller should consider another, perhaps smaller, price/value adjustment.

All the time the seller is spending a lot of money and not achieving the goal of selling.  The mortgage must be paid each month, the taxes must be paid and there may be homeowner association dues.  There also will be insurance costs, maintenance costs, repair costs, and a long list of smaller costs.  These costs all add up and are significant.

Overpricing results in non- quantifiable non-monetary loss that in many ways will exceed the monetary loss.  The stress and strains on a family that is stuck in limbo between a goal of selling and a reality of not selling are considerable and not to be taken lightly.

There is a third formula and it is very important.  It is especially important in a declining market.  The formula is P<V=FS Price is Less than Value equals a Fast Sale.

In a declining market sellers also incur significant losses to the true value of the property if they fail to sell. Millions of sellers are still reeling from the declining values of the past years. In some parts of America those losses have been in the 50-60% range and prices are still falling!

In a declining market the seller must get out in front of the market.  Depending on the rate of decline it may be impossible to “know” the fair market value of a property, the point where P=V.  The only option open to a seller is to price the property so attractively that it will produce at least one buyer.  If it produces more than one buy enjoy the bidding war.

In a rising market, the market may allow the sellers to be as aggressive and the market will “cover” the mistake of being aggressive.  In a declining market the market will “uncover” the mistake of a seller not being aggressive enough.

In a rising market failure to act will cost the buyer tens of thousands of dollars. In a declining market failure to act will cost the seller tens of thousands of dollars.

If you use these three formulas properly you will have great success in any market.

Cash is King But…

In hot markets or cold markets cash is king.  Buyers with cash especially in buyer’s markets are adored.  Sellers roll out red carpets for cash buyers.  Cash deals are usually smoother and faster.

There are two common misconceptions about buying for cash.  Many cash buyers believe they are insulated from the rise and fall of markets. Cash owners believe they are under less pressure than financed buyer/owners.

Despite these obvious benefits of buying/owning for cash there are issues.  When values fall the cash purchaser suffers an immediate direct loss.  A mortgage buyer has leverage.  The mortgaged buyer owns 5-10-20% of the home and the bank “owns” the rest.  If values fall the loss in a certain sense is shared.

When a home is bought for cash the owner does not have to worry about losing the house to the bank.  The owner does feel the full extent of each dollar value of falling values.  There is no shared loss for a cash buyer/owner.  The cash buyer/owner should feel the dollars coming out of his or her pocket.

Being a cash buyer/owner often gives a false sense of security. All to often such thinking causes these owners to hold on to declining value properties all too long.

A loss is a loss.  When values decline and look like they are going to continue to decline it is time to cut your losses and move on.  Sharing the loss with your mortgagee does not make it better.  Absorbing the entire loss yourself does not make it better.

Mortgage free does not mean debt free or even worry free.  Every day we hear reports of cash owners who felt they were immune to suffering losses.  A shared loss is bad and a fully absorbed loss is really, really bad.

Interestingly many real buyers do not want to deal with cash buyer owners.  The buyers often think that the absence of a mortgage reduces the pressure on the seller and makes them more resistant to selling.  There is truth and validity in this approach.  Some cash purchased sellers do feel and act as if they are not under pressure.

There are many such sellers who are under tremendous pressure to sell.  These sellers are extremely anxious to cut their losses.  They want to put their money to work rather than watch it disappear.

Buyers always ask, “who is in foreclosure, who really is under pressure from the banks”.  Buyers rarely ask the really important question, “who is the most motivated seller”.  As a buyer are you most interested in the most motivated seller or the most motivated seller with a mortgage?  The answer is obvious yet the question is really asked.

If you are a seller without a mortgage you must make it very clear that you are motivated.  You do that by working closely with your broker so that your asking price is what the market perceives as fair market value.

Don’t give the buyers reason to believe you are not motivated.  Give the buyers reason to believe you are very motivated.

I have worked in markets that were only cash markets.  It did not matter if it was a sellers market or a buyers market for a variety of reasons all transactions were cash sales.

When the markets softened many buyers missed great opportunities because they worked under the belief that a seller without a mortgage could not be motivated.  Those buyers were so far from the truth and they missed many a great purchase.

Many vacation and second homes are cash only transactions.  Almost all third or more home purchases are cash purchases.  Many very high value purchases are cash only.  Almost all international purchases are cash purchases.

Many people who buy for cash are fully invested.  Any downturn in values has an immediate negative effect on their portfolios.

Lastly many cash owners do borrow to make the purchase.  They get stock portfolio loans, 2^nd mortgages on other properties, home equity loans on their primary residence, pledge bank accounts, use lines of credit etc.  The mortgage or lien is not on the “cash” property but rest assured there is a mortgage or lien somewhere on something of value.

Cash is king and a cash based seller may be just as vulnerable or even more vulnerable than a seller with a mortgage.

The Lesson of the Papaya

Do you remember the endless debates about free will?  Do you remember having to read thick books written hundreds of years ago about the people having free will or not having it?  Do you remember that the debates today are exactly the same as the ancient ones?

This is a true story about free will.  Anyone who goes to the food market knows this is a true story.  What so many real estate buyers and sellers forget is the real estate market is exactly like the food market.  The lesson of the papaya is simple.  Everyone has free will.

