The real estate business model, part 3: tragedy and farce in three acts.
“We met our agent Galahad at an open house about five years ago, and he helped us buy our first home. The market was really hot then so it took us about a year to buy. We kept making offers—everyone had to in those days—and prices kept going up and up. We got really discouraged. But Galahad stuck with us and I think he really worked hard. He sat down with us for hours, explaining all the disclosures and trying to write our offer the best he could without us having to overpay. Finally the market slowed down, prices eased up and we found a home we could afford.
We still love it, but now my daughter is bigger and she’s close to school age. And I just found out I’m pregnant, so we’d like to sell and get into something bigger that has better schools. We called Galahad, oh, almost two years ago and he’s been working with us ever since. We usually look on our own on week-ends, but Galahad always goes out before and looks at homes for us, and sends us emails about the ones he thinks we’d like.
We’re in no hurry. We have an extra bedroom for the baby, and we can always send our daughter to private school. We really want to live in Wonderfulville but we can’t afford anything there we like, so my husband says we should do what we did last time and just wait for prices go down. I told him it doesn’t make sense this time, since now we have to sell our home to get a bigger one. So lower prices will hurt us as much as help us, but he says our home is so special it’ll hold its value better than the others. But Galahad says since our home is next to the freeway, it’ll go down in value more if prices go down than homes in better locations. He says we should just buy what works for us, and not try to time the market. My husband says Galahad just wants to make a sale.
Sometimes I do get the feeling Galahad is a little frustrated with us. We’ve been kind of bouncing around, trying to find bargains and under-priced areas, so we can get everything we want. We haven’t found anything yet, but it’s important to keep looking. After all, this is a big move. But you know, we’re not sure we’ll move either. Maybe we’ll just send the kids to private school. Or maybe we’ll buy an investment property, either here or in our home country where it’s a lot cheaper.
Anyway, Galahad should be happy we’re going to let him sell our home too. He’ll be making two commissions. Well, one isn’t a full commission. We met an agent at an open house who said he’d give us a great deal on selling our house, and we were going to go with him, but then we decided to call Galahad and see if he could match the offer. He couldn’t, but he came close, so we’re pretty sure we’ll use him. And we get mail from another agent who sells lots of homes in our area, so he must be good. But you know, we’re not sure we’ll sell.
And yeah, there was that agent who sold the house next door. He told us our place is worth a lot more than Galahad says. Galahad said he was trying to "buy the listing", that he’d get us where we had two mortgages and had to sell, then tell us prices had gone down and that we had to take a lower offer. We’ve known Galahad a lot longer than this guy, so we decided maybe he was right.
But you know, one of the people in my office just got her license. She’s only a part-time agent but she’s very helpful. I just happened to mention this to Galahad and he got really paranoid. He should trust us more. But she really wants to make her first sale, and she said she’d give us a fantastic deal on the commission. She’s young and always upbeat, and sometimes Galahad sounds a little beat up. And she thinks our house is really special and worth lots more than Galahad does. I’m really tempted. We like Galahad but hey, we gotta do what we gotta do.”
Remember, “intense, complex and typically lengthy.” This might be a commission check for an agent, but which one? Most real estate transactions take months or even years to develop, leaving plenty of time for one agent’s clients to become another's. Delayed gratification and dead ends are a big part of the agent's job, and in the meantime, he has bills to pay. Not only that, those dead ends and real future deals cost the agent money to pursue.
Okay, you’re thinking, but that’s my agent’s problem, not mine. Wrong: any problem in the delivery system is your problem. Like it or not, all of us—both the providers and the consumers of real estate service—are on the same treadmill.
Now let’s hear about a relationship that was intense, complex but atypically brief.
“Should I start? Ahem. Well, some dear friends recommended Galahad. They used him a few years ago to buy their house, and he’d rented out a condo they owned, got them some great tenants. We were thinking of moving down south to be with our son and his wife and new baby. The wife is…well, I think she could use some help. My son says we should stay up here, but we’ve owned this house for forty years and now it’s just too big for us. And we’d like a change of scenery. So we were thinking of renting out our home for a while until we knew we really liked it down there. Then we thought maybe we should just cut our ties and sell. We were going back and forth.
