Charlotte Property Management Weekly: Rent-To-Sell Your Home? Best Time is Now
“Wow! How disingenuous! Could you think that because you create rent-to-sell transactions for living? Isn’t that like asking a barber if you need a haircut?”
At least that’s what I’d be asking as a reader. We live in a skeptical age, and that’s okay.
Let’s start with a story:
An average man meets a beautiful, energetic woman. He is taken. “If I could spend the rest of my life with her,” he thinks, “My life would be complete and I’d truly be happy! Just having her on my arm…” He knows he wants to marry her.
So why doesn’t he just ask her point blank? That answer is easy. She’d think he was crazy! She doesn’t know anything about him; and the one thing she knows is that he isn’t that attractive! There are much better suitors out there! So what does he do?
He courts her. He asks her on a date. He asks her on many dates. He buys her flowers, takes her to expensive restaurants, listens to her stories, compliments her, and tries to show that he is an amazing man. She doesn’t fall in love with him at first, but day by day, she grows fonder and fonder of him.
Then, sometime later in the future, when she is vested and knows (almost) everything about him, she professes her love. And, at that point, he knows he is close to getting what he has wanted since her first laid his eyes on her. He picks the right moment and proposes. And she says, “…Yes!”
I’ll take a short pause so you can collect yourself, grab some tissues, and kiss your spouse.
This story is just like rent-to-sell (okay, huge transition here!). Home owners want to sell their homes more than anything. Buyers are scarce and selling in a short time period for full price is almost impossible. Cheap flings (focus on “cheap”) are the rage as neighbors’ houses are being sold for half price (short sales and foreclosures). Home owners are desperate and have to give their homes away and accept the consequences of future damaged credit.
Home owners just want to sell their homes, much like the man just wants to get married. But, with this economy, the reality of that happening quickly on good terms is almost crazy. So what to do?
Rent-to-sell (placing rent-to-own tenants into vacant homes for sale) is the courtship process. These tenant-buyers get to live in the house, work on improving their credit scores, make the home improvements they want, and work on building up a down payment so that they can buy (when the time is right).
And why is it the best time now to rent-to-sell? This is simply because the banks will have to lend more money out in the future! This stagnant housing market is killing their earnings. They will need to find a way to jumpstart this part of the business by lending to responsible parties (aka like tenants who pay their rent on time for 1-3 years, have improved credit scores, and a nice down payment?).
The time to put rent-to-own tenants into vacant homes for sale (rent-to-sell) is now. When the tenants are ready to buy, the future market should be looking a lot better for successful (loan and sale) consummation!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: “List to Last” Still True?
There are many sayings that become axioms as their wisdom becomes evident over time:
“Don’t throw good money after bad”
“The way to a man’s heart is through his stomach”
“Diamonds are a girl’s best friend”
In real estate, the wisdom for real estate agents was “list to last”; this means that the agents who want to last in the business should take a lot of sales listings (aka put houses on the market for sale). The rationale is that if an agent has a lot of houses on the market for sale or rent, it is probable that some of them will and they’ll make money.
Taking listings requires resources from agents. Agents need to take pictures, gather information, put the listing up on websites, take phone calls, and then pay for advertising. There is also the time expended fielding inquiries about the home, showing it to potential buyers, and giving status reports and tips to their seller clients. The more homes the agent has on the market for sale or rent, the more resources that are required.
And this isn’t a paid gig! The agents are working on faith that some of the houses will sell and they will be reimbursed for their expenses. Agents are putting themselves into position to be lucky. Fortunately, in the past, this usually worked out well.
Now, however, houses aren’t selling very swiftly. And more people than ever want to sell their homes. “List to Last” can be the fastest way to go broke. Agents that were salivating over the amount of listings they were personally accumulating are now singing a very different tune. Not only are they being sucked dry financially, the toll of anxious seller’s phone calls are sucking them dry psychologically.
“Why isn’t my home sold yet? You said you were different!”
“Why haven’t there been more showings? Why aren’t I seeing any offers?”
“Are you any good? How much money are you spending to advertise my property? You are just one of those agents who puts the home on MLS and then sits back to collect the commission, aren’t you?”
“List to (Not) Last” or “List to Leave (the Business)” may seem more apropos axioms. Amassing home listings that don’t move is both financially and mentally taxing. So what to do?
