Monthly Archives: October 2011

Who’s Fooling Who in the Mirror?

Ok everyone. Buckle up. Plenty of ground to cover. Gotta move fast.

You want to sell your house and buy another one? How do you do it, in a market where the notion of a Contingent Offer is met with almost universal fear and loathing?

The answer?  You trick yourself into it – knowing you’ll probably fight your own pre-programmed subroutines the entire way.  Sometimes benevolent strategies for self-deception are the only way to circumvent your own inertia.  Who’s really fooling who when we look in the mirror anyway?

Start with a stern reminder not to get fixated on what your house is worth.  Let that go.  It’s the relationship between what you sell and what you buy that counts.
Market goes down – you sell for less, buy for less. Market goes up – you sell for more but also buy for more.  That’s the refrain you keep coming back to – until you’ve pounded it into your own thick skull, past the little voice in your head that always says “sell high and buy low”.

The next step is “research” –  which is really just a clever way of fooling yourself into not getting overly focused on the end result too soon.  Research simply means beginning  to explore the marketplace.  Seeing properties.  Getting on a search engine. Identifying priorities. Narrowing parameters.

As long as you are merely conducting research, the pressure to “buy”  the perfect dream home is off.  There’s no panic. You aren’t ready to buy anyway.

If there are two or three places, in your price range that could conceivably work  – then you’ve successfully determined that your notion of home isn’t on Mars while the market itself is on Venus.  They are in the same ballpark. Finding a few places means there will be others. That’s all you need to know.

Now it’s time to muster your inner boy scout and invite him to undertake the performance of a lifetime.  Like any great method actor, he needs to prepare. Immerse himself totally in the role.  Become the seller of your house. Even though he has no real clue how it will all play out.

The Actor gets your home ready for sale in every way possible. Deals with all the stuff. Gets the inspections done.  Knows all the answers to all the questions before the future buyer asks them.  Stages things. Creates curb appeal. Makes it perfect.

Preparing a home for sale with full intention is what opens up space for possibility.  When you start saying goodbye to the past, the home that resides in your future can emerge in the present.

One big irrational fear that often arises goes something like this: If I put my house on the market, someone will make a full price offer the first day. I’ll have to sell before I’ve found another home and I’ll be homeless!

A quick deconstruction of this multi-story edifice  tells us we don’t have to sell if someone makes a full price offer – that’s an urban myth. And listing Agents often neglect to educate sellers about something called a Seller’s Contingency – the ultimate backdoor out in the face of all offers. And, there is always Plan B, if someone makes an offer to good to refuse. You can rent. Not a first choice maybe but definitely beats homeless.

If you can only visualize going through this process if it means finding the perfect home without any sacrifice or hard work or compromise then what you are really saying is that you are willing hang onto your imperfect home that already requires lots of sacrifice and compromise so you can avoid the specter of change.

Well, with the help of a little misdirection that get’s us up to the point of actually going on the market. Maybe next week, we’ll really try to sell the thing.
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Sleepwalking Around Change

Anonymous real estate advice overheard at Gayles this week: “Never plant cactus. My son did a statistical study showing that homes with cacti sell for 3% less than homes without them.”

Ok.  Make of that what thou wilt.  Be it pearl of wisdom or prickly pear.

Meanwhile,  let’s plunge back into the subject of contingent offers.  People trying to sell and buy at the same time.  Certainly an interesting challenge in a marketplace already intimidating enough – even under the best of circumstances.

When people begin considering doing both things together, simultaneously, a simple arithmetic progression of logical cause and effect,  based on putting one foot in front of the other,  getting from point A to point B,  suddenly feels like it could slip exponentially out of control and go over the edge.

If one is prone to recurring bouts of analysis/paralysis, it can blossom into a full blown logarithmic nightmare.  A confusing mental juggling act of infinite complexity. Where each choice becomes dependent on every other choice to the nth degree.  Then it’s almost impossible to figure out what to do first.  Or second.  Let alone envision how to keep all the balls in the air once starting down the path.

We’ve been trying to wrap our minds around the multi-faceted subject of contingent offers for eight straight weeks now.  Circuitously exploring some of those quirky little nooks and crannies of real estate that have a tendency to slowly widen themselves into larger cracks and crevices of doubt.  Being careful not to let them graduate into gaping holes or bottomless pits of fear – ideal places for boogeymen to reside in.

Our winding path has wound us around to one pretty simple conclusion: The average person can’t and shouldn’t try to buy a new house first, get settled in and then try to sell their old house after the fact.

Maybe in other markets.  But not in this place.  Or in this time.  Real estate and the mortgage lending landscape have changed.  Everything we knew is wrong. They aren’t giving easy-qual refi’s or handing out equity lines like Halloween candy anymore.  So even if most of you wanted to –  you can’t leverage the money to buy first and sell second.

