No Shopping

A Modern Real Estate Fable

Imagine if you will, a large townhouse community, in a Raleigh suburb.  All the units are the same.  Same age, same size, same floor plan, all two stories, etc.  The only difference in the units is any interior updates that the owners may have done in the ten years since it was built.

And of course, after ten years, the owners are starting to see an increasing number of units come on the market for sale.  Not surprisingly, the asking prices are all very similar, and so are the sales prices.

Now Joe has been living here since the place was built.  But his employer just went bankrupt and Joe's pretty much been living paycheck to paycheck.  So he too wants to sell.  And fast.  First he thinks, well I'll just underprice my selling neighbors, and I'll get a quick sale.  But he can't afford to lower his asking price too much, because he needs the money.  But then Joe thinks, my goodness, maybe some of my selling competitors need the money too.  I cannot afford for any of them to undercut my price, after I undercut their's.

So Joe thinks very hard and comes up with a...solution.

Now Romeo and Juliet are a young newlywed couple on a tight budget.  They've been watching this townhouse community, but realistically it is simply out of their price range.  But they continue to keep an eye on it.  And when they see Joe's for sale sign, they are the first phone call he gets.

Joe  Yes, it is for sale.  No, that is all I can tell you.  First you must sign my Non-Disclosure Agreement.

R&J  Well we never heard of such.  Why is that?

Joe  It is very simple.  As I am sure you are aware, a number of my neighbors also have their homes for sale.  And I just don't want you, or any other potential buyer, to discuss my asking price and terms with any of my competitors.

R&J  Well okay.  Seems unnecessary, but okay.

So Romeo and Juliet sign the NDA, Joe shows them the home, and gives them a very comprehensive selling package, which of course, includes his asking price.  All of which is covered by his even more comprehensive NDA.

Afterwards...

Juliet  Well, it's just like all the others.

Romeo  But it is $25,000 cheaper.

Juliet  Yes, but can you believe how he's finished the place.  We'll have to spend at least that much on the walls, the flooring, the baths, and the kitchen.  Maybe even more.

Romeo  Hmm, let's go back and look at that other unit we really liked.

So they go back to see Fred's unit.

Fred  So you've come back.  Are you ready to make an offer?

R&J  But Fred, we've already told you that we cannot meet your price.

Fred  Yes, I'm pretty firm on that.  But it's right about the same as everyone else here.

Romeo  Well actually...

But Juliet cuts him off...

Juliet  No Romeo, we cannot discuss that.

Fred is somewhat perplexed.  But hey, kids these days.

Afterwards...

Romeo  We should be able to tell him that he's not the same as everyone else.

Juliet  But we agreed not to.

Romeo  So we'll just have to make Fred an offer at the lower price and see what happens.

And they do.

Fred  I told you kids that my price was firm.  Why are you wasting my time, and your time, with this offer?

R&J  Very sorry Fred, but that is the best we can do.

Afterwards...

Romeo  If we could just explain to Fred, I'm sure he would come down.  He seems like a reasonable person.

Juliet  Well, we did not have to sign that NDA.  We did that voluntarily.  Next time we will know better.  In the meantime, I think I'll write to the North Carolina Real Estate Commission and ask them to look into it.

Romeo  Hey, that's a great idea!  Their job is to protect the public.

But when the NCREC gets wind of this, they love Joe's idea.  After all, we are here to protect the consumer.  And sellers are consumers too.  It is none of Fred's business what Joe is asking for his competing unit.  We must protect Joe.  We certainly wouldn't want Fred to suspect that Joe is in any financial difficulty.  That would be unethical.

But we should protect Fred too.  Because actually it is also none of Joe's business what Fred is asking.  Joe should not have the ability to undercut Fred.  Joe needs to price his unit based on his own individual judgment and what he, alone, is willing to accept.  Not what his competitors may or may not be willing to accept.  That too would be unethical.

