I've had a few very good conversations lately with some people I really respect. Some conversations had to do with real estate, one had to do with an athletic endeavor, one has to do with a current negotiation and one had to do with business in general. When I have a meeting that isn't specific to generating income - in other words not with a potential/current/previous client - I look back on that meeting and try to deny/confirm whether it was an investment in time or a waste of time.
My last few meetings have definitely been an investment in time and I'm very happy with that. And no, I'm not wearing rose-colored glasses: believe me, I know when I've wasted my time. Considering that I used to be one of the best at it, I know it when I see it. Anyway, I've been negotiating a deal and there's literally nothing our side can do. In fact, if we do anything whatsoever it will be viewed upon as being a sign of weakness and our position of power (or lack thereof) will be buried further.
So as the title states, we need to do something that is very difficult indeed. So at this time, and for the last week, we've done nothing. Sure, I followed up with the other side to see if the client has done nothing but they haven't. So we wait. And that's what we'll continue to do until we here from the other side. Is it easy? Heck no. In fact, my client has spent his entire career making things happen. So to do nothing is literally driving him up a wall. However, he fully understands why we're doing what we're doing so we continue to do it.
Think about all of the negotiations that you've ever been involved in: as you look back, would it have made sense at one time or another to take the approach of doing nothing? My guess is that if you're in a position where you do many negotiations, you will have looked back and saw that one time in particular where doing nothing would have been not just the best reaction, but many times the best action.
Wednesday, October 13, 2010
Tuesday, October 12, 2010
An Interesting Conversation
I have a very diverse network of friends. I have an even more diverse network of acquaintances. Yesterday I happened to run into an acquaintance (a friend of a friend) who I've know for a few years. His official title is "Financial Adviser", but what he really does and is really good at is picking stocks and bonds.
We happened to run into each other at Starbucks and we sat for a few minutes and chatted. He's been gracious to me in the past and referred to me a couple of potential clients. Unfortunately for me they were very small jobs and it was actually better for me to refer them directly to a few of my contractors. I've referred a few friends to my friend, who he happens to actually work for.
We were sitting discussing what's been happening in our business lives over the past few months. We are both in industries that have been on quite a roller coaster ride the past few years. I asked him his thoughts on oil, equities (stocks), bonds and gold. He shared his thoughts (sorry, a verbal non-disclosure agreement exists between us) and then he asked me mine. I shared with him what I think home building is going to do (not move very much). He asked why people are still building - I explained that there are still people who want what they want but there are many more people who want a deal - and we discussed in detail about both his area of town and mine. We then discussed the resale market and remodeling (he lives in an older section of town where people remodel because they cannot build).
We were winding down our conversation and he brought up a hedge fund titan who had started making some very bold recommendations when it came to residential real estate. DISCLOSURE TIME: neither I nor he is recommending that you do, or do not, do the following. He said that this guy, who made literally billions during the downturn, was recommending that people purchase a first home, a second home, a third home and if they can afford it even more. His other piece of investment advice is that if you couldn't own additional homes, then lend money to people so that you can at least be involved in the ownership. He stated that this gentleman believes that we are at such a bottom in the real estate market right now and that there are so many people who are going to be wanting to purchase homes in the near (1-2 years?) future that to not own multiple homes is crazy.
I found our conversation very interesting because there seems to be a slew of people in his industry and mine that have very divergent views of what the future will hold. I believe that the residential rental market will continue to be strong for a long time. If you are looking for an investment property and you want to be a landlord, the numbers look very good. If you do not want to be a landlord, then you can still participate by hiring a property management company to be the landlord for you (yes, I offer those services to my clients) but the cash flow is reduced by those property management fees. He asked me for a good mortgage lender because we discussed some financing options for some of his rentals and I obliged.
We both stood up and stated that it had been too long and that we should do "this" more often. I agreed and as a final question asked him if he was going to act on the hedge fund head's statement about real estate. He said that although it was interesting, he was going to gather more information before he reacted. I thought that his choice of words was very good. And I'm going to reiterate those to you: don't react. Gather your information from someone you can trust, work with someone who knows what they're doing and work on an action plan with that person. Once you are in a position where you need to react, you're actually in a much weaker position because what you're dealing with is now controlling the situation.
We happened to run into each other at Starbucks and we sat for a few minutes and chatted. He's been gracious to me in the past and referred to me a couple of potential clients. Unfortunately for me they were very small jobs and it was actually better for me to refer them directly to a few of my contractors. I've referred a few friends to my friend, who he happens to actually work for.
