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Real Estate Book
Almost everyone thinks about going into real estate at some time in their life...but 80% of those who do take their license exam drop out after only six months! Obviously, the public perception of the business differs vastly from the reality. This book will give you a glimpse into the reality...and it is designed to take you from the day you decide to do it, until you have closed a few escrows. A "Printer Friendly" edition of the book, in Adobe Acrobat format, is available through the button on the left.
So You Want to be a Real Estate Agent
or
My Home Has a Yellow Bathroom
Preface
Real Estate schools teach applicants how to pass the state real estate examination – this book is designed to be read between the time you first think of real estate as a potential career and the day you close your fifth escrow.
There is a world of difference between the technical subjects taught in school and the real world of real estate – witness the fact that almost 80 percent of new California real estate agents drop out of real estate within the first six months. Obviously, the business did not mesh with the new agent's expectations. Perhaps this book will soften the blow of some of the real world situations and prepare you to laughingly say "It was just one of the sunken tub syndrome situations" instead of considering quitting. Real estate sales is a tough and demanding profession and a new agent should have realistic expectations. Specific instruction in the wording of sales and listing contracts is not provided because the wording depends on the specific contract your agency uses. Your broker will provide guidance on contracts. This book is designed to assist you for the first 180 days of you new profession – between the day you get your license and the time you have sold enough to be proficient.
Real Estate is more than a job…it is FUN. (Don’t tell everyone!) It can also be very profitable, but you must have the right attitude in order to make money. If you awaken each day with the attitude “I will solve every problem I face today,” you will make money. This is a business of problem solving…each Seller needs to sell a home, and each Buyer needs to buy a house. If you can solve those two problems, and all the minor problems that stand between the two people having their main problem solved, you can make SERIOUS money. If you can just get out of bed and solve problems, some big and some small, every day, without ever thinking about the money, the money will flow automatically. The real estate system is designed to reward problem solvers.
I hope you will find this book both enlightening and entertaining. It was originally written almost 30 years ago when I was just starting, because I knew that many years later I would not remember what I did not initially know. I have updated the book, but kept the information I developed 30 years ago intact. I was a Professor of Computer Science for 14 years, and I know that after a while it is common to assume that beginners know the terminology and at least some of the basics of computers – which is absolutely wrong. Similarly, I know that most real estate books assume you know things that you do not know. How could you?
I have updated the stories to reflect modern prices, only because I can’t imagine that you can relate to luxury custom homes costing $75,000.
Making Money
Making money in real estate requires hard work and the efficient expenditure of time. If you think you are going to make a living selling to your bridge club or your golf partners – forget it!
You must compete with a lot of hard working, ambitious, and talented real estate people already in the field. They are not going to step aside just so you can get started. Real Estate is a zero sum game. If you want business, you have to take it away from someone else, and that someone is not going to let you take food off their plate without a fight.
You are going to have to match your competitors hour for hour, then, in addition, mine your bridge club or golf partners. Some people have a successful "gimmick," but forget that for a few months and concentrate on memorizing the multiple listings for your local area, distributing your business cards to everyone you know, seeing every house for sale in your area and taking all the floor time you can get. There may come a time when you are too busy to take floor time except when necessary, but that time is probably years away.
There are books and books on sales techniques, from knocking on doors (cold knocking), to intimidation techniques, to trying for expiring listings. Whatever is your style, remember that several other people are probably using it in your area and if any one particular style was really successful, then every sales person in the U. S. would be using it. You are going to have to select methods that suit your personality and that of the area in which you are working – then you must execute that method better than the sales agents already using that same technique. (If enough "cold knockers" are parading through your farm area to aggravate the neighbors, or if your area is one that wouldn't appreciate that technique, then pick another approach.)
In highly competitive areas, each of the sales techniques is in operation by someone all of the time. In this environment, the only difference will be who is willing to work harder, or smarter. If you are not prepared to compete, you should pick a less competitive profession. As in most professions, 20% of the people do 80% of the business. You want to be one of those 20%. You will not immediately start in the top 20%, but you can get there if you “plan your work and work your plan.”
You would be well served by writing a small business plan, because you are going to go into business for yourself. A business plan is sold to people as a means of providing a design for venture capitalists, but I have taught business plans at a university and I can tell you that the main advantage is in codifying your own thoughts.
A business plan requires that you sit down and place on paper your identification of: · Your methods to differentiate yourself in the marketplace · Your competitors – their numbers and skills · The business climate of the community and of the real estate segment of that community · Your financial investment needed to start the business · Your expectations in developing income · Your strengths and weaknesses
In the beginning, prepare yourself thoroughly by knowing, really knowing, the neighborhood you are working. If you don't know the inventory of all the homes for sale, the prices of all homes sold over the past six months, the zoning laws and local CC&Rs, and the local lending rates – then you are not prepared.
Get Prepared! Then you can list and sell professionally, not before. It takes a while to be able to associate model names with floor plans, square footage, lot sizes, replacement cost per square foot, and a thousand other major and minor statistics.
You have heard that real estate is the most lucrative hard work, and the least lucrative easy work around. This is a basic truth. There is so much competition that you must really work if you intend to be successful. If there was a successful gimmick to replace hard work then it would be useless because everyone would be using it. After you become well established and have repeat and referral business – three or four years – then you can slack off a little bit, to 65 hours a week!
Be prepared to out-study , outguess, and outwork your competition. So few people are really willing to work hard that you won't have much competition. It is the laziest people who drop out of real estate in the first few months when they recognize that it is hard, hard work.
You will have to manage your finances well in real estate. Your first check will probably be several months in coming, and there will be fits and spurts of money followed by drought. Jean and I have sold three homes and listed two in a 10 day period, followed by five weeks when we couldn’t buy a nibble. Real estate is highly cyclic, and no one can guess when the Buyers or Sellers will be abundant or scarce. It is fairly predictable that summer months will be better than winter months, but Buyers need to buy, and Sellers need to sell at any time of the year – and at any time of the day. Don't try to schedule your vacation in July!
