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BlogArrowReal Estate Investing BasicsArrow3 Real Estate Myths That Can Turn Potential Profits Into Huge Loss
Real Estate Investing Basics Oct 02, 2020

3 Real Estate Myths That Can Turn Potential Profits Into Huge Loss

Larry Alton
Expertise: Landlording & Rental Properties, Real Estate Investing Basics, Personal Finance, Real Estate News & Commentary, Business Management, Real Estate Deal Analysis & Advice, Real Estate Marketing, Mortgages & Creative Financing
104 Articles Written
Closeup of Ben Franklin on a one hundred dollar bill


Real estate myths are abundant on the internet. It’s important to discern the facts from clickbait and content written by people trying to establish themselves as experts in an area they’re unfamiliar with. Some articles legitimately debunk real estate myths. The biggest obstacle is misleading titles that claim to debunk myths but actually perpetuate them.

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Incorrect information usually comes from one-sided reporting by people sharing a personal experience with a given situation. Unfortunately, following bad advice can plunge you into a downward spiral, depleting every ounce of financial security you have. One major financial mistake can drain your savings, force you to live on credit cards, and cause debt that will affect your ability to continue investing.

Hopefully, you’ve got a bigger savings account than the 69% of Americans who have a stash of under $1,000—or the 34% who don’t have any savings at all. If you don’t have enough savings to cover a large loss, it’s especially important to discern fact from fiction and to learn from experienced investors.

Relying on the following myths as absolutes can quickly turn your profits into a loss.

3 Real Estate Myths That Can Turn Potential Profits Into Huge Loss

Myth #1: Listing above market value will always give you more profit.

At first glance, it seems like good advice to list above market value. Real estate agents know prices are negotiable, and it seems advantageous to negotiate from a higher starting point. Every investor wants their property to be one that sells above asking price, and starting higher seems like a good strategy to make that happen.

For instance, an inexperienced investor might list and sell a property for $200K above market value and write an advice piece urging other investors to list above market price. An experienced investor knows listing above market value is a strategy to be used in specific circumstances only. A new investor doesn’t have enough buying and selling experience to differentiate what those circumstances are.

Listing above market value can work in cities like Seattle, San Francisco, and the Silicon Valley, where homes routinely sell for more than asking price. In 2013, 67% of homes in San Francisco sold for $41,000 above the listed price. In 2017, a quarter of all U.S. homes sold for 3.1% above listing price.

In 2014, two Palo Alto homes sold for over a million dollars—regardless of being in total disrepair. Despite one of those Palo Alto homes being steps away from noisy Caltrain tracks, it’s a few blocks from a lively downtown area. Also, when parking is scarce, homes with garages sell for more. It’s all about location (and apparently parking).

Attempting to list above market value outside of high-demand cities (or circumstances) can get your listing ignored. You can reduce the price when you don’t get any bites, but according to Nela Richardson, formerly the chief economist for the brokerage Redfin and currently a principal investment strategist at Edward Jones, if your home stays on the market for more than a few weeks, buyers will become suspicious.

Myth #2: You’ll get a better deal as a buyer without a real estate agent.

When a house is listed with a real estate agent, the entire sales commission is included in the price. When a buyer doesn't have an agent, the seller's agent receives the entire commission. In other words, a percentage of the sale price is designated as a sales commission. You don't get a discount when you buy without an agent.

Myth #3: A small profit on a bad deal isn’t a big problem.

A small profit can become a big loss when you were counting on the deal going through for much more. It takes time, effort, and money to salvage a deal gone wrong. This is a lesson Dave Scherer is all too familiar with. As the principal and co-founder at a top-ranked commercial real estate investment firm, Scherer knows his game. Like anyone, though, he isn't immune to a bad deal. His firm entered into a JV deal that looked great on paper—but turned out to be the company’s smallest profit in 11 years.

Scherer’s firm bought a student housing complex for $14.4 million, but their partner failed to reveal that leasing was down, and he hired his own companies to work on the property without telling anyone.

After investing time and money into maintenance, capital improvements, marketing, and leasing out extra space, they eventually sold the property after owning it a little over a year. Their efforts to revive the situation strained their resources, and their JV partner became a hindrance to their attempts to revive the situation.

Scrutinize All Advice

Take all advice with a grain of salt. Look for the context people may not be sharing. Know the circumstances that make your situation similar or different from the success stories you read about. Property investment advice rarely applies to every situation all the time.

What would you add to this list?

Comment below!

By Larry Alton
Larry is an independent, full-time writer and consultant. His writing covers a broad range of topics including business, investment and technology. His contributions include
Read more
Larry is an independent, full-time writer and consultant. His writing covers a broad range of topics including business, investment and technology. His contributions include Entrepreneur Media, TechCrunch, and Inc.com. When he is not writing, Larry assists both entrepreneurs and mid-market businesses in optimizing strategies for growth, cost cutting, and operational optimization. As an avid real estate investor, Larry cut his teeth in the early 2000s buying land and small single family properties. He has since acquired and flipped over 30 parcels and small homes across the United States. While Larry’s real estate investing experience is a side passion, he will affirm his experience and know-how in real estate investing is derived more from his failures than his successes.
Read Less
2 Replies
    Jack Gress New to Real Estate from Bloomsburg
    Replied 3 months ago
    Myth #3 has me confused, is it a bad thing to make a little profit on a deal where unknown expenses came up?
    Ari Hadar New to Real Estate from Israel
    Replied about 2 months ago
    There was a misinformation that the leasing is down and not much demand

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