Al Geffon: The Care And Feeding Of Real Estate

With all the ills of the housing market nationwide, one would think that the airwaves would be saturated with those infomercials about making instant millions in real estate with no money, no job, no credit … after all, if there was ever a time to kick people when they’re down, this is it. Those video predators abounded when things were relatively stable; but they all seem to have disappeared.  It got me thinking … where are all those guys?  They were always good for at least a late-night laugh.  My curiosity got the best of me … here’s what I discovered about the more infamous ones:

Carleton Sheets:  the old warhorse is still around, but all of his advertising is now on the Internet.  I took a peek, and it’s basically the same old hogwash.  The emphasis on instant success has been considerably toned down, and there’s a hint that the “program” may not be for everyone … which is about the only piece of credible information on the site. 

Robert Kiyosaki :  The Rich-Dad, Poor-Dad guy is still spinning his dual parenthood rags-to-riches tale (again, largely on the Internet). There are some new gimmicks.  Now, all of a sudden, you’re not smart enough to do this on your own, so you need a “coach” … for a hefty fee, of course.  You might as well get all that bogus information one-on-one.  He’s also teamed up with another guru, Russ Whitney (you remember … while working in a slaughterhouse butchering animals, he came up with this “unique” concept, and wound up a millionaire in 90 days).  Russ’ organization is contracted to run Kiyosaki’s “seminar,” basically a $500 sales pitch aimed at intimidating attendees into signing up for more “training,”  for anywhere from $2,000 to $12,000.  I got a look at a session through a Canadian reporter’s undercover exposé. The instructor should have been wearing a ski mask and carrying a gun … and some of the “strategies” are downright dangerous (“Apply for as many credit cards as you can, and get the maximum limit on all of them.  You’re going to need that money to make more money.”).  Is this how “Poor Dad” became poor?  He’d better put in a call to “Rich Dad” to bail him out ... perhaps literally.  Canadian authorities are investigating. 

Robert Allen: Here’s the guy who plucked a “random” individual and “trained” him/her for 30 days, after which he/she purchased a property with no money.  Allen filed for Chapter 7 Bankruptcy in 1996 ... looks like he didn’t have any money either.  I guess his “trainees” gobbled up all the good deals.  He has a website which hustles his books and other materials, but there’s no mention of any new seminars or overnight success stories ... apparently, he’s done “plucking.”

Ed Beckley: This is the folksy Iowa farm boy who hawked the same old no-money-down crapola, but in a down-home twang.  For 7 years, Beckley’s “down home” was federal prison, having been convicted of fraud in 1993.  He had also had filed for Chapter 7 Bankruptcy.  After his release, he got back into the infomercial racket, touting “home-based businesses” (a monumental flop) and, of all things, practicing yoga to become rich.  He was shut down by the authorities, citing his failure to deliver refunds as promised … lots of them.  ”Lotus position” is apparently not on the pathway to wealth.

Sonny Bloch: The quintessential hustler, Sonny was all over the place … even had a syndicated radio show for years.  He caught the eye of the Feds, who indicted him for fraud in 1995.  Sonny did what any red-blooded American would do … took his ill-gotten fortune and fled to the Dominican Republic.  He was extradited to the US in 1997, but died awaiting trial in 1998.

Dave Del Dotto:  In his heyday, he was on just about every TV station after 11:00 p.m., bragging about making all that money selling his books and tapes (you remember tapes), but rationalizing that the information was so valuable, he deserved it.  He made at least a dozen infomercials, and even had a few over-the-hill celebrities as “hosts.”  1993 was a banner year for Dave … he was indicted for fraud (settled for $200,000), his office building was foreclosed, and IRS placed a $240,000 lien on his home.  He filed for Chapter 7 Bankruptcy in 1995.  Today, however, he has rebounded, and owns a vineyard in Napa Valley, CA.  I wonder if he bought it with no money down.   

Tom Vu:  This guy is my personal favorite ... a living caricature, as hilarious as any sitcom.  A Vietnamese immigrant who talked down to viewers in broken English, he was always surrounded by scantily-clad bimbos posed on a Rolls-Royce in front of this palatial estate.  His shtick was arriving in America penniless, working as a busboy, until he had this epiphany about buying up all those distressed properties with no money.  His tone was incredibly condescending, spewing forth such gems as, “Do you think these girls like me?” along with the retort, “No, they like my money!”  According to him, you’d be stupid and/or a wussy not to attend his free seminar:  "Are you afraid to ask your boss for the day off to come to my seminar? Well, then you don't deserve to be rich."  "Don't listen to your friends; they're losers!"   Vu eventually felt the heat, and shut down his operation in favor of a more dependable income … playing poker!  He’s actually won over $1.5 million, and is a semi-regular on the tour.  Those girls must really like his money now!  

