With the economy the way it is — driven into the ground for many people — one attraction of Pawn Stars is fairly obvious: Maybe we also have stuff that has hidden value. Perhaps not a canon or a boat, but maybe something Grandma left in the basement.

One of the great curiosities of the program is the effort sellers make to get the best prices for their goods. Some do okay, a few do far better than they hoped, but many come away with less than the daydream value they wanted.

So why does this happen? Why does the pawn shop generally win the daily battle with sellers?

Several reasons stand out.

First, as the cast routinely explains, they’re not collectors or hobbyists. Instead they’re folks who buy wholesale and sell retail. They’re in business, they trade every day and they’re good at what they do.

Pawn shops have cash, a very useful commodity. So, by definition, a pawn shop is a buyer’s market. The assumption is that if sellers could do better elsewhere, they would

Second, the difference between wholesale and retail is not profit. It’s something less. Sometimes a lot less.

Imagine that a photo from the Civil War has a retail value of $200 and the Harrisons offer $100. At first paying “half price” may seem like a form of, er, plundering, but that’s not the case. The $100 offer may well be a very realistic price — and even a risky one. Here’s why:

• For the shop to make a profit it must have a buyer and not every item is fascinating, collectible or valuable.
• The buyer has to see the item, which means it has to be displayed or cataloged. Now, suddenly, we have the cost of rent, electricity, advertising and staff. There are costs for insurance, CPAs, security guards and other expenses.
• The money paid for the photo is not free. The decision to purchase the photo represents an opportunity cost — the money could also have been placed in a CD to earn a sure rate of interest. An item that doesn’t quickly sell isn’t making money, it’s eating money.

Part of the shop’s risk, of course, is that an item may not sell for a good mark-up or worse it may never sell. That’s just part of the business. In the worst case the item will be stolen or a fraud, meaning a total loss.

Pawn shops, historically, have offered consumers the choice of selling an item or pawning — giving it to the pawn shop in exchange for cash and the right of redemption for a given period. The effective interest rate for such transactions is “high” but then compare the cost of using a pawn shop with the expense of a credit card and maybe the expense is not so unreasonable. (Remember also that banks as this is written can borrow from other banks overnight at near 0 percent.)

Moreover, with a pawn shop every transaction is a nonrecourse deal, there are no bill collectors in the picture or credit dings.

Third, to be an equal in the marketplace you need to be prepared. Check eBay or Google to find recent sales of like or similar items before trying to bargain. Know about the history of the item, what makes it valuable, the finer points. See if there is some group or seller that specializes in such items. Maybe you can do better online or in another setting.

Fourth, as Rick says, when you sell something in a pawn shop you have to be prepared to bargain. Thus if you want $100 don’t ask for $100 — ask for $120. This gives you room to haggle, a part of the process the Harrisons seem to like, but only when the bargaining is within the realm of reality. And who knows, you may get the higher price — but only if you bargain.

Notice that Rick and the other staffers do the exact same thing — in reverse. They have an opening bid but in many cases are willing to go higher.

Pawn Stars — How To Win At Haggling is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Varan is the president of GoIn Realty, a brokerage based in Woodridge, IL, just outside Chicago which deals in bulk sales and foreclosed properties.

Varan is a bulk real estate purchaser and what’s known as a “third party buyer.” As a wholesale real estate purchaser he buys homes by the bunch from lenders who want to get rid of REOs — real estate owned by lenders, insurers and investors which did not sell at foreclosure auctions. Varan is also believed to be the largest “third party buyer” in Chicago, meaning that Varan bids at foreclosure auctions, looking for discounts and bargains.

Varan started in real estate as an agent in 1982 and within a year made his first REO purchase — a HUD foreclosure property. By 1986 he had his first successful auction bid.

Varan explains that before 2002 he rarely was in the market to buy, however since then he has purchased more than 1,500 properties, typically 250 to 300 units per year.

