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Real Estate Acquisition

From Home Sales to Portfolio Investments

 

new home buyersAnyone who’s been through the process of buying a home knows first-hand the enormous amount of work and the shear volume of paperwork involved. It’s a complicated process with a thousand moving parts, each having its own set of rules and regulations with which the parties must comply. And despite the advent of advanced technology that somewhat lessens the burden, it remains a specialized field that requires knowledge, experience and foresight to assure the parties a successful outcome. For more than  3-decades, The AmesGroup has been successfully guiding the real estate investor through this complex process, protecting the interests of our clients and giving them the peace of mind that comes with knowing that all the “T”s are crossed and the “I”s are dotted.

-Buyers are Unrepresented

One of the very first things we’re asked here at The AmesGroup is, “Why do you specialize in representing the buyer? What’s wrong with the seller?” And the answer is, there’s nothing at all wrong with representing the seller. In fact, we do it all the time, but it’s predominately because a previous buyer-client has recommended us. Very rarely will you find The AmesGroup representing a seller because we’re a boutique firm; there’s only so many hours in the day and most notably because buyers need us far more than do sellers. You see, buyers are, for the most part, typically unrepresented in purchasing their property. In fact, according to Quicken Loans, 68% of people buying their first home are not represented by a buyer’s agent and a whopping 89% of people buying vacation properties are without representation. They are, quite literally, alone in a very complex process and swimming in a sea full of sharks. “But that can’t be!” you say. “My sister Doris bought a house and she had a real estate agent. The seller’s agent helped her sort everything out.” to which I simply say, “Think about it.” When you decided to buy a home, what did you do? If you’re like most people today, you jumped on Zillow or HomeFinder, Redfin or any one of a dozen other websites that have popped up on the Internet to find some properties that interested you. And then you called, or you clicked, and you set-up an appointment to view those homes with whom; an agent; the seller’s agent. Or you’re watching TV one night and a really slick commercial comes on for a new development on the Mexican Riviera where they’re offering vacation homes for “half of what you paid for your home in the states“. And you think, “Oh, what the heck. We’ve  been thinking of a vacation getaway, anyway. We’ve worked hard; the kids are growing up. Maybe it’s time to invest.” And so what do you do? You call or you click and you make an appointment; with whom? Right again, the seller or the seller’s agent. Are you starting to get the picture, now? It’s always the seller that’s represented but hardly ever the buyer.

-The Odds Always Favor the House

The real estate game is no different than other any game whether it’s at a Las Vegas hotel or your friend’s poker table. That’s right, it’s a game; always has been, always will be; a game of chance and risk; the seller’s betting that the market’s topped-out so he’s taking his profit and leaving the game and you’re taking his seat betting that the property is still well-positioned to either stay the steady course while providing a roof and shelter and slowly appreciate in value or, in the event it’s a commercial investment, continue to produce significant income and well-appreciate in value. It’s the same game; only the players change. And this is exactly why buyer’s need competent, professional representation much more than sellers do. For the seller, he or she has already made their money on the property; they’re selling and leaving the buyer to now assume all the of property ownership and investment risk. Now, the buyer is left to ask questions like, “It looks like a safe neighborhood but what’s going on three blocks away?” “The house looks solid but why is there that hairline crack in the wall up by the ceiling?” “Nice neighbors. I wonder if there are any sex offenders in the area?” “Sure, it’s a quiet street but are there plans to put 4-more lanes in front of the property.” These issues and a couple of hundred more variables are precisely the reason that The AmesGroup represents the buyer, investigating the whole of the investment and not just the bare minimums that most real estate agents and brokers do. The agents’ job is to get you in and get their commissions. Our job is to first protect you and then, if it all checks out and you’re willing to assume the risk and the rewards that we’ve uncovered, complete the deal and yes, receive our commission but not from you; from the seller. They’re in a rush; we’re not. In 34-yerars of practice, with the exceptions of emergency 1031 tax-exchanges and other, typically investor-induced time-sensitive situations, never have we run into an investor who has HAD to invest. We’ve run into many who HAVE to sell but never the other way around. The prudent, experienced investor simply isn’t built that way. The AmesGroup provides complete, competent, full-service, buyer-specific representation just as any professional does for his or her clients. As Land Use and Governmental Affairs specialists, we are uniquely positioned to investigate, well-beyond the generally-accepted parameters defined within the rules and regulations of the various departments of real estate, the whole of the purchase going to the to the very core of the property itself. And while many have labeled our investigation practices “overkill”, it’s usually the seller’s agents who hold that opinion. Few if any of our clients over the past 3-decades would join in that assessment.