Nothing is so chancy as money from a real estate transaction. As difficult as a transaction is to get into escrow, it is sometimes equally difficult to keep many of them in escrow.
You are going to lose some small percentage of sales even after escrow has opened. Some you will lose quickly, before you obligate the money you expect to gain – others you will lose the day before escrow is to close. Every one that falls out of escrow – early or late – for any reason – good or bad – is going to hurt. Some will be credit problems; some will be changes of mind; some will be personal, such as divorce or death, or layoffs and firings.
"Buyers Remorse," a constant sales problem, takes a great toll at this time. "Buyers Remorse" is a real estate term for the normal reaction most Buyers have the morning after they have bought a home. It can best be described as a "What have we done?" discussion punctuated with one or more of the following points:
1. We spent more than we said we could afford.
2. We are going to miss our old neighbors, and just think of all the work we have done on this house.
3. Our children will miss their friends and at their age that is important.
Etc.
They just may drop out of escrow.
One of our biggest disappointments in our first year was just such an escrow fallout.
Jean and I were in a slump and had not made a sale in almost two months, and although some of our listings had been sold by other agents, we wondered what we were doing wrong.
Suddenly, out of the blue and into our office dropped THE QUALIFIED BUYER.
Driving an out-of-state, expensive, late-model car, he came.
Distilled, the conversation was:
"This is a really beautiful area. I'm going back to Minnesota in two days, having wintered over here in San Diego for the past three months. I need a home, and quickly – something around $650,000. Here is my checkbook – you will notice my checking account is over $800,000 – I can transfer more from savings accounts if I need it. Show us some homes."
I thought I'd died and gone to heaven.
Well, with only 48 hours to complete a transaction we started showing him homes. On Saturday evening he made an offer on a lovely $635,000 home, which, because of the amount he could deposit into escrow within a few days, and the fact he did not have to sell his home to purchase the new home, I secured for $626,000. The negotiations took four meetings and several hours of discussions. Finally, the deal was signed on Sunday afternoon and the Seller immediately purchased another home – literally within hours.
Nine A.M. the next morning, it fell out of escrow.
During our driving around the area my client had spotted a neighboring home that he was intrigued with. We told him that it was owned by a real estate agent who had just purchased it, but we expected it to come on the market in a couple of years. On his own that evening the client approached the owner and completed the deal as we opened escrow.
My Buyer had dealt in good faith, but he really liked the other home better than the one he had agreed to buy through me. He was willing to forfeit his substantial initial down payment ($15,000) to the Seller rather than have to buy his second choice home when the first choice was available.
Jean and I, and the listing agent, all signed over the entire forfeited amount to the Seller in payment for his inconvenience, so no real estate agent received a dime for the many hours of work. The only possible worse case would have been to have it fall out an hour before the close of escrow.
(We learned the hard way that if a potential Buyer remarks that he likes a certain home – go knock on the door. You may get both a listing and a sale commission!)
In a celebrated local case a "wealthy" woman breezed into town and "purchased" four lovely expensive homes in a single day. As a result, the Sellers promptly purchased replacement homes – whose Sellers probably did likewise.
Within a few days everything fell through. The "wealthy" woman was a flake whose rubberized checks and notes were bouncing off half a dozen banks.
Be prepared to lose a few transactions in escrow. We once lost four escrows in two weeks amounting to $1.5 million in sales price. That is unusual, but it can happen. Just hope it doesn't happen often.
The message: Don't obligate your commission money until escrow closes!
Salesmanship
Salesmanship, and most books on the subject, are phony in today's sophisticated society. Most Buyers today are far too knowledgeable, much too informed, to be sold anything. Sales techniques may well work for some people, at some times, in some geographic areas; however, modern media has made the average Buyer so informed, and so skeptical, as to minimize the effectiveness of stereotypical sale techniques. The fast-talking snake oil salesman of the past is gone. Honest presentation of your product in a businesslike manner is the most successful sales technique. Give it to them straight – if the product is worth the asking price, it will sell. Not to everyone, but to the right one – and your job is to find the right one.
You are the only one who must be “sold” to your potential clients. There are excellent books on sales that will help you sell yourself to your client, because if the Buyer sees the perfect house he will buy – but not necessarily through you. The first and most important sales job is to convince the fresh potential Buyer or Seller that of all the sales agents in the area you are the best informed, most ethical, and easiest to work with. It is that “easiest to work with” that is crucial, because either a Buyer or Seller is going to see a LOT of their agent if the agent is any good.
The typical home Buyer today thinks he or she knows what they want (more on this later) and what they really need is not a "salesman" but rather a combination tour guide and order taker.
If you haven't sold yourself to them, they are free to choose someone else… and probably will.
There are times when the frustrations fall from your shoulders like a silk shawl. These are the times you live for, when you do some good deed that simply rewards you for years.
I was in the office late one afternoon, when a man came in. He was in his 30s, large build and short hair…my guess, Marine.
He said, I am not looking for a home quite yet, because I
am still in the military – I am a Dentist in the Navy – but someday I want to
live in Hidden Meadows. It will probably be several years. We talked for a few minutes, and when it appeared he was ready to leave, I said, “On your way out, drive by this listing we just took in the office. It might strike you.”
I was looking for someone just like him for this home. The home was the first home in a neighborhood that had been developed into gracious million dollar homes…but this home was a simple A-Frame. It occupied a prime location with an ocean view, some 20 miles away! The home had been built as a weekend home by a couple many years before, and the home had become their home in their old age., but the stairs were too much for their 95 years.
The home needed someone with little money, but large potential for future income. A Navy Dentist coming up on retirement certainly filled that bill.
