I confess, I buy my own listings…can this be ethical?

I am a real estate agent. Let’s face it, when it comes to nest egg options, I doubt my broker has a 401k prepared for me. Therefore, I’m also a real estate investor. I buy homes and hold them for the long term. But what happens when these two roles collide? What should I do if, during the course of listing a home, I tell myself, “Gee, this is the exact type of home I’m looking for!” (Note: I really don’t use the word “Gee” in real life.)

Real World Situation

I just got off the phone with a nice young lady in my neighborhood, Georgetown Village, and was following up after a listing presentation I gave a few weeks ago. I was just about to finish the phone conversation when she made a comment that went something like this:

Some of my neighbors mentioned that you might not have my best interest in mind. They said that homes are selling in the $100/SF range and you list yours lower to maintain your statistics and sell your homes quicker (Note: My career average is 35 days). They also felt that there might have been a conflict of interest since you bought our neighbor’s home at a low price when you listed it, thus lowering values in our neighborhood.

I told her that it was a great question…and an honest one at that. I really respect the fact that she had the guts to confront me with this situation and give me an opportunity to respond. Whether I get this listing or not…thanks for doing the right thing! I encouraged her to call the individuals I bought the home from and get their first-hand testimonial when working with me. They would be the ones who could tell her whether I was being straight-forward and whether I tried to “pressure” them in any way. (Now I need to find their phone number!) In the meanwhile, I decided to dive deeper into the statistics of how much homes sold for in Georgetown Village….and how much I paid for my own listing.

Real World Numbers

The home I bought was built by Lennar and was 1603 SF. It was built in 2002 and although it didn’t have any significant upgrades, it was in very good condition. I paid $153,000 which comes out to $95.45/SF.

Since January of 2006, there were 10 resales that sold in the MLS that were built by Lennar and in the 1600 SF range (1603 SF – 1674 SF) and not ONE sold for $100/SF or higher. Do you want to know what the average $/SF was? $92.56/SF.

But wait, it gets better! In that same time period, there were two homes that sold in the MLS that were BRAND SPANKIN’ NEW! These homes were decked out with stainless steel appliances and upgraded hardware throughout the home…or rather, they didn’t have any ugly gold fixtures! Guess what the average $/SF was for these homes? $94.54/SF.


Yes, you read that correctly: I paid more $/SF for my home than the average comparable home that has sold in Georgetown Village for the past two years! In fact, I paid more $/SF for my home than two homes that were 5 years newer, had stainless steel appliances and were never lived in! Man, I need to quit letting my clients rip me off!

The Bottom Line: My integrity is worth far more than any investment home. Although I am self-employed, I do have a boss…he’s God. Ripping off a client is the last thing I want to do, because I am accountable for what I do and my actions reflect on the truthfulness of who I believe in. Here are a few important points to think about:

1. Did I really buy this home at a “great” price? It’s funny, but true: the home I bought was NEVER posted in the MLS and this is the FIRST time I have published it’s purchase price. So, how do people know how much (or how little) I paid for it? Neighborhood gossip is the last place to get accurate real estate information. Kudos to the lady who came straight to the source rather then rely on second-hand assumptions!

2. It seems like everybody is a real estate expert…except the real estate agents themselves! Read my most recent Georgetown Village case study to get the real scoop on what is selling for $100/SF or higher. $/SF is a good measurement for value, but if used out of context, and without supporting data, can be a dangerous and misleading catch-phrase. Get the facts! Only comparable homes that have recently sold determine the value of your house. If a real estate agent is determining the value of your home with something that hasn’t sold…run away….run away fast…..and hey, if you can multi-task , run away fast and call my number!

3. The seller is in control. It’s not just a good business practice, it’s also the law. Don’t you just hate pushy real estate agents that strong-arm you into making decisions you’re not comfortable making? Well, I do too. That’s why I always encourage my buyer AND sellers to make their own decisions when coming to a price. It’s my job to equip them with the data and inform them of pros and cons…it’s not my job to tell them what price to offer or list their home at. If you’re ever faced with a real estate agent that winks too much and has a gold tooth….or is using a high-pressured sales tactic on you, drop him like a ton of bricks.

In 2007, my homes stayed on the market for an average of 45 days (it was a tough year) versus the Georgetown average of 148 days. Don’t be fooled by real estate agents that “buy the listing” by offering to list your home for an inflated price. If a home takes 148 days to get an offer, trust me, it’s inflated…and around the 60 day mark, they’ll be coming to you for a price reduction that will mysteriously fall into my original recommended price range. So you decide: Sell it for market price now…or make some extra mortgage payments, deal with 20 extra showing appointments, and sell it for market price later.

So what do you think? Should I continue investing in my own neighborhood? Should homes be listed higher than market value so there is “room to negotiate?” Has a real estate agent ever bought your home? What was your experience? Please comment on my blog! Your comments are very much appreciated and keeps the conversation interesting!

Comments

  1. I agree with Edward, neighborhood gossip is not the best place to receive real estate information. I would recommend Edward to anyone whether they are looking to buy or sell a home.