Well, wouldn’t you know, as soon as I started telling people that we might sell, some of them said they were interested! My tailor has a relative who buys and sells homes, and she said he was very interested. Isn't that nice? Some people who rent in our neighborhood heard about it and they came over and said they might want to buy it too. Another one of our neighbors is an agent and she said she’d like to buy it too! They all wanted to buy our home off the market so we could save money by not paying a commission. We were just thrilled! Homes were hard to sell when we bought ours forty years ago, so we we loved the idea of selling easily and without fixing things up. We dreaded the idea of being on the market for months and months, with open houses, and strangers just showing up on our doorstep without calling. And we’d be getting twenty times what we paid for it.
But then Galahad came over and told us we’d lose money by selling our house off the market. He said that sales are so good these days that if we put it on the market we’d probably have—what did he call it?—"multiple offers”, people bidding against each other to buy our home. We thought he was just saying that to get money out of us. You hear such terrible things about agents. But he gave us something called a Comparative Market Analysis, and it showed what homes in our neighborhood were selling for. It turned out that our house is worth thirty times what we paid for it, not just twenty. We were shocked. I guess those other people didn’t know how much our house is worth. My goodness, Galahad kept us from losing hundreds of thousands of dollars.
He spent hours sitting with us at the dining room table, talking, helping us. He walked around the house with my husband and made suggestions, inexpensive things we could do that'd make us money when we sold. He even met with a couple of contractors. And we didn’t always talk about real estate. My husband had had cancer a while back, and he has a bad heart, and we talked about that. Galahad seemed genuinely concerned. His wife had had cancer too. My husband was an engineer before he retired and Galahad's father was too, and he told us his parents moved here about the same time we did, so I think he felt kind of close to us. He really seemed to care what happened to us. He found us places to rent near my son, and he found out whether we could transfer our property tax basis down there. Yes, we owe him a lot—I told him so—and we’ve decided to move and put our house on the market.
We’ll let our neighbor the agent sell our house. She’s just down the street and she can keep an eye on it. Yes, she did want to buy our home cheap, but now we know what our house is worth, and we’re sure she can sell it. After all, she’s an agent, and they’re all pretty much the same.”
The moral of this story might be, “no good deed goes unpunished”. Here an agent piles up treasure in heaven that won’t pay his earthly bills. You hustlers out there will have also picked up on something you already knew and that puts food on your table and a late-model luxury sedan in your driveway: some lambs are determined to get fleeced. Lead them to safety and they just keep heading back to the shearing station. There’s good, steady money in this.
Have all the sharp objects been removed from the room? Good. Let’s roll the last interview.
“Well, we met Galahad by accident. We’d walked into Mega Realty looking for another agent who’d been recommended. Galahad happened to be there and he told us the agent had gone to another company. He was all set to give us her phone number but I said no, that’s okay. I’d never met her and Galahad looked kinda promising so I thought “He could work.”
Long story short, he helped us buy the home we live in now. It wasn’t easy—this was back when the market was going nuts and everyone was making multiple offers. One guy I work with had to make ten offers before he finally got a place. We only had to make two, and it would’ve just been one if my wife had listened to Galahad. The second time she did, but what’s weird is that our offer wasn’t the best. But we’d given the sellers a picture of us—Galahad said we should—and when they saw it, they recognized us from when we’d been over at their home the night before checking it out, and they said we should have the house. The other agent told Galahad he’d never seen that happen before.
Well, much water passes under the bridge and now we have a kid and Skippy—he’s just two—he says he wants a back yard. Hey, we thought, maybe it’ll settle him down. And besides, we were ready for a change. Condo living was gettin' old. So we started looking again on our own. I think we would’ve called Galahad anyway but he called us first. He happened to be looking at a house in Sunnyvale and saw that my wife had signed the agent's guest register and left her phone number. My wife thought the agent really liked us and wanted to sell us the house. Galahad told her the agent would’ve wanted to sell us the house if we were Mr. and Mrs. Sadam Hussein.
