Talk to Your Tenant: Win-Win is Better Than Lose-Lose, Right?
Years ago, there was a small, remote island that was relatively non-descript and unnoteworthy. Then two multi-billion dollar pharmaceutical companies decided their business’s future hinged on acquiring it.
Why? Its climate and soil composition was ideal to grow a certain tree that had revolutionary medicinal value. The pharmaceutical companies needed to harvest and grow and lot of these trees and this was the only place where they could find the perfect conditions to do so.
So what happened? These heavyweight industry titans went after each other to procure this island resulting in a bidding war (hundreds of millions for dollars over a nominal asking price), lawsuits, threats, and tons of bad blood. After millions had been spent and not one tree had been harvested after a year, a level-headed senior executive suggested the use of a mediator. People had their doubts because the companies were so tight-lipped about trade secrets; they wouldn’t divulge anything about their intended use of the trees.
As the story goes, the mediator ironed out a deal within an hour. All lawsuits were dropped, conversations turned from sharply bitter to excitedly collaborative, and the rivals eagerly bought the island together in joint ownership. They were both in production within 6 months.
What happened? Both pharmaceutical companies still needed the trees, but the first only needed the leaves the other only needed the bark. Once this was discovered, both pharmaceutical companies were in business! Adversaries became profitable allies.
It was a pretty simple solution, right?
Communication is important, especially in the property management business. And, conversely, non-communication can be very expensive and time consuming!
A rental relationship can thrive with good communication and turn seemingly lose-lose arrangements like a tenant needing to get out of his lease into win-win situations. Here are a few examples:
A tenant wanted to get out of his lease early due to a job loss during the spring and the owner wanted to sell. This turned out well as the tenant paid an extra month of rent to terminate their lease and the owner had a vacant month paid for while the home was being fixed-up during an active spring/summer sales market.
Or a tenant was a landscaper and needed an extra month to vacate. The owner wanted to sell immediately, but allowed for an extra month of renting. For this negotiation, the tenant landscaped the yard for free before vacating. This gave the tenant the time they needed, while saving the owner money for fixing up the yard.
These types of win-win negotiations are only possible when landlords and tenants talk and find out the best path forward together. A good property manager makes sure that these issues are fleshed out and potential solutions are vetted thoroughly.
Anyone can take a hard line on a lease and impose their will legally. But this is rarely the best and most profitable path.
As a postscript to the initial story, the big loser was the owner of the island. Through incomplete information, the island owner almost achieved a huge, unnecessary payday. In the property management sphere, the island owner is usually the lawyers who are paid to enforce the lease.
So talk to your tenant! Good things can happen and can turn seemingly lose-lose scenarios into win-win.
Happy landlording!
Brett Furniss is the head property manager of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
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Who Pays Incidentals When Things Break? A Rental Home Dilemma
The Situation:
The tenant (Mitch) has received higher-than-average water bills for the past two months. He calls his Charlotte property manager who sends out a plumber to investigate. The plumber says there is a pipe cracked underneath the driveway that will cost $2,500.00 to fix.
Mitch’s take on the situation:
“I just rent here. My water bill is usually $60.00/month. The last 2 months it’s been $150.00/month. So, I’m out an extra $180.00 at no fault of my own. I pay my rent on time every month and don’t have the budget to afford this. If you ask me, the owner is lucky to have a tenant like myself that doesn’t cause any problems.”
Bottom line: Mitch requests a $180.00 reimbursement from the owner for excessive water expenses.
The owner’s take on the situation:
“$2,500???? The rent on this place is $1,050.00/month, so I’m looking at 2.5 months of rent down the drain. How does a pipe crack happen under a concrete driveway?? And the tenant wants an additional $180.00? Please let Mitch know that I didn’t burrow under his driveway a few months ago with a hammer and smash the pipe. Let me get back to you on where I’m going to get the money to pay the mortgage and for this pipe leak. I think there is assumption that because I’m the landlord, I have millions of dollars sitting around for this type of stuff. Not true!”