We were sitting discussing what's been happening in our business lives over the past few months. We are both in industries that have been on quite a roller coaster ride the past few years. I asked him his thoughts on oil, equities (stocks), bonds and gold. He shared his thoughts (sorry, a verbal non-disclosure agreement exists between us) and then he asked me mine. I shared with him what I think home building is going to do (not move very much). He asked why people are still building - I explained that there are still people who want what they want but there are many more people who want a deal - and we discussed in detail about both his area of town and mine. We then discussed the resale market and remodeling (he lives in an older section of town where people remodel because they cannot build).
We were winding down our conversation and he brought up a hedge fund titan who had started making some very bold recommendations when it came to residential real estate. DISCLOSURE TIME: neither I nor he is recommending that you do, or do not, do the following. He said that this guy, who made literally billions during the downturn, was recommending that people purchase a first home, a second home, a third home and if they can afford it even more. His other piece of investment advice is that if you couldn't own additional homes, then lend money to people so that you can at least be involved in the ownership. He stated that this gentleman believes that we are at such a bottom in the real estate market right now and that there are so many people who are going to be wanting to purchase homes in the near (1-2 years?) future that to not own multiple homes is crazy.
I found our conversation very interesting because there seems to be a slew of people in his industry and mine that have very divergent views of what the future will hold. I believe that the residential rental market will continue to be strong for a long time. If you are looking for an investment property and you want to be a landlord, the numbers look very good. If you do not want to be a landlord, then you can still participate by hiring a property management company to be the landlord for you (yes, I offer those services to my clients) but the cash flow is reduced by those property management fees. He asked me for a good mortgage lender because we discussed some financing options for some of his rentals and I obliged.
We both stood up and stated that it had been too long and that we should do "this" more often. I agreed and as a final question asked him if he was going to act on the hedge fund head's statement about real estate. He said that although it was interesting, he was going to gather more information before he reacted. I thought that his choice of words was very good. And I'm going to reiterate those to you: don't react. Gather your information from someone you can trust, work with someone who knows what they're doing and work on an action plan with that person. Once you are in a position where you need to react, you're actually in a much weaker position because what you're dealing with is now controlling the situation.
Friday, October 8, 2010
Foreclosures/Bank Owned Properties/Short Sales
As the real estate market continues to slog along, I have buyer-clients who are inquiring about "deals". Many times they view foreclosures, bank owned properties and short sales as these "deals". As I've disclaimed in the past and as I will continue to do so, I am not an attorney and am not giving legal advice. That being said I want to bring to the forefront some questions we all need to ask in order to ensure we're making the right decision(s) when it comes to real estate.
First off, yes, there are some very good deals in the market right now for buyers. For sellers? Not so much. It's true that if someone has their home on the market right now they probably "need" to sell. This need can be as simple as they have had enough of a larger home and want to downsize or it could be as dire as they're so far behind on their payments that they are facing foreclosure (which is a legal process and not just an end result) or they're "upside down" on their home (it's not worth as much as is owed on the mortgage). For this post, I'm only going to address "distressed" sales: in other words I'm going to ignore the people who are not financially strained.
When I first start working with a client looking for a deal, I take them through the process in working with a bank being involved with the seller. I explain to them that the bank is not interested in moving quickly (that's a whole other conversation), is not interested in listening to all the reasons why our offer is the best one, is not interested in anything other than making sure it takes the track that they want it to take. In other words, I explain to my clients that they really are falling in love with the idea of a home such as this, but not necessarily the home they have found. In other words; fall in love with the deal but not the home. Because, in actuality, they will probably need to negotiate on more than one purchase due to the high possibility of the first home not actually going to closing. There are a multitude of problems that can arise and almost all of them are on the seller's side and their paperwork ensures that it's going to happen and there's nothing the buyer can do about it.
In a short sale situation, there are actually two parties that need to approve the terms of the deal (purchase price, closing date, inspections, possession, everything). The first is the seller who owns the home; the second is the mortgage holder (and there very well can be more than one mortgage holder if the seller has gotten an equity line of credit that has a balance on it and even possibly a third mortgage). This second "group" of people has a say in EVERYTHING that the deal entails because they need to either agree to accept less than the payoff amount on the mortgage(s) or approve the fact that the payoff will be short and the people who on it will pay them at a later date. Therefore the term "short sale". So as you as the buyer are negotiating with the seller(s), patience will be the key because they will take their time to review all terms of the contract. In addition, they will be looking for better offers as they are negotiating your offer (remember, everyone likes a deal so it's very likely that there's more than one offer being negotiated). Lastly, it's not always the highest price that the bank looks for but rather what is the best deal for them (quick closing, cash buyer, etc).