One word- Prequalify. In a world of limited resources, agents need to expend their resources judiciously. They need to know with a high degree of certainty that they can execute a transaction for a client. This is already commonly done by buyer agents who won’t show properties to clients who aren’t prequalified by a bank to purchase. This needs to be the norm on the sell side as well. That means not accepting every listing opportunity (gasp)!
Specialized firms do this everyday. Auction firms take listings that they know they can sell; if the client isn’t willing to (or can’t) take whatever offer that comes, they don’t expend their resources to put it on the block. It’s the same with short sale firms. If a client isn’t willing to let their credit get shredded, they typically won’t walk through the firm’s doors. Clients prequalify themselves.
General brokerage has a “come one, come all” message; prequalification of clients is done at the individual agent level. And, to have staying power in the real estate business, it’s important that it actually happens!
Listings are still vital to the business of real estate agents, but they need to be homes the agents know they can sell or rent. So, in the new normal, the axiom should read, “List (the Homes You Can Actually Transact) to Last!”
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: What Does it Take to Sell a House in this Market?
Most of the calls for our rent-to-sell program (rent-to-own tenant placement into vacant homes for sale) are about addressing one primary need; unfortunately, that need is not for our rent-to-sell program (per se)! The need they are addressing is selling their home as quickly (and for as much money) as possible. If a company existed that could do this consistently, they would be inundated with business (and profits)! It would be like owning the only service station with gas in city limits.
Every real estate company says they can sell a home quickly and profitably for a variety of reasons:
“We have an 11-point marketing program for new home buyers!”
“I’ve forgotten more about Google search engine optimization than my competitors have ever known combined. Your house will be on top of the search engines!”
“My astrological sign is telling me that whatever I touch will sell. Like ‘Tommy Boy Sr.’, I could sell a ketchup popsicle to a woman in white gloves!”
Alas, most of these claims have limited validity in terms of their actual effectiveness. What really works in this economy is having:
1. A special, unique house in a desirable area that people really like
2. One of the lowest prices for sale on the block
These are the two extremes of the spectrum of houses for sale. One end has great, unique homes offered at full price; the other end has abandoned (or trashed) homes offered at fire sale prices (foreclosures, auctions, short sales, etc.).
What about the millions of houses for sale in the middle of the spectrum? That is, regular homes that can’t be severely discounted by the owners?
That is the million dollar question. As of now, there are no sure-fire ways to sell regular houses within 90 days and for near full price. For these homes, selling is largely a waiting game depending on a degree of luck.
How are regular houses being sold? After all, some do sell everyday somewhere in the world!
These sales are usually happening due to a relaxation of one of the two major contract terms- time or money. This type of trade off is necessary to make sales happen.
To sell within 90 days (time), the price (money) has to be lower than other comparable homes for sale. To sell for full price (money), the time needed to sell must be much longer (think years!).
For owners of vacant, regular homes that can’t discount steeply (and don’t want to eat their mortgage every month), we are recommending the rent-to-sell method of selling. Rent-to-sell is creating a market of willing buyers and willing sellers and putting them into lease option (aka rent-to-own or lease purchase) relationships. Or said more simply, rent-to-sell is placing wanna-be buyers (people who can’t qualify for a bank loan right now) into the homes of wanna-be sellers (owners who have their vacant, regular homes languishing on the market). The wanna-be buyers then rent the home for sale until they can buy it.
So how do you sell a regular home in this market? The answer is to either give in on price (huge cut) or time (rent-to-sell). It’s that simple.
What trade off are you willing to make to sell your home?
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Are Monthly Rental Home Inspections Desirable?
I was asked recently if our property management company provided monthly rental home inspections for houses under management. I assume what was meant was the kind of inspection where we go into the property, check everything out, eat dinner with the tenants, and then help any young children with their homework. Then we’d set a time to visit again the next month before hugging goodbye. Smiles would be all around.
This type of inspection would work if we were renting out the “Little House on the Prairie” and the harvest was plentiful that fall. But I’m not even sure how welcome we’d be if the rain wasn’t coming and Pa had to sell one of their prized cows to make ends meet. And I’m not sure how happy they would be to have another mouth to feed when we stopped by for our monthly inspection; we’d, of course, be slightly embarrassed that dinner conversation would focus on the eviction our clients, the Olsen’s, are ordering us to execute on them (“If rent isn’t paid, file for eviction on the Ingalls’s promptly on the 11th! No more famine excuses!”).