William McCorkle:  He and his wife, Chantal, took the no-money-down scam the extra mile, and paid dearly for it.  His pitch showed the usual fancy cars, a multi-million-dollar mansion … even a helicopter with his name on it.  He didn’t own any of them.  All were leased to film the infomercials.  Those glowing “testimonials” came from paid actors.  He stashed his money in the Cayman Islands, which, along with other shady activities, led to indictments for fraud, money laundering, unauthorized use of credit cards, and false Social Security numbers (1998).  William and Chantal were sentenced to federal prison for 27 and 23 years respectively (yikes!), although both terms were later reduced a bit.  Chantal filed for divorce, was released this past June, and returned to her native UK.  William is due to be sprung in 2014.

Now that I can’t depend on these guys, I’ve got to find another way to get rich quick. As Tom Vu said, “Sure, it’s get-rich-quick.  Life is too short to get rich slow.”  

Despite being an inexact science, real estate is all about numbers … here are a few to ponder:

About 2% of sales wind up closing as FSBO’s … conversely, approximately 98% do not.  The last figures I saw showed 93% MLS and new home sales, and 5% "other" (agents selling their own listings, etc.).  Transactions such as family transfers and other non-traditional sales are not included.  This begs the question, if marketing one’s home is so uncomplicated, why aren’t more people doing it? 

Well, about 98% of those properties starting out as FSBO eventually end up being listed.  Much of remaining 2% is comprised of homes that are withdrawn from the market, likely for a number of reasons … a sale at actual value would not generate enough of a gain; sellers would be insulted to accept so little money; they’re simply tired of having to keep the house in showing condition month after month, only to have curious neighbors, “tire kickers,” and other unqualified or disinterested people traipsing through their home ... it’s not as easy as it looks after all.

Simply put, most FSBOs overprice their houses, not because of greed, but lack of knowledge.  We’ve spoken with many over the years … and be it a sentimental attachment; a need to recover big bucks spent on major repairs and renovations (including over-improving a home for the area); reimbursement for what they’re leaving behind (appliances, fixtures, window treatments, etc.); a specific dollar amount they need to purchase their next home; how much their neighbors got for their place … or most likely a bit of everything … they end up using the convoluted method we describe as PFA (Plucked From Air) to establish a price.

It doesn’t help that many FSBO’s initially view Realtors® as nothing more than commissioned salespeople (we might as well be selling used cars) who spend most of their time driving around in BMW’s showing pretty houses.  So, for one of us to come along and recommend a lower price, in addition to taking a cut off the top, is thievery, plain and simple.  In their eyes, all we want to do is sell their place quickly at a discount, even if we make a little less for ourselves, so that we can move on to the next victim.  Funny how we finally become their only viable alternative ... and after successfully concluding the transaction, earn the respect we deserve.  Perception isn't always reality. 

This is an era of preparing all sorts of legal documents online, and being able to find anything at the right price on eBay and Craigslist … so why not sell one’s home in a similar manner?  We couldn’t get a straight answer from any of those fee-based FSBO websites … their success rate (i.e. closings as opposed to listings); how long a property stays around; how many are withdrawn without being sold … all we ever received were some testimonials.  We don’t doubt their validity ... but even a blind squirrel finds an acorn now and then.

OK … off the soapbox and back to our FSBO family: we called them right after our clients declined to make an offer, and requested to visit with them, if for no other purpose than to provide some information.  The last thing we’d want is a significantly overpriced listing, and all the drama that goes with it … but these were lovely people, who were obviously in over their heads.  We brought a very detailed CMA with us, broken down sq.-ft.-by-sq. ft., room-by-room, home-by-home, block-by-block … as fine-tuned as we could get it.  The conclusion was that about $210k … $25k under their asking price … was what they could realistically expect, unless a cash buyer (or at least one with a large down payment) came along and fell in love with the place.  Overcoming today’s appraisal situation (another topic altogether) has become yet one more obstacle to surmount when selling a home, even for professionals.  We were able to provide photos of their "comp," since we had represented the buyers.  Their facial expressions said it all ... they'd move into that home tomorrow, especially for only $13k more than they were asking for their dated property.  Overall, they were appreciative of our efforts, but concluded that they could not list at the recommended price (even without a Realtor®), since they’d have to bring money to the table.

 Just when we’d pretty much exhausted our search for a home in our clients’ desired area, up popped a For Sale By Owner sign.  Here’s what our preview visit revealed …

The house was pretty typical for the area … 3/2/2, just over 2000 sq. ft., about 50 years old.  The location was fine, and the curb appeal excellent.  The sellers maintained it pretty well … and while they’d done some updating, much of the home, particularly the kitchen and bathrooms, was either original or close to it.  We did our homework, and came up with a ballpark figure in the low $200k’s.  The sellers’ asking price was $235,000.  They agreed to a 2% fee for a quick sale (within 30 days), but had no intention of listing with a Realtor®.  They figured they’d be saving over $9000 in commissions ... and since their sign attracted us so quickly, selling the home (either to our clients or someone else) would be pretty much a slam-dunk.    