Bottom line: The owner does not look at Mitch’s request (or the entire situation) favorably.
So who pays the incidental water expense?
First of all, this is a bad situation for everyone, with the exception of the plumber. The tenant has higher water bills at no fault of his own. The owner has a broken pipe at his house (and an unhappy tenant) at no fault of his own.
In life, things break. And things sometimes break with no one at fault. We’re in a society that expects 100% uptime on everything, but that is a fallacy in a world where things wear and rust out. And when things break, there is cost and (usually) a mess to clean up. And everyone expects some other party to pay for it (not me!!).
So we have to go to the lease for guidance. Most standard leases that I’ve seen say that unless there is “willful or wanton negligence” on behalf of the landlord, landlords are not responsible for incidental damage from things breaking. (Note: I’m not a lawyer and don’t even play one on TV)
If the landlord sent someone to fix an issue in a reasonable amount of time, he should be in the clear from having to pay additional costs beyond the repair. That’s not to say there may not be additional factors involved that may compel the owner (or tenant!) to offset the other’s financial outlay. But, normally speaking, the lease seems to offer this protection to the landlord.
So, if you are the tenant, what to do? If Mitch has renters insurance (which is a requirement of our leases), he has another venue to ask for relief from.
We’ve had other similar examples: a hot water heater leaking on to a laptop, food being ruined from a refrigerator breaking down, and others. To the tenant, it is a loss of a computer or replacing spoiled food; to the landlord, it is buying or repairing a hot water heater or refrigerator. Ugh!
Bottom line: When things break, it is not a good situation for anyone. But realize that it is a part of life that is 100% guaranteed to happen to you many times. Try to be civil and understanding when it does. Neither party likes it!
Happy Landlording!
Learn MoreToo Much Sympathy Can Kill Your Rental Business
“Moderation in all things, especially moderation.”
Ralph Waldo Emerson
Over the years as a Charlotte property manager, I’ve gotten a lot of calls from landlords who tell some version of this story:
We had placed a family of tenants into our rental home and everything was going great! They paid on time for the first 8 months and were really a joy to interact with. I mean, Brett, when minor repairs were needed around the house, they took care of it at their own expense- they would just call and ask if it was okay with us if they made the repairs! They really were a beautiful family; you should just see their youngest daughter, Cybil- she reminded me of my granddaughter! But, I digress…
The problems started when they were late in July. Apparently there was some mix-up with accounting at their work and the paychecks weren’t cut correctly that month. I was okay with it (things happen); they wound up paying on the 15th that month and I didn’t charge them the late fee that I could have. They assured me this was a one-time thing and they wouldn’t be late again.
August 1st came and went and there was no rent. When I called to ask about it, I started getting voicemail. Two weeks went by and I was wondering if I needed to start thinking about evicting them, but then they returned my call. They said their car had broken down which left them without transportation to work, so they had to choose to pay for the car repair instead of rent (you can’t earn money to pay rent if you can’t get to work). They said that was also why they didn’t call me back immediately; they didn’t have the funds to pay their cell phone bills either. After apologizing profusely, they asked if they could wait until the 1st of September to pay. “Of course,” I said.
September 1st came and we got a check for about a quarter of the rent (for August). They said the rest would come from the paycheck on the 15th. When the 15th came, they called to explain that it was either paying back rent or paying the light bill, and the children couldn’t live without heat. And they also had to pay for Cybil’s dance recital which she had been looking forward to all year. “Our kids need to come first.” Then they told me what a great landlord I was and said they were so appreciative of my understanding.
Brett, this story goes on, but I’ll bottom line it for you. The tenants are 5 months behind and I am beside myself and out of patience. I wish they would just get caught up! Where do I go from here?
First of all, there is nothing wrong with being a nice, understanding person. We have enough jerks in the world. And what’s done is done; it’s a sunk cost and it’s time to deal with the facts on the ground.
