7 ms·

"Steve Cohen at SAC was famous for overpaying on commissions " After a real estate deal last year I bought the broker a gift and delivered it. He said "wow sho

by larrys 11y ago

"Steve Cohen at SAC was famous for overpaying on commissions " After a real estate deal last year I bought the broker a gift and delivered it. He said "wow shouldn't I be buying you the gift?". No problem because the next time I was the person he called first when he got a fresh listing on a commercial investment property which I was able to buy at a much lower price per sf than if he had actually taken the effort to shop it around or keep the listing active. People respond amazing predictably even if they think of themselves as highly ethical. They tend to remember the people who treat them well and appreciate their efforts. In this context a small gift (what I am describing) also isn't necessarily a bribe. It is an "advertisement" that makes the person that you are giving the gift to remember you and to call you when they have "a good deal". It all depends on the relationship. It is often the case in business that instead of thinking solely about the costs (or commissions) that it definitely pays to be someone's good customer and allow them to make money from you.

anigbrowl 11y ago
Not to be critical of your business practice, but the broker's behavior seems to be on thin ethical ice here, since he had a fiduciary obligation to the client - his intentions may have been ethical but but he comes off as a little lazy/irresponsible for not getting the best price for his client. As you're obviously investing in real estate yourself, how do you balance the benefits of liquidity from a quick sale vs. those of maximizing the sale price by shopping around? Put another way, if you were the seller in that transaction, is the opportunity cost of waiting a bigger worry than getting the best price? Is it just the seller's responsibility to instruct the broker 'this is my liquidity goal, anything on the top is gravy' or 'take your time selling, I want to get the full value of this asset', depending on the seller's need? I'm not a business person/investor so I would like to understand your thought process better. Thank you. PS feel free to email.
- forrestthewoods 11y ago
  No real estate broker gets the absolute best possible deal for a client. They get a small percentage of any deal. A slightly better deal might be worth thousands of dollars to the client but only a few hundred to the broker. It's not worth the broker's time to spend a full week looking for the absolute highest buyer. It's in the broker's interest to process more deals more quickly than to squeeze that last little bit out of every property. That's just the way it is.
  - anigbrowl 11y ago
    I'm not talking about the absolute best possible deal, I'm addressing larrys' observation that he picked up an investment property for significantly less than the broker could have sold it for if he shopped around. Fiduciary duties require brokers to act in the client's interest, not their own. This isn't something a broker can just blow off if a dispute arises, it's a legal obligation. That's why it's referred to as a duty. http://www.realtor.org/sites/default/files/handouts-and-brochures/2014/nar-fiduciary-duty-032213.pdf http://www.realtor.org/sites/default/files/handouts-and-broc...
    - larrys 11y ago
      "than the broker could have sold it for if he shopped around" In reality most brokers simply take any calls that come in from commercial MLS types (say loopnet.com) and may call a few people and put in a nominal amount of effort. Speaking of loopnet a few years ago I put a property on that site. One day I get a call from a broker for his client. I immediately let him know that I will give him 6% commission for the deal. And of course he was very motivated then to convince his client to take the property because if he found him another property it not only is work for him (that was listed by another broker) he would only get 2.5 or 3%. And another owner (if there were any) might give him a hard time about paying commission. By the way this type of thing isn't learned in Wharton (where I went btw.). It is learned by observing what others do and reverse engineering things that you see that are out there that are happening. And interpreting your own reaction to events to draw conclusions as to why people behave the way that they do.