It took just 10 minutes for the Dentist to return. He burst in and said, “I have to see that home!”
We showed him and his wife the home, which, six year ago was listed at $265,000. That was more than the Dentist could afford, but he made a low offer…about as much as he could afford. Meanwhile, it was obvious that higher offers were being considered by the elderly couple.
The Dentist and his wife would park at night close to the home and simply admire the home in the moonlight as it towered over nearby luxury homes. One night the elderly couple saw them sitting down the street, recognized them from earlier tours of the home, and invited them in for coffee.
As the days went by, the elderly couple juggled offers much higher, but one day they came into the office and said, “How much can that young officer really afford?”
I said that $220,000 would extend them to their limit. The couple looked at each other, and the wife said, “Our price is $216,000.”
I was stunned, and the young Dentist was equally stunned…but he placed his home on the market immediately and put a new loan for the A-Frame into place.
The Buyers and Sellers became good friends during the transaction, with each making accommodations to keep matters moving.
After the escrow closed, the couples kept in close touch until the death of the older couple.
Today, the Dentist and his family live in the A-Frame, as he continues to deploy on ships. In the intervening six year they have made the plans necessary to improve the property to the standards of the neighborhood when he retires. He and his family talk constantly of their fortune in securing a home in a fine neighborhood for such a small cost, and one that he can extend within his future cash-flow without ever over-building his neighborhood.
An agent can get many years of satisfaction from being involved in something like this…a real win-win situation.
Knowing Buyers
"All Buyers are liars and knaves" is the first thing an old real estate broker told me. It is a commonly-heard phrase in real estate. A little experience showed me that it wasn't true – but experience did show me that Buyers either don't know what they really want, or won't admit what they want.
One of our first prospects is a good example. She and her family lived only a block from us and she called my wife.
"Jean, George and I have had it. Our house is too big, an acre of ground is too much, there are not enough trees, and I want a pool. George has spent months remodeling and I hardly see him without a hammer in his hand. Find me a smaller house on a half acre with a pool and a small avocado grove," she asked.
In our small area, only one home met her specifications and over the next few weeks she must have visited that empty home fifteen times. She finally bought – but not the home we showed her. From another agent she bought a larger home than the one she owned, on more land. It had no pool, no grove – and it required a massive amount of work.
Liar? Knave? Certainly not! Just another Buyer who didn't really know, or admit, what she wanted to buy. Someone else showed her what she wanted to buy – either by luck or by design.
Within a week of this episode my wife was talking with another neighbor who had been looking for a small home in a neighboring subdivision.
"Sue," my wife said, "Have you seen the Capricorn model on Gusta Court?"
"Oh, yes," Sue replied, "and I didn't like it at all! The style just wasn't right."
Sue bought from another agent – a Capricorn model located a few blocks from the first one.
Liar? Knave? Certainly not! Just another example. My wife and I have learned to show prospects almost every home in the inventory that even vaguely resembles what the prospect says they want. Then we show them homes far removed from what they say they want.
When I was thinking of going into real estate sales, one of my friends told me "What I really hate about real estate agents is that when I want a three bedroom for $350,000, they show me five bedrooms for $420,000."
I know why!
The Sunken Tub Syndrome
Do you think Buyers buy homes based on number of bedrooms, baths and total cost?
It seems Buyers buy homes not to fit the size of their family, but to house their dining room set! Or for the sunken tub. No one ever said Buyers were smart, but they are the ones with the money and they get to set the rules.
People literally pay $20,000 to $35,000 more for a home that is large enough to have a separate dining room to house the $3,500 Drexel set they bought ten years ago. Of course such a home is characteristically 15 minutes more remote from work, so a place to house the dining room set costs many thousands more than the set is worth, and requires each worker in the family to spend an additional 30 minutes commuting each day. Common sense would dictate that the Buyer would be money and time ahead to make the piece into firewood, but in no case is this going to happen. I could understand it if the dining room set was a family antique dating back to the Mayflower, but that is usually not the case. Hemphill's Rule of Furniture: If it isn't at least three generations in the family, it is called "KINDLING!")
Then there are dogs. It is absolutely amazing how many homes are purchased for dogs. "I love the home but it doesn't have a big enough yard for Poopsie." Poopsie gets three votes on everything, while the Buyers get one vote each. My problem is that I have raised and shown Boxers, and I have never heard a dog vote on anything! I have never heard a dog declare that a yard is too small.
Sunken tubs are the sort of things that women don't tell their agent. They probably don't tell their husbands, and perhaps not even themselves. When the sensuous minded woman sees the sunken tub that meets her fantasies; then bedrooms, size, cost, view…nothing else matters.
Such sensuous-minded women come in all ages, all shapes, all income levels. The only thing they have in common is their inability, or unwillingness, to discuss their deep inner need for a sunken tub, or a bathroom garden, or a mirrored ceiling or something of the sort.
The sales agent is at a disadvantage in that there is no way of knowing in advance which Buyers suffer from the "sunken tub syndrome," or "dog syndrome" any other syndrome.
After the house has been shown, the syndrome becomes obvious.
There are many "turn-ons" for women, aside from sunken tubs. These "turn-ons" should be stressed – before you show the home, during the showing of the home, and after the showing of the home: fireplace, atriums, special appliances such as indoor charcoal grills, central vacuums, walk-in closets and convenience cabinets, and garage storage.
If you sell the wife, the husband will usually fall in line.
Showing Homes
Recognizing that most Buyers really don't know what they want, be prepared to show them everything that fits their stated wants, plus an assortment of other homes. Don't get caught in the square footage constraint – show homes several hundred feet greater and smaller because design can make up for fewer square feet or diminish the usefulness of more square feet.
A home one foot wide and two thousand feet long has a legal description of two thousand square feet but you can't place a stick of furniture in that two thousand square foot home.
