RV Park Mastery: Episode 61

The Benefits of Bad Brokers

Not all RV park brokers are good at their job. But sometimes a “bad” broker is actually great for an RV park buyer. In this RV Park Mastery podcast we’re going to review the many reasons why bad brokers may be worth the best thing in your effort to find a good deal to buy.

Episode 61: The Benefits of Bad Brokers Transcript

There are some great RV Park brokers out there, but sometimes the ones that are really bad are your best source of deals. This is Frank Rolfe, The RV Park Mastery Podcast. We're gonna talk all about the benefits of bad brokers. Now, what makes a broker bad? Well, there's many things that can make a broker seemingly be bad for the buyer. One would be, if the broker just doesn't have basic life skills of returning calls or responding to emails. That's always very frustrating. Or maybe you talk to the broker and say, "I'm interested in that RV Park," and they say, "Oh, okay, well, I'll go ahead and send you all the information," and yet it never arrives. Or sometimes you actually even sign a contract and send it in for the RV Park, and they never get back to you. And you call and you call and you call, dead silence, no response. Also, a bad RV Park broker can be one that gives you lots of bad information regarding the property: Wrong amount of revenue, wrong amount of expenses, even the wrong size. Some might even give you all kinds of bad personal opinions on the location and the business itself, knowing full well that they don't really know what they're talking about, but hoping somehow, whatever they say will talk you into buying that property. But what are the key benefits, then, to bad brokers, if they cause so many problems for the buyer, if they cause frustration and anguish and everything else.

Then why would you wanna mess with a bad RV Park broker? Well, let's review that for a moment. First item is that most people will give up on these brokers. Think about that for a moment. So if you call and you call and there's no response and you email and nothing happens, and you write up a contract and send it in, no one ever says anything, over time, most buyers will retreat from any contact with that broker, simply saying, "I can't work with them, they're no good, I don't wanna do anything more with them." As a result, there's lower competition with those bad RV Park brokers. And don't forget that bad RV Park brokers aren't necessarily viewed in that manner by the seller. You see, the seller isn't trying to buy. When the seller calls, a broker responds immediately. Many of the worst RV Park brokers we've ever seen actually get along very, very well with Mom-and-Pop sellers. So, they can get the product. The question is, can you as the buyer access that product? And because they're so frustrating, so many people quit. There's the opportunity. So, if a good broker has a stable of 2 or 300 potential buyers that they talk to on a frequent basis, and the bad broker only has a stable of 10 or 20, well, you can guess which one you can probably buy a better deal from.

One has all kinds of opportunity of different people to sell to, the other has very few, and therefore you get listened to much more. Also, bad brokers often make really bad math errors, insanely crazy ones. We've bought properties from RV Park brokers who have missed the revenue by as much as a third. Now they didn't necessarily do it. What happens often is, mom-and-pop give them the financials for the property, not from a computer, but something they wrote with a crayon on a sheet of paper, and they never double-check their work. Sometimes, you can simply immediately, by looking at the financials, see the mistakes. And any good broker would look at those mistakes and immediately say, "Wait a minute, we need to fix those." However, the bad broker doesn't. They don't look at the stuff, they don't ponder, "Gee, what could it be?" They simply write it off as being, "Yeah, well, that's what they gave me, I'll go ahead and stick it out there online," and oftentimes, what they stick out there is completely wrong. Now, sometimes that works against you as the buyer because they can go in either direction. They can make the error by overstating the revenue and understating the expenses, but normally what happens is, one out of every so many deals rather than going in that direction, which would reduce the actual net income based on what you thought it was, it actually increases it.

And those kinds of opportunities are golden because you can go forward and buy that RV Park and everybody's happy, mom-and-pop are happy, the broker is happy, and you're extremely happy because you bought the property for what they thought was a certain cap rate, and yet the price you paid was a far, far higher cap rate, which is great. Also, they're often more corrupt because bad brokers, to get by often, they throw rules and care to the wind, and they do things that regular brokers are not supposed to do. One of the most common of that is that they will go ahead and convince mom-and-pop that the RV Park is worth a lesser price than it really is, simply to try and make a quick buck. We've seen many an RV Park that gets priced so low that it makes no economic sense that the seller would sell it that way, but it's been done deliberately by the broker because they've got some kind of pending financial obligation, and they need some quick money in the door. Also, the corrupt broker, when approached by mom-and-pop regarding your offer, which may be even still lower than what they had, will try and convince them that your offer is great, when in fact, it's not. And they know it's not.

