Getting Cash Fees in Exchanging
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Editor’s Note: This article first appeared in the May 1972 issue of the Real Estate News Observer.
Cash is not a forgotten word in exchanging. It is not a bad or dirty word. Like many courses of events, exchanging sort of took root in Oregon about 1960 – and while slow to grow and prosper, by the turn of the decade it had become something entirely different.
In Eugene, in only 10 years, it went from 6 people to 60 people. It went from no trades in 2 years of meetings to $5,000,000 in closed exchanges in 1970.
Of the early philosophers of trading many are gone. All of the early techniques and forms have changed. During this metamorphosis it became necessary to concentrate on technique, and not on result – and the classroom was in the field.
There were no classes on “How To” or “Why To.” We learned by doing and making mistakes. Those of us who saw something we liked in exchanging leaped in. In order to learn exchanging we had to do it, and not being adept at it we had to do it every chance we had so that we could get good at it.
Our passion was for the opportunity to learn this new knowledge and the other considerations were often thrown to the wind. One of those considerations was the necessity of a cash commission. We listed at 5 or 6% and took paper, property – real or personal, or a promise. The goal was to learn to exchange – trade. They began to go together. Escrows awakened to this new technique and a foundation was laid by the traders whereby they didn’t care what the commission was as long as they got it somehow.
All of us were still selling and the cash commissions from that aspect carried us while we learned this new technique. We were enthralled. It was an exciting prospect. To be able to exchange anywhere in the State, the Nation, the World. We glamorized it and pushed people into it. We wanted to share all the glories of a national market and the aura of the “big time.” The glamor of closing a deal in Phoenix or L.A. or Dallas and of clients flying in to close an exchange.
During this time various techniques of exchanging evolved and basically split into 2 directions. Reno and the people theory and NIREB and the numbers theory. As these camps became stronger and put out courses and classes on their techniques, a body of knowledge began to assemble that allowed a person to become very knowledgeable and actually specialize in exchanging.
It was at this point that the carry-over practice of taking anything for a commission in an exchange began to take its toll. Good Realtors who had done well on selling for cash fees and exchanging for paper or equities were now concentrating on exchanging, and as their cash sources dried up and their alligator equities multiplied, they found themselves in trouble. Many of them folded up and moved away.
As exchangors incomes began to reach unheard of highs – $30,000-$50,000 to $100,000-$200,000 – a year, their overheads grew like topsy and no one was paying much attention to the economic facts of life. Enough cash had to be generated to pay all the bills.
Generally, the people who took to exchanging were the giants, the cream of the crop: the intelligent, ambitious, open-minded individual who saw not only a better way to serve his clients but to make better use of his talents, and create a larger income for himself. Those people are here today. And it is this day that we shall start the last phase of this cycle. The first phase was recognizing that exchanges were possible, and that they were highly useful in solving clients’ problems.
The second phase was education and practice: studying exchanging, learning techniques, formulas, solutions to problems, starting on counseling, changing customers to clients, commissions to fees, going out and writing exchanges and closing them.
The third phase was specialization. Gaining a great body of knowledge and becoming a professional with skills unknown to the average Realtor. Developing a language and a prescribed course of study with recognized certifications and designations such that, at the end, all the world knew you to be a pro.
Now we are destined to complete that cycle and finish and polish that craft, that profession, to the high gloss intended for it and its practitioners.
Those of us doing exchanging must now start to derive cash fees. We must not only ask for and get cash fees, but we must also start to conduct our business and ourselves such that we are not looked upon as “swingers” who make $100,000 in paper and equities but cannot pay our rent and phone bills for lack of cash.
I say to you today, I have been one of the worst offenders. I have talked to many groups, taught many classes, attended many classes, all of them devoted to the first 3 phases. I became the first Certified Property Exchangor in Oregon, and then the first Certified Commercial Investment Member. I was an early member of the Society of Exchange Counselors. None have attended more classes on real estate in the last 10 years than I have. I have seen my financial statement and my income grow to heights that as a school teacher I did not believe existed.
Over the past six months, I have come to realize that too many exchangers of my acquaintance have fallen on hard times. So, let me answer the question: “How do you get cash fees in exchanging?
No. 1: Mentally prepare yourself that you are going to be paid in cash for your services.
No. 2: In first and second contact with client, and at any time they bring up the subject of your charges, spell it out in C A S H. Don’t worry about it. Let them know you are a professional who commands cash in the marketplace, not discarded equities or slow pay paper.
No. 3: If they ask how they are to pay your fees, look them in the eye and say, “How do you pay your attorney, or your doctor or your accountant?”
No. 4: If you are just taking the listing, suggest they start saving to pay closing costs and your fee in cash.
No. 5: Put them on a counseling fee basis paying you a monthly retainer that will be credited toward a later fee.
No. 6: If the client asks if he can owe you the fee on a note, think about it. Have a standard answer for that approach. “Yes. My fee, if you pay with paper, is 11% instead of 7%, and it is at 10% interest, all due 5 years.” When he says “My Gawd, I can borrow it from the bank at 8-1/2%,” you say, “Fine, why don’t you do that?”
No. 7: If they say they cannot afford to pay you in anything but equity, say “We can’t afford one another.”
No. 8: Sell the client on the benefits he is getting from the exchange and why he should pay cash for those benefits.
No. 9: Keep reminding yourself that this client would probably not offer paper or property to any other professional for services or goods. Why should you have to take his offerings unless you want to?
No. 10: Look for exchange transactions that not only solve your client’s problem but also have cash hidden in them. Look at these examples
F & C properties.
Properties that can be refinanced.
Hard money loans in your area on equities.
No. 11: How about the big fees? – above $10,000
A) Cash down payment 20 – 30%
B) Balance at high interest-short term
C) Up fee to cover discount: 11 – 15% instead of 7%.
D) Secure it on property – real or personal.
E) Take group of smaller notes for easier handling – to exchange or discount.
No. 12: Educate the other brokers. Cash for cash – kind for kind.
No. 13: We can all get back to cash fees if we really want to. We led ourselves and others away from cash fees – we can lead ourselves back.
The main rules to remember are:
- Think cash fee when counseling B. Expect it of client
- Ask for it
- Do not alter your stand unless you wish to.
This report was given to members of the National Society of Exchange Counselors at a production meeting in Moorea, the society islands near Tahiti. Mr. Misko was asked to research the problem of “Few Cash Fees in Exchanging” and this report is the result of his research.