On a bank owned property, it's a little better because you as the buyer are only negotiating with one group: the bank. But the amount of frustrations and the amount of time that is needed (along with the amount of patience) is just as much. You see, in both a short sale and a bank owned property, there is someone - more like a massive committee of people - who has to "sign off" on the deal to admit that the bank will be taking a loss to sell that home. Please realize that no one wants to lose money and no one wants to be the person in the bank who agrees to lose money on the deal. Yes, they know that they'll eventually have to do it; but no one wants to actually do it. And fundamentally, that's why those deals take SO LONG to come together.
Lastly, and this is just as important as the financial side of things, is that when you purchase that home, you are typically taking a much bigger risk of the condition of the home. When a person knows they will no longer be living in the home, what are the odds that they're maintaining that home? What are the chances that they've maintained the home for the past year or two? Changed the furnace filters? Painted the exterior to ensure that there's no wood rot? Taken care of the septic system to ensure that it isn't overflowing? Taken care of any small leaks that are minor to start but always turn major? The odds are that they've spent no time or money to do that. And the bank owned properties? What are the odds that a bank in California has any idea of the condition of a home in Columbus, Ohio? None. So when you're looking to purchase those homes you need to realize that you're really in a position of buying a home in a condition known as "where is, as is". In other words: the seller takes NO responsibility for the condition of the home and YOU ARE SIGNING A CONTRACT RELEASING THE BANK FROM ANY/ALL RESPONSIBILITY FOR THE CONDITION OF THE HOME.
So what do you, as a buyer, do? Well, you need to weigh your options very carefully. Is the home really a great deal? If you have the ability of purchasing the home for below market; when you bring it back to market condition have you just spent your savings? If you are hiring a contractor such as me to come in and do all the things that need to be done, is it still such a good deal? If you decide to remodel it to a nicer level than what is in the community, it's great and you'll love it but you no longer have the deal. What type of living conditions are you having your family live in until the home is brought up to snuff? I have a client that is looking at VERY distressed properties and most of them have mold. They have three small children. They cannot afford to purchase the home and stay where they are until the purchased home is fixed. I keep explaining to them that three small children and black mold are not a good combination. After the third conversation I think they are starting to get it.
In real estate, as is true many times in life, not all great deals are as great as they originally seemed. Do your homework, work with someone who KNOWS what they're doing (not just assumes they know what they're doing), make sure they're looking out for your best interest and not just looking for their next commission. The barometer I give my clients is fairly strict: if I do not feel that I want the listing in the future then I tell them that I typically don't want to help them with the current purchase. I'm different than many real estate agents because I have the experience in both real estate and construction so I know what it takes. And my clients appreciate that expertise when it comes to "great deals". Know your subject matter and know your clients well enough to be able to speak with them on a level of honesty that is best for them.
First off, yes, there are some very good deals in the market right now for buyers. For sellers? Not so much. It's true that if someone has their home on the market right now they probably "need" to sell. This need can be as simple as they have had enough of a larger home and want to downsize or it could be as dire as they're so far behind on their payments that they are facing foreclosure (which is a legal process and not just an end result) or they're "upside down" on their home (it's not worth as much as is owed on the mortgage). For this post, I'm only going to address "distressed" sales: in other words I'm going to ignore the people who are not financially strained.
When I first start working with a client looking for a deal, I take them through the process in working with a bank being involved with the seller. I explain to them that the bank is not interested in moving quickly (that's a whole other conversation), is not interested in listening to all the reasons why our offer is the best one, is not interested in anything other than making sure it takes the track that they want it to take. In other words, I explain to my clients that they really are falling in love with the idea of a home such as this, but not necessarily the home they have found. In other words; fall in love with the deal but not the home. Because, in actuality, they will probably need to negotiate on more than one purchase due to the high possibility of the first home not actually going to closing. There are a multitude of problems that can arise and almost all of them are on the seller's side and their paperwork ensures that it's going to happen and there's nothing the buyer can do about it.
In a short sale situation, there are actually two parties that need to approve the terms of the deal (purchase price, closing date, inspections, possession, everything). The first is the seller who owns the home; the second is the mortgage holder (and there very well can be more than one mortgage holder if the seller has gotten an equity line of credit that has a balance on it and even possibly a third mortgage). This second "group" of people has a say in EVERYTHING that the deal entails because they need to either agree to accept less than the payoff amount on the mortgage(s) or approve the fact that the payoff will be short and the people who on it will pay them at a later date. Therefore the term "short sale". So as you as the buyer are negotiating with the seller(s), patience will be the key because they will take their time to review all terms of the contract. In addition, they will be looking for better offers as they are negotiating your offer (remember, everyone likes a deal so it's very likely that there's more than one offer being negotiated). Lastly, it's not always the highest price that the bank looks for but rather what is the best deal for them (quick closing, cash buyer, etc).
