Cash Is a Commodity
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Lately I have been re-reading Profitable Real Estate Exchanging and Counseling by our founder, Richard R. Reno. On page 122, he writes:
“Don’t Worry About Cash”
“While cash is necessary to pay the bills and expenses of operating an office, an exchangor should not curtail his income by refusing to accept anything except cash for his pay. The exchangor looks at money from that point of view. Therefore, if there’s no money available in a transaction, he will often take some other worldly goods in payment for his services.”
Reno believed a broker would curtail his income if he accepted only cash fees. If the broker’s income is curtailed, it could only be because a transaction did not happen. A client’s situation was not solved because a broker stood in the way and refused to accept anything but cash for his fee. Let’s see, no transaction, no fee…a broker’s income is curtailed.
Reno goes on to say, “Since cash is just another commodity to be purchased or rented at a price, then it becomes just another commodity to exchange—like all other worldly goods.”
Cash is just a commodity to be exchanged for other things. We don’t eat cash. We don’t sleep on it. We exchange cash for food, transportation, a place to live. “Cash is just a commodity to exchange—like all other worldly goods.” Cash is a commodity to exchange just like notes are a commodity. Rehab buildings, land, boats, and cars are all just commodities to exchange.
Reno also cautions, “Don’t be a junk man.” You should not take something if it does not properly compensate you for your work. For example, if your fee was $50,000, should you take a note valued at $30,000 as your total fee? No, of course not. Should you take a $50,000 lot that will need to be resold or exchanged, perhaps at less than $50,000? No, of course not. Should you take a $150,000 vacant building with a $100,000 mortgage? Probably not. However, should you consider a $60,000 note if it helps your client solve a problem? Should you consider taking a $150,000 piece of free and clear land that needs a price reduction…maybe? How about a leased $150,000 building with a $100,000 mortgage…perhaps? How about that vacant building for $150,000 if you can make closing subject to finding a tenant (that will bring the value up to $250,000)?
Many years ago, I found a parcel of land I wanted to buy for $125,000. The seller was willing to hold a 90% deed of trust. The commission was 10%, and the broker would split the fee 50/50 with me. I offered a nasty, old, run-down house for $12,500 with the 90% contract. The listing broker could have the whole fee if she would take the house as her fee. She said, “I wouldn’t take that house if you gave it to me!” In my mind, I was giving it to her, and she did indeed refuse to take it. Thirty days later I sold the house for $16,500 with $1,500 down, monthly payments, and a five-year balloon. By insisting on getting her $6,250 cash co-broker fee, she missed out on a much bigger fee. Even worse, her client, the person whose fiduciary responsibility she had, missed out on what to him was a full price offer because of her short-sightedness. A year later I asked her if the property ever sold. She wasn’t sure; the listing had expired, and the seller didn’t renew with her.
She didn’t help her client, and she missed out on a fee of over 13% with no co-brokering involved, all because she “couldn’t afford” to take less than her 5% cash co-broker fee. Remember that 100% of nothing is still nothing!
OK, Mr. and Ms. Exchange Brokers, do you agree with Richard Reno that “cash is just another commodity to exchange…like all other worldly goods”? Without becoming a “junk man,” are you ready to accept “other worldly goods” if they reflect a proper compensation for your fee and if doing so enables you to fulfill your fiduciary relationship to your client?
Are you ready to set yourself apart from all the other good brokers in your area? As an exchange broker, you must remember that “cash is only a commodity to be exchanged…like all other worldly goods.” That concept works for you just as much as it does for your clients.
