September 2022 Archives

what if i sign all the paper work for a house at a title agency, can i back off the house?

Depends upon the laws in your state. The Federal three day right of rescission only applies to refinancing your primary residence.

(here's an article about that in case this is a refinance, because refinancing your primary residence has a mandatory three day right of rescission.)

In most states, for purchases and purchase money loans, there is no right of rescission whatsoever - you have to go through the courts, and prove something actionable, to get out of the purchase. The person handling escrow could theoretically fund and record a purchase immediately upon signing, although in practice you can figure it happening next day, providing everything really is ready to go.

If the escrow officer has not yet funded and recorded, then by amending those escrow instructions, giving the escrow handler new instructions not to continue with the transaction, and making them aware of amending instructions, you can almost certainly get them to stop if they're not yet finished. However, there are likely to be legal consequences and cancellation fees and all of that stuff. Talk to a lawyer in your state if you want to know all about this dismal subject.

But once you sign the basic documents, there is no legal impediment to finishing a purchase transaction. So you want to be darned certain before you sign that all is as it should be. TAKE YOUR TIME. If the signing agent is in a hurry, that's their problem. Concentrate on three items for the loan: The Note, the Trust Deed, and the HUD-1. Any funny business with the loan has to show up on at least one of those, and usually two. Forget what you were promised - these papers are what you are signing a legal commitment for, and control the terms from here on out. If they are different from what you've been told up until now, that's simply the way it is once you sign. So don't sign unless those papers are something you're willing to live up to.

For the property, make certain they're not trying to slide any last minute disclosures that you weren't aware of ("You didn't know that they're building a chemical factory on one side and a stockyard on the other?" "You didn't know that the foundation is cracked and the roof leaks?"). It's disgusting how often I hear about things buyers should have known before they made an offer being presented to them at the final signing. That's not an agent who was looking out for your best interests - that was an agent who hosed you engaging in legal maneuvers to cover their backside after the fact. An uncommonly large proportion of the ones I find out about are in Dual Agency situations, where the agent is pretending they can serve two diametrically opposed interests at the same time.

There's a blortload of paperwork at signing for a loan, just by itself, and adding a purchase at the same time doesn't exactly cut it down. Quite often, the less scrupulous will use that, trying to hide something that should kill the deal (at least as written) in amongst the blizzard of paperwork you're asked to sign. You need to understand everything you sign. If they tell you a given form doesn't apply to you, there is no reason why you should have to sign it. Set it aside in a separate stack under your control, so they can't ask again. If you don't understand it, read it until you do. Ask questions. If there's a problem, get it dealt with before you sign. Do not accept, "Just sign now, and we'll deal with it later." Once you have signed, you are stuck.

I always call the signing "The Moment of Truth," because if there's an issue you should be concerned about, whether it be property or loan based, it can be hidden until then, and often is, because at the signing your average person has their eyes on the prize, and they're thinking "all I have to do is sign all of this and we're done!" So many unscrupulous sellers and agents and loan officers will hide things until then, knowing that industry statistics say something like half of all the people won't even notice changes at signing, and of the ones that do, eighty to ninety percent will sign anyway, not knowing enough to realize they shouldn't. You shouldn't be discovering anything for the first time at signing. If you are, it's a sure sign that someone didn't do their job, and quite often, indicative that they actively hid things from you. I cannot tell you absolutely that you should cancel the entire transaction if you discover something you didn't know at signing, but you should always go to signing mentally prepared to cancel. You always need to keep a sense of perspective in real estate, but if you discover something you didn't previously know at signing, especially if you don't immediately understand all the consequences, chances are good that you should cancel.

A good agent or loan officer has absolutely nothing to fear from someone going into signing ready to cancel if something is not as they were led to expect. Oh, occasionally a loan officer you've never worked with before will bite a good agent, and vice versa. This is one reason I try very hard to get my buyer clients to apply for a loan with me, and why I really want my purchase money loan clients to work with me as a buyer's agent (While carefully emphasizing that it is their choice as under RESPA it's a serious offense to try and force people to do this). That way, whatever happens is all my fault and I have nobody else to blame - but also I can make sure nothing goes wrong with either side by making sure my client knows everything well in advance. Nothing that my clients see at final signing should be a surprise. Ever.

