Evicted From Paradise

I wrote a blog If I Were John Rockefeller... and my neighbor and inquisitive mind Lisa Hill, a born Daytonian, left a comment, actually asked a question. I could answer "yes" or "no", but this was a question that I often ask myself. I started answering, and soon I saw that it was more that just a response to Lisa's comment.

In the time of skyrocketing prices, and the money available to any breathing soul, a lot of agents pushed a lot of clients, friends and relatives into the buying spree. It was especially vivid with new condo developments and residential single family developments. Anything with pre-construction.

I understand that we are in business, and the goal is not losing money, but making money. We are regulated by law and Code of Ethics. Nobody said that COE is given to us by God, and sometimes what is considered ethical is really not nice to do to a colleague.

The fine line between being plain greedy and ethical stemmed more from our ability to comprehend the overall situation, the ability to see a bigger picture, not from abiding by the law or COE. If people come to you and tell yo that they have the money and they want to sign for 2 condos here, and 2 condos there, and another two in another project, you can start thinking that you got the perfect client for whom money is not the issue. Or think that you deal with a candidate for a financial disaster.

In the time of hype, I often questioned myself about the sanity of what was happening. I did not feel comfortable, I could not understand how could this keep expanding and where the money were to come from. But I was an immigrant, and I was not and often I am not sure that my conclusions stand any ground in this country. I was watching for the clear signs of the slowdown and subsequent losses, and I did not see them (not that there were no signs). I was reading Realtor Magazine and David Lereah was all cocky about the market. I saw fellow agents buying properties for themselves right and left, I saw mortgage brokers financing their own numerous purchases.

Was I the smartest, or just a bad businessman? This was a tough question to answer. I remember that I wrote a 3 page "scream of the soul" type of thing, where I called people not to buy pre-construction, and I wrote that in 2 years they could go and buy the unsold units from the developers at $100K-$150K less than the pre-construction price.

My reasoning was wrong. My guess was right.

At that time there were about 8,000 units in construction, in the permitting phase and on the drawing board. That was more than the number of condos coming at one time in Las Vegas. And Daytona is not Las Vegas. So, I thought that the combination of high prices, which already were absolutely obvious, and huge inventory would result in huge oversupply.

8,000 units were not built, not even half, not even a quarter of this number. But when the market collapses, even few is too many. And I can get the discounts from the developer way better than $100K-$150K.

Even though I had no clue that we were going to a big change in the market, I simply could not tell people to use all their cash on down-payment only, like many other agents were doing here. I was telling people that even though they might flip their units at time of closing, it was not guaranteed, and that they might have to buy the units and hold to them for... up to 24 months. Again, I terribly missed the mark, but at least I tried to fend off immediate flip notions. And that was at the time when the prices were going up and flipping  the near future looked more than promising.

I had a client from Minnesota. I knew he was no longer working (not of a retirement age though), and his wife was working in HR, but it was not something that could allow the lavish style of living in the most luxurious condo on the ocean.

He reserved a unit in Ocean Villas, then bought a unit in Tuscany at a price, which was already too high, and I was not advising him on that. Then he signed reservations for 2 units in Marina Grande on the Halifax. At that point I calculated that to do all that, he has to have available about $2 Mil. I was far from being confident he had that type of money. I knew that he could get something out of the stock, but I thought that this was more of a gamble.

So, I confronted him and told him point blank that unless he has $2 Mil in unencumbered funds, he was gambling. He did not understand me. He demanded explanation. So, I explained to him that he might need to close on the unit and be able to hold it for as long as 2 years (how wrong I was, it takes longer than that), so he had to have enough money to do that. Nothing that I did not say before, but he remembered only what he wanted to hear.

He got very angry. He had no intention to buy the units. I had to arrange simultaneous closings, and he would walk away with $$$$$. Obviously he believed that my calling on this earth was to provide him with the heavenly lifestyle, and that he was a deserving person.

He was still lucky as by the time they called him to convert reservations to contract, the market started showing the first signs of tiredness. He canceled reservations and got his deposits back. He cut me off his list as he was so angry with me for not promising him easy money. (Of course, I could promise, I simply was not sure that I could deliver.) He felt that I evicted him from the paradise.

He never asked me why I was not doing it myself if it was so easy to rake $300K-$500K a few times a year. It just did not cross his mind.

Jon Zolsky, your Daytona Beach connection
www.BeautifulFlorida.com