If the tenants are 5 months behind, it’s time to evict. There is no way that they can get caught up at this point. Find an eviction attorney (ask a property manager for a recommendation if you need one) and get the ball rolling ASAP. In NC, you could be looking at 6-8 weeks if the tenants prolong the process (and possibly longer if they know how to play the game). You need to get your house back and stop the bleeding.
A caveat- I don’t ever want to evict anyone. It’s expensive, it’s time-consuming, and it is a lose-lose-lose proposition (owner/property manager/tenant). At lease signings, I communicate to tenants that if they are having payment issues (life happens), to contact me immediately so we can work something out. Whether that means a payment plan, negotiated vacancy, or something else, we need to talk it out and negotiate a workable plan. We’ve worked things with tenants in the past that has made the best out of a difficult situation. Everybody needs a place to live.
But we’ll never get to 5 months of non-payment. It just can’t happen. Sympathy, at that point, turns into taking advantage of home owners, which isn’t fair.
Though every tenancy situation is different, there are a few non-negotiable parameters:
- Non-payment can never get past 30 days. That’s 2 pay periods and past the point of return for most tenants.
- If a payment or negotiated vacancy plan is agreed upon, it is set in stone. If the plan is breached (for any reason), eviction must be filed.
- Don’t take it personally. Rental properties are a business and sometimes business stinks.
I am all for sympathy. But with rental homes, sympathy can kill your business if not used with moderation.
Brett Furniss is the head property manager of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreReviewing the Lease: 3 Simple Things Good Tenants Should Do (And How to Check!)
As Charlotte property managers, we meet with each new tenant and review the rental lease packet (lease, maintenance addendum, move-in inspection form, and, if applicable, the pet addendum) with them before we both sign it. We even send the lease packet via email to the tenants a week before move-in so they can review it and ask any questions prior to our meeting (before they potentially sign their lives away!).
This brings up the million dollar questions-
1. Is this largely a waste of time?
2. Does anyone really read through up to 13 pages of legalese gibberish?
3. Is it necessary to send it to them for early review and then go through it in person?
Answers:
1. No… it only feels like it sometimes…
2. Some actually do read all of it and are prepared with questions (10% – 20%)
3. Definitely!
Why “Definitely!”?
I like sending the lease to the tenants for early review. In the United States, ignorance is no excuse for breaking the law. Providing a clear, reasonable path for tenants to digest, question, and understand the expectations of their lease agreement is a good thing. This shifts the onus on knowing the lease from reasonable negligence (“I saw the lease for the first time when we sat down to get the house keys! If I didn’t sign it, I wouldn’t have a place to live!”) to passive acceptance (“Hmmm… It was provided to me, but I chose not to read it over…”).
In terms of reviewing the lease in person with a new tenant, I don’t think it is necessary to go over it point-by-point. Most of the things in the lease govern what would happen in worst-case scenarios; being able to answer any questions the tenants have about obscure items in the lease should suffice. However, the following three things that make for a good tenant should be spelled out (and if the tenant screening is done correctly, we’ve already checked on these during the application process):
1. Good tenants pay in full and on-time: this is why we do credit checks (do they pay other people on time?), landlord checks (did they pay their previous landlords?), and employment and income checks (can they afford the place?)
2. Good tenants maintain the house: this is why we do landlord checks (did they keep and leave their prior place in good shape?) and include the maintenance addendum (the things they need to do to keep the house up- change air filters, mow the lawn, etc.)
3. Good tenants get along with their neighbors and society at large: this is why we do criminal background checks, landlord checks (did you have any issues during their rental period?), and pet addendums (if your pet does things we don’t like, we can legally ask you to remove it from the home within 48 hours)
If you can narrow the focus to the lease signing (and tenant screening) to these 3 points, you should be in for an enjoyable tenancy!
Brett Furniss is President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords. BDF Realty manages single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area with services that include property management, home repairs, and home sales (including Rent-To-Sell).
Learn MoreCharlotte Property Management Monthly: Stick It Out or Play the Field? Long Term Vs. Short Term Leases
In property management, one of the things we discuss with new clients is their goals. Are they planning on keeping the property long term or are they looking to sell it at the first opportunity? Do they want to move back into it at some point? How much flexibility do they need? What is their risk tolerance?
