S.E.C. Real Estate Observer

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The TV ad for Priceline “pick your own price,” using humorist William Shatner of “Boston Legal,” encourages the consumer guy to “no, no, don’t settle, keep negotiating,” until the guy gets the $250.00 hotel room for $99.00 = “Now you’re negotiating!”

Probably the same advice is appropriate for today’s real estate market. What was a GREAT deal two years ago is not even close to a FAIR deal today. The few left with cash and credit are sitting on the sidelines and don’t know what to do, or they want both your daughters and your mistress or they won’t play.

I have always taught brokers that if nothing is happening, “BUY SOMETHING” (being an exchangor, I mean acquire something). This is the best discount sale market I have seen since I started in the brokerage business in 1960.

For the true exchangor (those of us who had to learn to exchange before the bubble because there were lots of motivated sellers and no buyers), we used to counsel sellers toward flexibility by various cheerleading quotes like, “There are 1,000 more equities wanting to be spent than there is cash. Why don’t we see how we can change your circumstances toward your objectives with these motivated equity owners and stay away from the cash-waving killers?” Or we used to play games like, “Here is a check for $1mm for your equity! This check is only good to buy equity. You can’t get cash. Let’s make a list of the things we have to accomplish with this equity and then go out and find the various pieces that can be acquired with these credits to get you down the road toward solution.” Colby Sandlin, S.E.C., used to start a meeting process with a check for $100,000.00 cash (he was probably the only one in the room at the time who could write such). Everyone was encouraged to write their best offer to get him to trade his cash for their deal. He took the best deal and offered it out to see what was the best offer he could get to take that vehicle(s), and on and on until the good deals were good enough to get back the $100K, and some equity left over to pay the brokers handsomely.

“I gottah million of em!” some old comedian used to say. And that is so with S.E.C. processes that make deals happen WITHOUT CASH. These are the market conditions that make exchange counseling the easiest it will ever be. (I used to tell people who asked what I do, “I’m a motivation-seeking device.” Now, the whole marketplace is motivated, but most don’t know how to harness that.) If you go back and review the “formulas” list from old (before the bubble), you will find many that are just regular tools in today’s marketplace (like “definance,” “backside benefits,” “overtrade,” “discount-buyback,” “REO,” “writedown,” taadah, taadah, taadah!

The market is full of folks trying to get away from the loan they owe on their property. The second-highest motivation is the undeveloped land, lot, unfinished improvements, has no takers (no financing for it and no takers for the finished product). Working all the definance miracles and throwing in land as “must-takes” is finding prolific use. The “short sale” is probably the most profitable (and acceptable to lenders) formula around for houses. I am exposed to at least two situations where the lender has agreed to take 60% of their loan amount, plus pay all closing and brokerage costs to get a new buyer at the now discounted price.

Client counseling is now the secret to closed transactions (instead of price and terms). WARNING: You really have to get into all the “don’t wanter’s” issues in order to serve him, but DON’T dive into his sinking boat with him.

My first step (after extensive client counseling) to transact is to find the entity with the most use for what you want out of, regardless of what they have to use to acquire with. An S.E.C. friend asked for ideas to solve his vacant building and we came up with 17 pursuits to find, or blackmail, or buy, or create the perfect user to get in there. Now, Bob Steele, S.E.C., Chet Allen, S.E.C., and others have a market making entity that traffics in vacancy as a commodity.

You have to throw bait that is eaten by the fish that are here. You get nothing by using what “worked back home.” The biggest transfer of wealth happening today is taking from the lender (who became the over-investor), revising the finances of the consumer and giving the upside or profits to the smart guys who solve it.

You wanna be one of the smart guys? Go to the courses presented by the S.E.C. Education Foundation and learn how to counsel and use formulas.