But why go through all that hassle with the Non-Disclosure Agreement?  No, no, what we are going to do is institute a rule that says our licensees may not disclose the details of any seller's asking price and terms to any competing seller.  Buyers should not be able to negotiate with a seller by using the asking price of any competing seller.  That is patently unethical and we are just not going to allow it.  It will be a No Shopping rule for buyers.

That way, Fred and Joe, and all of their other competing sellers are protected from all those predatory buyers.  And from each other.

So here is the rule they came up with:

21 NCAC 58A .0115b  DISCLOSURE OF ASKING TERMS PROHIBITED

A broker shall not disclose the price or other material terms contained in a party's solicitation of offers for purchase, sell, lease, rent, or to option real property to a competing party without the express authority of the party soliciting the offers.

In a Rule Change Announcement in the NCREC Bulletin, the Commission stated, "We take our mission to protect the public interest seriously and we are delighted with the new rule.  We believe it perfectly complements Rule .0115a (formerly .0115)."

In a new section in the Bulletin labeled In the Works, the Commission went on to add, "Later this year we have a major report coming titled How Single-Agent Dual Agency Protects Consumers.  You don't want to miss that one."

Public interest protected.  Check.

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Home Buying Today

My friend Richard sent me this last night.  Hilarious.  And not far off....

@johnsonfiles

Anybody else in this crazy fight for a home?? ##realestate ##housingmarket ##comedy ##funny ##realestatetiktok ##realestatehacks ##houseshopping ##fixerupper

♬ original sound - The Johnson Files

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Bubble Questions

Are we in a bubble or is this the new normal?

How long will the current real estate bubble last?

Buy now and risk overpaying?

Or, wait it out?  Wait for how long?

And if we do wait now, do we not risk that the market will be even worse later?

As John Templeton famously observed, "The four most dangerous words in investing are, This time it's different."  And if we recognize that, we must assume that the bubble will burst...eventually.  Right?  But these things can go on longer than we anticipate.  And longer than some people can afford to wait.

We all know some of the causes, like record low interest rates and easier lending standards.  A record stock market.  Lots of cash sloshing around and an influx of foreign capital.  These are the usual suspects contributing to bubble inducing behaviors.

Less recognized and considered is the influx of millions of illegal immigrants and a government that tolerates and even encourages this.  This is not meant to be a political point.  But no matter what you think about immigration, nationwide our resident immigrants do use a portion of our housing stock.

But there are a few other factors that make me revisit the dangerous question:  Is it different this time?

Note, these are factors for my market, the greater Research Triangle Park area of North Carolina.  I cannot speculate as to what is going on anywhere else.  But here they are:

• Under-built housing stock.  This will take many years to correct.  And that is assuming that there is the political will to correct it, which I do not see.
  
  
• People fleeing high tax and high expense states and metro areas, looking for affordability, more responsible government, and quality of life.
  
  
• The extended lockdowns finally demonstrated that offices are no longer really necessary.  Meaning that people do not have to live within commuting distance of an office.

These are not mere bubble factors.  These are long term and perhaps permanent changes in the real estate sector.  They will certainly affect the real estate market for a generation.

Will the bubble burst?  Well, it always has in the past.

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More on Scripts

And how real estate brokers think

This past fall I wrote a brief piece on scripts, making my favorite point on the topic:  If you cannot trust someone to have a sincere and genuine conversation with you, how on earth can you trust them with something as important as a real estate transaction?

And that remains my primary thinking on the subject.  But what about the time involved?  These things require so much time.  Why not instead spend your time mastering the field of real estate?  Spend your time becoming competent at conveying real property.  Then, when you have a conversation with someone, you don't need to rely on some canned, memorized script.  You can have that genuine conversation.

But so many brokers need scripts because they are not competent and do not care about competence.  They only care about client acquisition.  And that is where they spend their time and where they become competent.  I assure you, client acquisition does not get your house sold.  And it certainly does not help you find and purchase a property.  In short, client acquisition is a totally different skill set than conveying real property.

