Tip #1 From Mom: Don't Trust Realtors That "Sell" You On Buying.

I learned my approach to Real Estate from my mother growing up buying homes (insert “awe” here).

A Realtor’s job shouldn’t be to talk people into buying. However too frequently you’ll hear Realtors saying “Now is the time to buy” or “We have reached bottom.” Maybe they believe it, maybe they are brainwashed, or maybe they are lying. Irregardlessly* in reality Realtors don’t know where the market will be in 1 month, 1 year, 5 years or 10, and don’t believe somebody whose pitch is always the same… UP! (*yes that is a made up word to see if you were paying attention)

What many Realtor know is if they can convince you to buy, they might make another sale! More Sales = More $ for the Realtor

One lesson stood out most from my mother…

On a sunny spring day in 1995, my mother was working with her Buyer Agent Realtor, about to put in an offer. The Realtor kept looking over my mother’s shoulder as she was deciding on a price to offer on a house. The Realtor was not the Listing Agent, but her Buyer Agent (supposedly looking after her best interest). The Buyer Agent Realtor kept saying in a “salesy” fashion: “$XYZ would be a great price!”, or “You will make a ton in 2-3 years!” and “You should put $XYZ!”

My mother stopped her and said, “Let me ask you some questions,

  1. “You will make money if I buy this house right?”
    The agent replied “Yes”
  2. “Will you be sharing in my risk if this property goes down?”
    The agent replied “Sorry, No”
  3. “Will you be making more money, the higher this offer is?”
    The agent replied “Yes”
  4. “Is the % likelihood of this deal being accepted go up with every $5,000 higher that you recommend we put in here? And thus the more likelihood of you getting paid?” The agent replied “Yes”

    “Then please be quiet and let me think.”
    (she probably wasn’t as nice as that).



Warning, blatant subliminal sales pitch approaching: When it comes to price, a Realtor’s job should be to delivery information, not suggestions.
The Realtor might use their experience and compare the bidding process to a trip to Vegas and say “at this price you might have a 25% chance of getting it, at this price an 80%”, but when asked “What should I pay?” a Realtor shouldn’t answer that since they have a bias and it isn’t their money. Only the buyer knows their risk levels, how the monthly payments will feel, and how much they love the place.

Don’t get me wrong, a good Realtor can help you get a lower price (ask for some testimonials) and come up with a strategy to do such, but they should not say “If I were you I would bid $XYZ.” Trust me (never trust anybody that says “Trust me”), the higher the price, the easier the job. Fighting to get that last $5k or $10k is the toughest part*, but important especially if the market goes down more, you’ll be glad you fought for that last $10k.
(*Note that some people would rather just buy at full price and have an easy transaction, we can do those too, whatever is important to the buyer.)

I can’t really list all the insider buyer agent techniques on a public Blog being read by my competition, but one example would be to not stop at finding one great home, but finding 2 or 3 houses and taking a “round robin” approach. Offering a price on one, and if that doesn’t work, bid on the next one, then the next and then back to the first with a slightly higher price and repeat as necessary (are you really supposed to “shampoo and repeat?”) until somebody bites.

And lastly, don’t trust any data from NAR, The National Association of Realtors. Just don’t do it. Ignore it. As Peter Coy wrote in Jan 8th’s BusinessWeek, NAR said on 12-12-05 Prediction: “The national median home price will rise about 6.1% in 2006. Over a full year, it has never declined since good record keeping began in 1968”- NAR. This was followed up by “The Reality: Through October (06), the median price of residential properties was down 3.5% from a year earlier.” (Actually probably more like 5% when you include seller subsidies, see earlier Blog on MRIS data.)

Yes they can make one mistake, but the NAR president repeatedly says we are at or near the bottom.” My earlier Blog exposes a NAR advertisement that says now is the time to “Buy Or Sell”, while only listing reasons to buy. How can one time happen to be perfect for both sides? I’ll tell you, when money is involved and it flows to the recommending party, that is how. Also the data is manipulated (see MRIS data report Blog).