Unfortunately (and fortunately), modern life isn’t like this anymore. Tenants don’t want the property manager coming around; they’re busy and don’t want their property managers tied into their social life (usually).
However, rental home inspections are sometimes necessary. But how often should they be conducted? Let’s examine the pros and cons of a monthly visit:
Pros of monthly inspections:
1. Knowing what the tenants are up to
2. Lease violations would be quickly recognized and dealt with
Cons of monthly inspections:
1. Become a preferred rental vendor of the old KGB and Gestapo
2. Limited benefit for costs associated with frequent visits
3. Tenants will be hateful and not rent from you
4. Pushback from tenant privacy issues
5. Forced to deal with issues that arise- do you evict? Tough decisions and ultimatums have to be handed down, and then they need to be carried out.
More on #5. The “sometimes ignorance is bliss” is a tough one to explain. “I always want to know what is going on in my rental house!” Do you?
If violations are found, are you ready to evict? If the tenant is paying on time and in full every month, do you want your property manager looking for reasons to get rid of the tenants? Eviction is expensive! And when the tenants are being evicted, no one is paying the rent anymore. That’s a double whammy on costs.
Well, warnings could be issued. “If this happens one more time, then you’re out!” If there is evidence that it did happen the following month, you really do have to evict them now. If not, what is the purpose of these monthly inspections anyway? Inspections are not meant to paint the owners into a corner. At the end of the day, you want paying tenants to stay, right?
Inspections can be useful; some violations need to be dealt with immediately. However, even the Ingalls’s wouldn’t think it was rude if you stopped by on a much less regular basis!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Rental Homes Don’t Need to “Dress” Well?
Everyone knows that for a home to sell (especially in a challenging economy) it needs to look its best. Now does that logic apply to rental homes in terms of leasing them out?
Not from what property managers sometimes hear from rental home owners:
“It looks fine. It’s just a rental.”
“I’d live here with the place looking ‘as-is.’ I don’t think I’d want a prissy renter who couldn’t deal with a few minor issues and a little dirt.”
“The other property manager down the street said it was fine the way it was. You want me to spend how much to fix it up?”
I’ve heard the analogy that a house should “dress” like it’s dating when it’s on the market for sale, and “dress” like it’s married when on the rental market. I’m not sure if I’m more bothered by:
1. The connotation that spouses don’t try to look their best for each other once they are married
OR
2. That property managers have to resort to relationship analogies to get people to actually listen to them
That being said, I think there is a semblance of truth to the fact that homes for sale need to “dress” better than homes for rent.
But… there is a direct cost to this! And this is when “monthly rent versus value” arguments start. Let me explain.
When we are assessing what a rental house can rent for, we provide a range of rental prices (example: “Your house should rent in the “$1,100 – $1,300 a month range.”). We ask the owner to pick the price they want to rent it for. Well, duh! Everyone (except the morons) would pick the $1,300!
Well, after further thought, maybe not. There are drawbacks to marketing at the highest rental price when the rental house doesn’t match up to competing homes; drawbacks like the house staying vacant for a long, long time!
In order to command top rental dollar, the rental home needs to:
1. Have minimal flaws and look really good
2. Offer equal or more tangible value than similarly priced rental homes
So, if owners don’t want to spend the funds to have the house look immaculate and the house is not the same or a better value than similar rental homes, they may want to list it at a lower price (like $1,150). This will ultimately offer a better ROI as they won’t have to eat their mortgage payment and expenses for the many months it might take to rent it out (this happens when price is not correlated well with market value).
Unfortunately, the market doesn’t lie. With the internet, prospective tenants can find hundreds of rental homes that are all competing to get their attention and money. The market is efficient; rental homes that offer good value will get quickly snapped up, and the ones that don’t will sit.
The way a home looks is the most important criteria in how much a renter will pay each month in rent. If the home has “some minor issues and a little dirt”, there is value lost when compared to a fully functional, clean rental. The rental rate needs to be adjusted downward or the home will sit empty for months and months.