What I love about this video is it demonstrates how real estate brokers think.  There's nothing terrible here.  There's no real gotcha.  If there was, she would never put this online.  But there can be no doubt about her single-minded focus on client acquisition.  So watch and ask yourself:  Do I want to do business with these people?

Some people, evidently many people, will watch this and say yes.  Tina Caul is very successful in this business.  And the thinking expressed in this video is pretty typical for our business.  So if they don't hire Caul, they'll likely hire someone who thinks this way.  But for those of you who, like me, find this approach sort of disturbing, demand something better.  There are alternatives.

Now, should I not post this for fear of losing business to Ms. Caul?  She is after all a master of client acquisition.  Well the type of people who appreciate her methods would never hire our firm anyway.

My favorite part is where she describes how brokers must go off script in order to respond to someone who says my grandfather died.  My God, throw the script out and have a real conversation.  Better yet, don't pick up a script, any script, in the first place.

Finally, there's one other interesting aspect to this video and some of her others.  By placing them on her public YouTube channel, she does not seem to care if her clients and potential clients learn that she is a big script-reader.  I have always thought that no one wants to be scripted, and that if they realized that you were scripting them, they'd be upset about it.

Maybe I'm just wrong about that.  Judge for yourself.

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Four Hours or Four Days?

The Immutable Laws of Supply and Demand

Yesterday, I ran into my neighbor out walking her dog.  Here's our conversation:

Neighbor  Hey, my daughter just sold her townhouse in Chapel Hill.  It sold in four hours; isn't that great!

Me  Hmm, four hours?  That seems irresponsible to me.

Neighbor  But, she got more than she expected.

Me  Well, I wonder what she could have gotten if she gave it four days instead of four hours?

Neighbor  But she was in a rush.

Me  What's the difference between four hours and four days?

I know the real estate market has gone crazy.  But people seem to have totally forgotten the fundamental laws of supply and demand.  If you limit demand, you simply cannot ensure that you will get the highest and best offer.  This is all the more true given the lowest inventory levels (supply) in recent memory.

The worst part of this is the seller has no idea what she could have gotten for her home.

Sellers:  You won't lose a buyer to another house, because odds are, there are no other houses.  Give it a week.

One point brought up in the Multiple Offer Madness post is that sellers don't want potential buyers traipsing in and out of their homes all day long for days on end.  No problem, make your agent earn their money.  Hold an open house for two hours a day – for seven days.  You might not get all the potential buyers, but you'll get most of them.

And you will have confidence that you really did accept the best possible offer.

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Buyers, Read This: Multiple Offer Madness

An Interesting Email Thread

And vital for today's buyers to understand.

These are actual emails that I received from fellow North Carolina Brokers-in-Charge.

Dates of exchange:  Monday, 22 Feb. 2021 – Thursday, 25 Feb. 2021

Format slightly edited for readability.  And to make it easier to read, I am going to reverse the order.  So you can read top to bottom...

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Monday, 22 February 2021, 8:31 PM

RE:  Multiple Offer Madness

2021 is a bit wild so far. 

The top numbers I've seen this year so far are 60 offers on one property and the most I've seen over list price is $100,000.

What are you seeing out there?  How are you managing?

Cameron Saemann

Second Story Realty

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Monday, 22 February 2021, 8:37 PM

WOW!

 

I thought 37 offers and $56,000 over list was nuts for this area.  When I schedule a hot property, I’m looking at the blackout on Showing time as a gauge of how hot it is showing and the potential of offers that will be submitted.

Carolyn Nelson

Realty One Carolina

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Monday, 22 February 2021, 8:43 PM

Ah, thanks for the reply.  Those numbers I quoted are for the Raleigh market.  I just realized I don't have my main signature on this email to show that. 