  - larrys 11y ago
    Generally you are right. However I am paid to negotiate and buy things for people (not real estate). I have even had people tell me that they will pay me more if I can get them a better deal. I tell them that they don't have to do that. That I charge a fixed fee. [1] (And the fixed fee varies btw.) The truth is I get them a good deal because (as I mentioned in my other comment) this is a game for me that is fun and that is the reason that I do this. The money that I make is secondary (one reason is it's not my primary source of income). In one case I already had a buyer and a seller agree to a deal. The buyer (my client) agreed to the price that I had negotiated and was very very happy. However when talking to the seller I sensed weakness. So I exploited that and got them a better deal than they had already agreed to. Just for the fun of it and because I could. Just to hear the pleasure in my client's voice. Was worth a great deal to me. Didn't make 1 penny more. So my point is although I think in general (and a book that I can't remember the name of talked about this concept with regards to realtors) you are right there are almost certainly realtors who act the same way that I do in other words they do act in the client's best interest because it is a game for them like it is for me. I guess the key is finding that type of realtor. [1] Some people who do what I do charge a fee based on "how much they save someone over their budget". So the game there is that they try to get you to increase your budget while knowing that they will be able to buy for much less so they are playing you knowing you don't know what they know about the market.
- larrys 11y ago
  Oh wow I could write a book in response to that type of question. "if you were the seller in that transaction, is the opportunity cost of waiting a bigger worry than getting the best price?" If I understand what you are asking about the downside risk of not taking an offer on the table? That is always a consideration in any transaction where you are selling whether it be real estate or another asset. And it depends on a multitude of factors. Well first let me tell you that in any situation like this you are in a sense playing the person that is working for you many times (the broker). They have to be convinced by you not told by you. They have to believe what you are telling them in order to do the job for you. And they are playing you as well. You are an actor playing a role. It is a game. This is the game that I play (I don't play any other game by the way and I have never played a single video game either but I like this game..) So you have to decide what your position is and them somehow convince them of that so that they act in your best interest. This means being neither to honest or to dishonest. Each situation is different and it is really hard to generalize. In one case I was negotiating a lease and I told the broker "I will take $x per sf however if you can get me $x * 1.1 per sf you have really done a good job!" (arbitrary figures btw). All the while I knew he would be able to get me the 1.1x and maybe more. (And he did..) I had already figured that out in advance of saying that. So I was playing him so he would feel like "Daddy is happy". (We can call that the "please Daddy" routine). In other cases I might have said "I need $x * 1.2 at the minimum, see what you can do for me". In another case I find out that a broker had gotten me a good deal by making my offer on a property "as is". I never told him that of course. But that is how he got me such a good deal. Most people would have scolded the realtor and gotten pissed off. I didn't. In fact I was willing to even waive that mistake on his part (if you want to call it that). When I found out, I wrote him an email and made a joke and said "wow funny I didn't know I was buying that "as is"!!! He writes back and says "that is what I needed to get him to accept your lowball offer!" (was about 32% off asking price..). Then he tells me he can take the repairs out of his commission (I didn't even have to ask). Of course I could easily back out of the