When asked how they arrived at their list price, they stated that they’d based the number on several factors … their neighbor’s recent sale, the money they’d invested in the home, and the mortgage balance.  They calculated the amount they’d need to move on, and priced the house accordingly.  It made perfect sense … to them. 

We were quite familiar with the “comp” property, having been the buyers’ agent in the transaction (unbeknownst to these sellers).  That home has four bedrooms, is about 200 sq. ft. larger, and absolutely pristine … a total makeover, professionally renovated by one of the best in the business.  It sold in six days for $248k.  To get these folks’ place into similar shape would require pretty much a total gutting.  $30k - $40k for the kitchen and baths alone would not be out of line … not to mention the additional bedroom, hardwood floors, new doors and windows, etc.  This was the quintessential apples-to-oranges comparison.

The major portion of the FSBOs’ “investment” was for maintenance and repairs, the biggest chunk going toward the foundation and under-slab plumbing ... not unexpected in this location.  What the sellers fail to understand is that, as costly as those items were, they can’t be factored into a home’s value.  If anything, failure to attend to such matters would decrease a property’s worth, since the new owner would have to address them.

The sellers had to take out a home equity line of credit (HELOC) to pay for most of the repairs.  Had the money been spent on upgrading the kitchen and baths, it would have been another matter.  But to expect a new owner to reimburse them for necessary maintenance, in addition to undertaking a major remodeling project, is totally unrealistic.

Unfortunately, how much one needs is often unrelated to what one might realistically expect to receive.  Most sellers fail to realize that they do not establish value … buyers do, by their willingness or reluctance to pay a given price for a particular home.  It’s that elusive phenomenon referred to as “the market.”  In this case, our clients felt that too much work was needed to bring the home up to their standards, and declined to move forward.  We found them a terrific property just a few days later, and they love it.  As of this writing (five months after our visit), the FSBO property is still on the market, still for sale by owner, still at $235,000.  Within that subdivision and its surrounds, most homes sell within ninety days.  More to come on this one … stay tuned; details at 11:00.

In our more recent contacts with past and present clients, a common concern has continually emerged:

They’ve outgrown their present home, and would love to “move on up.”  Market conditions are skewed toward buyers, so they know they can get a nice deal.  But they’re also convinced that they can’t sell their place for what it’s worth.   

We view it a bit differently … and if you’re in a viable position (i.e. some equity in your home, stable employment, manageable debt, solid FICO scores, etc.) you may well be able to avail yourself of the most buyer-friendly climate in recent memory ... perhaps ever!   

It’s all about overcoming the thought that your home is worth so much, and that taking any less would be an insult … essentially a matter of shifting your focus from personal to business.  Here's the key point: once your house goes on the market, it’s no longer your home in the traditional sense, but rather another asset that you wish to sell ... like Grandma’s antique chair.  Although easier said than done, emotion should play no part in the transaction … and if you look solely at the bottom line, it will all make sense.   

Since it’s based on numbers, the general perception is that real estate is absolute, i.e. a given property is worth $X.  In truth, a home’s actual “market value” is not set in stone, although it might appear so for tax purposes.  This is what brings forth all the misconceptions about being “taken” when selling in a “down” market.  The fact is that you don’t establish your home’s value, nor does the tax man.  Simply put, it is worth what qualified buyers are willing to pay for it.  Please don’t confuse these good people with “low-ballers” and “tire-kickers.”  We’re talking about serious folks actively looking for a home, and who are as anxious to purchase as you are to sell.  Once you understand this, everything falls into place.

Viewing it from this relative perspective, the transaction is much the same as trading in your old sedan for a new SUV.  The deal becomes particularly attractive because of all those rebates and other incentives.  True, you may not get full “book value” for the clunker, but those concessions bring the actual difference in cost down to a comfortable level … and you drive away happy, in a better ride. 

Similarly, if your home is perceived as being “undervalued,” so are the others; and right now, there’s one huge incentive sitting out there  … interest rates at or near record lows.  This alone could save you hundreds per month.  So it’s possible that your bottom line may actually be close to what it is right now … and you’d be in a home that better fits your family’s lifestyle.  Here’s something else to consider: when the market rebounds (it will … just when is anyone’s guess), and it comes time to sell once again, you’ll have a more valuable asset to offer. 

If you’re looking to downsize to a less expensive property, current conditions could also work in your favor.  Should you decide to remain in your new home indefinitely, you’ll have bought it at a great price, and with outstanding terms.  So, you could be no worse off than you would be in a “better” market... and perhaps in a more favorable position. 

Sure, if you have no plans to replace your home, you’ll likely take a hit … but most sellers today are looking to upgrade.  Ironically, this may be the ideal time to do so.  Naturally, each situation is different, but it’s something definitely worth pursuing.  As Einstein said, “Everything’s relative.”