And those that are wildly creative and stupid enough to beg, borrow or talk yourselves into the process should read my lips – Don’t take the risk.   The rearview mirror of real estate is littered with good intentions. Stories about people who ventured onto the mean streets unknowingly addressed for distress. We don’t need anymore crash test dummies on the road to default.  Don’t become another statistic.

Almost every promise of financial gain and every ounce of intelligent risk-aversion is weighted in favor of selling first and then buying these days. Why would anyone consider doing it the other way?

The answer? We’re human beings.  We fear change.  We feel incredibly uncomfortable leaving the familiarity of what we know to move into the unknown of the future. Even though we all do it unconsciously every day when we walk out the front door.  And every sleepwalking moment after that.  There aren’t any guarantees. Even though we pretend there are.  Buying first and selling second is a way of avoiding risk of change – even when there’s a much bigger risk and price to pay for it.

So here’s the deal. Next week I’m going to tell you the right way to sell and buy a house at the same time. The safe way. The most expeditious way. In turn, you are going to have to leave your comfort zone. Buckle up and face your existential fears. Make the hard decisions and the smart ones.

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Juggling the Market

No rambling prelude or mixed metaphor foreplay this week. Let’s dive right in. We’re talking about Contingent Offers.  How to buy and sell/sell and buy at the same time in the same marketplace.  What we are ultimately searching for is an effective and graceful strategy to juggle both roles simultaneously.  A unified approach to a difficult duality. One that helps us make real life decisions that satisfy both brain and heart.

Here’s are a few basic assumptions about human nature and real estate:

1. We all want to sell high and buy low. We can’t help it.
2. What we are selling is always worth more in our minds because it’s ours.
3. What we are buying is always worth less in our minds because it’s “theirs.”
4.  It is uncomfortable to leave the familiarity of the past for the unknown of the future.  We want to know our exact future before making a change.

Here’s a side corollary.   In order to successfully navigate the labyrinth of buying &selling,  we’ve got to invent ways to talk our own ego structures down from the ledge and let a lot of our inherent solipsistic tendencies go.

With contingent offers, always best to keep emphasizing: It’s the relationship between what we buy and sell that’s important. Not the actual dollar amounts. We often get so hung up on the numbers, we insure our own penny-wise/pound foolish results.  When making big, big decisions about lives and homes – don’t get hung up in the trees.  Keep the panoramic vista of the whole forest right in front of you at all times.

So, here’s why it doesn’t make sense to buy a house first and then sell your current home second:

– In a marketplace that’s moving down – you will contradict assumption #1. In effect you’ll be buying high and selling low because of the market’s direction.
– You will spend your money first without really knowing what you have to spend.  Because you haven’t sold your house yet.  You may think you know what you are going to get ( # 2) but that isn’t the same as getting it. The market decides that.  And remember, your house is worth less to buyers because it isn’t theirs (# 3).
– You risk carrying two mortgages, paying two property tax bills, caring for two homes for some period – that increases the dreaded sell low buy high scenario – (opposite of  # 1)
– If you didn’t calculate well  – it makes you much more likely to cave in to a buyer’s demands when finally selling your house. At that point you are desperate. (negates # 1 again)
–  If you’ve pulled the cash from somewhere else to buy the new home, you are losing opportunity return on that money while you are waiting to sell…more calculus that inverts assumption #1.
– If you are using some form of creative financing to pull off buying first, selling second you’ve sacrificed the ability to lock in the very best long term loan scenario available on the home you are going to live in.  Flies in the face of #1

What’s the one thing that buying first and  selling second does for you in a market that’s getting softer?  It addresses human nature -assumption #4.  You feel a whole lot safer emotionally – because you already know exactly where you are going to go. You can move  into your future home before leaving your old one. On the flip-side – going to such great lengths not to feel the emotional risk may end up creating a huge amount of financial risk on the other end –which will in turn overwhelm the emotional risk you were trying to avoid.

Next week:  How the Selling First and Buying Second Scenario relates to the Four Assumptions

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Contingent Offers: Two Headed Beasts

More  extended musings on the challenge of Contingent Offers – in a marketplace that just isn’t designed to embrace them.

For those that just tuned in.. Contingent Offers are two headed beasts.  Would-be Buyers who are also Wanna-Be Sellers.  Buyers who offer to buy your home with one big catch (or ‘fatal flaw’) included:  They gotta sell their own house first.

And because you too are a Seller in this market and you too would like to become a Buyer – you already know that it isn’t easy to sell.  Why would you take the chance that it’s going to be easier for someone else?  Except for the fact that you don’t have a hell of a lot else going on at the moment.

And that begs the question … even if a contingent offer doesn’t work out in the end, does it feel better to accept it and go through the motions with a sorta, maybe, kinda offer that could possibly work, rather than to continue sitting all addressed up with nowhere to go?

