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Why the real estate business has jaded me

Justin Pierce rehabbed this single-family house in Temple Hills and then flipped it. (John McDonnell/The Washington Post)

Justin Pierce is a real estate investor who regularly writes about his experiences buying, renovating and selling houses in the Washington area.

This is a topic I’ve grappled with for quite some time.  I was raised out West in a family of modest means.  My parents didn’t expect me to go to college, but they expected me to work hard and keep my word.  A handshake was all my dad needed to give, and I believed most people were generally the same.

Going into the real estate business, specifically, has jaded me.  I was really an idealistic babe when I first waded into the entrepreneurial waters.  I believed I could take risks on people because the vast majority were honest.  I came to the sad realization that most people will cheat you if there is no chance they’ll get caught.  I found you never really know someone until you make a financial deal with them.  I was devastated when I entered into deals with longtime friends and family and found they not only didn’t live up to their word but in some cases outright cheated.

I wasn’t long in the real estate business before I found that many people were exaggerators at best.  And it wasn’t just from real estate pros.  Real estate is the culmination point of the economy.  It puts together lawyers, real estate agents, contractors, retail and ordinary citizens.  And this mixing bowl of high dollar and high emotion can really bring out the worst in people.

I found that many home sellers squeezed their buyers when the market was hot, and many buyers squeezed sellers when the market collapsed.

It was really sad because those same people who got squeezed in 2005 and 2006 were also the sellers who got squeezed from 2009 to 2012.

I remember talking to a friend in about 2005.  He’d bought his home in 2003 and was selling just a couple years later for a $100,000 profit.  He was complaining that his buyers wanted the eaves of the house painted.  I told him, “You’re making a $100,000, paint these people’s eaves.”

I remember an older friend of mine who’d bought his home in 1980 and saw the value triple.  I was amazed at how he was trying to squeeze every penny out of the buyer.  I asked him if he realized that some young couple is now where he was 30 plus years ago.  They’re trying to work, raise a family and make ends meet.  Does he really have to get that extra $10,000 out of them?

And then you come to the real estate professionals.  I’ve seen many real estate agents who underserve their clients.  And real estate sales is not one of those things that you get what you pay for.  I see some discount real estate firms that do amazing work, and I see some full-price firms that do little more than post some crappy photos on the multiple-listing service and wait for the phone to ring, which they may or may not answer.

And then you have the real estate investors.  Here there are almost no industry standards of ethics, and there are no barriers to entry.  They are also fed into the industry by a steady pipeline of so-called real estate gurus who pedal courses advertising zero risk and passive income.

I wrote about one extreme case of real estate guru malfeasance back in August 2013.  Locally, I’ve seen some troubling cases involving “real estate instructors” who have a following of students and operate as investors.  I see these guys advertise to buy real estate.  When they find a really good deal, they keep it to themselves.  When they find a deal that’s marginal, they wholesale it (turn it over for a finders fee) to their students.

That in itself is one of the major problems.  Some real estate pros, whether they’re flippers or landlords, often find themselves in bad situations and have to make tough decisions while they’re being drained of their savings.  These situations can try the best of intentions.

When people find themselves in bad situations, they can often start cutting corners.  They may have no choice.  They may not have the money needed to properly fix something.  They may not have the resources to attend to their tenants’ request, and then they’re in a no-win situation.

I believe we are now entering a point in the cycle when you’re going to see more of this.  The market is rising, and flippers and would-be landlords are feeling pressure to pay more for deals than they probably should.  Too many people don’t know when it’s time to cash out, and they keep rolling the dice. They take riskier bets, and I believe more will find themselves in situations where they’ll have to fix things right and lose money or fix things cheap to get out of the deal with their hides intact.

To add to this, contractors are again very busy.  Contractors are my biggest problem.  Oh, how I love a good contractor, but they are so hard to find at an affordable price.  Home renovation prices are skyrocketing and with more jobs available, the client is that much less important.

Across the board, I think, there is a real problem with honesty in the industry.  It’s too common for a real estate agent to mislead buyers about the value of their home just to get the listing.  I see investors misleading sellers about the value of their home just to get the purchase.  Look, in order for me to purchase a home as a flip project I have got to get that home for 50 to 60 cents on the dollar.  That’s just the reality of it, and I’m upfront with the home seller.  It’s just too easy for home owners to find out what their home is worth these days.

Despite all of this, I have to say there are a lot of really great, energetic, idealistic and innovative people in real estate.  There are people who work multiple jobs.  There are people who do many charitable things.  I feel that a good real estate renovator or landlord does a great service to the community just by being good at their trade.

I don’t expect to glean sympathy from anyone. I’m hoping you can learn from my experiences. There are honest, hard-working and dynamic people in real estate, but there are lot of bad actors, too.

My advice is to proceed with extreme caution.

It is imperative that you — like it or not — assume that there is high probability that the real estate pro you’re looking to hire is not up to the standard. To avoid that, interview at least three professionals when you are getting ready to buy, sell or remodel.  You should check their references and you should proceed with a healthy level of skepticism.

Check licenses, check references.

Never let your guard down. Trust but verify.

Previously from Justin Pierce:

How to get a high-quality kitchen remodel without the sticker shock

With headaches behind him, flipper makes tidy profit on Annandale rambler

Neighbors often butt heads with flippers