For heavens sake don't take your prospective Buyer from room to room saying "this is the living room, this is the hall..." They can see that! Do tell about the extras that are not immediately evident – the air conditioning, the sewer connection, the cable TV, dual pane windows, the easement for horses, the available membership in the community pool.
Try to condition your Buyers to the fact that there are only three items with which they must be satisfied: the land, the neighborhood and, to a lesser extent, the floor plan – and even the floor can be changed with enough money. It is a regrettable fact that most Buyers have a combination of a reluctance to spend money to fix up a home they have just bought and an inability to picture what changes can be made.
It is also a fact that sales are lost daily because a prospective Buyer did not like the color of a room – a color that could be changed in an hour at an expense of $14.95, both of which a sales agent would be happy to provide. Most people buy at the limit of their ability to pay, and have little left over for remodeling. Remodeling money can't be amortized over 30 years either, it is an out of pocket expense, so it is doubly difficult to rationalize.
The inexpensive changes, requiring only that the prospective Buyer have the ability to visualize a change of color, a change of drapes, a new light fixture, are frustrating to the sales agent.
Rationally, the most important item to the prospective Buyer is the land. If the Buyer is happy with the neighborhood and the lot, the rest can be changed. If you want a view and don't have one, then no amount of money will change that – so location is all important. The floor plan is the next most expensive to change, so it is next in importance. Finally, the color of a bathroom is of ZERO importance – but it will queer more transactions for you than you will ever finalize. Accept this fact with calm resignation. There are some things you cannot change.
Other than the usual legitimate Buyers there are some others you will meet:
The story is told that some years ago a local real estate agent went to the home of a local dowager and appraised her home at $90,000. The lady replied "Oh heavens, I only paid $255,000 and I could never ask more than $265,000!"
The real estate agent wrote her a check.
Buy Low, Sell High
Everyone wants to do it – obviously not everyone can. For everyone that buys low, someone must sell low.
Most people are subjective Buyers, and even more subjective Sellers. It is the subjective Seller that causes most of the problem. They want to sell their home for $10,000 more than its true market value and buy the new home for $10,000 under the true market value. (Real estate agents amplify the problem by accepting the listing of the old home above the market value, and, in some cases, actually encourage this practice. See the chapter Ethics – Bidding for Listings).
Of course, with their home listed so far above the market, the Buyer is in no position to purchase a new home since his home is not a good candidate for sale. When everything eventually evens out the Buyer only gets offered the real market value of his home about $10,000 less than he expected, and the home he hopes to purchase will cost him market value – about $10,000 more than he expected. The market worked properly twice, but the subjective Seller feels victimized, and probably will blame the real estate agent.
The Subjective Seller is a study worthy of a whole book. Almost every homeowner thinks his home is the most desirable home on the block – that's why he lives there, and it has the style to suit his particular taste.
"The Barnyards down the street got $561,000 for their home and it’s not nearly as nice as ours. Ours had pink tile on the counters and a yellow bathroom. They only had a swimming pool, corrals, tennis courts and a gazebo."
A real estate agent hears this sort of subjective drivel every week as he seeks listings. Obviously, people who have yellow bathrooms instead of a tennis court prefer it that way, and value their choice higher.
The first listing my wife and I went to take was from a neighbor who we knew was going to be a problem because we knew him to be highly subjective. We appraised his home to be worth about $475,000, but knew the number he had in mind was probably a good deal higher. Since it was to be our first listing, we offered, before discussing price, to pay out of our own pockets for an outside appraiser to appraise the home and at least set the ball park for the listing price. I gave him a figure of $473,000. When I told the potential Seller he turned ashen and said,
"I was thinking more in terms of $595,000."
Well, we live in that area and have a civic reputation to protect, so we could ill afford to take a listing we could not honestly represent. I explained that we could list the property for no more than $495,000.
The potential Seller was adamant that he could get an agent to list his home at the $595,000 figure, but he might be willing to list at $550,000.
I told him that if he signed a listing with another agent for $550,000 to please remember me when the listing expired without having been sold, and the other agent asked him to re‑list below $500,000.
Subsequently, the home did not sell and the other agent asked the Seller to re-list below $500,000. The Seller listed with me for $495,000, after the home had sat without being shown during the peak selling period. We sold the home for $474,500.
At some time during the listing discussion a potential Seller must be told that he does not set the selling price – the market does. The higher the home is listed over its objective market value, the fewer agents will work the home, the less the traffic, and the less the chance of a sale.
It may be difficult to talk this way to a potential Seller, but it is a must. Listings must be taken no more than 10 percent above the market, and preferably 5 percent. It may be difficult because some real estate agents are the problem as they bid for listings – "Smith Realty says they can get $465,000 for your home? Why that's almost criminal! I can get you $500,000 if you just list with me."
That listing agent is part of the problem, not part of the solution. No agent has any more impact on the value of a home than does the desire of a Seller – each has zero impact. The market is the market and responds to its own circadian rhythm, not to the hopes of Realtors or the needs of Sellers. A house is worth what a willing Buyer is willing to pay for it, and not a dime more. The Buyer does not know, or care, what the Seller “needs to get out of the sale.”
Every agent has had a Seller say those magic words many times: “I need to get x from this sale because (I want to buy a more expensive home)(I want to start a new business)(My son needs an operation) etc.”
Buyers do not care!!!!! They know they can buy a similar home down the street or in another neighborhood for $X less – and that is what sets the price of a home.
Accuracy
Accuracy is most important when dealing in real estate. Rooms must be measured – don't use anyone's measurements, including the builder’s. If your listing copy says the bathroom wall is marble and it is a plastic imitation, then you must be prepared for a court of law to direct you to stand the cost of replacing the imitation with real. Real estate agents who have listed hardwood floors under carpeting only to find that the wood is plywood sub-flooring have had to install hardwood at their own expense. There is a difference between continuous cleaning ovens and self‑cleaning ovens. If you make a mistake, you will learn when you have to buy one for a client.
