In his response to an article highlighting the Five Laws of Stratospheric Success written by the venerable author and Real Estate speaker, Dr. Bernice Ross, a successful Realtor® by the name of Dave Robison suggested the following:
Those are great laws and are so true. On the flip side, you can see how people tried to make money without obeying the laws. Many people tried “flipping homes” without adding any value to the home. This is speculative and is considered quick easy money. Thus our market is being punished by trying to make money without adhering to these laws. You make money two ways in real estate: either by time, or by adding value. Those who know this make money in any market. Sounds like a great book.
Dave makes a great point. Still, I’m not sure I agree 100 percent. (Then again, I’m certainly not a real estate expert, and Dave is!)
Here’s my question: Don’t real estate flippers provide value? After all, they keep some people from losing their home to foreclosure. And, they help others to own a home. I’m not sure time is an indication of value in the “flip,” any more than a Realtor® who lists a home and sells it in just one day adds any less value than one who sells it in 63 days.
As far as flippers only being “speculators” . . . I think that adds value in and of itself, as well. After all, without speculators being willing to take a risk (speculators often get a bad rap, but remember, by their very nature, they also risk losing money), the market would not have nearly the movement it has, and prices would be much less predictable.
My point is not to disagree with Dave. He seems like a great guy (and he might be correct). On the contrary, I appreciate his opinion. The point of this post is to pose this question:
How do you personally define and/or consider value as being created in a marketplace? We value your thoughts.
My definition of value as being created in the marketplace has some conditions:
“It cannot be made to work for less life to any, because it is equally in all seeking riches and life.”
If the product or service provides value to some but not everyone involved, or it takes away from some involved in the transaction (or is illegal), it’s ultimately a lose-lose.
Have speculators provided value? I believe so. But some, if not a lot of them, put their focus on making a lot of money, not on adding value to the marketplace. And I think that’s where the trouble originates.
David, I absolutely agree with Mr. Wattles statement, which you eloquently describe in your third paragraph. However, I respectfully disagree with what you write in the fourth paragraph; I don’t believe that the mere fact that someone is more focused on the money than the value necessarily detracts from the value they add to others.
To papaphrase** (and, badly at that) 🙂 Adam Smith, in his classic, The Wealth of Nations, The brewer and the baker deliver quality goods not out of love for you, but from their own self-interest.
In other words, some people provide value whether they care to or not.
Of course, I’d like to think they are passionate about what they do and that their intent is indeed to add value . . . but value is not necessarily a function of intent.
**Okay, the above paraphrase of Adam Smith was so poor I feel the need to supply you with the actual wording:
“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own neccessities but of their advantages.”
I am a REALTOR in Doylestown, PA (a suburb north of Philadelphia) and I felt compelled to comment on this post.
I agree with what everyone has said so far… but due to my knowledge of the real estate industry, I wanted to possibly further provide clarification to what Dr. Bernice Ross might have been trying to say.
When the market was booming several years ago (and even in some markets today), real estate investors attempted to profit from the market. There are investors who buy homes and rent them out; there are investors who buy the home, add physical value (new paint, carpet, kitchen cabinets, fix structural issues, etc.); and there are investors who buy a house, slap some paint on the walls and attempt to flip the house for a decent profit. Dr. Bernice Ross is probably referring to this type of investor: the one that adds little to no value (physical value) to the house, yet intends on flipping the house for a nice profit. Those are the investors who that are going against the stratospheric laws of success.
Dr. Ross further explains the two ways to make money in the real estate market. You can own a home (or investment property), and add value by holding onto it and maintaining the home as necessary over time. Second, you can add real value by buying a property, taking a risk by investing real money into the place, and attempt to make a profit in the market. Those investors are in line with the laws of stratospheric success and are obeying the laws. They are the ones who stand the most chance at gain.
To further comment on the post above by Bob Burg: not all investors are buying properties and saving owners from foreclosure. Some are, and that could add value to the system. However, some are making offers and buying homes at deep discounts from what the current owners (not in default of their mortgage) really were looking to sell the house for. Sure, the owners don’t have to accept the offer, but the current housing market is leading these owners to accept these offers. Once the investor obtains the property at a deep discount, then they hopefully will add physical value and flip the home for a profit.
Lastly, to answer the question: “How do you personally define and/or consider value as being created in a marketplace?” I feel that value in the marketplace can come from physical value or knowledge value. If someone applies for a job, and the company legally has to offer the worker at least minimum wage, why would the company offer the worker a salary or hourly pay above the minimum wage? Well, that worker possess either a certain physical value (move stuff around the warehouse, etc.) or they can contribute knowledge to the company. The more knowledge or physical ability that they bring to the firm, the more valuable that employee, and the greater the pay that they will receive from that firm. Currently, American workers are headed towards the addition of knowledge to add value to the marketplace. Countries such as China and India add the physical value to the marketplace. I have been reading a great book called The World is Flat by Thomas Friedman. The ideas I just expressed came from this book.
Hi All —
Just a quick clarification to add to Mark’s great post: it was not Bernice Ross but “Utah Dave” (Dave Robison) who made these points about value and the real estate market. — J.D.M.