On a bank owned property, it's a little better because you as the buyer are only negotiating with one group: the bank. But the amount of frustrations and the amount of time that is needed (along with the amount of patience) is just as much. You see, in both a short sale and a bank owned property, there is someone - more like a massive committee of people - who has to "sign off" on the deal to admit that the bank will be taking a loss to sell that home. Please realize that no one wants to lose money and no one wants to be the person in the bank who agrees to lose money on the deal. Yes, they know that they'll eventually have to do it; but no one wants to actually do it. And fundamentally, that's why those deals take SO LONG to come together.
Lastly, and this is just as important as the financial side of things, is that when you purchase that home, you are typically taking a much bigger risk of the condition of the home. When a person knows they will no longer be living in the home, what are the odds that they're maintaining that home? What are the chances that they've maintained the home for the past year or two? Changed the furnace filters? Painted the exterior to ensure that there's no wood rot? Taken care of the septic system to ensure that it isn't overflowing? Taken care of any small leaks that are minor to start but always turn major? The odds are that they've spent no time or money to do that. And the bank owned properties? What are the odds that a bank in California has any idea of the condition of a home in Columbus, Ohio? None. So when you're looking to purchase those homes you need to realize that you're really in a position of buying a home in a condition known as "where is, as is". In other words: the seller takes NO responsibility for the condition of the home and YOU ARE SIGNING A CONTRACT RELEASING THE BANK FROM ANY/ALL RESPONSIBILITY FOR THE CONDITION OF THE HOME.
So what do you, as a buyer, do? Well, you need to weigh your options very carefully. Is the home really a great deal? If you have the ability of purchasing the home for below market; when you bring it back to market condition have you just spent your savings? If you are hiring a contractor such as me to come in and do all the things that need to be done, is it still such a good deal? If you decide to remodel it to a nicer level than what is in the community, it's great and you'll love it but you no longer have the deal. What type of living conditions are you having your family live in until the home is brought up to snuff? I have a client that is looking at VERY distressed properties and most of them have mold. They have three small children. They cannot afford to purchase the home and stay where they are until the purchased home is fixed. I keep explaining to them that three small children and black mold are not a good combination. After the third conversation I think they are starting to get it.
In real estate, as is true many times in life, not all great deals are as great as they originally seemed. Do your homework, work with someone who KNOWS what they're doing (not just assumes they know what they're doing), make sure they're looking out for your best interest and not just looking for their next commission. The barometer I give my clients is fairly strict: if I do not feel that I want the listing in the future then I tell them that I typically don't want to help them with the current purchase. I'm different than many real estate agents because I have the experience in both real estate and construction so I know what it takes. And my clients appreciate that expertise when it comes to "great deals". Know your subject matter and know your clients well enough to be able to speak with them on a level of honesty that is best for them.
Tuesday, October 5, 2010
Ask An Expert
The title to this blog is a little misleading; kind of. I'm not looking to explain how I'm the best at this or the expert at that. The purpose of this blog is to try and explain why who you DO hire doesn't need to be the expert about everything, but more importantly they need to know WHO the experts are when it comes to your specific needs.
I've been in the residential construction industry for about twenty years; home building, remodeling, renovations, insurance work, etc. I know many real estate agents and am very flattered when one of them calls me to ask me a "builder" question. This just happened yesterday and here are the details.
The agent that called me has a home listed and they have an offer on the home. As we all know, this is a down market and everyone's looking for a bargain. Okay, makes sense. The home that we are discussing has a finished basement but no bathroom in the basement. And there is no plumbing nearby so it would be a little messy and a little more expensive than usual to add a bathroom. The listing real estate agent called me to ask, approximately, what it should cost to put a bathroom in the basement. I asked a few questions and gave them a "ballpark estimate": it's a phrase I use because I haven't seen the job, don't know the finishes and there would be some details I needed before I could give a firm cost. That and I'm not up for the job, the real estate agent was just gathering information.
