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Five Reasons You Don’t Want to Sell Your Home to the Person Who Leaves a Flyer on the Doorstep of Your Los Altos Home

By David Blockhus on 3.13.12 - 1 Comment »

Every so often, I receive flyers dropped off on my doorstep asking me to sell my home to someone who is “interested in buying a property in my neighborhood.” I’ve been receiving them from the same person for over 5 years, yet he hasn’t moved into the neighborhood. I wonder why?

In this particular flyer, the buyer’s terms were clearly spelled out:

I will buy the property in “as is: condition
I will pay a fair price
I will pay cash
You can remain in the home for a while after we close
I am not an agent
I will pay all closing costs
I will make this transaction easy and smooth

The second paragraph reads…

“If you are thinking of selling, please let me know and I will be happy to meet with you and make a fair offer. I am not a real estate agent. I am interested in property in this neighborhood. I look forward to hearing from you…. “

The bottom had a first name, phone and e-mail address.

From a quick glance it appears as if this is just a guy who wants to move into my Los Altos neighborhood. How flattering, he likes my neighborhood and wants to be my neighbor. I did a little research and this is what I found out.

The buyer is a real estate investor. He wants to buy a house if he can make money on it. I’m not going to see him doing yard work out front. His kids aren’t going to play with mine. He won’t be at the neighborhood block party!

His flyer makes it look as if he is really interested in buying in the neighborhood for personal use, but the reality is he buys and sells homes off market for a profit. It is a pretty sophisticated system whose success is based in part on the lack of knowledge or sophistication of the homeowner.

Here is how it works

After targeting a neighborhood with flyers (apparently his neighborhood is the entire peninsula), he receives a call from the unsuspecting home seller. He offers a substantially below market offer but makes it sound better by making the process easy on the seller (buying “as is,” pay cash (really does he?), pay closing costs, allow the homeowner to stay in-house etc.).

The contract puts him and/or an assignee as the buyer (this allows him to assign the buyer’s contractual rights to a third-party). Either before or while in contract, he secures an investor/buyer who will take over the purchase, he removes himself from the contract and a new investor/buyer becomes the buyer. He walks away with a large fee for setting up the deal (does he need a real estate license for this?). The new buyer gets a home below market and the seller is left wondering what happened.

The investor doesn’t want a real estate professional, real estate attorney, or anyone else who might scrutinize the deal involved. The more eyes that look at the deal the less likely the deal will go through.

Why is this a bad deal for the home seller?

The investor will only purchase properties that are sold substantially below market rate – seller is leaving a large sum of money on the table.
The investor will only purchase properties “off-market” because he knows a house exposed to the market will cost him substantially more money, thereby reducing his profit – again, seller leaves money on the table.
By assigning the contract to another, the seller doesn’t know who the buyer really is or what the buyer’s qualifications are – there is a much higher probability that the deal won’t go through.
The investor is not a licensed real estate sales person yet acts like one (are these activities illegal?) - could potentially involve the seller in future legal problems.
The investor can tie up a property for months (until he/she finds a buyer) – thereby preventing the seller from selling the home to anyone else.

Note: I don’t believe the investor’s activities are illegal. However, his flyers are misleading and his success is directly related to the seller’s lack of market knowledge.

If you receive one of these flyers and are curious, make sure you fully understand the deal and the person behind the deal before committing to anything. You must know that if you choose to sell your home off-market or as a pocket listing, it is highly likely that you will net less money than if you sold it with full market exposure. If approached, contact your local Realtor or a real estate attorney who specializes in these types of transactions to see if it is in your best interests to sell your home in this manner.

If you have questions about what is in your best interests when selling your home in today’s real estate market, please call me directly at 650 917-4250.

“For Sale by Owner” or “How to Leave Money on the Table When You Sell Your Los Altos Home”

By David Blockhus on 11.16.11 - Please leave a comment.

Earlier this month a home in South Los Altos closed escrow. Nothing new or exciting given that approximately 12 homes a month close escrow in South Los Altos each month. What is interesting is how this home was “marketed” and how much money the seller left on the table. Let me explain.

Back in May/June of this year, this South Los Altos home was put on Craigslist as a “for sale by owner” listing for just under 1.2 million dollars. The owner knew that he could sell the family home quickly (“because everything in this neighborhood sells quickly”) and reduce his selling expenses (by not having to pay a listing agent side commission). Selling by owner is a viable option for sophisticated sellers who have the knowledge, time, energy and resources. Unfortunately, the “for sale by owner” route didn’t work out as well as I think the seller would have wanted.

