Nov192013

The many ways realtors “educate” us with false information

Is it okay for salespeople to lie to us in order to close a sale?

Was your first reaction, “No, of course not?” It is for most people, but when you reflect on it, salespeople are encouraged to lie to us and manipulate us all the time, and we all put up with it. In fact, we train salespeople to do this, and we reward them for it. Don’t believe me? Consider this example. …

Does this make my butt look fat?

Perhaps this analogy is politically incorrect, but… Imagine you are shopping for clothes in a high-end retail outlet. You are trying on an outfit, and you are concerned about its appearance, so you ask the salesperson, “Does this make my butt look fat?” What is the salesperson to do?

If the salesperson responds, “Yes, that is not flattering to your shape,” they fear they will not close the sale, so even if the garment does, in fact, make your butt look fat, the salesperson is probably not going to tell you. As a customer, you asked a question hoping for accurate information to help you make a purchase decision. What you are likely to get is a self-serving answer that makes the salesperson money.

If a buyer walks out of the store with ill-fitting or unflattering clothes, who is to blame? Is the buyer responsible for failing to see the conflict of interest, or is the salesperson at fault for dissembling for dollars?

Dissembling for Dollars

There is good money in lying. If you have no conscience, or if you are particularly good at rationalizing your bad behavior, there are many professions that offer huge rewards for being a good liar. Consider politicians. Have you ever seen an honest one? Politicians lie about two-thirds of the time, and tell the truth about one-third of the time. Unfortunately, there is no way to tell which is which. What makes it difficult to be a politician is that they know they are lying. Each and every lie they tell is coldly calculated. This differs from many of the lies told by realtors. The smarter ones know they are lying, but many of the lies told are spoken in blissful ignorance. But does lying out of ignorance make it any better? I don’t think so. Easier perhaps, but the outcome is no better for the person being lied to.

Educating legions of liars

And what about the sales trainers. They must have the most difficult job of all. They know they are lying, so they have the same burden of conscience that a politician has, and they are spreading those lies to others, many of whom will repeat those lies innocently. It’s a bit like a corrupt religious leader or minister who knowingly uses their position of authority to commit evil deeds. What should we do with those who “educate” those who in turn “educate” the populace with unmitigated bullshit?

Consider this article from Builder Magazine:

Rising Interest Rates as a Marketing Tool

Show potential buyers why they can’t afford to wait to buy a new home.

By Mollie Elkman — Posted on: November 14, 2013

Home builders looking for a new sales hook in 2014 don’t have to search beyond the Website homepage of their their favorite news source. U.S. interest rates are at a 50-year low but they won’t stay there forever. Market insiders predict that rates could start rising soon, although most federal officials are eyeing 2015, according to CNBC. Jay Brinkmann, chief economist of the Mortgage Bankers Association, said he expects mortgage rates to rise above 5% in 2014 and to increase further to 5.3% by the end of 2015.

This is a consultant giving sales advice to potential clients. All seems above board doesn’t it?

With this in mind, the new year is the perfect time to craft your marketing message around the benefits of buying a new home while interest rates are at near-record lows. Don’t assume that your customers make that connection. Instead, educate them on how interest rates affect their buying power and why now is the time to buy. Use the threat of rising rates to create a sense of urgency.

Wow! She openly tells them to create a false sense of urgency based on a problem that’s huge for the builders but of little consequence to the buyer.

Let’s imagine what would happen if interest rates rise, and all potential buyers can no longer afford the builder’s products. Who has the problem? The buyers? I don’t think so. If all the buyers can’t afford the product — and rising rates impacts all buyers — then it’s the builder who has the problem. What this consultant is telling the builders is to convince buyers that the builder’s problem is the buyer’s problem. It’s not.

One of my clients, Atlantic Builders, is having success with its “Planning for the Future” marketing campaign. Its flier shows a chart that solidifies the statements being made with facts.

No. Their flier bolsters their bullshit with obfuscation.

In this way, the company is positioning itself as a trusted source of information on the housing market as well as a partner through the home-buying process.

How does baffling people with bullshit position oneself as a trusted source of information?

The copy points out that buying a home is an investment and long-term financial planning device, and provides potential buyers questions to think about before taking the plunge.

Here are some points to strengthen your low-interest-rate argument:

— A 1% change in the interest rate is equivalent to a 10.75% change in purchasing power.

Which means prices must drop by 10.75% to compensate.

— Rising mortgage rates do more to influence home affordability than rising home prices.

Which means builders with overpriced homes are screwed when interest rates go up.

— Home affordability is about more than a home’s price. Buyers must also consider the monthly cost of owning, operating, and insuring a home. As mortgage rates increase, the monthly cost of homeownership jumps.

And since total debt obligations are now capped at a 43% DTI under the qualified mortgage rules, buyers will qualify for smaller mortgages putting further pressure on homebuilder prices.

Also, remember that your stiffest competition is from existing houses (or “used houses” as us marketing pros like to say) and remodeling projects. I recommend marketing strategies to my clients that reinforce why and how new homes are better, with lower energy bills and upkeep. Show them that the quality of your construction and materials are superior in a way that’s interesting and easy for them to understand. …

The false premise is that any decrease in affordability is a problem for the buyer. In reality, it’s a problem for the seller. With the new qualified mortgage rules in place banning most affordability products and requiring lenders demonstrate the borrower has an ability to repay, unlike past cycles when toxic loans could bail out sellers, rising rates will force sellers to accommodate the financing power of buyers. If anyone needs to be educated on this new reality, it’s builders, realtors, and sales consultants.

