In a business like real estate, that is seemingly chock full of liars, how can you succeed, honestly and ethically? How do you navigate the dangerous waters of sharks and shady people? In this video, you'll discover a tried and true method for succeeding honestly in a business of liars:
A Business of Liars
Real estate agent Richard Courtney wrote a book called Buyers Are Liars and Sellers Are Too. He's correct, buyers and sellers lie all the time. However it’s not limited to them, there are all kinds of liars in the real estate business.
Mortgage Brokers: Brokers tell their clients it's looking good when they have absolutely no idea what the underwriters are saying about that loan. And a recent example of how they lie is when they didn’t lock in the rates quickly enough, and then rates shot up fast and they told their clients a week before closing that the interest rate was 1% more.
Real Estate Agents: Agents don't have a good reputation in this industry for shooting straight with people either. And they aren't helping that reputation when the real estate agents doing rehabs are putting lipstick on a pig and covering up blemishes, leaving it for the buyer to deal with once they move in.
Real Estate Gurus: Gurus have been a shady part of the industry in many respects. The infomercials of old became “free” seminars. I did a video on the inner workings of those free seminars, but these have been phased out because of COVID.
Contractors: I have an entire playlist on how to deal with the bad characters in the contracting business.
The point in this list is there are a lot of liars in the real estate business. So how do you operate successfully and honestly, and ethically navigate through all these liars? One approach that people take is the old phrase, “If you can't beat them, join them”. You become a liar just like them. This is obviously not an option if you’re trying to operate honestly and ethically. And just because somebody did something unethical to you doesn't mean you have the right to go do it back.
There was a comment posted on my YouTube channel recently about how they thought that they would be good in the real estate business because they have thick skin. I agree with that, you do have to have thick skin. But their next sentence was even better. It said, "But, what really annoys me is all the mental gymnastics I have to do to think ahead of all the shady people in real estate." What a great way to articulate dealing with liars. It is mental gymnastics thinking through all the angles of a person and how they're deceiving you. You’re building all these scenarios in your head, like you're a chess player and you're constantly trying to figure out what your next move should be. That’s exhausting and many of you are putting yourself through those mental gymnastics right now.
There is a better way to navigate liars honestly and ethically without having to exhaust yourself mentally. It's what I've taught my apprentices and it works incredibly well. This bulletproof way to deal with liars is like a three-legged stool. You need all three components for it to work.
3 Legged Stool
1. All agreements In Writing
Anytime there's an understanding between two parties it needs to be in writing. Working with contractors is a simple example of how this works. With contractors if you don't put it in writing it creates ambiguity and contractors thrive in ambiguity. Everything needs to be in writing because then both parties have a clear understanding of expectations.
Often when real estate investors are dealing with seller changes, they agree to something like covering closing costs but neglect to put those changes in writing. Everything needs to be in writing. Do an addendum so it's clear on what the understanding is.
2. Immutable Rules
The second leg is immutable rules, meaning fixed or unchangeable. So, if the rule is that all agreements are in writing, then the second part of the rule is don't change the rule. This is where it gets tricky because the first thing the very parties that lie to you want to do is get you to change the rules. They will try to talk you out of the rule of all agreements in writing. This is incredibly important to the integrity of the stool. You must stick to your rules no matter what.
Now, there are plenty more rules other than just get it all in writing. In our Freedom Mentor Apprentice Program, I teach my apprentices a lot of different small rules that they need to stick to. One example would be, when we put a property up for sale, we ALWAYS put it on the MLS. Every time we break that rule, we sell ourselves short. But it's easy to get talked into it by another investor who comes along and says, "Hey, I'll pay all cash and close quickly. You don't need to list it and deal with the hassle of a bunch of different offers.”
You must stick to the rules that you have set for yourself. If you don't, the stool falls over. Remember, immutable means unchangeable. Stick to your agreements and your real estate investing life will be a whole lot simpler. Now, this plays the other way, so you need to make sure you put things in writing correctly. When you put something in writing, stick to your rules and deal with it. This teaches you to be diligent about what you put in writing.
3. Aligned Incentives
The third leg of the stool is aligned incentives. When I use the phrase liar, another perspective would be that the incentives of the other party are misaligned with yours. So they lie to you because they want to get more out of the deal. Whereas aligned incentives are when you adjust so that when you win, they win and when they win, you win. This is what we call win, win deals. If you can align incentives, you solve a whole host of problems. That said, this leg of the stool is a little more advanced because with some deals it takes more creativity to align those incentives.
Examples of Aligned Incentives
Contractors: When you hire a contractor, you structure your written agreement with them so that they get paid some money upfront to cover materials and some of their costs, then more money as they reach milestones. The final payment is left until the very end which ensures they finish the job. They have an incentive to finish the work and you get the job completed.
Mentorship: I share in the profits with my apprentices on their deals. Which means I have aligned incentives that ensure everything I teach them is as good as it can be and that they do everything right and close deals. Because that's how we all get paid. We have aligned incentives.
Buyers and Sellers: When we're working with buyers, we always require a non-refundable earnest money deposit after the inspection and it's still subject to the appraisal. Inspection period is over and now that money is non-refundable except for the appraisal. If the appraisal comes too low, they can back out. That is an immutable rule for us, and buyers’ agents go bonkers over this. They go through all kinds of lies to try to convince you as the seller not to require non-refundable earnest money after the inspection period and subject to an appraisal.
But when you implement this rule, you align the incentives of the buyer. The buyer is incentivized to make sure that if they don't want to buy that home, they decide quickly which means you are not hung high and dry 30 or 60 days later. And once they've agreed to buy it and that again is after that inspection period, assuming it appraises, if they can't get the loan, it's their fault and you can keep their earnest money if you want.
The three-legged stool has integrity if you:
- Align incentives with the various parties you're working with.
- Have immutable rules regardless of the lies they tell you trying to convince you to change your own rules.
- Get it all in writing.
Implement these three principles and it will simplify the challenge of dealing with liars without all the mental gymnastics.