As I take stock of 2008 and move into 2009, I’ve decided to develop and implement a strategy for transforming my business moving forward. I’ve settled on a theme for this year – creating, delivering and leveraging knowledge.
My goal for 2009 is to become a better filter.
I want to become an expert filter – more importantly, be recognized as an expert filter – transforming information into knowledge. I had a very interesting conversation this morning with a client regarding the state of the current real estate market in Chicago. After three attempts of getting several properties under contract, my client and I finally succeeded in getting a deal together. We visited the unit again this morning. After seeing the unit, I sensed his apprehension when talking about next steps.
He wants to renegotiate the price now after having the property under contract. He’s been actively reading on the blogs that prices are continuing to fall in the US – he cited Case Shiller’s recent price decline of 18% as the reason why he should pay even less than our negotiated price.
This became a real example of why information is not knowledge.
I became a filter – he was not really aware that the indicator, often touted in daily news sound bites about the ailing US real estate market, was actually an aggregated statistic for 20 metro areas in the US – Chicago faring slightly better at alittle over 10% decline since the same period last year. To drill even deeper, the indicator measures single family home prices, not condos . The decline hasn’t impacted every neighborhood equally. Perhaps more importantly, we have spent the past 5 months searching for properties in four different neighborhoods within the city. The process was an eye-opening experience for him – he learned that while inventory was plentiful, there were only a handful of properties actually worth buying.
While I am not keen on resolutions, I have decided to spend less time listening to the 24 hour, continuous coverage of catastrophe that our news has become. Without the proper context and filtering, consumers are simply mis-educated and misinformed regarding what is really happening in their corner of the world.
Our clients need expertise and experience to filter the information into tangible knowledge that can provide real, measurable value.
I’ve struggled with how knowledge can really be tangibly measured. In my attempt to begin tackling an answer, I reached out to my colleagues on LinkedIn to get some ideas about what specific knowledge and/or expertise other professionals have used to provide measurable, real value to their clients. I received several great responses, however, two answers really hit home for me.
The first was Brian Brady’s – fellow Bloodhound – response regarding his knowledge of VA lending rules which saved his client real, measurable dollars in financing the purchase of a new home:
I’m a lender so my specific expertise draws upon my experience in financial planning. I believe that specific expertise sets me apart from 90% of the loan originators available to a consumer. I’ll share a recent example:
VA loans are some of the best loans out there because they’re “zero down” loans. This allows well-heeled Vets to keep cash reserves. Many well-heeled Vets elect to use conventional loans because of the “funding fee cost” associated with a VA loan. As it turns out, the 2.15% funding fee was a small price to pay.
Rather than borrow money against an investment property (at rates of 8-9%) for a down payment, I advised the Vet to borrow 100%, and pay the $8300 funding fee, rather than obtaining a $100,000 loan at 3% higher than the VA rate. The breakeven for the 100,000 piece was about 1.5 years.
Today, their liquidity is intact along with the equity in their investment property.
The second response was from Arn Cendedella:
I have some long-term clients who wish to retire and relocate from the Mt. View on the San Francisco Peninsula to the San Mateo Coast. They current own a home and one rental property in Mt. View. Due to the current slow market, we decided not to market their properties at this time. However, I did suggest a strategy that will save them lots of money in taxes when they do sell the two Mt. View properties. They have moved out of their current residence and rent it (where they would be entitled to a $500K tax free capital gain exclusion) and into their current rental. They will be able to sell their original property when the market gets better within a 3 year window and still get the $500K gain tax-free due to IRS regulations. By establishing a new personal residence in the former rental property, they will be able to sell that one 2 years after they sell their original personal residence and be able to take another $500K tax-free. Based on my understanding of IRS regulations, I have created a scenario where my clients will be able to eventually sell both properties and pay little or no income taxes on the gain in both properties.
I believe both responses really provided concrete examples of how one’s knowledge provides real, measurable value to a respective client – hard money benefits, worth far greater than a few percentage points of the overall transaction.
This is the stuff that creates job security even in the worst of markets.
Knowledge is the key differentiator – Eric’s recent post regarding the importance of content underscores the real value we provide as real estate professionals. I think the tendancy is to get too wrapped up in the delivery, i.e. the tools, and not enough in the message.
The tools are merely the vehicle to convey what is ultimately most valuable – our understanding and ability to discern our client’s needs, filtering and interpreting information that is relevant to those needs, and providing measurable value based on our knowledge and expertise.
Marcel says:
You know you’re right, knowledge is the key differentiator. I had a mortgage broker tell me one time that I should never desire to completely own my home. He told me that financially it is more beneficial to always have a mortgage. Well I don’t think that’s true. I think the security I have from unexpected events in my life by owning my home are great. I now own, in full, 5 different properties and yes my cash reserves are lower but those properties are mine. Barring me not being able to pay my taxes or apocalypse, I’m OK. I don’t know much, but I know what I know and I had a vision that this was the proper way to go about things. Now my friends are in dire straits and I am fine. What is the deal? Why can’t they have more knowledge? Knowledge is necessary. Without my knowledge I might not know even how to balance my checkbook. What do you think, is knowledge good?
January 4, 2009 — 10:38 pm
ShortWoman says:
I find that a useful strategy for “buyers” who don’t want to put in realistic bids is to turn around their search criteria.
“Mr. Buyer, we’re looking for homes with [3 bedroom, 1500 ft, whatever] in these neighborhoods, right? And we’ve seen these dozen homes. Let me take the MLS search we’ve been using, but instead of looking for homes that are available, we’re going to look at homes that have sold within the last 6 months.”
Now, I can’t say what you will find in your region, but around here things are selling for close to list price consistently. Rarely does anything go for 5% less, and sometimes they go for 15% more. In any event, it will disabuse them of the notion that “you can get REOs for 40% off list” or “I don’t think the seller accounted for [obvious thing] when they priced it.”
January 4, 2009 — 10:57 pm
Jane Peterson says:
We’ve been mulling over the exact same thing. It’s one think to produce data or raw information – it’s quite another to provide advice. And really it’s advice that we are (should be) selling, not information. The raw data is the science of property investing. We also need to add the art – the softer, contextual layers. The insight.
January 5, 2009 — 10:00 pm
Tracy says:
Being a better filter to outside information will definetly increase work effectiveness and can also improve monitary results.
One thing I found helpful in increasing the quality of work performed, is keep a very close watch on work related stress.When you are working under stress things will inevitably be left out. If you learn to better control work stress, you can expect increased productiviy and better filtering. If you are intereseted, you can find more on the relation of these 2 subjects here: http://stress-help-guide.com/causes-of-stress-in-the-workplace/what-causes-stress-in-the-workplace/
January 8, 2009 — 10:39 am
Marian Bennett says:
Very important topic for our industry. As you say, our skill is three-fold: 1) being able to filter all the data out there, which 2) becomes part of our knowledge bank, and then 3) being able to turn our knowledge into useful advice for that particular client. Here’s my take from a post written a year ago: http://mariansbennett.com/blog/2007/12/12/knowledge-as-bling/
January 11, 2009 — 4:17 pm