We do the same with showing time.  The requirement for non-overlapping showings has been helpful in a way in that it forces the schedule to blackout the appointments already taken, and you can generally see how many showings the property is getting, just like you said.

Cameron Saemann

Second Story Realty

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Monday, 22 February 2021, 11:58 PM

So here's the thing...we have to take some responsibility here for this madness.  Oh sure, we want to get our clients the best price as selling agents, and as buyer's agents we want to ensure that our client gets the house, but what will happen when this crazy bubble burst, when interest rates go up, and people begin to realize that they are locked into a home that they bought in a state of panic.  If home prices and appraisals are not in line with what someone has paid for their home, when and if they are upside down in their mortgage, who are they going to blame?  You know who!!! 

I stood in a home this past weekend that went on the market Saturday with the limit of 15 minutes to show it.  The listing agent provided the wrong lock box information and it took us 10 minutes to straighten it out with Showing Time.  The listing agent noted that all offers had to be in by 8 PM that night.  My clients looked like two deer caught in headlights.  They had literally 5 minutes to decide if they wanted to buy this home for which they would have to overpay, and knowing that it wouldn't appraise.  I looked them in the eye and told them that they should relax and walk away.  "There'll be other homes and more listings in a few days and weeks," I explained.  There was time...the world was not going to end if they didn't make up their minds in just a few short minutes.  I explained that there was always the possibility that a year or two down the road they might be upside down on the home value vs. the amount of the mortgage if things take a turn.  It was like I released the two of them from the middle of a  whirlwind.  They let out audible sighs and thanked me.  Later we sat down and discussed options.  I told them the pros and cons of making  an offer that is considerably higher and how this artificial inflation is actually not in anyone's best interest.  Even the sellers could get burned.  I am seeing that there are more deals that are getting canceled during due diligence.  Sellers might lose the homes they are wanting to move into because of cancellations.  The whole thing is insane.  It's up to us, the professionals to rope our clients in a bit...to calm them down so they aren't in some half-crazed buying frenzy.  Yes, they might miss out on a few homes, but it will give them time to consider their options, to make informed decisions and oh, by the way, if enough of us keep trying to control this situation, it will restore sanity for all of us.  

Am I dreaming here?  Or can we take back some of the control?  No one is enjoying this.  Sellers feel like their agents aren't doing anything to sell their homes and therefore they question why they should pay so much commission?  Buyers are angry because they have to pay so much and they keep losing out on homes so they blame their agents out of frustration.  The whole thing is ridiculous.  We are all feeling helpless but really maybe not.  Maybe we can change things by being the voice of reason.

Okay...I think I am through with my rant.  I'd love to hear from others.

Jessica Bryan

Real Living Carolina Lifestyles Realty

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Tuesday, 23 February 2021, 6:04 AM

Jessica,

You are spot on.  In my opinion the whole process started with our Government printing trillions of dollars with no basis throwing it out on public, bottom line interest rates qualifying lower purchase point clients to jump into 100k more homes, people making short term gains in “no reason stock market gains”, builders increasing the prices crazy with the excuse of increased material cost are the big balloon that is going to burst soon.

People prove again they have short memory forgetting 2000 & 2008.

Shiv Nunna

Nunna Realty

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Tuesday, 23 February 2021, 6:26 AM

Well said, Jessica.  I have felt this way for some time.  I have advised clients exactly the same.

Tim Devinney

New Native Realty

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Tuesday, 23 February 2021, 6:33 AM

I'm in Mooresville.  Same situation here.  I'm very concerned about the overinflated offers and ridiculously high DD  needed, just to ensure your offer stands out!

I'm also seeing an increase in BOM.  Whether it's Appraisals, issues with the home, buyer remorse after making a hasty decision just to be competitive...I don't know.  I also don't like the addendum agents are using stating 'if a property doesn't appraise, the buyer will make up the difference'!  No!

