Andy Falk is currently working on a non fiction novel about selling real estate in 2008. The following is the introductory chapter of that novel.
Selling real estate is easy money, right? Realtors basically do nothing but collect fat commissions for doing impressions of Peter Sellers in Being There. Or maybe that’s just me? When I got my real estate license I had already bought and sold my first condo using a family friend who was a Realtor and figured she did nothing for her half of the 6% commission. I purchased my second condo directly from the owner, without a Realtor, in a very easy transaction. There seemed to be nothing to selling real estate.
It was when I was on the Indian Valley Golf Course in Novato that I finally made my decision to become I Realtor. I played 18 holes with a Realtor who told me his clients “just came to him.” He had plenty of time to do whatever he wanted and he made more money than he ever had before he retired and became a Realtor.
At the time I was working for Target as an assistant store manager. I had just gotten my MBA and was on the Target career fast track. If I played the game right, moved around from store to store getting experience in the different departments it would not be long until I had a whole store of my own to manage. I might have needed to move my family several times, but managing a district within five years was a real possibility with my educational background. There was only one problem. I didn’t like working in the big box retail industry. I certainly didn’t want to move out of Marin County where I was born and raised for a Target in a location to be named later. When I left Target after only nine months it was like breaking up with a girlfriend. “It’s not you, it’s me,” I told my store manager.
“What are you going to do?” He asked, genuinely concerned. He wasn’t sobbing, but he should have been. It was only two months before the Holiday season and an assistant manager leaving before the extra trucks started pulling in was major blow to the store. By the Fall of 2004 I had taken the courses and past the California state exam to become a Realtor. At the time there had been a surge in the number of Realtors in the state. The movement was a lot like the gold rush. Many people rushed out into the market to find business and fulfill their dreams of riches, but very few of them even ended up making a living.
“I’m going to sell real estate.” I told the store manager proudly. It was a bold move going into a profession where you were paid based solely on commission. If I stayed with Target in two years I could have probably doubled my salary.
“I’ve got my real estate license too.” The store manager confided in me. It was unbelievable. Who didn’t have their license? A few months later I bumped into a checker at the local super market who was not a Realtor, which was a surprise. She was a stager.1
Realtors, stagers and mortgage brokers were sprouting like weeds throughout our economy.
During the spring of 2004 while still working at Target and taking real estate classes online I bought that second condo on my own. By the time I got my license a few months later and stumbled into real estate sales the country had gone crazy for real estate. My wife and I had purchased the small two bedroom one bathroom condo in Novato that we had been renting for $315,000. Every month we saw properties going on the market and selling for $10,000 more and we figured we could basically make a great living just by owning real estate. Who needed to work when you owned property around the century’s turn?
I completely bought into what was going on. We could barely afford our mortgage, but that was the difference between us and so many other people in our low end of the market: we could afford what we bought. A year later in the fall of 2005 I was an active Realtor keeping a keen eye on our condo market. My wife and I suspected the market was getting ready to adjust, and we needed to be ready to sell before demand for our condos dried up. That summer I sold a very original condo with a fresh coat of paint and little else in my development for a price that will likely be the highest for years to come, $440,000. I had three offers when I sold that condo, and the one we closed on wasn’t even the highest. An agent wrote an offer for his client at $500,000. The client thought they were only offering $450,000 so they pulled out of the deal. Incredibly they must have signed the contract that was presented to us and their agent filled in the numbers that he saw fit later. It was like the buyers had signed a blank check for their Realtor to use.
Several weeks after that sale a condo in our development came on the market for $419,000. It looked great and it should have sold easily. It was almost 5% less than my record sale and in far better condition. After only three weeks the owner pulled it off the market, and that’s when my wife and I knew it was time to get out. That was the beginning of a long slide down for the condo complex that continued at the time of this writing almost three years later.
My wife and I put our condo on the market for $409,000. I wanted to list it for $399,000 but we decided we could go down if necessary and we would try for the extra $10,000. After almost a month on the market an agent from Sonoma County just to the north of us made an offer for her clients at $435,000. It was unbelievable, and we were elated! There were no other offers on the table. Of course there was a monetary incentive for the agent to have her clients pay $26,000 over our asking price: all of $650 for her side of the transaction.2 I found it hard to believe that anyone would have their clients pay so much more money so they could make so little, but I had heard of it happening.3 The buyer’s agent thought my condo would be worth over $500,000 in a year. If they had offered us $400,000 we would probably have taken it without even a counter.4 We were ready to get out because we thought the market was going the other direction. I kept that to myself.
