The $5,000 Pen

The pen in your hand is easily more expensive than the finest Montblanc. Really!?

You see, the pen is not where the value comes from. The ink that comes out of it, on the other hand, now that’s expensive stuff. I know, I know … the “refills are cheap.” BUT, what are you writing? Are you marking on a blank paper or something that already has writing … a contract maybe? Are you editing mistakes or are you signing your name? 

In Southern California, a “$5,000 pen” is likely considered on the cheap side of things.

See, it’s the hand that moves the pen but the ink that comes out … well … that “seals the deal.”

I always get a chuckle (my terrible sense of humor) when I go to the grocery store. I check out at the register with $150 in food and necessities and I say to the cashier “wow, looks like my signature went up in value.” “What?” she says. “Yeah, look at that … today it’s worth $150.”

Do you see where I’m headed? You don’t have to be a professional athlete or a movie star to have a signature that’s worth a pretty penny. Just ask the tenant who found out the true value of the ink in their pen … a cool $5,000.

So, let’s break it down:

A tenant has been looking for a home to move to for over a month. Their current residence is being sold by the landlord/owner … who’s given them a 60-day notice and the clock is now on the wrong side for the tenant. To add to that, this area is not tenant friendly right now and with little inventory to rent … the landlords are asking pretty tall prices and it’s usually a competitive situation.

In just a couple of days, we had 5+ applications on my rental listing and in walks the future tenant with their eyes on the prize. “We love it” they say “and we’ll have an application to you this evening.”

True to their word, I receive the application and wouldn’t you know, they look wonderful on paper. The credit isn’t perfect (but that’s a common story nowadays) but their income is good and they have no delinquencies … soooo, the landlord decides to move forward with them. At $2,500/month with a $2,500 security deposit along with a few other terms … they ask their questions, agree to the lease and ink the appropriate lines. Done deal.

A few days later, I wake up to an early morning call. One of the tenants is having second thoughts. We’ve already executed the contract, exchanged money for keys and while they have not yet moved in … the ink is dry (see what I did there), the home is off the “active” market, commissions are paid and the tenant is on the hook.

We speak for a bit, I tell them that no one is here to hold them hostage and if they don’t want to move in … no one can force them to. That said, there is a very strong potential that the landlord will be exposed to damages and the cost to re-rent the property and any loss in rent may still be on the tenant’s shoulders.

About fifteen minutes in … the truth comes out. Someone may have been “compelled by a higher power” but as the story goes on … it sounds like the feeling is more if they are going to pay top dollar in a tight market … they want the place just down the road that came up yesterday, for a little more … with a bigger yard and a view … yep, that’s what they want. Okay, but let’s face it … no one made you sign that lease … “higher power” or not. I wish that other home was available a few days ago when you were signing this paper so maybe you wouldn’t be in this position and we could have moved forward with a different tenant. It’s still your right to pursue it if you would like … but you are still on the hook on this property and while I can help you negotiate an early termination … it doesn’t mean that you just get all of your money back. The landlord will responsibly work to mitigate their damages but there is no promise that you just get everything back and with a handshake and a smile that your signature on this lease meant nothing.

There are alternate endings to this real story and while one ending is the real one … you should know the basics of how it can look on the good and bad side. (note: I realize there are more than two outcomes … but I don’t have that many chapters in this book)

  1. The first ending is easy. The tenant moves in. They decided that maybe they could have gotten out of the lease but it wasn’t worth the battle and they didn’t want to risk the dollars or the potential fight to get that money back … which (IMO) I don’t think they would have won that fight anyway. The come to the realization that new homes come to market every day and that this was just a “bad timing” situation that was no one’s fault but they still liked the place enough and they are just going to deal with their decision and move in for the one year term they agreed to.

  2. The second possibility … well, this isn’t so pretty. The tenant signs another lease somewhere else. They stop paying rent on this property. The owners work hard to minimize everyone’s exposure but unfortunately, it took a month to rent the home back out but this time the owner was only able to get $2,200/month … commissions had to be paid again and the tenant that breached the contract is also on the hook for the difference between what they agreed to pay in rent ($2,500/month) and the amount the landlord is getting now. For the remaining 11 months of their lease that they are breaking … that totals $3,300… plus over $1,000 in commissions to pay out the Realtor® that had to rent it back out again plus the $2,500 for the one additional month of vacancy … that’s a lot of money (and if you are doing the math, I know … it’s OVER $5,000)!!!

There are a lot of processes and conversations that take place … regardless of which ending you choose to fill in and finish with.

BUT, the end message here is pretty simple … that pen is expensive! You can draw on one piece of paper for free, practice your signature or make a happy face for all I care … but sign your name somewhere else, well … that’s a $5,000 pen … or maybe your signature is worth more than you realized.

This business has high dollar deals no matter where you are. The true “cost” is all relative to where you live, what you make, how you live and your own circumstances … but it’s all still a lot of money. Know what you are signing … make sure your agent explains it to you and answers your questions. It may only take five minutes to sign your name on a few pieces of paper … but the consequence could last a lot longer than that … and the “paper” you lose is quite literally expensive.

By the way, Montblanc does actually make a great product :-) ... make sure you and your clients understand the consequences of using it.