Several times I have had the opportunity to accept a listing another agent has lost, and in most cases I have found errors in the previous listing. In one case every room dimension was wrong.
BE ACCURATE. It will save you a LOT of money.
Shopping For An Office
Some people enter real estate schools already knowing for whom they will work, but probably most will not. The rapid turnover of people in real estate, and the number of real estate people who change offices regularly, indicates some discussion of the subject is vital. No single subject can cause you as much frustration, or as much pleasure as the selection of an office. Offices are VERY DIFFICULT, because they can make your life a pleasure or a pain.
All offices look great on first inspection. The office manager is always a pussy-cat, the computers are all up to date, and the agents are all smiles. It isn’t true. Most office managers are tyrants when under pressure – this is a business, after all – and most agents are smiling because putting on a positive face is normal behavior for a salesperson.
Geographical differences aside, different areas have real differences because of the competitive situations in that area. In Southern California, where competition is fierce and the number of real estate agents is large, it is particularly important to be selective of your office. You can leave anytime you want, but continuous “shopping for an office” will give you a bad reputation, so try to get it right the first time.
No office can be all things to all people – but most offices offer something of value. Almost everyone wants a small intimate office that has a great volume of sales, cooperation between the sales force, harmony with the broker, a good training program, a great local corporate reputation, and a good percentage break of the sales and listings.
There ain't no such place! Once you accept that fact, you can prioritize your desires and add some less important but significant minor subjects – such as good computer equipment, training, floor time, availability of broker for advice, etc.
Let's look at the "mutually exclusives." If you have a small intimate office, it will probably not have a great volume of sales but it may have cooperation between the sales force. If there is a great volume of sales, the broker will expand the sales force to gain market share, which will dilute the amount sold per salesperson and increase the competition for the available sales, which will decrease the cooperation between the salespersons. Franchise offices have a big plus in nationwide referral service, but they pay a premium for that.
If you are patient and reasonably confident of your ability, then go with a small independent firm and be prepared for a low key, high quality sales career that will blossom slowly into good money and self esteem. There is usually no formalized training program, so you must depend upon the willingness of the Broker to help you. Promises made by Brokers while courting a new agent should be accorded as much value as a fraternity man’s vows to the date in the back seat of his car.
Bigness does not necessarily imply badness, but small firms can be more selective and can more carefully supervise their agents. That does not mean they will. Obviously, a big firm can, if it applies itself diligently, match or exceed the selectivity of supervision of a small firm that does not care.
If you are impatient, want instant money, are willing to accept high pressure tactics on your psyche, and are willing to transmit that high pressure to your clients, then join a large franchised sales organization. If it is a real high pressure office it is best for you to join one of these outside the area in which you reside, and for the sake of your reputation, tell your neighbors that you are a traveling salesman for a steel girder manufacturer. (Don't select a manufacturer of any product that your neighbors will want to see your samples. Steel girders work well.)
Interoffice competition and ethics are more important than almost any other single item. Don't think you can remain above petty rivalry, bickering and backbiting – you can't with total impunity. Your telephone messages will get "lost," drop-in customers will be told that you are "out of town" when you have gone shopping in a nearby suburb. No one actually lies, but the truth is awfully elastic in this business, and the rumor that many in our business are rejected used car salespersons is too near the truth.
One broker moved his office from a farther locale to an area closer to where he lives and sells. A prospective customer in conversation with a competing office was told, "Oh, haven't you heard? The Joneses have moved away from Farsville." The customer was left with the impression that the office had left the entire area, not moved closer. The Seller listed with the competitor, and only days later learned the truth. He was angry, but locked into a 90-day listing contract!
One way to judge an office is to inquire as to the length of time the individuals in the sales force have been with that one agency. Happy campers stay put.
Interpretation of that figure is less than fully scientific, but you should determine if the reason for the turnover is good or bad. It could be a change in the manager, a new quota of contracts or sales or any number of things. At least in Southern California, real estate agents are really independent agents and the successful ones can, and do, move for any reason. Or, I suppose, for no reason at all.
The successful real estate people I know have one thing in common and that is an innate competitive spirit, and a concomitant lack of loyalty to any particular agency. I think this is good. The sales agent is free to move from firm to firm as he or she sees opportunity or reacts to adverse conditions. The beginning sales agent must seriously study all aspects of the issue before determining what situation is best for them. No agency is all sweetness and light, but there are those that will either maximize your objectives or minimize your concerns.
Ethics
The ethical standards of the real estate profession are probably little different from most other professions, and, like most other professions, the ethics are (generally) improving.
Ethics are the honesty of your dealings with other people, and have nothing to do with law, per se. The law requires you to tell the truth. Ethics requires the whole truth and nothing but the truth. Ethics requires that you divulge all of the knowledge you have on the subject even if it will kill your sale. It does not require you to substitute your judgment for that of your Buyer – if he wants a home next to a meat packing plant, it is not required that you try to dissuade him. Ethics do require that you point out to him that the plant next to his home is a meat packing plant and not just "an industrial site."
If you are not prepared to act ethically, in spite of the unethical practices perpetrated upon you, then you become part of the problem and not part of the solution. The real estate profession is working hard to upgrade the ethics and knowledge of the profession and it needs your assistance.
Real estate is a complex field requiring a knowledge of investments, sales, contracts, marketing, residential construction, zoning, public relations, law, taxes – and more. If you are prepared to become a professional then you will slide through your career in just a few months, never having known what real estate is all about.
The knowledgeable, sophisticated buying public must bear some of the responsibility for problems related to ethics and competence levels in the real estate industry.