JUST ADDED
Here was the T-Shirt that I was giving my clients at their closing. Even when buying a $3M house. This proves that I warned them about a potential bubble:

The 2004 version was featured in a Article (near end).
– – – – –

Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4006

  • 6
  • January
  • 2007

16 Responses to “Tip #1 From Mom: Don't Trust Realtors That "Sell" You On Buying.”

  1. Barbara LaPlante says:

    I am a REALTOR and can’t think of any better reason to hire a buyer broker than to get advise regarding what price to offer and what to expect during real estate negotiations. The goal is to negotiate successfully, not to waste time guessing at prices and losing the property.

  2. Frank LLosa Broker says:

    Hello Barbara!
    Kudos for being an agent surfing fellow Realtor blogs. I appreciate your comment, as it highlights different styles.

    Many people think all we are is glorified pencil pushers and an evil necessity. While sometimes true, we also work differently and one should find an agent that works in a style that fits.

    Again, I never say “you should offer $XYZ”, like Barbara might. Instead I supply the buyer with a ton of data and we go over how each should be weighed. In the end buyers need to balance the following:
    * How much they love the place.
    * If they lose the place will the world end.
    * Their time constraints (are they getting evicted tomorrow or do they have a couple more months). One should avoid buying under duress.
    * Their financial situation and ability to afford.

    In my opinion, a Realtor can’t answer the above, only the buyer can. The less the house is a “absolutely must have” the lower they might bid. If you are filthy rich and price isn’t important and
    you would die without that house, then yes, I might say “lets go in full price and get this over with.”

    Quick story:
    During the bidding war days of 2004, everyone was saying that “now is the time to buy” and to hurry up before prices go up. Meanwhile Wall Street Journal’s Bob Haggerty interviewed me and years later said that I was one of the first agents that questioned the run up. He then showcased a tshirt that I created and gave my clients that said “I just bought a house during the 2004 Housing Bubble.” On the back it continued “And all I got my from Realtor is this lousy tshirt”.

    This one Realtor used to brag to me about how aggressive she was able to get her client to bid on a contract and how great it was that she won so frequently. SOmetimes over 10% above list. Meanwhile I bragged about LOSING on offers until we we finally able to win one with NO ESCALATION CLAUSE and we were the LOWEST offer out of 7 contracts. Saving my clients upwards of $50,000. Saving them the money makes me proud, not pushing them to overpay and lose 100% of their equity in 1 year.

  3. Anonymous says:

    Since I prefer not to make impulsive decisions which I may later regret, I do not interpret taking my time, as “wast[ing] time guessing at prices.” If someone comes in and purchases something our from under me, then it simply wasn’t meant to be.

    Next time I am looking for a house, I will be sure to steer clear of that approach.

  4. Kaushik Sirkar - Realtor says:

    I like the story with your mother….too many realtors are that pushy ‘salesperson’ type….here’s to the agents who dispel that notion!

  5. Daniel Lowery - Realtor says:

    I also liked the post, I agree that there are many pushy realtors out there,

  6. ARDELL DellaLoggia -Realtor says:

    Great Stuff!! Love the name and T shirts…but do they come in black. White makes me look heavier.

  7. Chris Elizabeth Griffith Bonita Springs Real Estate says:

    That is AWESOME! Thanks for the post!

  8. Kevin & Sherry Spengel says:

    I couldn’t agree more. I had a good friend come over to pick up some local real estate information for her parents. After a few minutes talking at the door, kids, school, weather – really anything buy real estate, my friend said, “I tried to get my mom to come in with me, but she doesn’t want to feel pressure to buy a home from you.” Remember, we weren’t even out looking, we were in my entry way! I can only image her perception of REALTORS.

    This is my “selling” theory. I don’t “sell” buyers houses. I provide them with ample community information, home information and show them what they want to see. I point out lovely features of a home, and its drawbacks. I’ve even told clients when a house isn’t for them. You can’t make someone buy their largest investment. I’m here to help the client find a home that fits their needs and wants. And then I make sure they get it and the process is as stress-free as possible.