deal if I wanted. But I was actually willing to even pay for the repairs that I hadn't agreed to. Not because I got such a good deal but because I want him to take risk for me and not feel like I am some little old lady that will take him out to the woodshed if he fucks up. In other words I want him to feel as if in the end he can take chances if he needs to. This works because that way I get an out and he takes the risks. If he had asked me upfront "I will need to make the offer 'as is'" I'd have to agree to that and then I couldn't back out as easily!. Here is a real life situation re: quick sale vs. wait. I had a commercial rental property. It was vacant (for about 5 months let's say). One day there is a flood in the complex and another owner calls and wants to know if I can "help him out" (was a Physician). Almost like he thought I would let him use it for free? Anyway I tell him that his insurance company will pay for everything and I will deal with the insurance company. The insurance company tells me that the Dr's unit should be repaired in 4 or 5 months so what will it cost to rent it for the 4 or 5 months? I say "can't do that I need at least a year's rent for the 4 or 5 months" (and why). We go back and forth and in the end I get the insurance company to agree to pay me for a year rent (full ask) for 4 or 5 months. That's full ask rent. But in the end I didn't even rent to them. I was worried about tying up the property for those 4 or 5 months because a realtor was telling me he had other interest in the property from people who would take long leases. So I had a choice to make door number 1 or door number two. How do you know the right thing to do? You don't. You use all of the info that you have and your experience and you make a decision. Sure bet, 1 year rent for 5 months occupancy or door number two longer lease. MAYBE MAYBE NOT. Of course having 7 months to find a new tenant seems like a good idea also, right? I decided to go for door number two. And I did find a tenant and they now have a 2 year lease with options up to 8 years and also an option to buy the unit. And they have renovated the unit at their expense. [1] Does this mean I am right? Well in this case I was right. I took a chance when the safer bet might have been to take the 1 year lease where occupancy was only for 5 months. This type of thing happens frequently it's never like the case studies and so on. [1] And in the true spirit another thing happened on this deal. I find out that I am not only paying my realtor a commission but also paying 1/2 of that to the realtor that brought the deal to him. Did I freak out? No, who cares so I paid an extra 3%. The guy who got the 3% convinced his client to go for the full ask rent so he deserves to make 3% and not 6% on this deal. (Rent % is sliding scale on years so these are not exact numbers just making it easy for the purpose of a comment..) And I cut the check right away for the commission so he got it the same week.
athenot 11y ago
That's the premise of Gary Vaynerchuck's book, "The Thank You Economy"[1], for those interested in this topic. [1] http://www.amazon.com/Thank-You-Economy-Gary-Vaynerchuk/dp/0061914185/ http://www.amazon.com/Thank-You-Economy-Gary-Vaynerchuk/dp/0... (non-affiliate link)
sz4kerto 11y ago
> In this context a small gift (what I am describing) also isn't necessarily a bribe. It absolutely is, exactly because it has an effect. Another post here says that 'the broker's behavior seems to be on thin ethical ice here' -- no, there's no ice whatsoever. This behaviour is outside of the ethical (and regulatory!) standards.
- larrys 11y ago
  Note that I said: "After a real estate deal last year I bought the broker a gift and delivered it." So importantly this was "after" not before. And it was "a small gift". Not a large gift. (Don't recall exactly perhaps < $50?) Not a large enough gift to do anything other than say "I appreciate what you have done for me".
- sk5t 11y ago
  Gifts of nominal value are allowed--to give and to accept them--in the ethical system of every Western business of which I am aware. Saying "thank you" and making small talk also have an effect... adding a token of trivial value to the equation isn't a poison pill.
willhinsa 11y ago
You'd go far as a lobbyist.