Like it.  Lump it.  Or toss that contingent offer out the window onto the scrapheap of good intentions littering this particular stretch of the road we’re on…  Contingent buyers simply can’t do the buying part without selling first.  They are the living, breathing embodiment of one immutable truth: The yin and the yang of buying and selling are not separate.  They are inextricably linked.

Buyers are Sellers. Sellers are Buyers.  One has to go around for the other to come around.  If the natural flow of the market’s Qi is interrupted, the collective body suffers.   Not to get all zen-ny on you but enlightenment must reside somewhere in this suffering.

Let’s see if I can really tweak your brains.  Sherman has been revving up the Way Back Machine while I’ve been blabbering and we’re all traveling back in time to another chapter in my own fractured history.

The year was 1993. Real estate was mired in a long downturn.  The late 80’s had crescendo’d on its own wave of irrational exuberance.  The savings and loan crisis morphed into a credit crunch.  Unemployment was high.  80-10-10,  Double Income No Kids Buyers from the peak were now divorcing parents – underwater on their $500,000 executive-level mansions and bringing money to escrow to close them.  And contingent offers were a bitch.

I had one listing on the market for two years.  We finally got an offer from someone who had to sell their house. Since nothing else was happening, my Seller took it and ventured into the breach. We opened escrow and waited for the Buyer’s house to sell. And waited. And waited some more. Finally our Buyer got an offer but that person had to sell their house too.  Then, that person got an offer from someone who also had to sell a property. And so on.

By the time the cascade of contingent offers settled – there were 22 transactions stacked up like a row of dominos – all waiting for the first one in line to fall so the others could fall into place.  I traced the missing link in the daisy chain back to a tiny condo in El Secundo listed for $40k.  It was the key to everything.

After more than a dozen calls, I enlisted a dozen agents trapped in the collective contingent Catch 22.  They chipped in and we purchased that little condo in El Segundo together.  Like clockwork, all our other deals closed.  Millions of dollars changed hands.  Countless lives transitioned forward.  And then we went back and sold the condo for $42,000.

Moral to the story? Not sure. I’d like to think it’s: All it takes is one.  Maybe that one is your house. Or the house your buyer is trying to sell.  Gotta start somewhere.

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Slow Dance with the Devil

The paradoxical nature of Real Estate.  Feels like a game of Chutes and Ladders doesn’t it? Each roll of the dice holds the potential to move us one step closer to our goal or two steps back. Or even worse:  to plunge us completely down a slippery slope into the bottomless pit of debt and despair.

Welcome to the decidedly uncomfortable zone of real estate of mind. The place of contingent listings and contingent offers. The place that asks:  How do you sell and buy? Both at the same time? In a difficult market where they are each hard enough to accomplish on their own – without having to worry about the other.

So many questions.  So little time. So few column inches…

This week we continue our slow dance with those devils hidden in the details. The ones that migrate to the surface when the average person tries to figure out how to gracefully navigate their way between their present home and their next one.

Let’s start with the most fundamental question:  Whaddya do? Sell your current home first or buy a new one first?

The conventional wisdom always was:  Sell First – Buy Second.  That’s because for most of real estate history there weren’t any other conventional ways to get from here to there.  You had to sell first to get your equity and retire the mortgage. Without a downpayment and a clean slate, you couldn’t qualify to buy.  Simple as that. The process dictated your path.

But here’s the interesting thing about real estate… there are always edge points cropping up along the razor’s cusp between head and heart.  Little pockets of resistance that lie in wait to test our resolve. Odd disconnects that tug on heart strings, push panic buttons, tickle neural pathways of greed and provoke random onslaughts of selective amnesia.

Sometimes human nature says one thing and rational, reasonable thinking about real estate says another.  Cognitive dissonance arises.  Counter-intuitive voices emanate from the brain.  It is always fascinating to watch people try to sync their intellectual and emotional IQs together into a harmonious approach.

If  most of us had our druthers,  we’d always buy the new house first and sell the old one later.  Letting go of “all things familiar” is incredibly hard for human beings to do.  We’d rather see the dust settle. Catch our breath.  Establish a routine.

It’s our nature to resist change. We don’t like taking leaps over the abyss into an unknown future.  It feels incredibly risky to give something up before we get something else.  Given the choice we’d rather avoid this kind of risk at all cost.

Enter 2005-2006 – when suddenly all the constraints of the process were removed and we got the choice. Equity lines were available.  Easy qual loans didn’t care about our debt ratios.  We were free to indulge our fear and avoid doing anything that felt too risky –  by blindly choosing to do something else that was way more risky in fact – like buying a house before selling the other one.

Seemed like a good idea at the time….Now that we truly understand the cost and conventional wisdom has been restored to the process, we don’t have the choice anymore. We are back to staring our own human nature right in the face and confronting our fears around change.

Most of us know we’ve gotta sell in order to buy now…so let’s move on next week to effective strategies for doing just that at the same time we find the courage to cross over the abyss between past and future.  The market needs more contingent buyers and sellers.
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