We like to have papaya for breakfast.  Usually it is not a problem as several food markets in the neighborhood carry a nice supply of papaya.  There are two primary markets we regularly shop at and we have several backups as well.

The two primary markets have a different approach to selling papaya.  One market sells papaya by weight while the other store sells by the piece.

The market “A” sells by weight.  It always has top quality and always charges a high price.  Because the quality is so good and the price is high and it is sold by weight the price for even a small papaya is often higher than the competitor’s price for a large one.

Market “B” always sells by the piece. A small papaya is the same cost as a large one.  The quality often varies.  Sometimes they are as good as the competition; often they are very good but not as good as the competition. Sometimes they are below average.

If you get to store “B” before everyone else you can buy the biggest sweetest papaya at a great price.  If you do not beat the crowd you will pay the same price per papaya but the real sweet large ones will have been sold and you have a fewer and poorer choices.  Now your price per pound has gone up while the quality has gone down.

Being smart shoppers we go to store “B” first and we always beat the crowd. We buy the highest quality the largest size and at the lowest unit price.  This is smart shopping.

This is how most people shop.  Shopping is shopping.  People buy the highest value.  Food markets and real estate are the same because they are a market where supply demand and free will apply.

We began our shopping as usual at store “B” because it always offers the highest value papaya.  We were shocked when the clerk said she had only two really good papayas that she saved for us.  There was a problem at the papaya farm and only a few cases had been shipped instead of the dozens and dozens of a normal delivery.  We of course bought the two and thanked our friend profusely.

We headed right for market “A” planning to buy the highest quality, smaller and more expensive papayas to complete our order.  We were in for another shock.  The clerk said there was a problem at the farm.  They also received just a few papaya.  Because the supply was small they had to raise the price!  We bought two more and consoled ourselves in the knowledge the quality was superb and worth the higher cost.

We went to market “C”.  They did not have any papaya.  We realized all the markets bought from the same supplier.  The supply was way down, quality was down and prices were going to go up.

Market “D” told us the same story.  They did not have any papaya because the farm wanted too much money for below average quality.  The owner of store “D” exercised his free will and decided he was better off not selling any papaya rather than buying expensive low quality papaya and perhaps not selling them.  This market by exercising its free will did not even give us the chance to exercise our free will.

Market “E” was the opposite from market “D”.  He had a few really small bruised and poor looking papaya for sale at double the price of market “B”.  We exercised our free will and decided we would rather eat a different breakfast than to spend so much money for such poor quality.

Our last market was a real surprise.  It had beautiful small high quality papaya.  We asked where did you get these?  The owner said I realized there was a supply problem.  I immediately went to “market “A” and bought almost all they had.  As I control the supply side of the market I have decided to triple the price.  I will make a killing if only I can find people willing to pay the price.

We exercised our free will and left without buying.  We will enjoy the fairly priced quality papaya we bought.  We also will enjoy something besides papaya the rest of the week.

The lesson of the papaya is that neither sellers nor buyers have to sell or buy.  Markets are about people saying yes and people saying no.  When they say yes there is a sale and when they say no nothing happens.

Do you listen to the law of supply and demand? Do you exercise your free will?

What Do You Really Want From Your Realtor?

This is not a trick question.  What is surprising is how consistent the answers are and how inconsistent the actions of buyers and sellers are.

Buyers and sellers both say they want their realtor to represent them.  They want their realtor to be an advocate.  They want their realtor to help them sell or buy for the best price possible in the market.  They want a quick and easy transaction.

What is the reality?  The good news is there are buyers and sellers who act consistent with their expectations of their agent.  After thousands of sales many years in the business and talking and sharing with great agents around the world, I believe that about 10% do as they say and 90% act contrary to their own beliefs and self interests.

Many of the conflicts center on the idea of representation and advocacy.  In the real world representation is about protecting your best interests.  In real estate it is about achieving your goal of buying or selling at the best price possible in the market.  It means buying or selling as fast as is prudent and wise.  It means doing everything possible to have a smooth stress free positive experience.

These three primary goals fall victim to a distorted understanding of advocacy and representation

.  Advocacy does not mean beating the other side into the ground.  It does not mean the score reads you 100 the other side 0.

If I, and every realtor I know, had $1.00 for each seller or buyer who said, “ I want you to go back and demand that the other side do exactly what I want or there is no deal” all of us would be very well off.   Winning 100 to 0 always means a sale will not take place.  Winning 100 to 0 means you won the battle and lost the war.

Compromise is not a sin.  Negotiation is not compromise.  Advocacy is not compromise.  Advocacy, negotiation and compromise are about working to give everyone the maximum win- win possible. Compromise is about giving up what is not really important in order to get what is really important.  Negotiation is the process of compromise. Skilled advocacy produces is the means to negotiation and successful compromise.

A good advocate and representative will always keep your eye on the goal, which is to buy or sell the property.  It does not make a difference what battle you wrongfully choose to fight if it means you are going to lose the war.

Sellers often insist on listing prices that are unrealistic because they are not in accord with the market.  What is the point of asking 20or 30 % above the market?  There is no point in a tough sellers market for asking even 1% above the market.

Sellers often justify their decision by “allowing room to negotiate”.  You will have negotiating room.  You will not have anyone to negotiate with.  What is the wisdom?

Sellers often say, “I only need one buyer”.  True but you need a buyer.  The idea that people over pay and do so by double- digit margins, is nonsense.