by larrys 11y ago

anigbrowl 11y ago

Not to be critical of your business practice, but the broker's behavior seems to be on thin ethical ice here, since he had a fiduciary obligation to the client - his intentions may have been ethical but but he comes off as a little lazy/irresponsible for not getting the best price for his client. As you're obviously investing in real estate yourself, how do you balance the benefits of liquidity from a quick sale vs. those of maximizing the sale price by shopping around? Put another way, if you were the seller in that transaction, is the opportunity cost of waiting a bigger worry than getting the best price? Is it just the seller's responsibility to instruct the broker 'this is my liquidity goal, anything on the top is gravy' or 'take your time selling, I want to get the full value of this asset', depending on the seller's need? I'm not a business person/investor so I would like to understand your thought process better. Thank you. PS feel free to email.

forrestthewoods 11y ago
No real estate broker gets the absolute best possible deal for a client. They get a small percentage of any deal. A slightly better deal might be worth thousands of dollars to the client but only a few hundred to the broker. It's not worth the broker's time to spend a full week looking for the absolute highest buyer. It's in the broker's interest to process more deals more quickly than to squeeze that last little bit out of every property. That's just the way it is.
- anigbrowl 11y ago
  I'm not talking about the absolute best possible deal, I'm addressing larrys' observation that he picked up an investment property for significantly less than the broker could have sold it for if he shopped around. Fiduciary duties require brokers to act in the client's interest, not their own. This isn't something a broker can just blow off if a dispute arises, it's a legal obligation. That's why it's referred to as a duty. http://www.realtor.org/sites/default/files/handouts-and-brochures/2014/nar-fiduciary-duty-032213.pdf http://www.realtor.org/sites/default/files/handouts-and-broc...
  - larrys 11y ago
    "than the broker could have sold it for if he shopped around" In reality most brokers simply take any calls that come in from commercial MLS types (say loopnet.com) and may call a few people and put in a nominal amount of effort. Speaking of loopnet a few years ago I put a property on that site. One day I get a call from a broker for his client. I immediately let him know that I will give him 6% commission for the deal. And of course he was very motivated then to convince his client to take the property because if he found him another property it not only is work for him (that was listed by another broker) he would only get 2.5 or 3%. And another owner (if there were any) might give him a hard time about paying commission. By the way this type of thing isn't learned in Wharton (where I went btw.). It is learned by observing what others do and reverse engineering things that you see that are out there that are happening. And interpreting your own reaction to events to draw conclusions as to why people behave the way that they do.
- larrys 11y ago
  Generally you are right. However I am paid to negotiate and buy things for people (not real estate). I have even had people tell me that they will pay me more if I can get them a better deal. I tell them that they don't have to do that. That I charge a fixed fee. [1] (And the fixed fee varies btw.) The truth is I get them a good deal because (as I mentioned in my other comment) this is a game for me that is fun and that is the reason that I do this. The money that I make is secondary (one reason is it's not my primary source of income). In one case I already had a buyer and a seller agree to a deal. The buyer (my client) agreed to the price that I had negotiated and was very very happy. However when talking to the seller I sensed weakness. So I exploited that and got them a better deal than they had already agreed to. Just for the fun of it and because I could. Just to hear the pleasure in my client's voice. Was worth a great deal to me. Didn't make 1 penny more. So my point is although I think in general (and a book that I can't remember the name of talked about this concept with regards to realtors) you are right there are almost certainly realtors who act the same way that I do in other words they do act in the client's best interest because it is a game for them like it is for me. I guess the key is finding that type of realtor. [1] Some people who do what I do charge a fee based on "how much they save someone over their budget". So the game there is that they try to get you to increase your budget while knowing that they will be able to buy for much less so they are playing you knowing you don't know what they know about the market.
larrys 11y ago
Oh wow I could write a book in response to that type of question. "if you were the seller in that transaction, is the opportunity cost of waiting a bigger worry than getting the best price?" If I understand what you are asking about the downside risk of not taking an offer on the table? That is always a consideration in any transaction where you are selling whether it be real estate or another asset. And it depends on a multitude of factors. Well first let me tell you that in any situation like this you are in a sense playing the person that is working for you many times (the broker). They have to be convinced by you not told by you. They have to believe what you are telling them in order to do the job for you. And they are playing you as well. You are an actor playing a role. It is a game. This is the game that I play (I don't play any other game by the way and I have never played a single video game either but I like