I'm not comfortable with any of it. 

My memory is not short!  I do remember 2000 & 2008!

Ok, now my rant is over!!!

Lucy Jacobs

The Lake Team

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Tuesday, 23 February 2021, 7:01 AM

Good conversation here.  I agree that it has gotten stretched to a point of everyone being uncomfortable.  And we are probably due for a pullback on prices and rising rates will help moderate some of the price growth.  But the money printing and markets can stay irrational a lot longer than we think they should.  And a lot of the growth we are seeing in the Triangle is relocations from large cities, the west coast and the NE.  There are many hot markets in the US due to rates but a large part of our pressure is simply not enough inventory for the number of new buyers coming to our area.   An appraiser friend of mine told me what I think is a record so far...home was listed at $990k in Durham and contract was for $250k over asking and $86k in DD money.  We didn't get it.. as if I had to say that :)

Mark Bonner

New Durham Realty

Real Estate Brokers LOVE Scripts

The other day, I referenced this Jennifer Allan-Hagedorn video in the comments of another post.  But I think it deserves its own post.  Jennifer's take on real estate brokers using scripts is very similar to my own.  She is not a fan.

But I have to point out what I posted as a comment to her video:  The fact is, many brokers use scripts because they work.  This is a reality in our business.  Most consumers only enter the real estate market a handful of times in the course of their lifetime.  So they are quite susceptible to this nonsense.  And brokers take advantage of this.

I have said this before, but it is worth repeating:  If you cannot trust someone to have a sincere and genuine conversation with you, how on earth can you trust them with something as important as a real estate transaction?

If you are reading this blog, this probably does not apply to you (whether you are a broker or consumer).  But scripts do seem to work for many.  Not sure what to do about the practice other than shine a light on it.  Sadly, I don't see a way to drive the script-readers out of the temple.

We'll come back to this topic.

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The Wholesaling Scam

A Note on Real Estate Wholesaling

Here is the wholesaling business model as I understand it:  

The wholesaler identifies a property that might be purchased for less than market value.

The wholesaler approaches the owner to discern interest level in a sale.

The wholesaler's goal is to find a property that he can purchase under market value from a less than savvy seller.

The wholesaler and the seller reach a deal for the property at a less than market value price and place the property under contract.

The wholesaler then approaches buyers (often investor types) who may purchase the property at or near fair market value.  Or at least closer to market value.

The wholesaler and the buyer go under contract at or near fair market value often using a buyer corporate entity (LLC, corporation, etc).

There may be a double closing, but it is certainly not necessary.

At closing, the buyer is introduced as a partner or associate of the wholesaler.  The buyer's entity acquires the property at market value, the seller gets the originally agreed less than market value price, and the wholesaler keeps the difference.

What actually takes place is the buyer acquires the property at the originally agreed less than market value price, and pays the difference to the wholesaler as an assignment fee.

Of course, there are variations of this.  But in any case, it's all pretty nifty, but for one little problem:  Transparency.  Three questions:  Does the seller go into this transaction fully understanding what the wholesaler wants to do?  Does the seller understand what is happening along the way?  And finally, at closing, does the seller understand how the deal is structured?

Another question:  If the answer to these three questions is yes, why would any seller agree to it?

Also:  Does the seller understand that the wholesaler has no intention of purchasing the property himself?  And can terminate the contract if he fails to find a buyer?  And here's a question that I really do not know the answer to:  If the wholesaler truly has no intention of purchasing the property and this is not made clear to the seller, is the wholesaler not in breach of his contractual duty to act in good faith?  Yes, there is such a thing:  There is a covenant of good faith and fair dealing implied in every contract.  Imagine that.

Look, I am not terribly interested in foolish sellers.  My heart does not really bleed for sellers who fall for this nonsense.  Although maybe it should.  No, rather, I am concerned with the wholesalers and their business model.  It is a business model designed to take advantage of the ignorant and perhaps the unfortunate.  It is a model of bad faith.