Never, not once, has a Buyer come into my office and demanded of me, or of my sales forces, evidence that we know the first thing about real estate. The Buyers seem awed by the fact that each California real estate person has a "license" from the state. Even though I deal in California estates worth a king’s ransom, no one has ever said to me "Who are you and what makes you think that you are competent to sell me an estate. Give me a list of the last five people to whom you sold homes in this area, and after I have checked you out I may give you my business."
No, typically the Buyer comes in quietly and says, “I need a house. What have you got?" and they accept without question whomever is sitting in the office at that time. Certainly some leave pleasantly after some time and do not return to that salesperson but rather go to some other office – but I have never heard of anyone's qualifications being questioned up front.
You wouldn't go into a stock broker’s office and dump half a million on the first brokers desk without first determining whether that broker knew a put from a call. At least I don't think you would. But you and I have bought real estate from people about whom we knew, and, to this day, know nothing.
Farming Your Friends
With the average California family moving about every 5 years, it is true that one of every third person you know is considering selling or buying.
But the question is – why should they list or buy through you? Everyone knows several people in real estate, so why choose you?
If you were going to enter into a $500,000 business transaction, and many residences cost that and more, would you go to your close friend who just got her license last week? Or would you select an acquaintance with whom you have never had time to socialize, but who has a reputation for knowledge of the business, hard work, business‑like procedures, and honesty? If you have half a brain, you will go to the proven professional rather than a friend – and so will your friends.
You can expect to prove yourself first with strangers who do not know of your inexperience.
No intelligent investor wants you to learn the business on them! If they ask, admit, but if you don’t act unprofessionally, they won't ask. Confidence is the key, and confidence comes with knowledge of the market and the people who populate your market area. If you get your license on one day and go to work the next, without immersing yourself in the available listings, recent sales, mortgage rates and local zoning laws, you will appear to be inexperienced. More importantly, you will be nervous because you will know that you are unprepared. Confidence is the end result of solid preparation.
To avoid confidence problems, start in a market that you are familiar with. In tennis the teaching pros say "Don't hit a shot you don't own." The same is true in real estate. If you are starting in real estate from a background as a middle-class housewife, then sell middle-class houses – not commercial investments or low rent apartments. If you are unfamiliar with or uncomfortable with rich people or with middle class people then don't try to start there. Select an area and a clientele with whom you are normally comfortable.
Age Of Home
It is possible to make a general correlation between age and home condition and expected expenditures. Let's just take a look at my perspective and compare it to your own observations.
New homes in subdivisions all age gracefully, or deteriorate at approximately the same rate – so subdivisions tend to go up and down together. In some custom home areas, there are homes of many different ages and usually the older homes will try to stay modern so as to stay competitive with the newer homes.
0-6 YEARS: New homes require the most immediate cash and hard work, but give the most return on investment. New homes characteristically require drapes, possibly carpeting, and lots and lots of landscaping. New home developments have a lot of mud in the streets as new lawns are planted and tiny plants are dug into the ground. Since the plants mature in about five years, that is when the hard work and the maximum appreciation takes place. All the appliances still appear new and the carpeting looks very serviceable.
6-13 YEARS: The makeup of the neighborhood starts to change during this period, as families begin to sell. The neighborhood may be getting a bit seedy toward the end of this period – particularly if the neighborhood shows a character shift and if all the homes are the same age. Appliances are serviceable but probably not in keeping with newer styles.
14 - 20 YEARS: Major remodeling – or at least major redecorating – is probably necessary. Appliances not changed out before must now be done, along with some plumbing changes and perhaps structural changes as well. Roofs need to be watched, and windows need to be replaced. Landscaping is so mature and the neighborhood so stable that if these two items please you then the remodeling may be a worthwhile project.
Find A Flexible Lender
The old saw about banks lending only to people who can prove they don’t need the money is absolutely true.
Some lenders are simply more accommodating than others. Some have a cardboard profile so rigid that a couple must fit it perfectly in order to get a loan…the man must be 35-47, stand 6’ tall, wear horn-rim glasses…
We had a very successful couple who wanted to own a gated home.
We found a magnificent home for sale for $850,000 and it just happened that the four homes the Buyer wanted to trade were worth the same $850,000 gross value.
No Problem, right?
Wrong!
The bank said that a couple making $200,00 could not afford the mortgage on an $850,000 home. We pointed out that for four years the couple had carried a total of four mortgages on homes whose value was $850,000 – and, in fact, after the transaction was completed the young couple would only have a payment of $4,000 a month on a home loan while because of a second trust deed, they had been paying $7,000 a month for years.
The lending institutions kept replying: "But their income times our normal multiple says they can only afford a $500,000 home.”
Finally, the deadlock was broken by the Seller, who was a very wealthy, retired developer and who, having had similar problems with lending institutions, carried enough paper to put the deal together. Then he leased the home back to himself until he could build a new home, and he is paying part of his monthly rent directly to the bank that has always held the mortgage so they didn't know yet that the home has been sold. They soon found out, when the entire transaction was refinanced, and they lost the income from a nice loan. The most frustration that occurs to Realtors comes when things happen over which you have no control – and there are many things that are simply beyond your control.
Usually, everyone concerned in the transaction has an economic benefit in making certain that the transaction runs smoothly and quickly, but there are people who are less than profit driven and people who are preoccupied with their own problems, and institutions with their own circadian rhythm…and that rhythm is slow.
My own bete noire is financial institutions. They are either huge, with millions of customers and no interesting any particular one, or they are nameless and faceless and do not care if you ever do another transaction with them so they are immune to pressure.
Real estate people have a certain amount of control over escrow offices, and title companies, and even home inspectors. Realtors cannot control the inner workings and hidden mechanisms, or the opinions of any of these – but these people seem to be responsive to a call simply because Realtors can elect to use, or not use, their services.
