How Can I Lose Some Money Today?
Real estate, like many professions, has good and bad, ethical and unethical practitioners as well as some questionable practices. Your naiveté and lack of information or acceptance of mis-information can cost you money. Who wakes up every day and thinks, “How can I lose some money today?”
There are many ways your money is put at risk. As the financial writer Carl Richard notes, “Risk is what is left after you’ve thought of everything.” But what if you don’t know everything to think of?
For example, if sellers of a commodity, real estate or any other commodity, can create a buying panic or frenzy – it’s in the best interest of the seller and agent – not you.
The former United State Supreme Court Justice Louis D. Brandeis said, “Sunlight is said to be the best of disinfectants.”
Let me throw sunlight on a few questionable real estate practices with the hope my disinfectant might prevent you from making a large financial error.
1. Coming to Market or Delayed Listing
Coming to market (or delayed listing) occurs when an agent submits a listing to the Multiple Listing Service (MLS) with the notation the home will be on market at a future date, meaning the home can’t be viewed until it’s on market. The hope? That buyers will panic and pay top dollar irrespective of value.
It’s ironic that the Chief Revenue officer of a real estate firm noted, “This feature allows a listing to land on the MLS with a ton of velocity with buyers dreaming home-specific dreams.” Coming to market = revenue, for the seller and agent.
If I panic and spend more than asking price for a home, with an asking price that may be artificially high, I may lose $15,000, $25,000 or more. Sunlight.
2. Agent Offer of Home Value
I get mailings from agents, as you may, asking, “Am I interested in knowing the value of my home?” I recently received a mailing that said, “We have introduced a great new service for the neighborhood. It will help you keep track of your current home value.”
It’s not a great service, it’s marketing. What the agent really wants to know is, do I want to list my home for sale with the agent?
I took an agent up on the offer without the agent knowing I worked in real estate. I live in a condominium and many units are designed identically. The agent responded with a value analysis noting my condo value as $399,000 – $411,000.
Here’s the problem. In the past 12 months, 4 condominiums – identical to mine and in my development – have sold for $449,000; $435,000; $448,000; and $460,000.
If I listed my condo for $411,000 and sold it for $411,000, I’d lose. There is something wrong when marketing gets confused with service and value – and I end up losing anywhere from $24,000 and $49,000. Sunlight.
3. The Escalator Clause
The escalator clause is a strategy we see occurring more in real estate. In essence you are bidding against yourself. The clause works like this. You make an offer, say $200,000, and then add a clause that says you will pay a $1,000 or $2,000 or $5,000 more than X price of any other Offer.
In a worst case, if the asking price is off value by $10,000 – to which you add another $5,000 – you’ve just paid $15,000 more than the home is worth.
I don’t like escalator clauses. The real estate industry, agents and sellers do. You be the judge. Sunlight.
4. Zillow pricing
Zillow pricing in some areas is off, by their own admission, by 4.7%. On a $200,000 home that’s $9,400. Be careful where you get your information. Sunlight.
If this newsletter reads like I’m blaming the agent. I’m not. I’m blaming the consumer. The agent is doing her job; sell the home as quickly as possible for as high a price as possible, by whatever marketing methods work.
What can you do? If you aren’t using Homebuyer Associates, at least be aware of how the real estate system works. It’s no different than buying a car. A dream is being sold by marketing and with the help of emotion and panic. You are responsible for knowing what, and what not to believe.
If you don’t know what to believe, that’s risk. Seek sunlight.
Remember, “Emotion is energy without structure, without reason. Emotion can be an expensive indulgence.”
If you’d like to learn more about how to buy a home let’s arrange to meet with a Homebuyer Associates agent over coffee. We’ll provide the real estate disinfectant.
Thanks for reading,
Michael D. Holloway