Get Ahead by Watching TV

It’s summertime. I’m planning on investing in my real estate savvy from the couch with the TV remote in my hand! Whaaat? This summer you can bet I’ll be watching some re-runs of the show “Barter Kings”. If you’ve never seen it, this show is about two guys who run a pawn shop in the California high desert. Most of their deals are trading things for things (no cash involved). How exactly can a real estate investor gain useful knowledge from a show about guys trading an antique gun for telescope?

Truth is, this was a suggestion from renowned California investor Bruce Norris. He suggested at his seminar that everyone watch “Barter Kings”. He said everyone who was buying homes directly from sellers needed to learn why people make trades even if they know they are giving up an item of greater value. More importantly, it’s critical to understand why it’s still in the seller’s best interest to do so.

Let’s start with familiar reasons why a seller would part with their item (house?) in return for a sum of cash that is less than face value. Let’s start with the obvious reasons that are not likely a surprise to anyone in the real estate business.

Urgency. The distressed seller that needs your item (cash) today and is willing to trade their house for it. Cash is portable, and can be used to solve many problems.

Ick. We should also be familiar with the seller who has bad associations with the house. A failed marriage, job flop, or just crummy neighbors can all cause someone to want to distance themselves from a house. What about the home owner who has a relative living in the house, but not paying rent. Yeah, ick.

Meh. Maybe this house isn’t really of use to the seller. She inherited it, but doesn’t want it. Or her job moved across the country.

By now, you’re thinking that Barter Kings really doesn’t have any new insights. However, there are more gems. Here are some of the less obvious reasons.

Moneymaker. What if your lesser item allows them to buy a golden goose. If your cash will allow them to move and take a higher paying job, or invest in a business opportunity that will ultimately earn them more money than any discount they give you on their house then it truly makes sense to sell.

Crumbs. What if your seller is discarding the higher value item because she is so wealthy that the value of this item is lost in the noise. This is the investor that bought a commercial lot (worth millions) and 2 single family homes because they were a package deal. This seller doesn’t want SFHs, just like she doesn’t really want coins in her pocket.

Expiring. Sometimes the higher value item will lose its value soon. Vacation rentals that are not filled the Thursday before the weekend. Or situations where the seller has another deal contingent on this sale.

Bling. I get it, this one is not so applicable when it comes to trading houses for cash. Sometimes the lesser item has a cool factor. Okay, so this is much more relevant when we’re talking about trading an old boat for a dirt bike.

Outlawed. Yup, the seller is longer allowed to use it anymore. Oops. The vacation home at the ski resort but the doctor says they can no longer ski. The lake home she won’t visit because her husband needs to stay out of the sun. Okay, so this is more relevant to motorcycles that spouses have ruled out as a condition of remaining married but you get the idea.

It’s up to you to figure out the motivation of your seller. How can you make a trade (my money for your house) that is a win-win. It’s not always because we make a fair trade but instead because both seller and buyer feel they get the better end of the deal.

Why have you discovered sellers will part with their items for less than face value of the item? Share in the comments. I promise to read your posts from the couch and enjoy some summertime learning.