Sellers often say, “I have plenty of time I do not have to sell”.  If that is true why are you wasting your time and everyone else’s time?

The buyers have their own self-defeating behaviors.  They match the seller issue for issue.   It is pointless.  To achieve any goal you have to act in a manner consistent with achieving your goal.

Neither sellers nor buyers can defy the market.  Sellers will have to take less than they would like.  Buyers will have to pay more than they would like.  It is how markets operate.  It is how egos work.  It is the only way for the seller to sell or for the buyer to buy.

If you insist upon over riding the wisdom, knowledge and experience of your realtor why hire the realtor in the first instance?  What is the wisdom of hiring your expert and then ignoring their wisdom?

Any seller or buyer can pound the table, shout, scream and demand.  It takes a wise person to remain calm cool and collect the prize of achieving the goal, a sale.

If you refuse to honor the market you will fail.  When you fail there will only be one person to blame.  If you look in the mirror you will see the person at fault.

My House Is Burning Give Me A Fire Hose

Buyers are you serious about buying or are you playing a game?

For years the world economy has been shifting, twisting, slowing, falling, collapsing.  For six years real estate has been following the economy and sometimes even leading it down.

For years buyers have been saying I am going to buy as soon as:

1. The real estate market hits bottom
2. The real estate market bounces up 5%
3. The stock market has to improved
4. The world economy improves
5. The world stock markets goes up
6. The risk of depression disappears
7. The risk on recession or double dip recession goes away
8. Ruinous inflation slows in China and India
9. The EU Euro situation stabilizes

The buyers have been right to be worried about all of the above.  The question is should the buyers be worried about the above today?  Are these 9 concerns valid reasons not to buy real estate today?

I think it is time to buy real estate in many markets in many countries.   There are always big worries in the world.  There are always reasons to keep your wealth in cash.  Many studies have shown that if you always keep your money in the bank you will almost certainly miss good opportunities to grow your wealth.

1. The real estate market in many communities has hit bottom. A few communities have shown increases in prices.  Many more communities have experienced decreases in inventory.  None of these changes has been a straight line up.  Turning points are always confusing, muddy, and inconsistent.  It is only by looking back that we can identify a turning point.

2. What is clear is that taken together the real estate market is looking better than any time within the last 6 years.  Worldwide it is not up 5% but it is getting better.

3. The American stock market is within 10% of its all time high and way above it 2008 low.

4. The world economy free fall has slowed.  The European market is a question mark.

5.  World stock markets are very muddled.  The free fall seems to be over.  Some markets are very messy.  The big economies except for Europe are moving up.  Some have a long way to go.

6.  Talk of an American depression has disappeared.

7. Talk of a double dip recession has almost disappeared in America though there are other economies where this is still an issue.

8. Ruinous inflation in China and India has slowed.

9. The Euro has not stabilized and the situation in the Euro zone is fragile and of great concern.  Italy and Spain have lowered their cost of borrowing significantly.  Greece is an explosive situation.   Success or failure in Greece will have significant consequences in Europe and to a lesser extent worldwide.  The delay in resolving Greece’s debt has enabled the construction of some “firewalls” around Greece.  The more delay the higher the walls.  Wall construction is not a complete solution.

Things are better and sellers are still very anxious to sell.  Good markets have 6 months or longer inventory.  Bad markets have 9 months inventory.  Markets with high numbers of foreclosed or about to be foreclosed properties have 12-15 months inventory.  The shadow inventory is high worldwide.

Sellers are sending a clear message because they are lowering their prices in order to sell.  The message is clear.  My house is burning is the sellers’ message.

This is a great time to be the “hero” by buying real estate.  Everyone loves a hero.  The key is in the timing.  If you arrive at the fire when it is hot and not under control you are a hero.  If you arrive when the fire is almost out you are still appreciated but you will not be a hero.  If you arrive after the fire is out and the house has burned to the ground you will not be a hero and may be a villain.

Who will you be a hero too?  You will be a hero to yourself, your family, the seller and all the participants including the seller.  It makes sense that you can negotiate a better sale when you are perceived as a hero rather than as a villain.   It makes sense to buy low so you can sell high.

Is it a perfect world?  Perfection does not exist in any market.  Are there many good reasons to buy?  Yes.  Is there risk in buying?  There is risk in everything.  Are the indicators saying the risk of buying is declining and the chances for success are increasing?  Yes.

Only you can answer the question are you serious about buying or just playing a game?

DOM DA DOM DOM-DUMB?

Dom da dom dom in a musical context warns of impending doom or danger.  In the world of real estate it has a double meaning.  A meaning that is twice as foreboding and alarming.

In real estate terms DOM is short hand, jargon, for Days On Market.  It represents the total number of days a property has been for sale.  Days on market is a lighthouse with a mega lantern shining market truth into a sea of darkness.

Until 20 years ago DOM was a closely kept secret within the American real estate community.  Many MLS systems imposed severe fines and punishments on agents who disclosed how a property’s days on market.  The information was considered so important that agents could be censured or dismissed for revealing DOM!

After many years of litigation negotiation and compromise days on market are now in America ready available.  Initially many sellers asked their agents to circumvent the system.  Sellers regularly took their properties off the market only to relist them a few days later was the most common form of circumvention.  MLS systems have grown more sophisticated and now automatically block attempts at circumventing accurate days on market data.