We want to make sure that we are enacting strategies that fit what clients are trying to achieve. They aren’t all in the same life situations.
It’s the same thing in the dating world. Some are looking to get hitched. They want to be seriously dating in an exclusive relationship on the way to marriage. They want someone on a long term basis who they will be with through the thick and the thin. This type of dating allows for greater security and a lasting partnership. However, it is a difficult one to leave without very hurt feelings and does not always allow you to see the best that the partner has to offer.
Other people are looking for “fun”. They want to meet as many people as possible and continually upgrade who they are going out with. This is a strategy that entails a lot of dates, work, and stress. The swinging singles would also argue that it also includes a lot of excitement, the ability to always see the best of the other person, with little actual commitment from their end; when something better comes along (or any other reason, including none at all), it is understood that they are gone.
Leases are the same. Some owners want to have the security of a payment coming in every month. They are willing to sign a multi-year lease for the current market rent, with no rent escalators built in. They want their tenants to be there for a while and be happy. To this end, they often will make home improvements for the tenants. They know they will be holding on to the property long term and are willing to make some sacrifices to keep tenants for the same time period.
Some owners like flexibility and the ability to always get the market rent (or more) for their home. They entertain weekly or monthly leases where they know they can demand a premium for the short lease period. Sometimes there are big events (like the upcoming Democratic National Convention inCharlotte) that they know they could get the equivalent of several months rental payments for renting out for only one week! They also have family and friends that come into town often and they like to have an open place for them to stay.
There are certainly downsides to short term leasing! There are no recurring rental payments guaranteed to come in every month, which is a financial risk. There are many opportunities for the bevy of new tenants that go in and out to damage the place. There are also increased payments to the property manager for fixing up, marketing, and procuring tenants so often. These need to be covered by the excess rent that is hopefully commanded.
Long term versus short term leases is much like the old argument of risk versus reward. Short term leases provide higher highs and lower lows, while long term leases are a moderate investment path that should provide consistent, average returns. The question is what the owners’ goals and needs are and this can certainly change many times during the relationship with the property manager.
For most property owners, the long term leases are the most economical option for their investment homes. However, one size does not always fit all and short term leases can provide a nice bump in income!
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 Monthly: Property Management Going Mobile: Mobile Websites and Apps “Must-Haves” Now?
I was out to dinner the other night in Uptown Charlotte and saw the typical 21st century young, urban couple. They were dressed stylishly, moved with grace, were good-looking, and barely talked or looked at each other the entire time I saw them at the restaurant. Were they:
A. In a fight?
B. Shy mutes?
C. Engrossed with their mobile phones?
Of course, and sadly, the most probable answer in today’s world is C. I have a difficult time with this! I want to say, “Buddy, wake up! You’re with a good-looking woman; I can’t believe I have to tell you to look up and talk to her, instead of texting your friend, Chuck! What’s wrong with you?”
So, being a grown man, I had to decide whether to cry about this newer phenomenon or accept it. After some internal wrangling, I’m happy to report that my righteous indignation has passed and I’ve accepted this digitally-inspired apathy towards fellow humans as the “new normal”. So what does this consumer love affair with mobile phones mean to property managers?
It means we better get in the game in the mobile realm. Regular websites have worked really well for a while, but change has come again. New renters are going to want to use their smart phones to search for rentals near them (aided by GPS), fill out rental applications, pay application fees, and put down deposits. They want the whole rental process available from their mobile phones.
What specifically does this mean? It means we better have mobile websites that allow them to do this; the mobile websites need to include only succinct information potential renters would want when on the go. It also means we need a mobile application (a custom company “app”) that customers can put on their devices so we own some real estate on their phones. Trends show that home internet connections are on the way of landline phones; the new battleground is the mobile phone. We need to be on as many as possible.
A mobile website is critical when consumers search for property management companies from their smart phones. Will yours come up? If it does, can consumers easily find rental homes, contact you (even text you!), and do everything you want them to do (like they can when you see them in your office or when they are in front of their home computer?)