The bottom line is that good-looking homes offer more value, which will command a higher rental rate, and be vacant for less time. This generates more money for the owner. The converse is equally true. So “dressing” does make a difference!
Wait- it’s also true that a well-dressed person who looks their best at all times will generate more, and better-heeled, suitors…
Maybe there is something to this “dressing” relationship analogy after all?
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Money Back Guarantee on Rental Homes?
A fact of life is that sometimes people are not happy with what they buy. Sometimes they buy fruit and it is not as sweet as they like. They buy bread and it is not fresh enough. They buy Charlotte Bobcats basketball tickets (prior to them trading away their best player for basically nothing) and the team is not good enough.
And so it occasionally goes for rental homes. People sign a lease, move in, and then decide that they do not want to stay there for a myriad of reasons. As a result, property managers sometimes receive e-mails like this:
Dear Sir/Madam,
We were excited about moving into this home but it is a complete disaster! We visited the property during the day prior to signing the lease and everything looked great. Little did we know that the next door neighbor slept during the day, and only did his animal sacrificing in the dead of the night! The screeching animals prevent us from getting any sleep and my 9-year old daughter is so traumatized she won’t even look at animal crackers anymore! We’ve had to take down our bird feeder to keep the neighbor from hopping the fence and our beloved outdoor cat has been relegated to an upstairs, windowless room. Help!
We need to get out of our lease immediately and are demanding reimbursement for all moving expenses, therapy sessions, and a pet security detail during the move.
Signed-
Moving Now (Unhappily)
P.S. We hate you.
No one likes getting letters like this. Believe it or not, property managers want tenants to be happy, almost as much as the tenants do; so do the owners of the rental homes (without exception in my experience)! It makes the job of securing payment from the tenant (and consequently paying the owner) a lot easier! No non-masochist property manager is trying to pull a bait and switch on anyone; I mean, guess who would be fielding unhappy calls daily for the life of the lease? It would not be worth it!
That being said, I believe that the right rental home exists for the right person. There is not a one-size fits-all rental home in existence. This truth is why tenants need to visit the property, talk to neighbors, and develop a comfort level with the home prior to signing a long term lease!
So back to the facts of the example situation: The property manager works for the owner of the property. The tenant wants out of the home. The owner needs to make a decision on what they want (or can afford) to do.
Let’s look at the money back guarantee possibility from the one who has to pay for everything (the owner). If the tenant is allowed to move out and is reimbursed expenses, the costs that will accrue to the owner are as follows (note: some costs are one-time and others are on-going):
1. Reimbursement of tenant moving expenses and miscellaneous
2. Turning and keeping on utilities
3. Monthly mortgage payment and HOA fees while rental is not under contract
4. Cleaning & repair
5. Preparing marketing materials (pictures, ad copy, and home information)
6. Advertising costs
7. Property management fees (Yes, sorry. The non-profit property management companies (aka www.PropertyManagerInYourState.org)) don’t seem to last.
8. Real estate agent commissions for bringing in the tenant
9. Monthly mortgage payment and HOA fees while under contract (the time the house is taken off of the market and the tenant is ready to move in- someone has to pay for this time…)
This turns out to be a lot of money! This is why money back guarantees on rentals are not financially viable!
At the end of the day, it’s not a good situation for anyone. The owner and tenant both feel they are getting bilked. So what to do?
The best solution is avoidance! Property managers and owners should represent the property as accurately and completely as possible. Tenants should go in expecting that they will be living in the rental for the life of their lease and should perform extensive due diligence accordingly.
Then, even without a money back guarantee, property managers can start getting letters with the postscript of “I love you” a little bit more!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Charlotte Property Management Weekly: Is the Section 8 Program Good for Landlords?
I was signing a lease with a Charlotte Section 8 tenant (the government subsidized rental program) a year or two ago and asked her if she liked the Section 8 program. She smiled and said, “Yeah, it’s a pretty good deal.” I laughed; when the government is willing to pay some (or all) of your rent, I guess it would be tough to answer any other way!
So, it’s a good deal for tenants. But is it a good deal for landlords?
I only have limited space, but here are the most pertinent and succinct pieces of advice I can offer to landlords to determine whether allowing Section 8 tenants to rent your properties is a good deal:
1. If your house is higher-end, Section 8 has limits on how much they are willing to pay based on the amount of bedrooms and whether utilities are included. This leads into point #2.