America is unique regarding days on market data.  Most real estate markets believe DOM information is critical and private to the seller.  The philosophy is that making days on market public hurts the seller’s property value because it tells the buyers how long the seller has been unsuccessfully trying to sell.

The argument on both sides of the issue completely misses the importance of days on market!  The seller does not list his or her property to see how long it may take to sell or to not sell.  The seller lists the property to sell it, at the highest price possible in the market in the shortest time and with the fewest hassles possible.

The seller knows, all to well, the property’s days on market.  The buyer does not really care how long the property has been on the market.

The buyer only cares how the price and value of a property compare to all property prices and values.  If a property has a bad price value relationship the buyer has no interest in buying it.  The buyer focuses on the property that has the best price value relationship.  The buyer does not care if the property has been on the market 1 day or 1,000 days.

Buyers often ask how long a property has been available, DOM, in order to gauge the seller’s motivation.  It sounds like a good question.  It is a superfluous question.  If the property has the best price value ratio the seller is motivated to sell.  If the property does not have a good ratio the seller is not motivated.

Buyers do not look for the third or even second most motivated seller.  Buyers look for the most motivated seller.  How does a buyer know which property has the most motivated seller?  The buyers look at the asking price versus their perceived value of the property.  Days on market do not indicate motivation.

Days on market should be very important to the seller.  Every day the property is on the market is a day it has not been sold.  Days on market should be a red flag to sellers. A high days on market number is a bright sign flashing, “over priced”!  A high days on market is not a sign of motivation it is a sign the seller is NOT motivated!

Seller’s if you have a high DOM you are hurting yourself.  You are ruining your chances of selling.  You are undermining all marketing efforts.  All the marketing, open houses, Internet sites, brochures, ads are a waste.

Many sellers believe that selling is a process of standing in a long single file line with other sellers. These sellers believe that selling is automatic and a matter of time.  Nothing could be further from the truth!

Even in the strongest seller’s markets this perspective is faulty and of no value.  Any seller can accelerate to the head of the line by increasing the property value or by decreasing the price and or improving the terms and conditions being offered.  Every time someone “skips” forward in line all the others are pushed back.

Another serious fallacy is the concept of a single file line.  There are literally hundreds of lines.  There are lines for each type of property; single family, multi family, condos, urban, suburban, rural, one level, two level, master on the ground floor, finished basement and dozens of other features and benefits.  There are lines for every neighborhood.  There are lines for financing and lines for cash buyers.  Some lines have high demand and some may have no demand.  The days on market number has no effect on selling.

Sellers you should be concerned about your days on market.   A high DOM number is the clearest signal that you are over priced!  A high DOM is a very clear warning.

Do you believe ignoring such a warning is smart or dumb?

Yesterday Today and Tomorrow

One of my personal beliefs is

Yesterday is History,

Tomorrow a Mystery

Today is a Gift.  That is why it is called the Present.

I am sure it has inspired and helped millions over the years.  I love to share this short poem with buyers and sellers.  When they accept its wisdom and focus on its lessons the process of buying or selling is always successful and positive even in the toughest of times.

Everyone loves to think of real estate values as being slow moving and steady.  We also love to believe that the direction of values and prices is inexorably upwards.

When we look at any extended period of time we know this is generally a truism except of course when it is not true.  There have been and always will be periods of economic recession and depression which redirect the real estate market.  During recessionary and depression times real estate values flatten or decline.  Everyone knows that.

Everyone knows the pendulum of the economy swings one way and then swings the other way and continues the cycle in an uneven uncertain and unpredictable manner.  Everyone overlays their personal belief system onto the pendulum and makes their own interpretation of the economy.

This is perfectly normal and understandable and comes with serious limitations.  This is particularly true in the world of real estate.  Living in the past or believing you know the future may produce dire consequences.  What buyers and sellers must do is to live in the present.  When you live in the present you increase your chances for financial and personal happiness.

When a market is going up sellers love to live in the future.  They close their eyes to the mystery of the future.  Sellers in a sellers’ market believe that because the market went up yesterday and today it will go up tomorrow.

Real estate markets are not like the sun.  Because the sun came up yesterday and today it is reasonable to believe it will come up tomorrow.  The basis for this is not a believe in the future but an understanding that the cycle of time in the universe is measured in billions of light years and not a 24 hour span.

Real estate markets are not measured in the time cycle of the universe.  Real estate markets are measured in terms of a few years.  In real estate market time a decade of continuous directional movement is the equivalent of eons of light years in the universe.

The longer a market moves in one direction the more likely that more and more people will join the same side of the market.  It does not matter which way the market is moving.  It is a lemming instinct.  It is a social instinct that “makes” the crowd get larger and larger.  This usually is a sign that everyone ignores.  The bubble is about to break.

Eventually the pendulum swings so far and has so many people believing that it is the only direction of movement that inertia overcomes the pendulum and it swings in the opposite direction.  The apogees of the pendulum are uneven and irregular.  The apogees are always emotionally and factually messy and confusing.  A change in momentum and direction is never clear.

Many insist the pendulum will continue to swing in the direction they prefer.  Others will shout the sky is falling and everyone should metaphorically abandon ship/pendulum.

Because so much borrowed money underlies any real estate market the economy insists upon verification of values-appraisals.  Appraisals are rooted in history not the present or the future.  In fact appraisers may not consider market trends either up or down.