An app is critical to sealing the relationship with customers. How can they remember you when they are on their mobile phones? Your app (with your company logo) sitting with the rest of the apps they use everyday is a good start. This is a good way to build mindshare and also to make it easy for your customers to contact you and refer you to their friends. Not an apps believer? Apps are set to be a $36B business by 2015- a lot of people use them and will be using them!
Change is hard, but the mobile revolution is not going away. If making a property management company last long term is the goal, mobile websites and apps are now “must-haves”!
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 MoreRenting Out Your Home Is Not For The Timid? 4 Reasons Not To Believe The Neighbors
Due to the tough home sales market, some home owners have been thrust into being “accidental landlords”. Their homes won’t sell for the prices they need, they have to move, and they can’t afford to keep them empty indefinitely. So, left with little choice, they will (reluctantly) start the process of renting their homes out.
They start with strong intentions, but then fear takes over! After research which includes talking to neighbors (who all have friends and long lost relatives in the “rental know”) and watching multiple episodes of “The Wire”, they are not sure they can go through with it. There’s so much uncertainty! And risk!
After many web searches, their definition of a “tenant” morphs into:
“A class of unruly persons, usually insatiable smokers, who have extensively studied the art of home destruction and rental payment evasion; commonly known as ‘slackers’ and ‘apathetic deadbeats’, renters have been known to spill drinks and never clean them up, loosen automobile oil pans so driveways become marked for life, and run surreptitious animal compounds (without signing a stringent pet policy disclosure).”
That’s scary!
So, what should fearful home owners do? I’d recommend a few deep breaths for starters. Then let’s look at some facts:
1. Roughly 35% of the population rents currently. Many of the nice places we go to regularly are rentals. I can confidently tell you that a third of theUSpopulation is not bent on home destruction. If you believe they are, sell everything you have and buy stock in Home Depot and Lowes.
2. You have lived in a rental at least once in your life (and probably work in one!) and you consider yourself a good, responsible person.
3. Everyone has a “bad renter” story because the “good renter” stories are boring. It’s like how no one talks about all the airplanes that take off safely everyday, everywhere in the world thousands of times; you only hear about the rare occasion when one plane doesn’t.
Example:
Jim: Hey, my tenant paid on-time and in-full yesterday.
John: That’s great (yawn).
4. Being in the business, I can tell you that most people have pride in their homes. They don’t want to be dodging evictions- they feel embarrassed when they can’t provide for their families. They want their home to look nicely- it’s embarrassing when guests and family come over and their place looks disgusting. That includes smoking indoors (people don’t like visiting homes where there is a smoke smell indoors and most parents want their kids to have healthy air to breathe as well) and out-of-control pets (will most self-respecting people accept living in pet filth?).
Are some tenants more meticulous than others? Of course! But the large majority of tenants are fine people who pay on-time and treat their rental homes with respect (this is especially true after professional tenant screening checks!). The tenants just want to live their lives in peace and have home repair issues addressed in a timely manner from time to time. Their lives are not about getting one over on the owners of the rental homes they live in; it’s just a place where they live for the time being.
Don’t believe the hype. And breathe. Even the timid can safely rent out their homes no matter what stories your neighbors tell you!
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 Monthly: If You Can’t Sell, Rent: 3 Steps to Get a Great Tenant
Rental homes are in a full-on, undeniable uptrend! A recent real estate article headline blared, “Property Managers Set to Rule the World! 1.8M new tenants to enter the rental pool in the next two years.” Exciting stuff for us stodgy property managers!
While this leads to raised glasses (no plastic cups- they’re actual glass now!) in the property management industry, it is unwelcome news for homeowners trying to sell their homes. The math is easy to calculate: there is roughly the same amount of people moving into homes every year. So if 1.8 million more of them are now renting, there are 1.8 million less of them buying.
