As a teenager I’d lost a sale because the buyer thought the seller was making too much money. Seems he’d researched what the seller had originally paid for the home, and was aghast at the price from which the seller wouldn’t budge. A price, mind you, for which I had abundant evidence was very reasonable.
At the dinner table that night, Dad smiled as I complained long and loudly of the unfairness of losing out on a $222 commission. (Don’t snicker, that was a lot of money back then. A round of golf, including cart, was under $10, $1 got me three tacos, a burrito, and a large Coke at Taco Bell, and $5 brought me change after filling my tank.) After he tired of hearing me whine about my tragic loss, which was about 42 seconds, he dispensed the following advice.
“Focus on, and be concerned about being happy with your side of any business transaction, while being honest and behaving with integrity. If you care about how much the other guy might be making on his side, you’re looking through the wrong end of the telescope. You should rejoice any time you’re happy with a business deal while simultaneously the other guy is also excited.”
How many times have investors lost great deals because they were concerned somebody else might be making a buck? What is it about some folks? It’s like they can’t force themselves to finalize a potentially very profitable transaction if it means the seller hitting his own jackpot. Their behavior would be comical if it wasn’t almost tragic in so many cases. They will actually walk away from an incredible transaction because closing the deal would mean the seller was able to do exactly what they’re hoping to do themselves.
Looking through the wrong end of the telescope makes it impossible to analyze the big picture. By concentrating on what the other guy is getting, it can sometimes mean you’re missing the real reason you should be closing the deal — or not. Keep your eye on your big prize.
My favorite example of this principle in action happened back in the mid-80′s. A client was interested in a couple duplexes located in a blue collar area. I’d brought them to his attention because they were on one lot, but could be split at a relatively low cost, which would increase the value of each duplex significantly. The split had been started more than a decade earlier, but for some reason had never been completed. It was a real find.
The seller had acquired the units in the early 70′s, and was going to realize a pretty nice sized profit. The buyer was, to use his words, ‘nearly insulted’ at the profit this guy was going to enjoy. So he calculated what he deemed reasonable, and made his offer accordingly. Of course, he didn’t get far with this ludicrous approach, and lost the opportunity. I then called another client who had just entered into a tax deferred exchange. This property would fit nicely with their Plan. They agreed, and along with a couple other properties, closed on this one too.
Three years later, in ’89, they sold those duplexes for just short of double what they paid.
Back then I put out a small newsletter to clients only, and used this property as an example of how creating separate parcels from one original lot can be very profitable. The wife of the ‘insulted’ client called me, asking why I hadn’t called them about those units when they were available. When she heard Hubby had indeed had first shot, and turned them down for the reason he did, she was livid — and not with me either. 
Focus on your agenda, and what your Plan is trying to accomplish. Pay attention to the other side, but only to the extent you can give them what they want without defeating your Purpose. You do this by looking through the right end of the telescope, and keeping sight of the big picture — and your big prize.
Looking through the wrong end of the telescope can easily result in losing out on exactly what you wanted in the first place. Sometimes you just need your telescope aimed the right way. Give me a buzz at 619 889-7100, or contact me via email, and we’ll polish yer lenses for ya. Let’s get things going your way. Have a good one.
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About BawldGuy
This is such an achilles heel for RE investors, new & experienced alike. For me, I was lucky that my REI mentor was 74 when he first took me under his wing. From his nearly 50yrs of REI exp. he explained that every deal was a transaction where both existing value & future potential were on the table.
Focus #1 is always what your future profit potential is. If the seller was able to amass large equity/profit, I quickly learned by his example that, if focus #1 was satisfied, that focus #2 should be to learn as much about the sellers investment “eye” (strategies, philospohy, etc) as I possibly could.
This approach helped me to learn for free from some of the best investors, and it often helped the transaction go much smoother as well, in some cases saving $10k or more on incidentals before closing.
Absolutely, JP. The only caveat I’d add would be not to impute too much savvy on the seller just because that particular property made him a bunch of money.
In the end, I’m bettin’ the ranch you paid attention to your mentor’s eye when it came to final decisions. Sounds like you were indeed very fortunate to have such a wonderful teacher.
Ahh, the “downside”of transparency. There is only one price and it sure ain’t what the seller demands nor what the buyer offers.
There just aren’t very many people skilled at looking at the history and using that to fine tune a transaction. This is where the z company and all the others fall down.
Hey Jeff,
Can I repost this over at Straight Talk? It’s some rock solid advice!
Let me know.
Tom
Robert — sounds like your version of, “Become one with the telescope.”
Tom — Be my guest, and it’s much appreciated as always.
It’s your telescope. You tell me.
Robert — That’s the best part — we’ve all got our own, custom made telescope, designed by us.