In rising markets appraisers are relying on past (lower) values.  Sellers are unhappy while the buyer banks and appraiser feel safe.  In falling markets the past values are higher than current values.  This makes the sellers happy but makes the buyers, banks and appraisers worried.

As the pendulum of the economy swings further and further the battle between greed and fear of loss grows larger and larger.  This continues until the bubble bursts.  This battle is ongoing regardless of the direction of the market.  The battle creates emotional stress on all.

The only way to avoid the stress is to live in the present.  Living in the future or the past will not make your real estate decisions easier or better.  Leaving in the past or future will increase your stress.  Our wishes and desires will not change the reality of the world.

We can control our “present” lives.  Sellers can sell today and know that they put money in the bank or in extreme case cut their losses.  Buyers can buy today knowing that the markets seem to be at a very low point and the risk of further losses is declining though not guaranteed.

As much as we would like to know and control the future we cannot.  We can only make the best decision we can today and live with that decision until we decide to make a different decision.  We can fret and worry over making a decision and over the decisions we make.  Worry has never improved a decision.  We can live in the present and act to make sure that our decisions become successes.  We can choose to make the best of every decision.  We can choose to see the bright side of our decisions.  We can choose to make new decisions.

Are You Silly or Successful?

I have a good friend, Sandy, who is very well known in the world of real estate.  She has a unique ability to mix the cold hard truth with a smile and a laugh.  A client of hers once told me “Sandy can shoot you right between the eyes with a double barreled shot gun and make you feel you want her to do it again”.

Sandy recently told me this story.  I am sure it is true because it is exactly the way Sandy talks.  Sandy of course is a member of the Reality Real Estate organization.

Steve Seller:         Hi Sandy this is Steve seller.  How are you?

Sandy:         Steve I am great and so glad you called.  Have you been thinking over the price reduction we talked about?

Seller:         I have and I have good news for you.

Sandy:         Wonderful.  We agreed at the time of listing the market value was $625,000.  You agreed that after 30 days of listing at your above market price of $725,000 you would lower the price to $625,000 and sell.

Seller:         Yes I did Sandy.  My wife and I always keep our word.

Sandy:         Good I will change the price in the computer right now and roll out my market price promotion program.

Seller:         Sandy, not so fast.

Sandy:         But you said you agreed to sell at $625,000.  Our listing agreement says you will lower the price from “your” price of $725,000 to $625,000 after 30 days.

Seller:         Yes I did say that.  Yes we will sell at $625,000.  We just cannot tell everyone that is the plan.

Sandy:         Oh you want to be a secret seller!

Seller:         I am not sure what a secret seller is.  I do know I told everyone at the office and our neighbors we would not take a penny less than $700,000.  I got a little carried away with myself and I am afraid I painted my self into a corner.

Sandy:         No problem at all.  If you are serious about selling, you are still going to have to follow the listing contract and change the price to $625,000 because that is where the market is.

Seller:         I am afraid it gets worse.  The wife was talking with her PTA friends and told them we have already rejected $675,000.

Sandy:         Wow.  You do not even want to be a secret seller you want to be a silly seller.  How silly of you and how silly of me!

Seller:         (Chuckling lightly) Yes.  I guess we made it hard on you.

Sandy:         (Laughing aloud) No you did not make it hard on me.  You have given me a big laugh and a great story to share with other sellers who are thinking of being secret sellers or silly sellers or who want to go over the top and be secret silly sellers and never ever sell.

Seller:         We did?

Sandy:         Steve for a moment you really had me believing you were going to be a secret silly seller who would never sell their house.

Seller:         We did?

Sandy:         Of course you did.  You have given me a great laugh and brightened my day.  You almost had me.  For a moment I thought you were serious about being a secret silly seller.  Then I remembered how serious smart and funny you are and I realized you were too smart and too serious and too successful to be so secretive so silly and so stupid.

Steve:         Yes of course.  Of course we are serious smart and successful. We are great believers in being serious smart and successful.  It is the foundation of our family and our business. We are always serious smart and successful.  We would never have it any other way.

Sandy:         Great.  For a moment you fooled me.  You are such a great actor.  You really sounded like you decided to make vanity and ego more important than selling.  You had me believing you wanted to keep your true intentions a secret from the buyers.  Then I remembered you are serious smart and successful and I knew you were playing a trick on me.

Seller:         Of course we were joshing you.  We just wanted to brighten your day with a big laugh.  You know us and how we love to make you laugh.  We are smart enough to recognize the realities of the market.  We are serious about our decision to sell and move on with our lives.  We are dedicated to our family success that means a new home and a new job in a new community.

Sandy:         I knew that.  You sure are a great actor.

Seller:         When will you roll out your market price promotion plan at $625,000 for our house?

Sandy:         Right now.  Thank you for being so smart serious and successful rather than so secretive silly and stupid.  Thanks for the great laugh.  I really enjoyed it.

Seller:         My pleasure.

Sandy:         My pleasure.

Dark Side Marketing

Are you engaged in dark side marketing?   The following is a true story.  In fact the agent that told me the story said he actually had to delete many of the Dark Side activities because while true they would seem unbelievable.

Agent:         It is a great day at Reality Real Estate.  How can I help you?

Caller:         I want to file a complaint with your boss.

Ron Reality:         This is Ron Reality and I own Reality Real Estate.  What seems to be the problem?