So people with homes they can’t personally live in anymore have to do something. The “selling the house and moving on” thing isn’t working for most due to an uncooperative real estate market. Some are letting their houses go back to the bank via the foreclosure route. It’s not a great option in terms of stress and credit damage, but it does solve the problem. Others are going the rental and rent-to-sell route to fill their homes. Some might argue that this is more stressful than the foreclosure route!
But why is it stressful? It boils down to one thing- the tenant. If you get a great tenant, they pay on time, care for your home, and don’t bother you. If you get a bad tenant, you never get paid on-time, enjoy a myriad of excuses for this non-payment, wind up in costly eviction proceedings, and are rewarded with a busted-up house at the end.
So how do you get a great tenant? Let’s define a great tenant first. They:
1. Pay on time and in full every month
2. Respect the home (aka like keeping it clean and undamaged)
3. Get along with the neighbors, the HOA, and you!
To get someone like this, there are 3 steps to follow:
1. Gather information: Order credit and criminal background checks, verify income and employment (request copies of the tenant’s last two paystubs and call the employer), and call the tenant’s past two landlords. You’ll want to ask the prospective tenant, employer, and past landlords as many questions as it takes to get a comfort level of what type of person wants to rent your home:
a. “Mr. Prospective Tenant, it is a pleasure to speak to you again! I never tire of your hilarious tales of amazing coincidences, which seem to be your hallmark. The honeymoon beach story with your two ex-wives somehow being on the same beach as you and your soon-to-be third ex-wife? Priceless! Now, why didn’t you pay your light bill in 2008? Why is there a collection account with Macy’s? What would your last landlord say about you?”
b. “Mr. Employer, if I may humbly ask, is Mr. X’s employment part-time, full-time, or contract work? How long has he been working there? Is he in good standing?”
c. “Mr. Landlord, your azure eyes must have been killing the ladies for years! At a risk of wasting your precious time with my inquiries that are so well beneath you, would you rent to this tenant again? Why or why not? How many times have they paid late? What did the house look like when they moved out? Is your superior intelligence a product of extensive domestic schooling, a plethora of renowned international boarding schools, or ‘Good Will Hunting’-like genetics?”
2. Analyze the data collected. Does the prospective tenant have stable employment? Do they make enough money to afford the rent and their other expenses realistically? What about if there is a slight bump, like a big car repair- can they still afford the home? Do they pay other people they commit to pay? What did their last landlord think of them? Would I feel unsafe renting to them if I had to give them bad news? Am I being overly optimistic about their merits or am I making a solid business decision?
3. Make the call. If they pass the smell test, approve them and move forward. If your gut is telling you to pass on their application, then pass! There is more than one fish in the sea.
There are many great tenants out there! Get a lot of data on the applicant, analyze it objectively, and make the decision on whether to approve them. It will work out most of the time!
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 Monthly: Incentives: Knowing Why the Chicken Crossed the Road & Why Fees are Good
Q. Why did the chicken cross the road?
A. There was bird feed there
B. A coyote was chasing him
C. He saw a hot “chick” on the median
D. To get to the other side
Answer D is the response that makes this a legendary “joke” (somehow…). Answer D is also very incomplete. Everything happens for a reason; no one does things without some type of incentive being involved. I mean, the chicken wouldn’t care about getting to the other side if he didn’t have a reason to do so. What was its motivation? What was the incentive the chicken was pursuing? A, B, or C answers make much more sense to me in answering the “why” question! They address the chicken’s needs:
A. Hunger
B. Safety
C. Love (or lust)
In business, incentives usually mean money. If 90%+ of businesses fail for lack of cash flow (lack of money incentives), then the ones that survive make sure they are getting enough cash incentives from their customers. Obviously, this isn’t a one way street; the businesses are offering enough value in return so these payments are a win-win deal.
So now that is established, what can incentives tell you about a company? Some charge for certain services, some don’t. Why not just take the free services when they’re offered? Cheaper, especially in tough economies, seems like the best way to go. Right?
Well, incentives can be telling; company pricing and their fees can tell you what they believe they do well and what they don’t. So, in terms of getting great results, paying fees can be very important! Fees motivate companies to do what you want them to do.