-Dual Agency

“Dual agency” occurs when the agent represents the buyer and the seller in a real estate transaction and yes, the practice remains, albeit oddly, legal in all but 9-states but let me ask you; if, God forbid, you and your spouse, after a contentious last couple of years of marriage, decide to get a divorce, do you want the same attorney representing you that’s representing your spouse?  CNBC News asked the same question in an in-depth interview last year and came to the same conclusion that we and most rational people did; Of course not. Yet somehow, the idea of “dual agency”, which is exactly the same thing where the same agent represents the buyer AND the seller, makes sense to people. It doesn’t (with select exceptions. See the big red star below!) work, this in spite of the arguments that most real estate agents and brokers make who love the idea of getting “both ends of the deal” or both commissions. The seller’s agent has a “Fiduciary responsibility” to the seller; “a duty of the highest ethical and legal accord for one party to act in the best interest of another”. Your attorney has a fiduciary duty to you. Your doctor has a fiduciary duty to you. Your real estate agent/broker has a fiduciary responsibility to you. However that same seller’s agent, pursuant to the very oath that real estate agents and brokers pledge before their states’ Boards of Licensure, owes the buyer in a dual agency relationship, “only a duty of honesty, fairness and disclosure.” And while it may not sound like much of a difference, if you espouse to live an honorable and ethical life, there is a HUGE difference and publications like the trusted Mortgage Reports brokerage firm agrees, especially when you consider the average California real estate commission is upwards of $25,000 per transaction.

-Like Lary Says

Now, here’s the real kicker; competent counsel for the buyer costs the buyer absolutely nothing; “It’s freeeeeeee” as Larry at Sit-n-Sleep so famously says. The buyer’s agent’s fee is ALWAYS covered by the seller; it’s built into the commission that the seller pays his or her own agent for selling the house. That’s right, that mythical 6% rate that everyone thinks is somehow mandated by law; usually split 3% for the seller’s and 3% for the buyer’s agent; well, it isn’t, which is why contained within most states’ approved sales contracts is a mandated disclosure clause that states, in emboldened print, “Commission fees are not set by this state and are negotiable“.  “But I’m not paying 6%” you say; “I’m going through Help-u-sell”, or RedFin or any one of a dozen dozen other cut-rate, discount, on-line real estate brokerage houses that have sprung up on the internet and you think somehow that that makes a difference; that somehow now you’re protected since you’re not paying 6%, you’re only paying 3% and you’re saving money. YOU’RE NOT! And the  Inman Report and a dozen other bell-weather fiscal watchdogs agree. The only thing that’s happened is that the those cut-rate brokers are using the internet to cut their own agents’ fee by at least the 3% that the seller was paying either his or her own agent or the buyers agent anyway as part of that mythical 6% commission and putting it into his or her own pocket. You, the buyer are still left unrepresented. You’re still unprotected, and that house, “your house”, is still going to sell for the seller’s asking price anyway. And that 3% commission that “you didn’t pay”; as I said, it’s just going into the pocket of RedFin or Help-u-Sell or Zillow or any of the others because that’s part of their profit; that’s how they stay in business. Do you see now? Please tell me you see it now. It’s a game; the same game but with a different name. All you did was move from a poker table to a PaiGow table. In fact, PaiGow’s a better bet because it’s the luck of the draw. In real estate, you can educate yourself or get representation and even the odds but without knowledge or representation, everyone’s still playing with your money! Most of their agents aren’t even on a commission structure; they’re salaried employees.

-Someone Always Pays

And so now you know how the game is played. And if you think it’s bad here in our United States, wait until you decide to purchase property abroad, like in Mexico where “escrow” hadn’t been used until just a few years ago and escrow agents remain unlicensed and unregulated, just like Mexican real estate agents. That’s right; the two major players in Mexican real estate transactions have neither oversight nor regulations by which to abide!  And yet people still fall for the commercials extolling the “beautiful, white-sand beaches” and “unhurried lifestyles that await you”, continue to beckon your immediate phone call “within the next 20-minutes” or your email to “set an appointment with one of our very own agents” for a “free vacation”. And thousands of people are calling… or clicking which is fine; call, click, but call or click with counsel. At least have someone who knows the game on your side with a fiduciary obligation to you.