Caller:         It is your agent Renee.  She is just terrible and is running our chances of selling our listing.

Reality:         I am very shocked to hear that.  Renee is one of our top agents and has never had a complaint like yours.  Where is your property?

Seller:         468 Maple St.

Reality:         But we do not list that property.  We are not your agents.  Renee does not work for you.

Seller:         That’s right.  Why should I pay you for bad service?  I am keeping the commission.

Reality:         But if we do not represent you why are you mad at Renee and saying such terrible things?

Seller:         Look Renee is an old friend and while we would never pay her we did allow her to show our property.  We told her that if there were an acceptable offer we would discuss paying her for her time but not a commission.

Reality:         We are doing you a favor and you are angry with us?

Seller:         You bet.  Renee showed our house and the people slipped and fell and may sue us.

Reality:         How can we be responsible because we did you a favor and the buyer slipped and fell in your house?

Seller:         Renee did not bring a flashlight or broom with her.  It is all her fault.

Reality:         You are not making sense.

Seller:         We shut off the electricity to save money because no one was looking at the house.  Renee showed these people and they did not see some stuff that was on the steps and the lady slipped and fell.  If Renee had a flashlight the potential buyer would have avoided slipping.  If Renee had swept the stairs there would not have been any dirt and debris on which to slip.  If we get sued you and Renee are getting sued.

Reality:         What kind of marketing are you doing?  The lights are off.  The house is obviously not clean.  You have not hired a realtor.  You are not offering a commission if someone does sell your house.  Is there anything else you are “not doing” to market and sell your home?

Seller:         Yes.  We are not going to make all the expensive repairs Renee and the old agents suggested.

Reality:         Of course I should have known that.  Why?

Seller:         You realtors are all so smart.  You want us to spend our money and make it easy for you to get your money.  Well I will not fall into that trap.  You are going to have to work to get my home sold and get money out of me!

Reality:         Not really.

Seller:         What?

Reality:         We do not have to work to get money out of you.  We are not going to work for you ever.  It is not easy to sell a house and you do not want to protect your own interests and investment. You only want to blame others for your own problems.  You are a Dark Side marketer, figuratively and literally.

Seller:         What?

Reality:         You are a Dark Side marketer.  The lights are off so a buyer cannot see your house.  You will not list your house with a professional agent.  You are not marketing your house.  You will not clean your house.  You will not fix up and maintain your house.  Your house is dark and your energy and ethics are dark.  Even if a buyer wanted to “see” your house it is dark and not “seeable”.  Your marketing plan is so dark nobody can “see” it.

Seller:         But if I fix, clean and polish my house it will cost money.  If I hire a professional realtor it will cost me money.  If I turn the electricity on and clean the smelly refrigerator it will cost money.  If I clean out the vermin it will cost money.  If I paint it will cost me money.  If I throw out the broken furniture and stage the house it will cost me money.  Why should I spend all that money?

Reality:         So you can sell the house and get money.

This story is extreme but not unusual.  Everyday we see houses with Dark Side marketing issues.  Are there Dark Side issues in your marketing program?

Do you Know The Rules for Real Estate Success?

There are a few really big rules you must know and follow for real estate success.  Did you know you learned these rules in kindergarten?

Every few years some psychologist conducts a study and tells us something we already knew.  What always amazes me is that many of the rules are rules we learned in kindergarten.  The rules worked in kindergarten, real estate and in life.

Rule Number One

Sit in the front of the room.  If you hide in the back of the room you are not engaged.  Hiding in the back lets you observe but not participate.  You do not have to be a psychologist to know that you learn more (quantitative) and better (qualitative) when you participate.  Experience is a great teacher.

Rule Number Two

Pay Attention.  Sit up straight with your feet on the floor.   Proximity to wisdom is very important.  Engaging with wisdom is critical.  Doing things half- heartedly will give you half hearted results.  In computer speak it is called GIGO, garbage in garbage out.

Rule Number Three

Listen.  If you are talking all the time there is no time to listen.  If you are not listening you deny yourself the opportunity to learn from others.  Talking is telling others what you know or do not know.  Listening gives you the opportunity to learn what you do not know.

Rule Number Four

Teams have more success than individuals.  A person may be a catalyst but it takes a team to get the job done.  You may think you can do it all on your own but you are wrong.  Teams can celebrate.  Individuals have nobody to celebrate with.  Throwing yourself a celebration party and being the only guest is not a lot of fun

Rule Number Five

Surround yourself with great people.  Everyone has strengths and weaknesses.  Surround yourself with people who have strengths you do not have.  Remember united we stand divided we fall.

Rule Number Six

Be nice.  Learn to play well with others.  People who play well with others do better over time.   Great leaders motivate while pushing people.  Bad leaders punish people while trying to motivate them.

Rule Number Seven

Take time to recharge.  All work and no play make you boring and tired.  Things in motion tend to stay in motion but they also go slower over time.  Everyone needs down time to recharge.  There is a time to work and a time to play.  You need to do both.

Every real estate transaction has many participants.  Each of the players is an important player in the game.  Sellers and buyers often think they are the only important players.  These egocentric people believe all the others must bend to their will.  This is not true.

Many a deal has crashed on the “rocks” of an appraiser, inspector, mortgage officer, debt negotiator or any of the many other players.  Real estate is unique because there are no “bit” players.  All players are important and all players have the power to win or lose the game.