It's really theft.  The wholesalers are stealing equity from unknowledgeable and unsuspecting sellers.  This is who wholesalers are and this is what they are doing.  I am not calling for more laws or regulation, but I do think we should shine a light on the practice.

Real Estate Wholesalers:  Modern day, small time con men.

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Is there a Market for Competence & Integrity?

Click to find The Competent
Broker at Amazon.com

Over the weekend, I received a lovely note from a Florida broker who had found and purchased my book, The Competent Broker.  She wrote:  I found your book by Googling "broker with integrity."  So just for kicks and grins, I decided to Google:  "real estate broker integrity book."

Finally, I made it to the top of a Google search.  First listing on the first page.  Oh, there were some other books listed, but mine is, apparently, the only one on integrity in the whole real estate universe.

I did the same search on Amazon, and again, it is the first non-sponsored book listed.  Followed by books on real estate investing and flipping houses.

This was not complete news to me. When writing and later pricing the book, I was advised to look up other books similar to mine.  Book comps, so to speak.  Well let me tell you, there are loads of real estate books.  But I found exactly zero on competence and/or integrity.  Sure, there are some textbooks which cover agency and ethics for aspiring brokers.  But in terms of a book for competent, high integrity practitioners and how to identify them, I am not aware of any others.

Why?

Well I think it speaks volumes about our business.  Brokers want books on sales and prospecting and scripts.  Oh, and how to get rich selling real estate.  Consumers want books on investing and flipping houses and the latest HGTV offerings.

So, is there a market for my subject matter?  I have heard from a number of like-minded brokers such as my new Florida friend.  So I know there is at least a small market.  The real questions are:  How do we reach it?  And can we expand it?  At this point, these are open questions.

I like to think that there is in fact an audience for this type of work which has been ignored by writers and publishers searching for easy sales.

Help me find it....

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There is Only One Buyer Pool

Some people have a misconception about buyers.

They seem to believe that each real estate broker has a distinct set of buyers and those buyers are dependent on their particular broker.  So people think, let's deal with this broker or that broker because he or she has a certain set of buyers.  And further, perhaps if we change brokers, the new broker will have access to a new set of buyers.

I am not sure it ever worked that way, but today it surely does not.  Buyers, in the aggregate, are all looking at the same data.  Even if everything trickles through their broker (and today it often does not), the broker is sending them the same data that every other broker is sending to their own buyer clients.

What does this mean?  Well, in terms of searching for listed property, it means it does not really matter who you hire as a buyer's broker.  Assuming they are competent.  You get the same list of available properties as every other buyer.  For sellers, it means essentially, there is one large buyer pool.  Not many small pools.

If you are a seller, there may be many different reasons to change brokers.  But don't make the mistake of thinking:  A new broker will give us access to a new set of buyers.  Why?  Because, I assure you, if the new broker had a buyer for your property, he or she would have already brought them to you.  Brokers cannot hoard their buyers.

Okay, but what about unlisted properties?  Here, sure, there may be some broker who is aware of a buying opportunity that other brokers are not.  And hiring that broker as your buyer's agent will perhaps give you a leg up on the property.  But here's a question for you:  Do you want to hire a broker who will fail to serve his seller's best interest in order to serve his own?  Oh yes, you may get access to an unlisted property, but is that the type of broker you want to deal with?  If they will cheat their sellers, they will cheat their buyers.

Okay, okay, but what about unlisted properties where the seller has asked that the sale be kept quiet?  Yes, it does happen.  But it is rare enough that this factor should probably not be used in picking a competent, high integrity broker.

Which brings us to the final question:  If what you say is true, what difference does it make which buyer's agent we hire?  Well in terms of knowledge of and access to available properties that meet the buyer's criteria, none.  It is only after the buyer identifies a potential property that the buyer's agent earns their worth.

Choose wisely.

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