On a more basic level, the problem I have with this “education” is that it’s really manipulation. It’s self-serving propaganda designed to cajole people into action when it may not be in their best interest. There is no consideration whether or not the advice is helpful to buyers or an accurate depiction of market reality. The only consideration demonstrated here is for the self-serving needs of those providing the “education.”

Am I making too much of this? Is it a common problem?

Consider this piece of “education” put out by the NAr at the peak of the housing bubble. They intended to “educate” people why the worst time to buy in US history was actually a great time to buy.

Is it possible the good people at the NAr were concerned with the truth, and they were just foolishly mistaken?

Well, anything is possible, but based on their past behavior, it’s safe to assume this was bullshit (information presented without regard for truth) designed to motivate buyers and sellers to generate real estate commissions. In other words, it was self-serving manipulation.

Has anything changed? As another example of what I’m talking about, consider the following article. It is actual advice being proudly given by agents to their clients today.

Top lies and manipulations realtors use today

Don’t forget that rent is a variable; it will likely be much higher five years from now.

While this is true, if a buyer overpays, their cost of ownership is fixed at a much higher payment than rent. Further, the cost of ownership is only fixed if the buyer has the wisdom to use a fixed-rate mortgage. ARMs won’t cut it.

The market hit its bottom last year. So far, this year’s prices are up by about 10 percent since last year’s and home values are continuing to increase.

This is a stealth version of buy now or be priced out forever. The false urgency behind that statement is palpable.

The market is shifting, so you have to be aggressive with your home search because properties are selling quicker with multiple offers.

Another attempt at creating false urgency. Last month, a buyer I know closed escrow on a house. He was originally looking earlier in the year when the frenzy was at its peak, but he put his search on hold while the frenzy died down. The house he offered on had no competing offers, and he was able to negotiate a good deal for his family.

Don’t overbid during a frenzy would be better advice — it’s a longer path to a commission, so agents won’t say it, but it’s a truer path to a satisfied customer.

Don’t get hung up on price. The question should be: Does this purchase improve your living?

“Don’t get hung up on price” is code for “overbid and get this property so I don’t have to work as hard.”

When you feel the feeling of finding your dream, act quickly.

In other words, be stupid an impetuous and put yourself into a financial bind based on foolish emotion. What could go wrong?

And the best for last…

Buy the “most house” that you can comfortably buy, and, even perhaps, push yourself to the limit of your pre-approved amount. Thus, you will be satisfied with your purchase for a longer period of time.

This is stupid on many levels, so allow me to untangle it.

First, it makes the assumption that people grow increasingly dissatisfied with their houses over time. Why would that be so? Perhaps if they could only afford a tiny 2-bedroom condo, they might want more space when they have children, but then again, perhaps they shouldn’t have purchased a tiny 2-bedroom condo and rented instead.

Second, making yourself house poor is never a good idea. I recently wrote about emerging loanowners stepping down the housing ladder. Many people bought too much house, and when rapid appreciation didn’t make everything turn out for the best, they downsized and bought a house they could afford.

Third, telling people to stretch to the max is mostly a self-serving line from a realtor hoping to maximize their commission.

When liars are exposed for what they are, how does the general public generally react to them?

Most Americans don’t trust real estate agents, poll finds

Hoocoodanode?

[idx-listing mlsnumber=”PW13229659″]

840 South YORBA St Orange, CA 92869

$499,900 …….. Asking Price
$237,000 ………. Purchase Price
7/17/1992 ………. Purchase Date

$262,900 ………. Gross Gain (Loss)
($39,992) ………… Commissions and Costs at 8%
============================================
$222,908 ………. Net Gain (Loss)
============================================
110.9% ………. Gross Percent Change
94.1% ………. Net Percent Change
3.5% ………… Annual Appreciation

Cost of Home Ownership
——————————————————————————
$499,900 …….. Asking Price
$17,497 ………… 3.5% Down FHA Financing
4.39% …………. Mortgage Interest Rate
30 ……………… Number of Years
$482,404 …….. Mortgage
$135,210 ………. Income Requirement

$2,413 ………… Monthly Mortgage Payment
$433 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$104 ………… Homeowners Insurance at 0.25%
$543 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$3,493 ………. Monthly Cash Outlays

($626) ………. Tax Savings
($648) ………. Principal Amortization
$28 ………….. Opportunity Cost of Down Payment
$145 ………….. Maintenance and Replacement Reserves
============================================
$2,392 ………. Monthly Cost of Ownership

Cash Acquisition Demands
——————————————————————————
$6,499 ………… Furnishing and Move-In Costs at 1% + $1,500
$6,499 ………… Closing Costs at 1% + $1,500
$4,824 ………… Interest Points at 1%
$17,497 ………… Down Payment
============================================
$35,319 ………. Total Cash Costs
$36,600 ………. Emergency Cash Reserves
============================================
$71,919 ………. Total Savings Needed
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