Success in real estate is about getting to yes.  Some use a big stick to get to yes.  Life experience however is to the contrary.  A big stick or very big stick or even a super big stick may get you to yes.  There is always a situation when you find your stick is not big enough.  Kindergarten and life experience tell us that cooperation is a better path to success.

The Best Time For Repairs

Fix it now or fix it later what really is the best time to make repairs.  My father always answered now or later questions with  “yes”.  As a kid it was confusing.  As an adult it was enlightening.

In real estate I always ask sellers what are the advantages in either situation.

Me:         What are the advantages to fixing repairs now and what are the advantages in postponing repairs?

Seller:         If I put off the repairs I am holding on to my money for a longer time.

Me:         Really.  Have you considered you are also holding on to your house for a longer time?

Seller:         What?

Me:         Have you considered that your failure to make your house the highest value in the market has prevented it from selling?

Seller:         I have reduced the price several times and I have offered a buyer’s credit for fixing the hot water roof and for carpeting.

Me:         Those are steps in the right direction.  Why haven’t you just made the repairs?

Seller:         I don’t have the money is a real problem.  My daughter’s college tuition is more important than new carpet.

Me:         Is that it?  How much more money would you free up for yourself and her tuition if you sold the house?

Seller:         Oops I see what you are getting at.

Me:         Have you thought that perhaps the buyer will not have any extra money for repairs and fixing things.  The buyer is going to be able to borrow 75-90% of the total cost of the house.  The buyer will sink everything into buying the best and most expensive house possible.  Rarely does a buyer reserve substantial money for repairs.  The buyer is indirectly asking the bank to “fund” the value of the repairs.

Seller:         Are you saying I am cutting off my nose to spite my face?

Me:         What do you think?

Seller:         What if I put down a brown carpet or paint the walls yellow and the buyer wants a white carpet and beige walls.  If I make the wrong decision I have shot myself in the foot.

Me:         Buyers may not love you choices.  Every buyer I have ever met is willing to live with something new and nice even if it is not their perfect choice just so long as they do not have to put out extra money at closing.

Seller:         I am afraid that if I start repairs I will be opening a can of worms that will cost me more time and money than I have.  I think it is smarter to let the buyer take that risk.

Me:         Do you really believe that the buyer is not concerned about the same issues that concern you?

Seller:         I had not thought about it that way.  I just do not have the money or time.

Me:         I see you realize that you and the buyer are in exactly the same boat.

Seller:         I realize that I have to lower the price so the buyer feels comfortable making the repairs.

Me:         If there is any way you can get the money for the repairs it will be greatly to your advantage.  Crème de la crème homes sell for more money and sell faster than homes that need repair.  It is to your benefit to beg, borrow or find the money for the repairs.  If the items are small many stores and repair people will agree to a partial payment and the rest at closing.  This is especially true if you instruct the title company or closing attorney to make the payment directly from the closing proceeds to the contractor.

Seller:         What if I put the costs on my credit card?

Me:         I would do a very careful cost analysis.  An alternative that achieves the same goal at lower cost is to use a credit card issued by the home repair stores.  Many of these cards offer a grace period and have lower interest rates than regular cards.  You can also anticipate some of the repairs and schedule the repairs or purchases around special sales.  For example replacing an air conditioner is much cheaper in the fall than the summer.  Furnaces and hot water heaters are cheaper in the spring than in the middle of January.

Seller:         I am going to talk with my wife tonight.  We are going to figure this out tonight and begin the repairs as soon as possible.

