What makes a property hard to sell? It can be ugly, dirty, shabby, low qualify or non-conforming construction, be functionally obsolescent or have an inconvenient floor plan, it may be on a poor or remote site, have EPA problems, deferred maintenance, indifferent or dishonest management, be encumbered with unattractive financing which incorporates short term balloon payments, high interest rates, reverse amortization; or it may be "red lined" so that no new financing can be obtained.
A hard-to-sell property may be situated in a declining, economically depressed, or changing neighborhood, a high tax district. It may be too big, or too small. It may have title problems, be locked up in probate, owned by minors under the jurisdiction of the courts, be vacant, vandalized, occupied by non-paying squatters, be loaded with junior or zoning code enforcement liens, land may be too low, too steep, land-locked, or not have access to sewer, power, or water. It may be being used in violation of the zoning codes in a non-conforming use. It also may be hazardous.
Whew! That was a mouthful. Let's see if we can't get to the crux of the problem with a tough property. Nobody likes it as it is, even at a bargain price. It's too much trouble to deal with. The good news is that most sellers would willingly dump this kind of property for pennies on the dollar. The bad news is that there is rarely enough brokerage commission to entice a broker to try to sell it, and any new owner would be stuck with straightening it out. Because this section focuses on selling rather than buying, the best way to become involved with tough properties is via the use of Options.
When contemplating a solution to dealing with a tough property, it might be productive to classify the various problems listed above into Title Problems, Liens, Neighborhood Factors, and Physical Condition. Most of the things that make a house a tough property are linked to its physical condition, Physical Condition would include being ugly, shabby, poor quality with non-conforming construction, having deferred maintenance, poor floor plan, situated on land too low to drain, or too steep to access, or be without water, sewer, or electrical power. These can be fixed.
The first step in selling a hard-to-sell property is to determine what it will take to resolve the problem. Some of these problems can be remedied with carpentry work. But site problems can be another matter entirely. Recently, a friend bought such a property offered for sale by a local bank. There were no bidders at sale because the well for this rural ranch home on a full acre had gone bad. Without water, nobody could live there, so the residents had simply moved out and left town. The lender had recently foreclosed it and was trying to sell it.
The home had been abandoned and allowed to deteriorate slightly. The bank sold the home for $50,000 less than the foreclosed loan balance, and financed the entire amount. It cost $4,800 to deepen the well and replace the pump. It cost another $5,000 for paint, a swamp cooler, fertilizing and watering the grass back to health, carpeting, drapes, and appliances. The enterprising entrepreneur netted $38,000 on a quick sale.
When there are plenty of houses listed in the Multiple Listing Service, the brokerage community is not noted for its willingness to go to a lot of hard work to sell a particular property; especially at top market value. Brokers need to be motivated to take on the twin tasks of getting top dollar for your house, and at the same time, getting a fast sale.
Here are some incentives that I've used as a seller, or responded to as a broker:
1. Higher commissions: There's an old adage in the real estate sales business that advises sellers, when sales are slow, don't lower the price; raise the commissions. This works because brokers are being paid more money for selling the difficult property, not less, as would be the case if the price were lowered. Here's the proof of the pudding: I had owned hundreds of time shares over the years that I'd had great difficulty in selling or renting until I started paying 25% sale and rental commissions. Rents and sales started to move when salespeople discovered they could make as much money renting or selling time shares as they could houses.
2. Special sales bonuses: Salespeople do the work, but brokers make the final decisions as to who gets any special bonuses. Unless you can find some way for special incentives to reach the sales force, they're wasted. Sometimes brokers don't really understand their own business very well, so, you've got to educate the broker to the realities of real estate sales. Anytime a sales force can be motivated at no cost to the broker, his end of the commissions will pick up whether or not he participates in the sales. If he also acts as a salesperson, he gets both ends of any commission, plus the bonus.
3. Special Incentives: On occasion here's what I've seen accepted by brokers to be passed on along to their salespeople in return for a quick cash-to-mortgage sale:
a. Round trip cruise to the Bahamas
b. First year’s payments on a four year Mercedes Benz lease
c. Dinner for two at Maxims in Paris with round trip air transportation
d. The use of a vacation time share for two weeks in Hawaii
e. Title to a beach-front vacation time share in high season
f. Title to a campsite near the Ozark National Forest in Arkansas
g. Ownership of one fourth of a free and clear beach-front condo
h. Free tuition to Graduate Realtors Institute
i. Better commission split for the selling office than usual
j. Use of a motor-home for a family vacation
When incentives are added to conventional sales commissions, it can add zest to an otherwise moribund sales force and produce sales even in tough selling situations.
Excerpted from Jack Miller's eManual: Creating Wealth With Houses Reprinted by Permission. www.CashFlowDepot.com (972) 496-4500. Jack Miller passed away in October 2009. A few of us were fortunate to be able to attend some of his outstanding seminars and also to get to know him as a wonderful person. Jack appeared at MREIA meetings and was an international speaker and active investor, specializing in single family houses. He wrote a monthly investment newsletter and conducted seminars on Exchanging, Management, Portfolio Strategies and Options.
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