So we bought the condo for $315,000 and 18 months later sold for $435,000 at the top of the market. We had to take a capital gains hit but we figured the market was likely to drop at least as much as the tax consequences to selling before the two year IRS exemption could take effect. During a company holiday party shortly after our condo sold my wife and I sat at a table with another Realtor who owned a condo in the complex.
“Those condos will never sell below $400,000.” She stated.
My wife and I exchanged conspiratorial looks. If our time on the market had dragged on without an offer we probably would have taken $390,000. If that was our math other sellers were likely to come up with the same numbers. Prices in the $300’s in 2006 were not only probable, but they seemed unavoidable because there was almost no demand at the $400,000 price level. Fortunately when we sold there was very little inventory. All it would take would be an oversupply of houses and a few sellers who were willing to take less than the other guys to get out and we’d be in a declining market.
We were like Cinderella at the ball. The clock struck midnight and we packed up our pumpkin and moved into a rental. We were going to ride out the storm. In my heart I truly felt like we were economic refuges. At the time I had my wife and two young daughter (still do too!) in tow and it was not an easy decision to make or thing to do, selling, moving and then committing to a rental situation indefinitely.
What made it easier was the fact that we had done the same thing a few years before when we sold our first condo. It was 2002 and I knew the housing market needed to adjust. It had become unaffordable then. What I didn’t know was that banks were cooking up new ways to own homes with no money down and stated income loans. All kinds of people who could not buy before were coming into the market, artificially inflating demand and driving up prices.
So we bought again as the market continued to rise, and sold when the market reached its peak. By that time I had become imbedded in real estate. The sale of my condo provided me with a bankroll. Selling real estate was my livelihood and put food on my family’s table and paid the bills. I found out the hard way though that making a living in real estate was not so easy, even when you were successful.
There was another hard lesson in all of this. The condo that we had bought in 2004 for $315,000 and sold in 2005 for $435,000 was on the market in July of 2008 for $199,000. The same people who bought it from us were trying to short sell5 it for less than $200,000! The lenders weren’t the only ones who lost money on this sale. The buyers had put down 10% and paid excessive closing costs because they were sub-prime borrowers.
During the course of our escrow the buyers were turned down by at least 5 different banks before finding one that would fund the loan. The escrow closing was delayed more than three weeks, and those banks that didn’t loan the buyers the money made the right call. The lenders will lose half of their money, at least. What happened to those condo prices was catastrophic and I had ushered my family onto one of the few lifeboats that floated away from the real estate Titanic.
I had no idea the market would descend into the depths of despair. In 2008 the market was a shadow of it’s former self. When I got into the market everyone was making money. The game changed and people began cutting losses and trying to salvage their financial lives. I was still selling real estate, no longer chasing the dream of making big commissions. I was just trying to make a living and help my clients along the way.
The following is my story. This is how I sold selling real estate in the summer of 2008, in arguably the worst housing market in history.
1. Not to belittle the staging profession, but stagers basically get paid for clearing garbage out, rearranging and adding stylish furniture to homes to make them look nicer and help them sell. Amazingly this actually worked. There is no empirical data to back up claim, but it’s common knowledge in the industry that homes sell quicker and for better prices when they are staged, or at least when they don’t show poorly. Staging has definitely worked for me on several occasions.
2. We were offering 2.5% commission to the buyer’s agent. If the buyer’s agent split was 70% her net would be about $455 before taxes.
3. In another instance I know of a buyer who paid $81,000 over a $649,000 asking price on a house after a little more than three weeks on the market when there were no other offers on the table. The buyer’s agent told his clients that they needed to pay that much more to get the house, so they did.
4. Purchase contracts are written and signed by buyers. When sellers sign a purchase agreement they have an opportunity to counter anything and everything in the contract, but these things typically come down to money.
5. Short sales occur when the loans and the expenses of the sale exceed the sale price. Lenders in this case need to either agree to take less than they are owed and write off the loss, or continue to pursue the sellers after the close of escrow for their losses.
“Into the Dawn: Easy Money” copyright 2008 Andrew Falk. All rights reserved.
Andy Falk is a father of two incredible daughters ages born in 2001 & 2003, Skylee
and Sabrina. Andy is very active in the lives of his daughters, from coaching soccer to supporting them during swimming season to just plain doing homework or hanging out. Andy also surfs regularly, bicycle commutes and is a successful Realtor in Marin County, CA. Andy earned his MBA from San Francisco State University with an Internet Marketing concentration, and holds a BA from the University of California at San Diego where he studied and surfed in the 80’s.