Financial institutions are remote, answer only to the Buyer…and seldom do that. They could care less if the transaction closes on time – they know the Buyer is locked into the transaction with them once the Buyer has filled out tons of paperwork and is satisfied with the loan specifics. A day or two, or a week or two, one way or another is of no particular consequence to a lending institution.
The fact that there may be several homes involved in a domino effect, and there are many people with moving vans scheduled, will not sway them from their paperwork mill…which has not quite finished their appraisal/approval/funding process.
And there isn’t a damn thing you can do about it, except try to placate the people who have a job transfer to Europe and whose moving vans are in front of their home! They do not, cannot, and will not understand that some financial institution three homes removed from their transaction has not yet funded, so those people cannot close on their house so the Buyers of that house cannot close on another house, so their Sellers cannot be the Buyers for the people with the moving van in their driveway.
There is a special place in hell for lending institutions, but since most people select their own financial agent and it is some institution with which they have had a relationship for years, Realtors are out of the picture. We usually do not know the lenders involved, and we are usually brought in by a Buyer only at the last second when the loan is not funding on time…usually three or four days remaining before the scheduled closing.
Escrow offices, title reps, Realtors, home inspectors…they will all work nights and weekends to push a problem through the needle just to solve a problem.
Just try to get Megabank, Inc. to stay five minutes past scheduled closing, and see how successful you are!
Selecting Escrow/Title Companies
You may have the option of selecting the escrow company and/or title insurance company. I say may because the other agent in your negotiation may make a demand on the subject, or your company may have an escrow company as part of its corporation.
In Southern California it is not uncommon for the listing agent to specify, usually in the listing, which company will be used. The listing may say, for example, "Escrow to be with the Brown Escrow Company." Rather than argue, the selling agent will usually go along. The reason a listing agent will specify is usually that Brown Escrow is part of the listing office company. However, BOTH escrow and title companies are negotiable, and if you are adamant – either as listing or selling agent – then you may be able to have your way.
All escrow and title companies are NOT created equal. They are not even close, and experience will show you which ones are great and which ones are lousy. Start with one that a friendly agent in your office recommends, or go with one of the big corporations until you get a feel.
Some escrow companies are prompt, exact, and react quickly to changes. Others don't return phone calls, do not have a complete package ready for signing, and take forever to amend escrow instructions.
Some title companies prepare property profiles for your potential listings and react quickly to your requests. Other title companies react slowly.
Your Broker may permit you wide latitude in your selection ‑ in which case you may find a good title company and stay with them, or spread the work around. My own preference is to stay with a good one, with an occasional trial of others just to test their reaction time and to keep your usual escrow or title company on their toes.
Any thought that a representative of an escrow or title company will throw business your way is misplaced confidence. And any business you give to one of the representatives because of a short skirt, a lunch, or a pack of candy mints per week is equally misplaced. (I am comfortable with companies that provide business benefits – weekly lists of mortgage rates, hand delivery of forms etc. – that's business. Anyone who helps your business deserves your business!)
My experience with escrow companies that have a corporate tie with real estate firms has been variable, ranging from terrible to barely unsatisfactory. They have a captive business and therefore are generally less responsive and more surly than those who must compete in the open market.
I realize that it is possible to be owned by one of the representative real estate companies and still be independent, but my experience is to the contrary. It is also my personal experience that, having a captive market, real estate subsidiary escrow companies are not as responsive as independent shops.
In a listing, the term "Stay with related services" is supposed to mean that the Seller of the home wishes you to escrow with an escrow company that is related to the Seller's real estate company.
Don' t do it!
Both Buyer and Seller pay the escrow fees equally and each side has as much right to name the escrow company as the other. Real estate firms that have subsidiary escrow companies require their agents to fight hard for the subsidiary escrow company, but I believe that in the interest of all parties a true independent escrow is desirable.
If you are representing the Buyer's offer in negotiation to abandon the independent escrow company you asked for in exchange for the Seller's representative abandoning the subsidiary company, then offer to let the Seller select any other company. Actually, the Seller usually doesn't give a damn one way or the other, he just takes the advice of his listing agent.
If you are going to work for a real estate company that requires the use of a subsidiary escrow company, you will have to square that with your conscience.
Mechanics – Listing
'"Listings are the life blood of Real Estate" the old saying goes, and I suppose it is the truth. There are a lot of agents who do nothing but list – it is easier, faster, and you can make money while you are on vacation if someone sells your listing for you.
Of course, SOMEONE must also sell, or the listing agent does not make money. Selling is harder, it takes longer, but you can take a sale to the bank – you directly control the paycheck. You can have 10 listings and have no money coming in – if someone else doesn't sell them for you. One sale by you and the money comes in – whether you sell your own or another person's listing. Real estate offices like listing better than sales because it gets the office logo into another public place and gives the impression of activity. The impression of activity generates actual activity.
The listing agent should be prepared prior to going over to someone's home to take a listing. Usually your first listing will come from an acquaintance, so it pays to be prepared. If your state assesses property based on market value, and if there is a fairly recent assessment then take this number into consideration. In California we have abandoned that basis for assessment and have gone to the last listed sale for evaluation, with a set % increase per year.
Then check recent sales for comparable homes in the area by checking the tables provided by your local Board of Realtors. Finally, from the same source, check and see what is currently being asked for comparable homes. Weigh these three numbers with the current cost of replacing the home, which you can determine by the current cost of raw land in the area plus the cost per square foot being asked by local contractors.
In most cases you will only have a couple of these numbers available so as you give weight to the information. Remember:
With these numbers in mind, notice the condition of the home as you enter. You are not only there to list the home, but to try to get the listing at a reasonable and salable price. Your first impressions are likely to be a prospective Buyers first impression.
Don’t fall in love with the home! Try to be dispassionate and realistic.
You must patiently explain that while your Seller is just wild for pink tile, black ceilings, orange drapes and cement floors, the market just isn't ready for it.