    When I first talked to Edward he came by and looked through the house and was impressed at how well the house looked, almost like it was still new. The house was actually a little over 4 years old or at least thats how long we lived in it. He mentioned he might be interested in buying the house himself but would like to still give us a presentation and go through all our options so we could decide if we would rather just list it. I was very impressed with his presentation…he brought along several examples of homes listed currently in Georgetown that were similar to the same size as my house. I had checked out homes for sale in comparison, and even saw the inside of some homes due to the nature of the business I was in. That allowed me to get an idea of what houses were selling for at that time. Most of the houses selling were larger with more upgrades: granite counter tops, stainless kitchens, ceramic tile throughout more than my house had inside. I actually thought maybe my house might list for less and was surprised when Edward showed me his listing suggestions.

    I was confident that if I listed it that there would be no problem in selling it within 90 days or less but I decided to see if the price he had showed me was what he was willing to buy it for or if he was wanting me to drop the price if he were to purchase it. I was again surprised to find out he was not trying to low ball me and get me to sell it under market price specifically for him. So what else can I say? My house never hit the market and I was very happy to sell it to Edward and would easily do business with him again. I even tried to persuade him to license in Louisiana so he could help me find a house.

    Edward is the best Realtor I have ever done business with and my current house is the third one I have purchased and in Georgetown that was the second house I had sold so it wasn’t my first sales experience. I would highly recommend Edward to anyone, and if you haven’t guessed it already, I was the person Edward bought the house from in Georgetown Village.

    Chad

  2. Your favorite HOMEboy says:

    Chad, thanks for your comments! I’m glad you’re settled in Louisiana and hope you and Natasha are getting plenty of “bike-riding” time on the weekends:)

    ~Edward

  3. Nancy Rivera says:

    Edward…

    What a great post and a wonderful testimonial that you do the right thing and look after your clients best interests.

    Did you get the listing?

  4. Andy Laughlin says:

    Great Post thanks for sharing that story..I also want to know if you got the listing…Let us know!

  5. Chip Jefferson says:

    I think you may need to dig deeper into the neighbor issue. If a few are talking about it surely more are as well. Doesn’t sound like your neighbors trust you.

  6. Andrew Lenza says:

    Edward, I am a a Estate Broker, licensed Instructor and active investor. I enjoy and relish in all things real estate. Now your situation is intriquing to read.

    When I come across such a potential client I avoid any suggestion that I’m a potential buyer for the property. It does get too sticky.

  7. Patrick Foley says:

    Edward – Personally, this is why I keep out of sticky situations like this. Working as an intermediary or handing off one side to a friend is just too tough to get into legally. I believe that you are in the right here, but sometimes it isn’t worth all the trouble, in my personal opinion. I hope the investment works out for you and the listing goes your way. Best of luck!

  8. Edward Lui says:

    Chip – yeah, I figured the same too. That’s why in my next neighborhood mailer, I might post a link to my blog…and my client’s response. I have testimonials from other neighborhood clients too, I think those speak volumes and squashes gossip. Any other suggestions?

  9. Nancy Rivera says:

    I’m back for round 2!
    I see no problem purchasing a home that actually went to list.
    It’s one of the perks of being a Real Estate Agent.
    Those that work in Department Stores get to see what comes in new or what’s on sale before the rest of us, so do Car Salespeople. Why shouldn’t we, as Realtors(r), be able to do the same thing?

  10. Robert Machado says:

    It seems to me it would be a good practice to stay clear of buying your customers houses and stick to buying other agents listings. That way you could never be accused of being self serving in your listing presentations.

  11. Edward Lui says:

    Robert/Andrew/Patrick – Here’s a “simple” solution. If they have doubts about my motives couldnt’ they just get a second opinion from another listing presentation? If they’re not comfortable looking at my comps…couldn’t they get it from another agent to confirm?

  12. Edward Lui says:

    Verdict is still out on the listing….I’ll let you know when I hear:)
    UPDATE: Nope, didn’t get the listing. Oh well, it was worth the blog:)

    BTW – Nancy – I’m all about the hook-up too:) What about when I worked at Pizza Hut? Free Pizza baby! Not only does buying the listing help us (with investment goals, getting a commission check, etc.) but it also helps our clients. Think about it: Absolutely ZERO stress related to:

    1. Time on market

    2. Appointments with buyers

    3. Cleaning up the darn house

    4. 100% predictability and ability to plan your move

    5. Working with a qualified buyer (you better be!) and no fear of “Is this buyer legit?”

    I can go on and on with the advantages to our client…the bottom line is, nobody is holding a gun to their head. And like Mastercard says, “There are some things money can’t buy…” and those reasons above are some of them….even IF the price was below market and they KNEW it…it could still make sense for them to go for it.

  13. Melody Botting says:

    If you had purchased the home under market value it still would have been ok. If you had been the buyer’s agent you would’ve tried to get them a ‘deal’, right?

    I listed a home once and received a call a few hours later. The neighbor was a friend of the seller. The seller said, “My neighbor said you should have given me a discount on the commission.” I managed to keep the initial rate and the home closed in 40 days. The neighbor was a hairdresser.