So Galahad calls us and starts looking. After a couple of months we had to stop ‘cause I lost my job, but I found another one pretty soon and we got right back to it. My new job is partly inside sales and I’d complain about how flakey my customers were, and Galahad would just nod his head. After a month or so we found a home we really liked and wrote an offer but then Galahad found out there were eight offers on it—the day before there’d only been two. So he calls me up and says we don’t have a chance unless we really improve our offer. I thought he was just trying to hustle us so I told him we’d stay with what we’d written. Turns out we were about fifty thousand under, so of course we didn’t get the house.
Right after that Galahad found us another house but we really didn't like it. It wasn’t fixed up, and the school district headquarters is on the other side of the back fence so there’s this big parking lot back there where they keep their buses and stuff. But it was in our price range and nothing else was, so finally my wife went over to look at it with him. He walked her over to the district office and they found out they don’t park anything noisy near the house, no buses. So that was better. Then he went through the house with her and showed her how it had potential. He even thought we could get it for less than what they were asking. But I still wasn’t interested, and then he showed us another house we liked a lot better because it was all fixed up, so we made an offer on that one and in the meantime the one we didn’t like, the one next to the district headquarters, it sold. And then we didn’t get the house we liked. They got five offers and ours came in second—we missed it by just ten thousand dollars.
Well, my wife, she'd been calling one of the big agents in the area, Al Scuzzball, just to see if he had any homes coming on the market. In fact, Al was selling the house we didn’t like. She’d mentioned to Galahad that Al did a lot of business—she was going to suggest that Galahad keep in touch with him—but when Galahad said Al was a lowlife she just figured it was sour grapes and got kinda pissed. So the morning after we missed out on the second house, she calls Al to see what he has for sale and he tells her the house we’d passed on has just fallen out of contract. I don’t know if she mentioned we were working with Galahad, but anyway Al told her that unless we used him to write our offer he was going to put the house back on the market so anyone could buy it. And we had to pay full price. Galahad had said we could get it for less, and I guess we still had time to call him up, but we wanted a sure thing—after all, we were doing this for little Skippy, and we really wanted out of the condo—so we hustled on down to Al’s office right away and he wrote up our offer. We didn’t even go through the reports—he just had us sign them without looking—and we were in contract and out of there in less than an hour.
So I’m back at work by 9:30, sitting at my desk, enjoying a cup of coffee, thinking “This is how people should buy real estate”, because after an hour ol’ Galahad would’ve just been getting cranked up, still going though the reports, still talking about the disclosures, not even close to writing an offer. He takes all that stuff really seriously, bless his pointed little head, but there’s just so much I can take. Bor-ring!
Anyway, I don’t know what we were going to tell Galahad—maybe we were going to tell him we’d stopped looking, ‘cause that part was true—but our loan agent sits next to Galahad and she told him what we’d done. She told us later he looked like he’d been hit with a brick. So my wife calls him and she says, “We like you but we did what we had to do.” Galahad asks her if Al gave us a discount since he’d gotten two commissions, one for selling and one for buying, and of course he hadn’t. We didn’t even think to ask. Galahad said some listing agents use the discount as a come-on to buyers. He said he doesn’t do it because he doesn’t represent the buyer and seller in the same deal. He says that when the listing agent works for both sides, the courts figure someone got screwed, so he won’t do it.
So then escrow closes and we drive over to the house and then we start seeing how hammered the place really is. The reports say there’s about $20k in drainage work that has to be done, plus lots of little things that start adding up, plus all kinds of termite work. Then we take up the carpets and find out the hardwood floors are ruined—the tenants had pets. So now I’m living over at Home Depot nights and week-ends, getting all the stuff we need so we can make the place decent enough to move into.
So now I’m at work, it’s 5:00, and I’m about to hit Home Depot hard again, and I’m sitting at my desk thinking “We wuz robbed.”
Spotlight dims on slumped figure at desk. Curtain falls.
Next, The real estate business model, part 4: it's a funny business.