I gave the agent my numbers and said that it should be close, within 10%-15% or so. Out of curiosity I asked the agent what the buyers' agent had told her (they were looking for a reduction in sales price not for the work to be done). She chuckled a little bit and stated that the buyers' agent said it would cost................$15,000 to do the work. I laughed. I actually laughed pretty hard and stated that I'd be happy to do it for $14,900. You see, that cost was about TRIPLE of what it would actually cost to do the work. Now it's possible that the other agent was just trying to negotiate a better deal for her client, but based on what I know about the buyers' agent; she just didn't know and was blowing smoke everywhere.
Smart idea? Not really, and here's why. The buyers' agent is actually doing a HUGE disservice to her clients because she has set an expectation with her client that they should see a very large price reduction all because she didn't do her homework; she didn't have a good team in place. In addition, the sellers' agent is in a much stronger position to negotiate because she has the facts and will be looked to by BOTH parties as being the expert. The buyers' agent looks like a fool and in her buyers' eyes probably has lost their respect in her ability to negotiate on their behalf. Not good at all.
So why the title "Ask An Expert"? Well, in my humble opinion, the real estate agent who asked me for the real costs of doing the work put herself in such a better negotiating position on behalf of her clients than the agent who shot from the hip. Can the buyer go find another home in this market? Sure, well, kind of. You see, the home is in a community that's a little unique in that the homes are selling within just a few percentage points of asking price. The buyers' agent set such an unrealistic expectation that they will either not come up in price or the seller has such an upper hand that they will actually end up paying more than they "should" have due to the poor information.
When hiring a professional it's important to understand not just what they bring to the table, but also what their "team" brings to the table. I'm not specifically stating a group's direct team: but the team that they bring from their experience in the real world. Does the person you're hiring have the resources to be able to get you the answers you need? It's probably just as important to ask that question as it is what that person can do for you directly. In any situation, know not just what the person brings to the table themselves, but what resources they have at their fingertips.
As the great football coach Vince Lombardi once said, "none of us is as smart as all of us".
I've been in the residential construction industry for about twenty years; home building, remodeling, renovations, insurance work, etc. I know many real estate agents and am very flattered when one of them calls me to ask me a "builder" question. This just happened yesterday and here are the details.
The agent that called me has a home listed and they have an offer on the home. As we all know, this is a down market and everyone's looking for a bargain. Okay, makes sense. The home that we are discussing has a finished basement but no bathroom in the basement. And there is no plumbing nearby so it would be a little messy and a little more expensive than usual to add a bathroom. The listing real estate agent called me to ask, approximately, what it should cost to put a bathroom in the basement. I asked a few questions and gave them a "ballpark estimate": it's a phrase I use because I haven't seen the job, don't know the finishes and there would be some details I needed before I could give a firm cost. That and I'm not up for the job, the real estate agent was just gathering information.
I gave the agent my numbers and said that it should be close, within 10%-15% or so. Out of curiosity I asked the agent what the buyers' agent had told her (they were looking for a reduction in sales price not for the work to be done). She chuckled a little bit and stated that the buyers' agent said it would cost................$15,000 to do the work. I laughed. I actually laughed pretty hard and stated that I'd be happy to do it for $14,900. You see, that cost was about TRIPLE of what it would actually cost to do the work. Now it's possible that the other agent was just trying to negotiate a better deal for her client, but based on what I know about the buyers' agent; she just didn't know and was blowing smoke everywhere.
Smart idea? Not really, and here's why. The buyers' agent is actually doing a HUGE disservice to her clients because she has set an expectation with her client that they should see a very large price reduction all because she didn't do her homework; she didn't have a good team in place. In addition, the sellers' agent is in a much stronger position to negotiate because she has the facts and will be looked to by BOTH parties as being the expert. The buyers' agent looks like a fool and in her buyers' eyes probably has lost their respect in her ability to negotiate on their behalf. Not good at all.
So why the title "Ask An Expert"? Well, in my humble opinion, the real estate agent who asked me for the real costs of doing the work put herself in such a better negotiating position on behalf of her clients than the agent who shot from the hip. Can the buyer go find another home in this market? Sure, well, kind of. You see, the home is in a community that's a little unique in that the homes are selling within just a few percentage points of asking price. The buyers' agent set such an unrealistic expectation that they will either not come up in price or the seller has such an upper hand that they will actually end up paying more than they "should" have due to the poor information.
When hiring a professional it's important to understand not just what they bring to the table, but also what their "team" brings to the table. I'm not specifically stating a group's direct team: but the team that they bring from their experience in the real world. Does the person you're hiring have the resources to be able to get you the answers you need? It's probably just as important to ask that question as it is what that person can do for you directly. In any situation, know not just what the person brings to the table themselves, but what resources they have at their fingertips.
As the great football coach Vince Lombardi once said, "none of us is as smart as all of us".
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