  9. Brandon says:

    It’s such a joy to see realtors like you exist. My wife and I are trying to buy a house in the San Francico area. I know, I know, it’s stupid to buy right now, but my wife wants a house before we have babies, and I want babies before I’m a geezer, so out shopping we go. We bounced around open houses and talked to realtor after realtor until we found one we :

    A) Enjoyed talking to, and who talked about more than just what house we should buy.
    B) Asked us about what we wanted in a house, and told us about down points as well as up points on houses she thought we might be interested in. (traffic, noise, neighborhoods, rental properties adjacent, schools, etc.)
    C) Talked us down from offering on a house we loved but could barely afford saying “You need to see a lot more properties before you decide, especially as there are other offeres on the table and you don’t want to get into a bidding war at the edge of your pricerange in a soft market. There will be other properties.”
    D) Will take us to see FSBOs, saying she’ll be the agent for us but to remember that we must add 3% to the price for her fee. (She’s upfront about it.)
    E) Tells us what she thinks of the selling price (usually over priced, occasionally priced well for current market conditions) and says we should always start offering lower.
    F) Reminds us to think of what costs we’d have on top of mortgage payments when we’re looking at properties in need of ‘fixing’
    G) Shows no sign of being in a rush to get us into a property, and sees us as ‘investment’ herself. If she treats us well and works with us, she knows we’re going to probably use her no matter when we buy.

    She thinks that properties are likely to remain flattish or with small declines in the near areas of the Bay Area for a few years with the suburbs/exburbs bearing the brunt of the market correction.

    As for my wife and I, we’re planning on offering well under asking prices and waiting and waiting until a house we like comes a long at a price we like. And our Realtor seems to be okay with that.

  10. FRANK LL0SA Broker says:

    Hey Brandon from San Fran!

    Thanks for your thoughtful post.

    Just keep in mind that the goal shouldn’t be getting the biggest % below list.
    I’d rather buy a place for $5k OVER a list price that is low than “save” $50k on a house overpriced by $100k.

    Good luck, and no I don’t think you are dumb at all for buying. Seems like your #1 reason is family and you have a long term horizon, that is perfect.

    As for what the Realtor says about the market, I would ignore that. She means well, but read my post on stockbrokers vs Realtors.

    How did you find my blog anyway?

    Thanks

    Frank

  11. Brandon says:

    I found it from doing research on what the market is looking like and will probably look like in the near future. Basically, we’re hoping to get a fix’er upper to cut down on the amount of money we have to put ‘up front’ (while still putting 20% down) with the expectation that our house will lose 20% of it’s valuation anyway, and instead of building equity from insane property value growth, we’ll get it through remodelling and expanding and actually paying our mortgage with a 30 year fixed.

    My concern is getting us a house we can buy down with our two salaries and afford with one when the kids come, but still have enough space FOR those kids. Buying now with the thought of ‘trading up’ in a few years in the current market situation seems like a recipe for disaster, so we’re looking for a
    1) Good school system
    2a) Big enough for two kids or
    2b) Remodelable into 2a if need be.
    3) Not so far away from our jobs and likely future jobs as to make life miserable.

    Needless to say, we have 2 very different price ranges for 2a and 2b.

    Our favorite spot to look right now is the outskirts of a great school town (woodside) that because of its location and distance from the town proper almost acts like a suburb, and has seen pricing come down unlike the ‘core’ cities in silicon valley like Cupertino.

    It’s still too pricey, but we plan on round robining properties there until we get a seller willing to sell for what we’re willing to pay. With properties in the 100+ DOM there, I feel we can afford to play the waiting game.

    I agree that we shouldn’t base things on % below list price, but on what we think is a value we’d be happy with. Sellers still have their heads in the clouds in the Bay Area a bit, and I fully expect a 20% price correction followed by flat growth for 3-5 years, so we may have a while before we find a fit, but we have enough for well over a 20% down on a mortgage amount we’re willing to accept, so our ‘stretching’ for higher houses involves a higher down payment, not a higher loan amount.

  12. Charlotte Real Estate - David Kyle, Realtor, e-Pro:Charlotte says:

    Your Mom is obviously not familiar with the market here in Charlotte. National forecasts do not apply because the market here is UNDERVALUED and the appreciation it has had in the last 5 years has been slow and steady (about 2-5% a year on average). The bubble you are talking about is relevant to cities that have had high appreciation with a percentage increase every year. The majority of these cities are way over the equilibrium price set by Local Market Monitor. Check this link:

    http://tinyurl.com/huawj

    Also considering the amount of loan fraud that occurred in Charlotte over the last 5 years, foreclosures are at an all time high right now. It really is easy to find properties needing only cosmetic fix-up that will leave the buyer with at least 10% real equity once the work is complete. It’s so bad, that the State legislature has started a committee to address the problem.

    http://tinyurl.com/35p4gj

    I do understand the point your mother makes. Yes, there are unscrupulous people out there that will say anything to anyone. Not the case here. I realize that buying just ANY house on the market here would not necessarily make for a good investment.