this game..) So you have to decide what your position is and them somehow convince them of that so that they act in your best interest. This means being neither to honest or to dishonest. Each situation is different and it is really hard to generalize. In one case I was negotiating a lease and I told the broker "I will take $x per sf however if you can get me $x * 1.1 per sf you have really done a good job!" (arbitrary figures btw). All the while I knew he would be able to get me the 1.1x and maybe more. (And he did..) I had already figured that out in advance of saying that. So I was playing him so he would feel like "Daddy is happy". (We can call that the "please Daddy" routine). In other cases I might have said "I need $x * 1.2 at the minimum, see what you can do for me". In another case I find out that a broker had gotten me a good deal by making my offer on a property "as is". I never told him that of course. But that is how he got me such a good deal. Most people would have scolded the realtor and gotten pissed off. I didn't. In fact I was willing to even waive that mistake on his part (if you want to call it that). When I found out, I wrote him an email and made a joke and said "wow funny I didn't know I was buying that "as is"!!! He writes back and says "that is what I needed to get him to accept your lowball offer!" (was about 32% off asking price..). Then he tells me he can take the repairs out of his commission (I didn't even have to ask). Of course I could easily back out of the deal if I wanted. But I was actually willing to even pay for the repairs that I hadn't agreed to. Not because I got such a good deal but because I want him to take risk for me and not feel like I am some little old lady that will take him out to the woodshed if he fucks up. In other words I want him to feel as if in the end he can take chances if he needs to. This works because that way I get an out and he takes the risks. If he had asked me upfront "I will need to make the offer 'as is'" I'd have to agree to that and then I couldn't back out as easily!. Here is a real life situation re: quick sale vs. wait. I had a commercial rental property. It was vacant (for about 5 months let's say). One day there is a flood in the complex and another owner calls and wants to know if I can "help him out" (was a Physician). Almost like he thought I would let him use it for free? Anyway I tell him that his insurance company will pay for everything and I will deal with the insurance company. The insurance company tells me that the Dr's unit should be repaired in 4 or 5 months so what will it cost to rent it for the 4 or 5 months? I say "can't do that I need at least a year's rent for the 4 or 5 months" (and why). We go back and forth and in the end I get the insurance company to agree to pay me for a year rent (full ask) for 4 or 5 months. That's full ask rent. But in the end I didn't even rent to them. I was worried about tying up the property for those 4 or 5 months because a realtor was telling me he had other interest in the property from people who would take long leases. So I had a choice to make door number 1 or door number two. How do you know the right thing to do? You don't. You use all of the info that you have and your experience and you make a decision. Sure bet, 1 year rent for 5 months occupancy or door number two longer lease. MAYBE MAYBE NOT. Of course having 7 months to find a new tenant seems like a good idea also, right? I decided to go for door number two. And I did find a tenant and they now have a 2 year lease with options up to 8 years and also an option to buy the unit. And they have renovated the unit at their expense. [1] Does this mean I am right? Well in this case I was right. I took a chance when the safer bet might have been to take the 1 year lease where occupancy was only for 5 months. This type of thing happens frequently it's never like the case studies and so on. [1] And in the true spirit another thing happened on this deal. I find out that I am not only paying my realtor a commission but also paying 1/2 of that to the realtor that brought the deal to him. Did I freak out? No, who cares so I paid an extra 3%. The guy who got the 3% convinced his client to go for the full ask rent so he deserves to make 3% and not 6% on this deal. (Rent % is sliding scale on years so these are not exact numbers just making it easy for the purpose of a comment..) And I cut the check right away for the commission so he got it the same week.

athenot 11y ago

That's the premise of Gary Vaynerchuck's book, "The Thank You Economy"[1], for those interested in this topic. [1] http://www.amazon.com/Thank-You-Economy-Gary-Vaynerchuk/dp/0061914185/ http://www.amazon.com/Thank-You-Economy-Gary-Vaynerchuk/dp/0... (non-affiliate link)

sz4kerto 11y ago

> In this context a small gift (what I am describing) also isn't necessarily a bribe. It absolutely is, exactly because it has an effect. Another post here says that 'the broker's behavior seems to be on thin ethical ice here' -- no, there's no ice whatsoever. This behaviour is outside of the ethical (and regulatory!) standards.

larrys 11y ago
Note that I said: "After a real estate deal last year I bought the broker a gift and delivered it." So importantly this was "after" not before. And it was "a small gift". Not a large gift. (Don't recall exactly perhaps < $50?) Not a large enough gift to do anything other than say "I appreciate what you have done for me".
sk5t 11y ago
Gifts of nominal value are allowed--to give and to accept them--in the ethical system of every Western business of which I am aware. Saying "thank you" and making small talk also have an effect... adding a token of trivial value to the equation isn't a poison pill.

willhinsa 11y ago

You'd go far as a lobbyist.