Varan is the king of foreclosures in the Chicago area, and at first it might seem as though he fits the mold of no-money-down buyers hawked in get-rich-quick seminars. But Varan has been in the real estate business for a quarter of a century, has more than 50 employees, evaluates thousands of properties every month and requires substantial amounts of investor capital to underwrite his purchases. Why does Varan need large amounts of financing? One reason is to buy properties for cash, but Varan also has other costs such as property protection, insurance, property taxes and losses — that’s right, not every property is a winner and most produce only marginal profits. If you’re a real estate investor with insufficient capital then a single weak purchase can doom your entire enterprise.

This year Varan expects to make fewer bids.

“Although I’m always buying, this year I am holding back on purchasing marginal deals to see what happens to the market,” says Varan. “We are still buying, but on track for about 175-200 units for the year. I always need to adjust my pricing based on what the market is doing. I purchase on a scavenger basis and 90 percent of my inventory is sold to investors on an as-is basis who then repair the property and market it on a retail basis.”

As RealtyTrac.com has reported, foreclosures for the second quarter of 2008 were up 121 percent over the same period a year ago . These numbers are central to understanding turmoil in the mortgage marketplace — and change in the new world of loan servicing.

Varan was one of more than 2,000 attendees at the 2007 Five Star Default Servicing Conference, an event attracting a growing number of people and with good reason: Loan servicers have a key role to play in the foreclosure marketplace.

Loan servicers typically collect mortgage payments and pay out property tax and insurance payments. In effect, they manage the practical side of mortgage debt for investors who own such paper.

However, loan servicing becomes enormously important when borrowers have financial problems. Should the servicer work out a loan modification with the borrower or foreclose? If the property is foreclosed and does not sell at auction, then what? Should the servicer sell the property “as is” or fix-it-up to get a better price? Meantime, who protects the property, takes care of utilities, orders title work, etc?

The Five Star conference attracts loan servicers as well as an array of people who work various part of the business — big property owners, specializing brokers, lenders, lawyers, title experts, foreclosure services and wholesale buyers such as Varan. Given the growth of the foreclosure marketplace during the past few years, the Five Star is the epicenter of the loan servicing world.

Sale prices in the Chicago area as of the second quarter were actually up, says the National Association of Realtors. Its figures show that the typical home in Chicago/Naperville/Joliet was priced at $283,200, 1.7 percent above a year earlier.

More recently, however, real estate activity in the Chicago area has begun to turn.

“The market has dramatically slowed down,” says Varan. “In fact, the total number of sales for the last six months is down about 20 percent. The numbers for the most recent month have been dropping down to as low as 23 percent. Additionally, the inventory supply is now at 10 months.”

People usually lose their homes because of illness, accidents, divorce or the death of a spouse. But for Varan, there are now new factors in the marketplace: Fraud and get-rich-quick investors. “Most homes that I purchase are already vacant, and I often do not know the reason for foreclosure,” he says. “It appears, however, that many of these properties were involved in some type of fraud. The reason for this conclusion is that the previous sales prices of the properties are substantially above the area’s market price. Furthermore, the loan(s) have usually been taken out in the last year or so. The other type of property that I frequently buy at foreclosure is one that has tenants; namely, homes that were bought for investment purposes and end up having negative cash flow. While some foreclosures are caused by illness, accidents or death, in my experience, those loans do not have a great impact on the foreclosure rate of the homes that I purchase.”

Varan’s marketplace strategy is dictated by investor requirements, investors who allow him to purchase properties for cash. Most want to re-sell a property within six months.

As to Varan’s buyers, they could be people who just want a residence, but typically they’re investors who buy homes in “as is” condition, fix ‘em up and then rent or re-sell them. A look at properties for sale by Varan as of this writing shows prices that range from those requiring an initial bid of $10,000 to a commercial property priced at $3.5 million.

Looking toward the future, Varan says “buyers will continue to exercise the ‘wait and see’ approach. Consequently, values and sales will continue to decline. It will take some time for the economy to absorb the consequences of the mortgage industry overly extending itself. With the Fed’s assistance, however, including lowering rates, the mortgage market will have more liquidity, and therefore, money available to loan out.”

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Published originally by Realty Times on September 18, 2007 and posted with permission.

How To Buy 200 Foreclosures A Year is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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