Good coffee is a must for me. Some will laugh at me, but on every trip abroad the first thing I look for is the nearest Starbucks. How does that fit with good coffee? Well, Starbucks is not only the coffee but the experience, and you may be surprised, but in Europe at least their coffee is not bad at all.
We sat in a mall for coffee, when suddenly he approached my partner. The partner immediately got up from his seat, the two shook hands and fell into a flowing conversation. It turns out they have known each other for several years, having met at a workshop. We invited him to join us for coffee and he gladly accepted. We sat and chatted about business, and shared experiences from trips abroad. He said he had an apartment that he had just bought and was renovating in one of the countries where we work. We wished him luck, and after we finished the coffee we parted. I did not meet him again until he called and asked to meet me about that same apartment.
3 brokers had tried to sell the apartment over the past year and only one of them brought him an offer from a potential buyer, which he refused. When he came to meet me he was frustrated, angry and at a loss. He explained that on a trip a year earlier he met an old friend on a flight who works in the city as a broker, and who told him that in the area where the apartment is located apartments sell at an average price of 1,250 euros/sqm. Even before landing they agreed that he would give him exclusivity to sell.
The apartment had been split by him into 2 apartments, without this being registered in the local land registry. The apartments were rented to students, who did not always pay all the bills, and from time to time he discovered debts to the water company, the electricity company or the building committee. Selling the apartments at a profit, as he understood it from the broker friend, would ease his situation. He would be glad to be rid of them.
After about a week, after he returned to Israel, the broker called and explained that it was complicated to show the apartments to potential buyers because of the need to coordinate the visit with the 2 tenants, and suggested removing them, since he was about to sell them anyway.
A year passed, the apartments stand empty and there is no rental income, while on the other hand there are payments to the building committee, the municipality and so on. No wonder he is frustrated.
The broker friend struggled to bring concrete offers to buy and put the blame on the fact that the apartment was split but not registered as 2 separate units in the land registry, so that a buyer must be found who is in effect an investor and who would be willing to buy them knowing that he is in effect buying one apartment. So he went and found another broker who also received exclusivity and after two months threw up his hands. The third broker finally managed to bring an offer, but it is much lower than he expected.
I did a back-of-the-envelope calculation for him - how much the apartment cost, the cost of the split, the losses incurred over the years, the expected costs if he wanted to obtain retroactive approval for the split and register it in the land registry, as against the sale price with all that it entails, with all the related costs (taxation, lawyer, broker's commission). I explained that brokers will always try to push the price up in order to win a higher commission, and do not always have the integrity to admit that they gave an inflated valuation. In my view that is what happened with the first broker, except that he had already fallen in love with the idea that he would sell at a handsome profit and now found it hard to let go. I also explained that, from my familiarity with the location of the apartment, this is not a prestigious area in which deals are “easy”, and in addition the price for this area quoted by that broker sounded to me a bit inflated. I suggested that he try to get the offer raised slightly and sell.
Sometimes our investment does not yield the expected results, and the profit is not what we anticipated. The wisdom is in knowing when and how to exit the investment even if the profit is lower than expected, to know how to let go and move on.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית