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This book is written with the idea of helping the general public understand the process of purchasing real estate and improve their outcomes. It is written from a perspective of being a loan officer and real estate agent trying to help people with precisely that issue. While there are lessons of mindset and how to think that might assist a beginning agent or an experienced loan officer herein, it is not intended to be a technical work or one that is capable of creating a finished real estate agent. In order to do that, I’d have to teach in-depth strategy, on the same level as a chess grandmaster, and that’s not the kind of book this is. It is intended to help the average person comprehend enough of the process that they will be able to make better decisions. I’m also going to talk about the interactions of the loan process with the purchase process, but from a point of view of facilitating a purchase on better terms. Learning about what real estate loans is a different subject, on which I have already written a complete book. This book is to learn about buying real estate, not loans.
This is not about ‘get rich quick’; this is about ‘learn how to buy better properties with fewer problems and more potential while spending less money.’ Real Estate, at least at the levels the average person has the resources for, is not about immediate million dollar profits. It’s about awareness, work, and risk management. That said, most of your gains will happen because you bought the correct property, although the gains are never realized until you sell.
This book is also about realizing the traps of the business. One thing to keep in mind during all discussions of real estate and loans is that the amounts of money are relatively large, and therefore the incentive to attempt tricks with a comparatively small return is high. If someone can entice you to willingly pay ten percent, or even five percent higher price than a property is really worth, that is a large piece of profit. On a $300,000 property, a 5% difference means $15,000 more in their pocket, $15,000 less in yours, and $15,000 more you’re going to be paying interest on while you own it. I’m not even going to pretend to try to teach the nuts and bolts of all the tricks that can fool prospective buyers. For one thing, there are too many. For a second, I’m as certain as I can be that not only do I not know them all, nobody knows them all. In fact, I regularly encounter new variations on old familiar favorites. I’ll discuss the patterns that the most common ones fall into, and how to ask yourself questions that reveal whether someone is likely to be trying to pull a fast one on you.
Real Estate is adversarial by its nature. I don’t mean comic-book melodrama spitting lines of bad dialog or clever insults adversarial, I mean adversarial in that most aspects are win-lose. The buyer wins when the seller loses, and vice versa. The buyer makes more money when the price is lower, the seller makes more when the price is higher. The buyer wins when the seller has to pay for something, the seller wins when the buyer has to pay for it. There is often a degree of comity, but that doesn’t mean the adversarial nature goes away. Instead, it is hidden, glossed over. That’s even more dangerous to the average person. If they’re acting like a take no prisoners comic book villain, you’ll figure out the game pretty quick. If you don’t understand the fundamentally adversarial nature of the transaction, you can be lured into a sense of complacency, and many people are.
There is only one thing in any given situation that the parties are guaranteed to have their interests aligned in: That the buyer wants to buy real estate and that the seller wants to sell it to them. That the seller and buyer want different things is what can allow both to benefit from a transaction as a whole, but every little component of that transaction is still adversarial. Understand this. The other side of the transaction has a fundamental reward structured into it every time they can get you to pay something extra, or sign off on something they don’t have to do. On one level, this is a reason for making all the choices in the transaction the traditional way and negotiating counter-concessions for each deviation. On another level, for a seller who can and will do something extra for a buyer that most sellers can’t, this means they can extract a higher price from buyers who need that something extra. Contrariwise, a buyer willing and able to put up with a seller who wants or needs concessions other buyers cannot or will not put up with can extract a lower price in return. Sometimes, the other side in the negotiation is so unrelentingly adversarial – nipping at every little point – that the smart response is to simply say “no”, and if they want to cancel the transaction as a result of that response, so be it.
This book will have to touch upon the loan process with an eye towards how it relates to the buying part of the transaction, but this book is not intended or designed to be any kind of instructional text about loans. For that, I must refer you to “What Consumers Need to Know About Mortgages”, which I have previously published. A book intended to cover both processes would suffer too much digression to be comprehensible to a non-professional. The two processes are in aid of the same goal, but they are almost entirely parallel processes happening at the same time rather than intertwined in any significant way beyond the obvious fact that the loan needs to fund in order to complete the purchase. As a working professional, I have no difficulty in telling difference between when I have to pass a piece of information on to the loan processor or underwriter, and when I have to pass it along to the transaction coordinator or other side of the transaction. There’s really only one event – consummation of the transaction – that needs to go both places. Even removal of loan related contingencies only goes to the sale side, as it’s completely uninteresting to the loan process. I suppose failure of the transaction has to go to both places as well, but if your agent and loan officer are competent, those are both rare.
The process of a real estate purchase is often byzantine. Due to the presence of an adversarial interest, negotiations and actions whose success depend upon the other side being rational will fail when then other side isn’t rational. In general, there is nothing that you can do to force them to be rational – getting the courts involved is going to cost more than the amounts at stake in all but a tiny minority of cases. The question becomes, “Given that they are insistent upon this course of action, what is my best and most rational response?” Sometimes, it emerges that you are at loggerheads due to a fundamental incompatibility with what you need out of the transaction. You need a seller carryback, they need every dollar for the down payment for their next property. They need a fast escrow, you need six months to sell your current property. Sometimes, such needs are really only “nice to have” wish lists and you can decide to change your mind about your side of it, but you can’t force the other side to change their minds – all you can do is offer incentives for them to do what you want. If the incentive isn’t enough, they’re going to do what they want to do and you can only act based upon what might as well be an unalterable fact of the universe. And if you offer too much, you’re not working in your own best interests.
Copyright 2016 Dan Melson. All Rights Reserved.
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