Try, really try, to get a reasonably-priced listing so that you can get the house sold. If you can, refuse to take any listing you can't honestly represent, but if the competitive pressure is too great, take the listing! You have already given the Seller your best advice, which will prepare him for low offers or no offers at all. As time goes on, you are on record with the reasonable price and perhaps you can get the Seller to lower the price. No listing is easy to sell. If it was easy to sell houses there would be no need for the real estate profession.
Your job, as an Agent, is to represent the listing AT THE LISTED PRICE. You are an agent of the Seller and if you can't honestly represent the price then don't list the home. Don’t take a listing so overpriced that you must apologize for the price. Don't start your real estate career by cheating your first client.
Quote the owners a reasonable figure, or a range of prices, and advise the owners of methods to best display their home for sale. Tell your Seller that you recommend an X price for a sale in 90 days, and Y if the home must be sold immediately. Ask them to quickly make needed repairs, paint, wash walls and windows, and get the lawn ready. Money expended will not necessarily be returned by a higher price, but it will make a distinct difference on how long it takes to sell any given home – or if it will sell at all. First impressions are lasting, so be very critical and point out in the nicest way those areas that need attention. Paint is cheap, and soap even cheaper. The bedroom door where young Johnny carved his name has been seen by the family for so long that they no longer really “see it,” but a prospective Buyer will.
A prospective Buyer will not think it nearly so cute as does the Seller. Get it fixed!
Most owners can use a list of recommended changes, so make one for them. Then keep after them to get it all done, for your mutual best interest. Don't be critical, and do be reasonable. You just want them to clean and paint, not remodel. Understand that it is still the Seller’s home, so don’t be overly critical – it is counterproductive.
Some owners will accept the figure you recommend for the sales price without question. Very few!
Some owners will exclaim that they could never ask that much for their home. (This category represents so few owners that it can safely be ignored, but if it happens to you, write them out an offer and take the investment for yourself.)
Most owners will be stunned (and perhaps peeved) with your low assessment of the value of their property. They know the Stubens next door got $456,000 for that home, and the Stubens house isn't as nice as theirs.
Of course, the truth may be that the Stubens said they received their asking price of $456,000, when what they really sold for was $423,000.
Remember that everyone thinks their home is the best on the block.
Buyers respond negatively to problems, whether obvious to the Buyer, disclosed by the Seller, or found by the home inspector, depending on the number, the complexity, or the expense. Each Buyer will respond differently, depending on their personal makeup, but there are some generalities that can be defined.
In general, younger Buyers are more willing to accept problems than are older Buyers, and each home is generally more a family home, or a retirement home, so the acceptability of problems is predictable.
Individual Buyers will accept different levels of problems, but they respond to number, complexity and expense. There is some number of even minor problems that can overwhelm a Buyer. There are some problems that are so complex that they are overwhelming even if the number is small – a needed kitchen remodel for example. There are some expenses that can be overwhelming even if there is no real complexity, for example, a new roof. Problems that are simply expense can be handled by a price accommodation or a rebate.
If the Seller has a large list of known or discovered small problems, it will reduce the ardor of a Buyer…and obviously a highly-complex need, or a very expensive need, can also be dampening, depending on the flexibility of the Buyer.
Safety items can be daunting to a Buyer, particularly a imminent fire hazard. These items are the only ones that I advise Buyers to get the Sellers to fix. The remainder of the problems either can be ignored if they are small or reflected in a lower price or a cash allotment for repair if the lender will permit it.
From the Sellers standpoint, Sellers need to find and reduce the number of potential problems before they list the property. A short list of problems gives a Buyer a greater sense of security about the property.
Large problems often exist in properties when the owners simply do not view the condition as a problem. This is particularly true when the owner is frugal in their opinion – their friends call them cheap behind their back. These owners are a problem when they become a Seller because they simply do not see their “problems” and want top dollar for their home. There is hardly an owner in this world who considers his home a “fixer.” When you point out the avocado green stove, an original from their purchase in 1963, they say proudly, “it still works!” Of course it does, as would an 1850 cast iron wood stove. It is usually the husband who is proud of the age of his appliances, but he usually drives a new car. Just a few months ago I was in a friend’s home where there were literally avocado green appliances, and a new Lexus in the garage…
If men were the cooks, kitchens would be much more modern.
Contingencies
Very few homes are sold without being cluttered up with contingencies or exceptions. Getting contingencies resolved will occupy a great deal of your time.
Most prospective Buyers have not sold their own home, and must purchase the new home contingent upon the sale of their home, or some other contingency that will give them time to sell their home – such as a 72 hour Right of First Refusal. Their home will probably be bought contingent upon the sale of their Buyer’s home. The chain can be endless. (One builder I know was so tired of contingent sales that he seriously considered putting a sign in front of his homes reading: PLEASE DO NOT EXAMINE THIS HOME IF YOUR HAVE NOT SOLD YOUR OWN!
If you should run across a Buyer who is staying in a motel because he has sold his home out of state and needs a new home, that Buyer is a bonafide, certified GOLD MINE. A Buyer who is so wealthy as to be able to purchase a home without worrying about the sale of his home is equally good, but even more rare.
One softer contingency is the 72 HOUR RIGHT OF FIRST REFUSAL (or 24 hour, or 10 days or whatever time limit is negotiated). This contingency permits the Seller to continue to market his home. If the Buyer’s home sells, then he must open escrow immediately. If a new offer is made on the Seller’s home, then the Buyer must open escrow within three working days or lose the new home to the second bidder.
The disadvantage of the 72 hour right from the Seller’s standpoint is that while the home can theoretically still be shown, many knowledgeable prospective Buyers will not inspect a home that is sold contingent on a 72 hour right. They reason, justifiably, that someone else has first rights to buy, and the second party may lose at the very end of the period. Since the 72 hour period is normally worded "Three working days" it is possible for the second interested party to have |