How to Avoid The Square Foot Trap
The square foot trap ensnares countless buyers and sellers every day.  Buyers and sellers caught in the square foot trap rarely escape.  When they do escape they are always severely injured.  The injuries are financial and emotional and often mean the property remains unsold.What is the square foot trap?  The answer is itself a question.  When is a square foot not a square foot?  A square foot is a function of the person doing the measuring and calculations, the community where the property is located, the rules of any of several oversight authorities, and the desired outcome of the calculations.How is something as simple as measuring and calculating length times width be so difficult?  Measuring and calculating square footage is a take off on the accountant’s joke.  The first accountant asks his associate “how much is one plus one”.  The associate says, “What would you like the answer to be”.Before you can calculate a measurement you have to decide what you are going to measure.  This sounds very simple but it is not.  In cold climate communities a general rule is to measure “heated” space.  If Sam Seller has a heated 2- car garage does it make sense to measure the garage as part of the square footage of the house?  Suppose Steve Seller has engine block plug in heaters in his 2-car garage but does not heat the air space of the garage.  Does it make sense to include or exclude the garage in calculating the square footage of the house? Sylvia Seller has a super insulated garage.  It is warmer than the garages of Sam and Steve but it does not have space heaters or engine block heaters.  Is it fair, wise or make any sense to exclude the size of Sylvia’s garage from the square footage calculations?  Do you place the same value on the “heated” garage as on the main dwelling area?The problem flips when applied to hot weather climates.  The general rule is to measure air- conditioned space.  Hot or cold the problem remains the same.  What should be measured and does it make sense to measure or not measure?When is a patio not a patio?  In many places it depends if the patio is “enclosed”.  If the patio is enclosed it is a patio and may be included in a square foot measurement.  Is a screened patio an enclosed patio?  Does the patio get measured if it is roofed but not enclosed?  It depends on local custom in many areas.In many places a ground floor patio is never included as square footage but the very same patio on an upper level is included.  The most common explanation for this duality is that the ground floor is part of the outside yard while the upper level patio is part of the house.  There are many more patio measurement issues.Mother in law apartments raise many questions.  Does the apartment have direct access to the main house?  Is the connection via a corridor that can be closed at one or both ends.  Is access only available through an exterior entrance?  Does the apartment have some physical connection to the main house? Does a converted attached- or unattached- garage qualify?  Can an apartment above a garage ever qualify?  The correct answers depend on what sate or even what town you are in.Basements are another example of the trap.  How high must the ceiling be?  What constitutes finished floors and ceiling?  Does it have to have windows of a certain size and or a minimum number of windows?  Must there be a walk out door?Dueling governmental regulations regularly produce different square foot calculations.  A friend built a house in an unincorporated area.   The county rules and regulations were crafted to encourage certain designs and to prohibit others.  After many years the areas was incorporated into an adjacent town.  The town had its own building code with goals and prohibitions markedly different from the county.  The official square footage of the home grew by almost 225 square feet.  This was good news in terms of future sales but terrible news in terms of taxes.In many densely populated areas space is super expensive and apartments are sold on cubic foot measurements.  Calculating cubic feet geometrically compounds the measurement problems.A friend had a tiny condominium on New York City.  To enlarge the space the sheet rocked “dead” space above some large closets was knocked out and opened up to become enclosed storage.  The tax office increased the condominium’s official size.  The increase in taxes was small compared to the increase in value because of the additional “space”.  The total space did not change but the usable space increased and the value increase significantly.Appraisal professional organizations and many realtor associations have their own suggestions and guidelines as to what should or may be measured and how.  They also allow for the appraiser or realtor to use discretion.In contested divorces each side hires its own appraiser.  Often the square foot calculation is 10-15% apart!  When coupled with widely different comparables the value differences may be huge.The trap of square footage is easy to avoid.  Pay no attention to it.  Leave behind all you know about square footage.  Look at the overall market to determine how the house you like compares to others you have looked at.   If you get lost in the minutia of “finished” basements, “enclosed” patios, “heated” garages, and mother in law apartments, you will not see the forest because of the trees.  You are buying or selling a home, an emotional expression of materials not a mathematical calculation of the materials. The materials constitute a house.  The way the materials are put together and the emotion you bring to the house make a home.

Real Estate Lessons From Your Mom

For many years I believed that I was the only person whose mom imparted life and real estate lessons.  As I got older I learned that every mom has life and real lessons she imparts to her children.  I decided to ask several of the most outstanding realtors in the world what life and real estate lessons their mom imparted.  These are the most popular mom lessons.

Rule Number One:         Where is it written?  This was one of my mom’s favorites and it turns out this was a favorite of several moms.  When I or my realtor friends went running (crying) to mom about a real or imagined injustice or unfairness we all were met with ”Where is it written?” response.

This is a much more thoughtful response than simply noting that life (and real estate) are not fair.  The ”where is it written” response urged us to seek, explore and learn for truth, justice and fairness.

Over time we learned that life is fair when we choose to surround ourselves with people for whom fairness is an important value.  Soon we learned that if we always surround ourselves with people who share the same values, life becomes exactly as we wish it to be.

I am always amazed when sellers and buyers rant and rave over the unfairness of the market or other sellers or buyers.  There is no point in a buyer getting angry or upset that sellers are asking too much or not lowering prices.  If you are a buyer you have choices.  You can “pay up” or you cannot buy.  If you are a seller there is no point in being upset with buyers trying to “steal” your property.  You too have a choice you can sell and get money or continue to own your property.

Because nobody knows what the future will bring the wisdom of your decision is always determined by hindsight.  Hindsight is about time.  If you choose the right timeline hindsight will assure you have made the right decision. Choosing the right timeline is solely within your control.  You cannot make a mistake!

The lesson is you are in control of your life and real estate.  A long- range perspective will correct all short- term errors.  You can make the world exactly as you want it to be.  “Where is it written” is written in your head and heart.

Rule Number Two:         Achieving your goal IS the goal.   People love to beat the other side.  What often happens is that they win a battle and lose a war.  Many realtors reported mom let them learn this turtle and hare lesson the hard way.  They had many short- term battle successes only to find out that they failed to achieve their goal.

Buyers and sellers often both demand winning every battle.  The battles are fought over price, terms, conditions and the extras.  Each side invests huge amounts of emotion, energy and intellect into winning.

If one side “wins” too many battles, the loser fears total defeat.    The only option for the “loser” is to withdraw from the battle in order to live and fight another day.  The result is neither side reaches their goal of selling/buying the property.

Rule Number Three:         Win win is the only way to “win”.  Somewhere deep within our psyche is buried a message that we always have to win.  Perhaps it is a hard wire of our brains from cave man days.

Experience teaches that buyers and sellers usually have much more common ground than disputed ground.  Recognize what is very important to the other side and do everything you can to give them a win.  The law of reciprocity will work to help you achieve what is important to you.

A rule in poker is to “know when to hold them and know when to fold them.”  It is the same in real estate.  Almost every realtor reported that mom imparted a win- win philosophy as a key to life and real estate success.

If you follow mom’s real estate rules you will find your real estate transactions are positive successful experiences.