2. The rental rates aren’t that high. To see if allowing Section 8 tenants to rent your home makes sense, the cash-flow needs to be computed on a property-by-property basis. On some properties, the cash flow is good and should be recommended as a viable rental source. On others, it just doesn’t make sense.
3. The house will need to meet many government requirements and will be inspected to make sure it is up to snuff. If the house is newer and kept up, it will usually pass. If it is older, there are usually costs incurred to meeting these requirements; the question is if incurring these costs is worth it.
4. It’s a government program which always means two things: it isn’t fast and features many, many documents to sign.
5. Payment is guaranteed, but when mistakes are made (aka missing or incorrect payments), getting them corrected is usually arduous. See point #4.
And as a bonus, here is an answer to our most FAQ by far:
Q: If I allow Section 8 tenants to rent my house, am I just asking for my property to be torn up?
A: I haven’t seen this be the case. There is actually additional protection against a Section 8 tenant tearing up the home, when compared to a regular tenant. Let me explain. The Section 8 program has a huge tenant waiting list (no surprise there!). If a Section 8 tenant tears up the home (or does anything that violates the lease), there is an implied understanding that they can be reported to Section 8 and be removed from the program. The tenant cannot afford for this to happen!
Section 8 can be a great option for the right house. Use it wisely and selectively!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Charlotte Property Management Weekly: David vs. Goliath: Punish Those with No Credit or Landlord History?
Everyone knows the biblical story of David versus Goliath. David, a young shepherd, takes his slingshot and takes out the menacing giant, Goliath, with one shot. Then he picks up Goliath’s sword and cuts off Goliath’s head with it, saving Israel from the Philistines as a result. Pretty good work for an amateur!
In the world of property management, “David”, the prospective tenant, is often put on the sideline per se. See, David will probably be a good renter, but it can’t be proven. He has no credit score (works at a restaurant and pays with cash) and no landlord history (besides Mommy, Daddy, and his undeserving ex-girlfriend). With no provable payment or rental history, he is the great unknown. To take Shakespeare into the rental world, “To rent or not to rent to him, that is the question.”
Our property management firm uses four criteria to screen tenants:
1. Credit report
2. Criminal background check
3. Landlord history
4. Income and employment verification
So, let’s play this out. We’ll go off the assumption that David is employed, makes enough money to afford the rental home, and isn’t a (known) criminal. We know that he has the money to pay the rent each month. But we still have no idea if he actually will.
Property managers are tasked with proving to their owner clients that they did their due diligence in the screening of prospective tenants that may rent their home. That’s obviously fair. But in a world of limited information, how can David get approved? The easy thing to do would be to reject the application due to having insufficient information to make a decision. This is a common practice in everyday life. For example, this issue was a big reason why President Obama was elected, right? President George W. Bush went to war against Iraq with insufficient information about WMD’s and look where that got him. Most Americans (see polling numbers) wish he had waited for more proof!
So application rejection is a warranted (and defendable) action; if the information isn’t there to make a well-informed call, it needs to be denied. This will cover the property manager if something bad happens, right?
Or, let’s wait a minute. Hasn’t everyone been in this situation once in their life? Does a generation of new renters deserve to be shut out because property managers can’t figure out how to adequately assess their suitability to rent?
I don’t think so. I’ll approve David’s application if he:
1. Passes the aforementioned four screening methods that he can actually qualify for
2. Shows attentiveness and responsibility during the application process
3. Has the wherewithal and willingness to put down additional security deposit monies (this will mitigate the additional risk of insufficient application information)
Israel didn’t shut out David from saving them, even though he wasn’t an experienced soldier. Don’t automatically reject renters of unknown quality; most will turn out to be pretty good tenants!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Big Bank Lessons: How to Sell More by Charging More- It’s All in the Ask
It’s not how much you charge, but how you ask.
“Even in this ‘new economy’? Everyone is so price conscious!”
A friend of mine was going to Mexico and I wanted to surprise her by giving her some Mexican pesos for the trip. Being that Charlotte (drum roll, please) is the 2nd largest banking city in the country, I didn’t think it would be a big deal; I only planned on getting 20 dollars worth of pesos.