The house sold quickly and closed escrow in early July. However, the sales price of $1,140,000 was substantially below market given the recent comparable sales.

The new buyer-investor did a modest remodel (a flip kitchen – looks nice but not something an owner would put in for themselves, interior paint, patio and landscaping etc.). The home was listed with an Realtor, placed on the multiple listing service and sold in one week for over 1.36 million. I estimate the net gain (after all expenses and fees) to the new owner-investor at approximately 100k.

Had the original home owner’s heirs marketed the home correctly, they would have received more money. Instead an investor bought the home under market and sold it for a substantial profit. It is sad, but a sizeable amount of the investor’s profit was the equity that this family had earned over it’s 30+ years of home ownership. It should have gone to the original homeowner’s heirs, but instead it went to an investor who owned the home for less than 4 months.

Yes, the remodel added value but as all investors who buy a home in order to flip it for profit understand, the big money is earned on the initial purchase and subsequent value is added with any remodeling.

By the way this remodel was very limited in scope relative to the usual flip that happens in Los Altos. Usually an investor will remodel the kitchen (with median-higher end finishes), remodel all bathrooms, change out all windows, add crown molding, change out the baseboards, change out lighting, re-finish the hardwood floors and/or replace carpeting, paint and landscaping.

Two reasons I think the flip was limited in scope:

Time constraint issues. A complete remodel would push out the date the home would hit the market to late fall when typically there are fewer buyers
They made a sizeable profit when they bought it “for sale by owner.” Further remodeling would have reduced the profit margin percentages. They could have just painted and landscaped and still made 70k profit.

Lessons Learned:

“For sale by owner” properties attract buyers who are probably more sophisticated than the average home seller.
Selling real estate to maximize one’s profit is not as easy as it may appear.
Get advice from experienced and trusted sources.
Exposing the home to the largest pool of buyers generally yields better results
Taking the emotion out of the deal usually yields better results.
Market timing is important
Property condition is important

Poor Quality Remodel Leads to Lower Sales Price

By David Blockhus on 6.27.11 - Please leave a comment.

I just got back from showing some clients a new home for sale in west San Jose. Prior to putting the house on the market, the owners had the home extensively remodeled. They knew that in today’s real estate market, homes that are nicely remodeled sell for a premium versus those that don’t. They were trying to capture that market. Unfortunately, they failed.

“The beautiful remodel”

This home had almost everything remodeled. The kitchen and bathrooms had been redone, the hardwood floors exposed and refinished, new double paned windows were installed throughout, even the fireplace was refaced and new tile added. The pictures on the Multiple Listing Service were stunning.

My clients were very excited to see this remodeled home and wanted to see it right away. When we entered the house they went straight to the kitchen to see its granite counter tops, new cabinetry and appliances. They opened up the kitchen cabinets and drawers to see how they operated. They check out the shiny new appliances and the view from the kitchen window. They even looked under the kitchen sink.

Looks can be deceiving!

On the surface the kitchen looked awesome. However, the more my clients examined it, the more discouraged they became. You see, the remodeling job looked nice, but was poorly done. The shelves in the cabinets were not level, the nail holes weren’t patched, there was a huge hole in the back of the cabinets where the electrical box was. The brand new microwave wasn’t vented to the outside (this is a sign of a cheap microwave that blasts food smells back into the home).

As we went through the entire home, the discussion switched from “How my buyers can see themselves living in this home” to “let’s see how poorly they slapped this thing together.” It became a game to find the weirdest construction defect. The windows stuck, the closet doors were painted together, the bathroom cabinet doors were misaligned and so on. The only thing that didn’t appear to have some construction mishap was the nicely redone hardwood and re-tiled floors.

Do it, but do it right

Many times remodeling and/or updating a home prior to putting it up for sale can return more profit than if the home was just cleaned up and staged. As a seller, if you are going through the trouble and expense to update your home prior to selling it, don’t do a crap job. New crap is worse than old crap. Hire someone who has the experience and track record to do it right. The remodel on this house was poorly done and will eventually cost the seller more than if he/she left the house in its original condition and sold it.

I think my client summed it up nicely when he said “If they did this bad of a job on the things that I can see, what did they do to the things that I can’t see?” Needless to say, they decided to pass on this home.

Should you have any questions about the value of your home’s remodel in today’s market or you wish to purchase a home, please call or text me at 650 465-0755.