-Moving in the right direction

Now, to be fair, in the past few years, Mexico has moved  to join the rest of the world in oversight of its real estate agents who are now eligible to join SEDECO which is the Baja California Economic Development Secretariat, a part of the AMPI or the Mexican Association of Real Estate Professionals. And together, these two organizations have pushed for the enforcement of the regulations governing real estate professionals since 2014. But the fact of the matter is that these organizations are just that, organizations like the REALTOR boards in the various cities in the US; fraternal organizations that get together to share information and protect each other; not the buyer nor the seller.  So at the very least, the prudent investor will ask to see the real estate agent’s credentials which, at a bare minimum, should articulate an affiliation with these two bodies.

-Buyers Need Protection

It may sound trite; it may sound cliched and empty but, as we’ve said before here; our 34-year record speaks for itself. We represent buyers because buyers need the protection of competent counsel as do sellers. It’s simply a matter of clearing away the fog; blowing clear all the smoke and talking about where the money really goes; your money, the buyer’s money. And in the clear light of day, when the smoke and fog have all cleared, make no mistake; while our hearts are most assuredly “in the right place”, we still get paid very well for protecting our clients’ interests; we just don’t get paid by our clients.

-Investor  Take-aways

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The buyer's agent's representation is always free to the buyer

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Real estate agents, like escrow agents, are unlicensed and unregulated in Mexico

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"Dual agency" is an inherent conflict of interest

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That 6% commission fee is mythical; it's also negotiable

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The seller's agent owes no fiduciary duty to the buyer

-The Exception

The BIG RED *

As with everything, there are always exceptions to the rule and the exceptions here where dual agency is concerned are in three instances. The first instance is personal knowledge where the buyer or investor either knows the seller or the seller’s agent personally and is wholly-secure in the seller’s or agent’s integrity or, in the alternative, a trusted friend can vouch for the integrity of the seller or the agent. The second instance is when the seller or the seller’s agent has such a lengthy record of performance AND, you have taken the time to investigate AND sit down and talk with that person in-person or via video conference and believe the seller or representative to be trustworthy.  Neither are guarantees or a substitute for competent counsel but it’s the next best thing. A false persona can’t be maintained indefinitely; “cracks in the armor” will always appear and the truth always comes spilling out. The third is self-education where you are personally so secure in your own counsel in real estate and investment matters that you’re comfortable looking out for yourself; again, ill-advised as most professionals don’t care for themselves in professional situation but still better than the alternative.  Barring these three instances, with 34+ years of experience, we can find no instance where “dual agency”, with the investor’s money riding on the advice of the opponent’s representation, can be acceptable. And make no mistake; we make no apologies for using the word “opponent” because where the very definition of the word is, “a contestable situation where the objectives of the involved parties are diametrically-opposed”, there is no better word.  We at The AmesGroup will routinely refer our clients to developers whom we’ve known for many years; people and corporations with whom and with which we’ve had past dealings and people and companies whom and which we’ve come to trust. We routinely recommend cases, for various reasons to other agents,brokers, lawyers and professionals with whom we’ve been previously adversarial many times over because “adversarial” doesn’t mean “objectionable”; it simply means we’ve been on opposite sides of the issue representing our respective clients to the best of our professional and personal abilities; and they have referred their clients to us, again for myriad reasons. And we, and they, put our reputations on the line with every recommendation we make, secure in the knowledge that the developer or the representative is of sound moral character and professional ability. Our clients trust our judgement and, with 34-years in a business where reputation is everything, we will not violate the sanctity of that trust.

-Final Thoughts

The fact that The AmesGroup fails to charge our clients for the privilege of representing their interests in their real estate investments, be they starter-homes or multi-million dollar portfolio acquisitions, should not be misconstrued with actual  acts of benevolence or charity. Our record with humanitarian groups like the Los Angeles Union Rescue Mission, Sommer Haven Ministries, All Nations International and a dozen other true charitable groups over the years speaks well to our pro bono, community work. Our representation of buyers and investors are merely acts of prudent business practice that de-cloak the historic and mythical fee-structure of real estate acquisition and re-align the attributable costs of those investments in accordance with reality.

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