Reading into incentives (aka company pricing) is interesting and generally informative. Let’s look at examples of this from real estate and other businesses:
1. When a tech company sells pricy software and then offers free support with it, I’d expect the software to be good and the support to have long hold times. If support costs extra money monthly and can be cancelled at any time, the support will probably be pretty good.
2. If you ask a friend to pet sit Fluffy as a free favor to you, your friend will probably be late and leave early; unfortunately, most friends will do the minimum required! If you hire the most expensive pet sitter in town, chances are Fluffy will be treated like Benji on a movie set.
3. If property management companies don’t charge you to sell homes under management, they are probably not going to actively seek to sell your home to the tenant.
4. If you offer your real estate agent 7% commission, they will probably be incented to work harder to sell your home. Many people will try to get their agent down to 5%, which is a complete misread of how incentives work.
5. If a property management company charges a huge sign-up fee, but very little for procuring a tenant and managing the property, chances are they will be very motivated to sign you up. They may be less motivated to procure the tenant and manage the property.
Generally-speaking, incentives (pricing) are an effective measure of the value that will be received for different services. A $5 chocolate bar should be better than a $1 bar. If you offer to pay one friend $50 to mow your loan and ask another to do it for free, guess which one you will see firing up his push mower first in your front yard?
So fees are good for consumers! If you don’t make sure you are utilizing proper incentives for service providers, you’ll never know when (or if) the chicken will actually cross the road.
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 Monthly: Should I Even Bother to Try to Sell My House in this Market?
This is a question that I was posed on a call last week. For property managers, this is a no-brainer, right? It’s like any buying question to a salesperson in any industry:
Question from prospective client:
Do I need a haircut?
Barber:
Absolutely.
Question from prospective client:
Do I need insurance coverage for (fill in the blank)?
Answer from insurance agent:
Absolutely. If your family’s (fill in the blank) is important, it would potentially be devastating to live without it.
Question from potential client:
Can my house sell in this market? It didn’t with the past 2 real estate agents I used.
Answer from real estate agent (straight faced without blinking):
Absolutely! My team has a 10-point marketing plan that can sell any house in any market*!
* With a nominal 50% price reduction
So back to the original question:
Should someone even bother to try to sell their house in this market?
My answer:
It depends.
Depends on what?
You should try to sell your home if you:
1. Are living in the house and don’t have to move
2. Have a clean tenant who is amenable to showings
3. Have a unique house (be honest!) that is desirable in any market
4. Are able to afford to price the house competitively (aka on the low end)
5. Are willing to gamble and eat the rent every month and wait for a buyer who might or might not come
My answer to not bother putting the house on the market for sale is under the following conditions:
1. There are several foreclosures and short sales active in your home’s subdivision
2. You can’t afford to or don’t want to drastically discount your home price
3. The home is vacant and #3, #4, and/or #5 above don’t apply to you
4. Neighbors’ homes that are priced around the level you want to sell yours for are sitting
The simple truth is that the buy & sell real estate market is continuing on a sharp downtrend with no end in sight, while the rental market is on a sharp uptrend. Everyone still needs a place to live, but the banks are not willing to lend to less than perfect borrowers. This leads to a surplus of rental and rent-to-own tenants, and a dearth of buyers. So the question is if it is better to go fishing at the small pond stocked with thousands of fish or the big pond with 25?
Whether it still makes sense to list your home for sale really depends on your answers to the questions above. Truthfully, for most people, the best financial option is to stay put in their home. But going straight to the rental or rent-to-sell market is best for people who are:
1. In a time crunch
2. Need to move
3. Can’t or don’t want to afford 2 mortgage payments
Often, it just doesn’t make sense to put the home on the market for sale. It’s an exercise in futility and costs a good deal of money. It’s like asking out the head cheerleader to the prom when you know you are going to wind up going with Suzy next door anyway. You might as well cut to the chase and save yourself the time, expense, and effort.
That being said, one size never fits all. Determine what criteria above fit your situation and act accordingly!
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 More