    As I stated in a comment, that blog was just a test blog to see how it looked. Had I expanded on the one sentence I wrote, I would have stated I was talking about the plethora of opportunities to “buy right”.

    I agree with your statement that noone can know for sure what a market will do, but considering the above mentioned factors, I feel it would take something catastrophic for the Charlotte market to depreciate. Therefore I stand behind my statement,“IT’S A GREAT TIME TO BUY IN CHARLOTTE!”

  13. FRANK LL0SA Broker says:

    Hello David,
    Thank you for your comment. I am happy that you made your comment. One thing is for me to write something that makes me look good, but it is even better if somebody else writes something that makes me look good.

    You still don’t get it. It doesn’t matter if the market has skyrocketed or if it has tanked. DC or Charlotte, it doesn’t matter. I’m not saying that it WILL go down, I’m saying that Realtor’s can’t time the market and buyer’s should ignore Realtors that say “Buy now.”

    I’m not saying that you are a liar or unethical, and I do believe that you mean what you say, I’m just saying that Realtor’s opinions on the market direction are worthless.

    And to say that foreclosures are on the rise and you can get a good deal? Um, again, you make my point exactly. Your client buys a foreclosure and what if foreclosures continue to drop the value of homes? Your assumption is that this is the bottom in Charlotte (in regards to foreclosures. Things can always go lower.

    And I bet those foreclosures are actual real people that lost their shirt. Perhaps from shady lenders, but I bet they had Realtors along their side saying to “buy now in Charlotte.”

    Thank you

    Frank

  14. FRANK LL0SA Va Broker- BLOG.FranklyRealty.com says:

    Thank you CNBC for linking to this blog post.

  15. David Kyle says:

    LOL! Frank, your arrogance AND ignorance blind you.

    I most definitely get it. Your con-man spin with logical fallacies don’t fool me or anyone for that matter.

    Previous market conditions ABSOLUTELY DO MATTER! And yes it does make a difference if it is DC or Charlotte.

    Yes you are right, Realtors can’t time the market. But knowledgable ones can analyze data and offer speculative properties that are low risk.

    You may think my opinions are “worthless”, my clients have found them invaluable.

    And no, I did not make your point. You make way too many assumptions, and you know what they say about that…

    Your comment about “foreclosures continue to drop the values of homes” makes absolutely no sense. You clearly do not understand real estate. Let me clear it up for you:

    Between 2003 and 2005 it was extremely easy for anyone to get a loan. I’d say 30% of those approved had no business getting one in the first place.

    Reality has now caught up with them, which is why they are being foreclosed on.

    There are no assumptions here. Investors can make tidy profits in Charlotte right now due to: a)The slow and steady appreciation of the Charlotte market. b) The fact that it’s harder to get a loan now and c) These people who got foreclosed did not take care of their home, and they need anywhere from 10-15k in fix up.

    The average buyer has a hard enough time coming up with a downpayment. Someone who can come out of pocket with that kind of money practically doesn’t exist.

    Therefore the only people willing to buy them are investors who will only pay a price that will show them a good return.

    For example: a client of mine just closed on a HUD for 137.5k. It is worth between 165-172k fixed up. It needs 12k to fix it up.

    Do you not understand that many buyers out there can get a loan for 165k, but are unable to purchase it for 137.5k and have 12k laying around to fix it up? It’s simple economics.

    There you go with your assumptions again. Whether a Realtor was telling them to buy or not is irrelevant. The point you are missing is they were NEVER a qualified buyer to begin with.

    You and your pompous ego don’t know everything. Your broad and inaccurate generalizations DO NOT apply to the Charlotte market.

    It’s clear you do not believe me, so maybe you should watch this video and perhaps it can explain better than I.

    http://abcnews.go.com/Video/playerIndex?id=3272735

  16. […] have referred to my mother several times in my blog. I’ve learned more about real estate from her than anybody else, […]

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