|FAIRNESS AND HONESTY...
DO THEY FIT IN CREATIVE REAL ESTATE BUYING?
Question: If I buy a property for $50,000 and sell it two days later for $100,000,
have I cheated anyone…or was this just a good business transaction for myself? For the
analogy, let's consider the following seller types, and see if the "type" of seller
makes any difference:
- The seller is an elderly woman whose husband recently passed-away, and who knows virtually
nothing about finances, much less real estate values. She is distraught and sees me as one
who can save her from financial ruin if I can only help her convert her only rental property
to cash without too much delay.
- The seller is a young couple with income property, whom have grown weary of managing
rental real estate and just want "out." They find themselves in a serious financial
bind, and just are willing to take my word and my sales pitch relative to the value of the
property, if only I can convince them that I am trustworthy.
- The seller is a fellow real-estate investor, who is anxious to sell at a good discount,
being wholly unaware that the city's formerly announced plans to build a freeway immediately
adjacent to property (which he fails to tell me about) had been permanently cancelled just this
morning (a fact to which only I am privy).
In each case, I have seen an ad in the newspaper that says" Property for Sale, Seller will
Carry. Make an Offer." I answer the ad and set up an appointment with the seller. I make
my low-ball ($50,000 offer), justifying it with the assertion that repairs, refurbishment and
remarketing costs are going to be exorbitant, and that I need to build-in at least a 20% profit
for myself. I then explain that even though the property may be worth $100,000 I’m probably
going to receive no serious offers higher and $90,000. At first, they decline, holding out for
more money, but being over-the-barrel, they quickly recant when they see me about to walk way.
At that, the seller accepts my story and clearly sees that I know my business and am a real
Now (a week later, let’s say)…I do a NARS PACTrust™ at a Mutually Agreed Value of $95,000
to a couple acquiring their first home. I show them comps at $110,000 and minimize the cost of
the repairs that will need to be made. I walk away with $45,000 less a few costs.
Now the real question: Who got cheated here? A, B or C…and why would/should it make a
difference? Honesty is honesty, isn’t it…irrespective of whom you’re dealing with? Of course
most people would say that the deal would have been OK with client "C," and maybe even
Mr. and Mrs. "B," but that I shouldn’t have done such a thing to little old
The key here, in my opinion, lies within the phrase "Fair Market Value." Let's analyze
the words for which the initials "FMV" stand and see if any one of the three sets off any bells or
whistles in our conscience? Not that we’re not supposed to stand and salute when the phrase
is uttered: but "FMV" is what a reasonable buyer acting on reasonable (accurate and honest) data
is expected to pay, as long as its "FAIR." When I am the buyer, I determine the amount I'm
willing to pay (take it or leave it: Golden Rule... "I got the gold I make the rules"); when I'm the
seller, however, I don't have the right to trick someone into paying more for something than I know
its worth…especially by withholding information or misrepresenting pertinent facts ('got burned
like that once myself on a mail order I placed for some Sea Monkeys). As a professional... I'm
someone who sells wholly because of assertions that I personally make, and can prove, re. my
integrity and trustworthiness (as you undoubtedly do as well): as a buyer I am one to check out
all the possibilities and verify all the data for myself, rather than expecting someone to be
particularly honest or do it for me.
Here’s the true key to success (and fairness) in all business transactions (called the Hubbard
- Show up
- Pay attention
- Be honest
- Remain unattached to the end-result
That’s it! As simplistic as this saying may seem at first glance, it is truly the most complete
road map to fair dealing and success in business that I have ever come across. It simply will not
(can not) fail you. Remember that buying a Tiffany lamp for ten dollars at a garage sale, and
selling it the next day $20,000 (although a "dealer" might be subject to scrutiny), is not the
same as selling a ten dollar K-Mart look-alike for $20,000 by sticking a fake Tiffany label on
it. "Caveat Emptor ("buyer beware") went the way of Snake Oil, mood rings and
Spiro Agnew (and those stupid do-nothing Sea Monkeys) a long time ago. Wait! Wait! Better
example...too close to the fire to see the woods (to mix a non-metaphor)! I frequently (very
frequently, as a matter of fact) buy and sell SFR properties for more than they're worth.
Sometimes, a lot more than they’re worth. But the reason I do that is because when I buy
them, I get something of significant value in addition to the property itself... I get
"terms" and "concessions" (no down, no bank qualifying; no credit qualifying; no risk, no
argument...just shut up and take it). In all of these cases, I’m willing pay for those extras
that I get. Then, when I eventually bring a resident co-beneficiary into this property (via a
two-tiered PACTriust™), the property’s true value is fully disclosed and completely understood.
Then to that "true value" I add the value of the terms and concessions that I am willing to
extend (no down, no credit qualifying, no penalty for BK’s, past foreclosure, etc.).
This all then
adds up to my own "MAVI (i.e., Mutually Agreed Value at Inception)," which is always the true
appraisal value, OR the underlying loan amount: whichever is greater…plus the value of all my
concessions. Why shouldn’t one pay more if they don’t have to qualify, and if I’m going to trust
them when no one else would (lenders, other sellers, etc.). Now…whose being cheated? Me? My resident
co-beneficiary? Or…is it the seller, whom, if he knew as much as I do about land trust
conveyances, could have done the same thing himself, and not had to relinquish his property
ownership at all? Why, he might even have been able to earn back all that equity he lost, and all
the appreciation he missed out on due to the preceding recessionary period. Now I’m the one who
will profit. Fair? Unfair? Honest or dishonest?
Quick Start Success Pack by Bill Gatten
Bill Gatten, www.landtrust.net
is an accomplished Real Estate Investor, Author, Lecturer and
Sales Trainer. With over 40 years experience in banking, equipment
financing and leasing, and real estate investing, Bill is considered among
the top Creative Real Estate trainers in the U.S. today. His book, No Down!
No New Loan! is now in its second printing. A new book for investors is
due out in 2002: 'Making it BIG in Creative Real Estate...for the Cash,
Credit, Income and Experience Challenged.'
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