I walked into Wachovia across the street and asked for the twenty dollars worth of pesos. They said there was a $15 fee, so it probably wouldn’t be worth getting it from them. They suggested the airport, a travel agency, or Bank of America. I found it interesting that they suggested a competitor; good for them!
I walked a few blocks to Bank of America and figured I’d cut through the chase. I immediately asked the bank teller what they charged for exchanging dollars for pesos. She said they didn’t charge anything; the conversion cost was factored into the exchange rate (aka lowering it). That sounded swell to me.
The question is: how much money did Bank of America make on this transaction? I really have no idea. But they got the sale! The real exchange rate could have been 20 pesos to the dollar, and they gave me an exchange rate of 10 to the dollar. That’s robbery (of course), but I didn’t know it. I just knew I wasn’t paying a $15 conversion fee on top of the $20 of pesos!
So I thought about this in the context of a la carte real estate pricing, specifically in property management. When I tell a customer that our fee for power washing their house is a 15% “project management fee” on top of the real cost, it does not come off very smoothly. The customer feels the exact amount of our fee and how it is increasing their total cost. There is always a strange pause after this pricing explanation, but I thought it was worth it as it provided a high level of transparency on how and where we make our money.
However, can a case be made to present this differently? If power washing costs us $70, and we tell the customer it will cost them $100 to do it, that’s not dishonest. I mean, do you e-mail the Gap and ask them what the actual price the shirt you bought from them cost? Or ask McDonald’s what your soda actually cost? Of course not! You either like the price and buy the product, or you don’t, and you walk.
That conversation with no added fees goes a lot smoother. I mean, what sounds better: $100 cost with no “hidden fees” or $70 plus a 15% fee? Surprisingly, the $100! The profit margin of the first presentation method (which sounds better) is approximately 66% more! And the customers are happier and not triple-checking their monthly statement to make sure the 15% was computed correctly.
In conclusion, the way pricing is offered is important. It’s a way to have your cake and eat it too, a true win-win-win. You can charge more, while selling more, while making your customers happier!
There might be a reason that big banks generate so much revenue; they know how to ask their customers for it!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Why Rent-To-Sell is “Hot, Hot, Hot” in Today’s Cold Real Estate Market
Q: Why do robbers rob banks?
A: Because that’s where the money is
Q: Why have home sellers shifted their vacant homes from “for sale” to “rent-to-sell”?
A: Because that’s where the future buyers are
It’s really that simple. I probably sound like a broken record, but I still see vacant homes trying to sell for full market prices. And it’s just not working. Let me repeat: it’s just not working.
My old economics professor always said that the lottery was a tax for people who didn’t pay attention in math class. He meant that the odds of winning are so astronomical that buying a ticket is just a waste of money.
In a way, I feel the same about most vacant homes. Let’s look at the math:
Find the number of houses that sold in your region last year (let’s call this number “X”). Now compare X with what the home sales numbers were annually in the past 5 years. X is comparatively low. That is obviously not good news for home sellers. Unfortunately, home sales have trended downward (and are expected to continue to do so).
Now take X and cut it in half. What? Unfortunately, half of X is distressed home sales (foreclosure, REO, short sale, etc.). This “half of X” gives us the true number of people who are now shopping for your home (if it is listed for sale at close to full value). That’s not good.
So the math is basically saying that there are way fewer (way, way, way fewer!) home buyers out there for houses that are not distressed.
Note: For non-math majors (and lottery enthusiasts), you can also gather this information informally; just ask “How’s the sale process going?” to anyone who has their non-distressed home currently on the market for sale. They may respond with a half-laugh, menacing glance, or a choice word (not a nice one).
Then ask anyone who is trying to get a home loan the same question. You’ll probably get a similar response.
So many vacant homes are for sale. And many buyers can’t get a loan to buy your house. How could a win-win situation be created here?
This is why the rent-to-sell method of home selling is hot. Or, if you prefer to stick with the old song, rent-to-sell is “hot, hot, hot.”
How does rent-to-sell work? Buyers, who can’t qualify for a loan now, rent your home for 1-3 years until they qualify. Then they buy it at market price when the real estate market has rebounded. This solves the problem of home sellers eating the mortgage on a vacant home every month and buyers not having a place to call their own.
Rent-to-sell can be a great solution to escape the cold, expensive reality of a vacant home that isn’t selling!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
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