I came across an article called “All I Want to Do is Find a House.” His article talks about the current situation in the marketplace where lenders are requiring more accuracy and due diligence from borrowers as a result of the mortgage crisis and economic downturn. I think this is a relevant piece that should be shared with those entering the housing market to buy real estate.
I have seen many listing agents start out listing properties at below market value and then use the resulting flurry of buyer interest to spark bidding wars.
While this practice benefits the seller, and the listing agent would not be doing their job if they did not try to get the highest price possible for their sellers, buyers need to remember that this strategy only works when more than one buyer takes the bait.
Here are 4 things buyers should bear in mind about bait-and-switch tactics in real estate:
1. Remember, demand creates value, which increases prices. The opposite is also true. When demand goes down, so do prices.
By engaging in bidding wars, you are driving prices up.
2. If you want to find a truly great deal, then you most certainly do not want to render yourself a tool for sparking a bidding war.
Instead, find out the motivation of the seller. If seller or their agent appears evasive, take note, give them the benefit of the doubt once, and then move on if it appears that you cannot get straight answers. This is a red flag.
3. If you engage in the game of bait-and-switch, then be prepared to waste some time.
It is no wonder many investors prefer to look at unlisted properties, and save listed properties as a last resort.
4. Wise investors avoid bait-and-switch pricing games. They realize that there are too many good deals out there to allow themselves to be used as leverage in the ploy to get the highest price possible.
Smart investors do not get emotionally attached to properties. Emotions are the hooks that make pricing games work so well. Eliminate emotions from the equation and pricing games are no longer as effective.
In my experience, I have dealt with listing agents who did a super job of representing their sellers without taking an adversarial position with the party on the other side of the transaction. However, as with anything, there are those who do make adversarialism a part of their business practice. Some call it “posturing,” others might call it “positioning.” Either way, this approach to business infuses negativity into the transaction and it adds a dimension of distrust, which slows the process down or kills it and becomes a draining experience for all involved. If you have ever read the book The Speed of Trust by Stephen M.R. Covey, then you can understand the point I am making.
There should be a meeting of the minds. A seller wants to sell, a buyer wants to buy, and in the case where there is financing, a lender wants to lend. Sometimes, negotiations break down when the representatives for each of these parties cannot work together in order to identify and resolve the core issues that prevent the transaction from moving forward, or perhaps a representative is just “following orders” and does not consider ways to keep a transaction moving forward in a way that does not cause adversarialism to enter into the transaction. It is possible to accomplish this while keeping their parties’ interests protected. In this new age of real estate, mutual trust, respect, and transparency rule the day.
Hard ball tactics are a thing of the past, and to excel in these changing times, buyers and sellers would do well to find their own representatives that understand how to approach negotiations in an honorable way for the best win/win outcome. Otherwise, no one wins and everyone loses…time, money, energy. The way to accomplish this is to consider applying the 13 Behaviors of a High Trust Leader (Covey 2006):
1. Straight Talk
“Be honest. Tell the truth. Let people know where you stand. Use simple language. Call things what they are. Demonstrate integrity. Don‘t manipulate people nor distort facts. Don‘t spin the truth. Don‘t leave false impressions.”
2. Demonstrate Respect
“Genuinely care for others. Show you care. Respect the dignity of every person and every role. Treat everyone with respect, especially those who can‘t do anything for you. Show kindness in the little things. Don‘t fake caring. Don‘t attempt to be ‘efficient’ with people.”
3. Create Transparency
“Tell the truth in a way people can verify. Get real and genuine. Be open and authentic. Err on the side of disclosure. Operate on the premise of, “What you see is what you get.” Don‘t have hidden agendas. Don‘t hide information.”
4. Right Wrongs
“Make things right when you‘re wrong. Apologize quickly. Make restitution where possible. Practice “service recoveries.” Demonstrate personal humility. Don‘t cover things up. Don‘t let personal pride get in the way of doing the right thing.”
5. Show Loyalty
“Give credit to others. Speak about people as if they were present. Represent others who aren‘t there to speak for themselves. Don‘t badmouth others behind their backs. Don‘t disclose others‘ private information.”
6. Get Results
“Establish a track record of results. Get the right things done. Make things happen. Accomplish what you‘re hired to do. Be on time and within budget. Don‘t over-promise and under-deliver. Don‘t make excuses for not delivering.”
7. Get Better
“Continuously improve. Increase your capabilities. Be a constant learner. Develop feedback systems–both formal and informal. Act upon the feedback you receive. Thank people for feedback. Don‘t consider yourself above feedback. Don‘t assume your knowledge and skills will be sufficient for tomorrow‘s challenges.”