  14. Utah Dave says:

    Whenever you buy a home from your client you definitely need to be careful and have all the paperwork ready. About 7 years ago I had someone come that wanted me to sell his house and he even offered me to buy it. I asked him what he wanted and we put in paperwork that my intent was to flip it. I told him I could teach him how….he didnt want to..he wanted out. 2 sides to every story…make sure you do your diligence.

  15. David T. says:

    Good article. I think the neighbors are not as concerned about the person getting ripped off as they are in what will become of the house next door.
    Saying “they will just buy it and then rent it out” is too in your face, so instead they say “they don’t have your(really meaning my) best interest in mind.”
    Honestly, who wants the house next door to become rental property?
    Take a survey and I assure you the results will be overwhelming.

    DT

  16. Edward L. says:

    Good point my friend.

    Sometimes it takes some digging to find the real issue. That sounds like a good topic for another blog….what do rentals do to a neighborhood? I know this for a fact….a bad renter is the same thing as a bad homeowner. By God’s grace, I have had some wonderful tenants who take care of the home and the yard very well….in fact, better than some homeowners that I know! I have even had two renters end up buying in the neighborhood! So, if anything, the rentals in a neighborhood can actually help “sell” the lifestyle to somebody and make them invest in a home of their own.

    I think the downsides could be if you have a negligent manager of that home and combine that with an unruly tenant…then you have trouble. As long as the person is nice and neighborly, I could care less whether they own or rent.

    We used to have a best yard of the month award….I wonder who would be winning the worst yard of the month award….rentals or owners? David – remember that one home on your street…with the neglected landscaping? Yep, homeowner.

    Things that make you go hmmmm.

  17. I agree. The issue is not owner vs. renter. Either one could trash or neglect the place. I am speaking of the perceptions associated with rental homes.
    Recently, a house on my block was sold and then had a “for lease” sign in the yard and the neighbors went ballistic. Fortunately the tenants took very good care of the place but did not stay very long. On the other hand many homeowners have come and gone with not a peep out of the neighbors?

    Consider yourself blessed for having responsible tenants in your rentals because one of my coworkers owns two properties on my street and has experienced just the opposite. As is the case for my brother in law as well.

    Make this the next topic of your blog and we can put some data together to try and determine whether or not the stigma attached to rentals is warranted.

    Peace out.

  18. I certainly understand the renter vs. owner thought process. And let me just say, my own perceptions have shifted a little bit.

    I recently relocated to Georgetown Village from the Phoenix area. As a licensed Realtor with a large brokerage in Arizona I certainly saw a lot of homes – inside and out- that had been owned by renters.

    I had a neighbor who lived 3 houses down from me tell my that the neighborhood where I lived was headed toward being a slum, because they built 1400sq ft homes by 3800sq ft homes, and that meant renters would move in. Of course, that just goes to show how informed the neighborhood gossip chain is. The yards of the renters always looked just as rocky as the homes of the owners, and they didn’t have any more weeds, either. :)

    Now onto Georgetown Village. I happen to live across the street from tenants of Edwards. The last family seemed nice enough and I haven’t met the new ones yet. Of course, my perspective might be skewed…. I am afterall, just a lowly tenant here. Sometimes life is difficult, after owning our own home for 13 years we are renting again, and probably will be for a while.

    Hard to believe that I’ve been here 6 months and know the neighbors, take care of my yard, perform minor repairs and improvements on the house at my own cost (with permission from my landlord, of course!) and have touch up painted and steam cleaned the carpets too. You see, I moved here because I like living in a fabulous home, in a family friendly neighborhood. No, I haven’t invested $$ into the landscaping, I’ve only maintained it. But I have invested in my neighbors, and I think that counts for more.

  19. Your favorite HOMEboy says:

    Jess, great comments. You sound like the perfect renter (and neighbor ofcourse:) – how about switching homes?:)

    I just helped some friends move into a neighborhood with million dollar homes and guess what? Yep, they’re renting. “There goes the neighborhood!” Yeah right. I think they will be an excellent addition to the neighborhood and will fit right in…and their intention is to eventually buy. If anything, renting a home helps grow the neighborhood and allows people to “test drive” it without plunking down thousands of dollars in fees.

    Jess, thanks again for sharing!

  20. Krista Olszewski says:

    I have been lucky enough to know Edward and his family for several years and he was our agent and my parent’s agent a few years ago. I have also been an agent myself in the past and bought and sold many homes of my own as well. We live here in Georgetown Village and love it here. When we moved in, I noticed the large range of home sizes and prices in the neighborhood and realized that the smaller, less expensive homes are subject to become rentals from time to time. Well let me tell you, if several homes in your neighborhood are GOING to be rentals, there is no better owner of them than Edward. He is guaranteed to take care of them and do what is in the best interest of the neighborhood. Everyone in the village should be GLAD it is Edward buying these investment properties instead of someone else who may not have the same goals and motivations for the neighborhood he lives in as well. I thank Edward for his honest and hard work in everything he does and for all the help he has given me and my family over the years. Be sure that if/when we ever move again, Edward will be the first and only agent we will call. :-)

  21. Your favorite HOMEboy says:

    Thanks Krista…I’m the lucky one to have you as a client!:)

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