Because really, at the end of the day, who pays the broker? Good or bad, you do, the buyer, not the seller. As a result, the loyalty of the broker is often to the buyer, and that works contrary to the seller and contrary to the mission that a broker is supposed to have, which is to be the agent of the seller. So sometimes, you'll find the bad broker more than the good broker is more apt to do things which are to your benefit as the buyer, in contrary to their own client, which is the seller. Finally, bad brokers often play favorites, they don't play fair, they don't look at everyone as being an individual, and they're looking for the best offer. No, they look at certain people and they say, "Oh, this person is my buddy. I've sold some to this person before, I know they'll close," and they tend to just throw deals to their friends in that manner. Again, completely contrary to the mission of being a broker. And the key, of course, then is to be one of those favorites.

When you have brokers call you, call you to let you know of deals that seem to be under-priced and they think you can buy it a song, well, that doesn't seem like the kind of behavior you would have from a broker, a regular good broker, but that's fairly common place with a bad broker, who is basically just out there trying to get something sold quickly and then move on to the next deal. Now, bad brokers have been a part of the RV Park industry pretty much since inception. I don't recall there ever being a year or a decade in which there weren't a select group of what we would call bad brokers floating around, and I can tell you historically, some of the best deals we've ever purchased came from these people that are considered bad. But one question I get from people then is, "Well, is it morally right to work with a bad broker? Is it okay to deal with people who you know are inherently maybe not in the best interest of the mom-and-pop seller?" And the answer to them that I would give is, "Of course." The seller is the one who picked out the broker. I did not.

The seller is the one who entrusted the broker with all their information. I didn't. And it's an open marketplace out there, anyone can contact that broker and try and buy the property. So as a result, if I talk to the bad broker just as I talk to the good broker, there's nothing immoral about doing so, I'm simply working against my competition, the other buyers out there trying to find a deal, and of course, I'm gonna look at every stone, I'm gonna try and turn over every stone, every RV Park available in my pursuit of trying to find the best deal, and that includes both good and bad brokers. Some people also say, "Well, gee, are you morally required to tell the seller of the errors in the deal?" It's a reasonable question. The revenue is there and it's misstated by a third, maybe it's misstated by a half. Once again though, that isn't my responsibility. Anymore than when you walk into a store, let's say you go into a Neiman Marcus store and someone messed up the price tag on a garment, and it's substantially less than it was supposed to be tagged, that's not your responsibility to fix that. In fact, Neiman Marcus has a policy, they honor every tag regardless of who made the mistake, 'cause that's not the customer's obligation, that's the person who puts the tag on the product, or in this case, the person who prices that RV Park.

So no, you're not required to go back to your mom-and-pop seller ever and say, "Wait a minute, you got this price wrong, don't you see? The revenue is a little less than it should be, or your expenses are overstated." No, that's between mom-and-pop and their selection of the broker and their conversation between the two. Now, also remember that in every RV Park, there is in fact inherent risk. Can you operate it as mom-and-pop did? Can you hit your budgets? Can you hit your goals? 

So you're not buying a bond, you're not buying a CD, you're not buying a block of gold from someone at a certain price. Even if the price appears low to you, you don't know for sure how it will end up in this competitive world. So as a result, it isn't as though you're stealing the RV Park for a price that they could have received from somebody else differently. No, it's just at that moment in time you're buying that RV Park at a price which you think is probably a little more favorable than it might be, but at least, certainly not any reason that you would want to or need to contact the seller and say, "Hey, seller, I spotted this mistake." The bottomline is, that RV Park brokers come in many shapes and sizes. There are great ones, there are good ones, there are bad ones, but don't disregard those bad ones 'cause many a good deal has come from a bad broker. This is Frank Rolfe for the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.