8. Confront Reality
“Take issues head on, even the ‘undiscussables.’ Address the tough stuff directly. Acknowledge the unsaid. Lead out courageously in conversation. Remove the ‘sword from their hands.’ Don‘t skirt the real issues. Don‘t bury your head in the sand.”
9. Discuss Expectations
“Disclose and reveal expectations. Discuss them. Validate them. Renegotiate them if needed and possible. Don‘t violate expectations. Don‘t assume that expectations are clear or shared.”
10. Practice Accountability
“Hold yourself accountable. Hold others accountable. Take responsibility for results. Be clear on how you‘ll communicate how you‘re doing–and how others are doing. Don‘t avoid or shirk responsibility. Don‘t blame others or point fingers when things go wrong.”
11. Listen First
“Listen before you speak. Understand. Diagnose. Listen with your ears…and your eyes and heart. Find out what the most important behaviors are to the people you‘re working with. Don‘t assume you know what matters most to others. Don‘t presume you have all the answers–or all the questions.”
12. Keep Commitments
“Say what you‘re going to do. Then do what you say you‘re going to do. Make commitments carefully and keep them at all costs. Make keeping commitments the symbol of your honor. Don‘t break confidences. Don‘t attempt to ‘PR’ your way out of a commitment you‘ve broken.”
13. Extend Trust (smart trust)
“Demonstrate a propensity to trust. Extend trust abundantly to those who have earned your trust. Extend trust conditionally to those who are earning your trust. Learn how to appropriately extend trust to others based on the situation, risk, and character/competence of the people involved. But have a propensity to trust. Don‘t withhold trust because there is risk involved.”
I have come to recognize the 13 Behaviors as a benchmark of character and competence that equates to a high degree of trustworthiness in all areas of life–business or personal. These 13 Behaviors can be used to measure any situation to clearly see where shortfalls are occurring not only with others, but also within ourselves, and when we take the necessary steps to change and make it better–great things happen.
For the past six months, I have been reading a lot about the importance of trust and the profound affect it has on daily life–personally and professionally.
In one article featured on StephenCovey.com, it explains how low trust “has a huge tax associated with it." Some of the main compelling points in the article include that trust is very important in business, and that one cannot conduct business effectively without mutual trust. In fact, the article asserts that trust is vital:
“There are just so many elements to the simplest transaction that require trust. But we are like fish that discover water last and are sometimes unaware of those implicit elements. Trust is the lifeblood of all relationships, of all transactions, and is so foundational and fundamental to everything in life.” (stephencovey.com)
I discovered that I prefer working in an environment where there is genuine trust, mutual respect, and a collaborative team spirit. This also extends to personal life and relationships. With this kind of synergy, people can build meaningful connections and bring the experience of life to a completely new level. Without it, distrust, adversarial interactions, and the speed of accomplishing goals dramatically decreases to the detriment of all involved.
For real estate buyers, working within a culture of high trust can make the difference between working with what Robert Hahn of Inman News calls a "House Hawker," or a "Trusted Advisor." It means the difference between working with a human door opener and a dedicated real estate advocate.
Real estate buyers working with a highly trustworthy agent will benefit greatly from the resulting synergy that develops through dynamic collaboration. Good things can happen faster. When combined with a highly trustworthy mortgage broker, the result is a profoundly effective team and support system for real estate buyers. Such teams can make excellent progress and realize outstanding results over and above what buyers could achieve on their own or in an environment where everyone is in it for himself or herself.
It takes high trust, active listening, mutual respect and understanding, as well as open communication and being receptive to new ideas to realize unparallel results. This is the vision I have for my life personally and in business. I aspire to bringing out the best in others and in every situation. It means being accountable, responsible, caring, while adding value to the lives of others. It also means focusing on relationship building and mutually beneficial partnerships based in the spirit of good character, hard work, and goodwill.
With awareness comes the truth, and with the truth, the right thing to do becomes clear. Trust in ANY relationship whether client, referral partner, friend, or family member, is essential to the health and happiness of the human experience. Therefore, I am committed to building trust with all the relationships in my life. I will not settle for anything less, and I wish the same for you.
Here are some resources and articles on trust and trust building:
What is trust? ( from changingminds.com)
The Speed of Trust: The one thing that changes everything (Stephen M.R. Covey)
More resources, perspectives, books, and articles about Trust
It’s hard to believe that only a few days ago, I was on a Royal Carribean cruise to Cozumel for NAEBA’ s 15th Annual Conference. It was such a thrill to meet other real estate professionals that are passionate about providing representation to real estate buyers without conflicts of interest. I am looking forward to next year’s conference in Tuscon, AZ!
As I have been studying the Green Broker Certification course, I have been learning about some great innovative strategies for the development of high performance commercial buildings (sustainable or “green” buildings). One of my favorite strategies is the Green Roof, which brings a lot of benefits to buildings including onsite stormwater management, in which green roofs capture rainwater to control storm water run-off. It also adds a natural ambiance to an otherwise stark roof setting. Green roofs can become ideal places for social gathering and common areas.
More about green roofs!
I had the pleasure of seeing the building during a tour organized through the Washington State Chapter of the CCIM Institute last year. Since then, I have learned a lot about the people at Weber Thompson. I have to say that they have demonstrated themselves to be true leaders in their field. They are not only passionate about sustainability, but they also make it apparent how they care for and highly value the people who work there as a part of the team. It is apparent that they are more than just a company, but they also share a sense of family. I believe they are a truly progressive company with an innovative culture, philosophy, and group of people doing great things for the environment and for the clients they serve, past and present.
The last time I spoke with friends there, they said they were happy to give tours of the Terry Thomas building. To contact them for a tour or if you want to send congratulations, click here.
Congratulations and WAY TO GO, Weber Thompson!
I should note that the tightening of the commercial credit markets opens up opportunity in the form of equity financing. Those with access to equity financing will find unprecedented buying opportunities as cap rates rise and commercial property inventories continue to increase over the next 12 to 24 months.
Economic Crash of 2009: According to one Economist it will be Greater than Great Depression
I should clarify that the practice of exclusive buyer agency is not the same as an agent who professes to be working exclusively for buyers, but who works for a real estate company that takes listings as well. A true exclusive buyers agent works for a broker and company that never takes listings because it has dedicated its entire business to representing the interests of buyers.
Exclusive buyer agency is an option that gives real estate buyers a way to completely avoid conflicts of interest in their real estate purchases, aka. “Dual Agency,” and “Designated Agency,” which is just another form of dual agency. Avoiding dual agency is especially valuable to investors because they rely on their real estate representatives to level with them and tell them when a listing is overpriced, as well as negotiate assertively on their behalf for a price that meets their investment objectives.
However, when a listing belongs to their agents’ company or, worse, to their agent, the lines of loyalty can blur. In a dual or designated agency situation, a buyer cannot be 100% sure that their agent will tell them whether a listing is overpriced and by how much exactly. To do this would put them in direct conflict with their (or their brokers’) duty to the seller.
With exclusive buyer agency, buyers can rest assured that the agent, broker, and company are representing their interests exclusively no matter what property they go to see. Buying real estate right is the first step to building a profitable portfolio of income properties. The peace of mind and degree of loyalty given by exclusive buyer agency is the value it brings to buyers whether buying a home or income property.
What happens when something unexpected occurs after the due diligence period ends, for example, when a tenant decides to move out shortly before closing and they sublet their unit to someone else, or worse, someone who ends up being a bad tenant without advising or obtaining permission from the former manager and/or the seller?
The Eviction Process: Going Through the Motions
Once closing has occurred, a new owner will have no other choice but to comply with local landlord-tenant laws when dealing with unauthorized occupants. Under the law, even unauthorized occupants have certain rights, especially if the former property owner or manager accepted even a partial payment from them. It can create an implied tenancy. In any case, unless you are dealing with blatant tresspassing, the law prescribes a certain sequence of events that must take place in order to avoid violating the law.
The whole process can take up to 6 weeks depending on the jurisdiction to obtain a proper eviction or an "Unlawful Detainer", which includes serving notices, setting court dates, and getting on the sheriffs‘ calendar when, and if, the court or commission grants the eviction. For new investors, this may seem like a daunting and unpleasant experience. However, when systematically handled, the process becomes an expected part of doing business as a multifamily investor. A good eviction service and/or a real estate attorney are ideal support systems to have during this time.
One way to ensure that tenants on the leases are the actual occupants in the units is to insert a clause in the offer that renders closing subject to verifying the tenants as current occupants. It would also be wise to include remedies within this clause in case buyer discovers the presence of unauthorized occupants during the verification process. This way, buyer and seller have pre-agreed in writing how they will handle the situation upon the discovery of unauthorized residents. Any competent real estate attorney can draft the appropriate language of such a clause, or a real estate broker can have their attorney draft the necessary language at no cost to buyer. Either way, there should be something in writing to address the issue of unauthorized tenants before closing. It is a small measure that will go a long way to reduce the chance of having to deal with an eviction process upon taking possession of an apartment building. However, depending on the experience level of an investor, taking responsibility for dealing with necessary evictions may not even be an issue.
There are some experienced investors who specialize in taking over problem properties along with all related tenant issues. These investors are aware of any problems upfront. Their experience level affords them the ability to accept responsibility for handling evictions and to take swift action in cleaning up and turning these types of properties around. They usually do so at a premium at time of purchase. This type of investor will factor the cost of taking on these problems in his or her final purchase price.