I’ve been reading 9 Things You Simply Must Do to Succeed in Love and Life by Dr. Henry Cloud. I find his “9 Things” to be a combination of common sense principles and erudite, counterintuitive thinking. It’s a very easy read, chock full of interesting real-life examples of how to live life to the fullest.
Principle 2 is titled, Pull the Tooth, meaning successful people do not hang onto bad stuff for long. Sometimes they get rid of bad stuff quickly and sometimes through a process, but either way they get rid of it. They do not allow negative things to take up space in their lives, draining them of time, energy and resources. If the tooth is infected, they pull it. As a result, new energy, time, and resources become available on those things that really matter to them.
4 examples of bad clients
One of those bad things that we need to get rid of as quickly as possible is the bad client. You know the type. They come in many different forms. Fortunately, the vast majority of my clients are people I want to do business with. They are honest and honorable people. But from time to time I run into:
- The Time Waster – They conveniently forget that my time is the most valuable resource I have. They have no problem wasting my time on things that have a small probability of me ever receiving a paycheck for my services.
- The Unethical – They knowingly withhold adverse information from me about the property or about themselves. They have no problems cutting ethical corners if that is what it takes to get a more favorable deal.
- The Know-It-All – They think they know more about commercial real estate than they actually do. They ignore my counsel on my areas of expertise because they consider themselves the ultimate authority on commercial real estate.
- The Cheapskate – They complain about the fee I charge, or worse yet they attempt to re-negotiate my fee just prior to the transaction closing.
What is the cringe factor?
When dealing with questionable people Dr. Cloud refers to the cringe factor. If you have to take a big gulp before committing to working with someone, that’s the cringe factor. Sometimes when I meet a client for the very first time, I sense during the conversation that something is not quite right with this person. That’s the cringe factor. Or sometimes I’ve actually worked with a bad client before and he contacts me again to employ my services. If I ignore the bells and whistles going off in my brain, that’s the cringe factor I’m ignoring.
Recently I crossed paths with two bad clients: The Know-It-All and the Cheapskate. One I handled beautifully, the other got the best of me.
A prospective client, thirty years my junior, contacted me about financing for a marina with a lot of unique challenges. Based on the preliminary information provided, I told him that likely I could do a 65% LTV loan for him and if the moon and the stars aligned perfectly, maybe a 70% LTV. “That’s all you can get me,” he said? He was confident that he could find a lender who would allow a second behind their first deed of trust so that he would only have to put 5 or possibly 10% down with the seller financing the difference. That’s when I cringed.
I told him I knew of no conventional lender that would knowingly allow him to have a second mortgage on the property. Our conversation came quickly to a close with him thinking that his vast real estate experience of 5+ years trumped my 35+ years in the commercial real estate financing business. When confronted with a know-it-all tell them the truth and when he leaves in a huff count yourself lucky you didn’t waste your time working on his deal.
A former client contacted me about financing three properties he had under contract. He would need about $5 million in financing. As the weeks progressed the three properties unexpectedly narrowed down to one property needing a loan of about $1 million. So instead of eventually receiving a nice sized commission the fee for my services would be very modest. Over the years I’ve learned I work just as hard for a small commission as you do for a large one, but I get paid a whole lot less. So I rarely do loans below $2 million because the commission is too small for the time spent.
But because he was a previous client of mine I willingly went to work finding the best possible loan for him. The property had significant issues making it difficult to find financing. I contacted a dozen lenders and found three that provided letters of interest. The lender he chose came with a ¼ point loan fee and my client required that I subtract this fee from my already meager loan fee. Wow! Talk about not appreciating what I had done for him! After thinking about my alternatives, I decided a small fee for my services was better than no fee, but I promised myself I will never do business with this guy again.
Don’t ignore the cringe factor
At this point in my career I rarely ignore the cringe factor. But when I do, I almost always live to regret it. The best way to fix a problem, in this case a bad client, is not to have one to begin with. Learn to listen to that little voice inside that tells you not to become involved with a bad client. A wise man once said about the cringe factor: “A prudent man sees danger and takes refuge, but the simple keep going and suffer for it.”
How about you? How have you handled bad clients? Or have they gotten the better of you?