Caveat Emptor

Original article here

One of the hard things to get through to sellers is to understand the characteristics of the sort of buyers they need in order to have a successful transaction. If a given set of prospective buyers can't afford the property, they might look anyway. They might even make an offer, and it's possible the offer might even be accepted. But in the current loan environment, the necessary loan won't fund, so the transaction isn't going to actually happen.

Furthermore, it's a good idea to know the income characteristics you're aiming at by the price you set. If you set a price of $400,000, what does someone who can afford a combination of cash and loan that add up to $400,000 look like, in the economic sense of the word? You'll know better than I who makes and does not make that kind of money in your area, but you should know it. I know it for San Diego. This isn't the kind of knowledge that comes from 10 minutes on the internet. I know what professions do and do not make the required money, and what professions for which it's a matter of where a particular prospect falls on that profession's pay scale, but it's taken me years to learn, just for San Diego, and every city is different.

The point is this: Once you've figured out how much various professions make and the price you think the property is worthy of, that gives us a lot of information about how to get the property sold. You have to figure out how to get the attention of buyers in that category, you have to have a plan of how to set the bait so they will go look, you have to figure out how to make the property attractive to them when they do go look, and they have to have a clear action to take in order to make an offer. In theory, this is nothing more than the standard marketer's AIDA (Attention, Interest, Desire, Action) sequence, but the practicalities take a lot of effort to learn in this specific instance.

Most areas have their own character. Some neighborhoods have a working class character, while others attract highly paid professionals. Some have an artsy orientation, others are very matter of fact. Properties have their own characteristics. The one property in the neighborhood with a panoramic view of the area is not going to appeal to the buyer who's looking for any hole in the wall, so long as it's in that neighborhood so their kid can go to Super Education High School. Put property character and neighborhood character and the price you want to obtain together, and if you're a listing agent, that had better give you an idea of exactly who you're hoping to attract to your property. Like all targeted marketing, you won't turn away someone from out of the targeted demographic, so long as they can actually get the transaction done, but you don't have to be in the business long to discover that you'll do better by appealing to the degreed professional who makes the money to qualify based on Debt to Income Ratio for an 80 to 90 percent Loan to Value Ratio loan, than you will targeting the fry cook who's saved and invested for twenty years and is all of a sudden ready to buy the property now that he has a 70 percent down payment. That fry cook may show up on their own anyway, but how many people do you know who save that much over that long a period and then want to spend it all on real estate? As opposed to the newly married professional couple who've been in their careers a few years each, have a little bit of money saved, and now they want to stretch their budget as far as they can? Most people take precisely this latter path, and that is why you should concentrate your efforts to sell to those people most likely to buy your property.

The rates are going to change a little bit every day, but in most cases, it's not going to be significant change. Things like interest only loans will stretch their qualification a little bit, but those are best approached with a trembling hand for purchases, and you're better off planning for the buyer being advised that the property may be too expensive for them in such an instance, and having a plan in place, than you are hoping that everything goes perfectly for you to sell to an unsuspecting buyer. Yes, you're selling and once you get your money, you really don't care what happens. But these days, a lot of agents and loan officers are suddenly discovering the advantages of really looking out for their client's best interest, and you don't want to assume that your prospective buyer's agent will not be one of them. Remember, you're trying to look ahead and get a consummated transaction for the best practical price - and a buyer with a loan that does not fund is not the one you want, no matter how good the initial offer.

Not all loan amounts are the same. Conforming Loans are better than "Jumbo". There is no more 100% financing except for VA Loans (and they have issues of their own). Subprime was kind of in Never Never Land back then (now it's mostly dead). If you read between the lines of what their reps were saying before the industry imploded completely, they wanted A paper borrowers who didn't know they could get an A paper loan. And nobody wants to touch stated income loans right now, no matter how good the credit score or down payment. Fact. Whether you're a seller or a buyer, you can live with it and plan for it, or you can fight it and still lose.

So what I'm going to do is compute the monthly cost of housing on purchases of a given size, together with the income to qualify. I'm going to assume this is California, with California property tax rates. Furthermore, I'm just going to make a flat allowance for Homeowner's Insurance plus Association dues of $250 per month. It's not exact, but it'll put you in the right ballpark. With a specific property, you can get closer, or course.

Let's start with 90% financing, a 90% loan with PMI, because that's the only way to do it right now. This obviously requires the buyer having a 10% down payment plus a bit, and limits us to conforming loan amounts. I'm also going to do the numbers at an assumed 6% loan rate, because that is a better long term rule of thumb. Here's what it takes:

In other words, a family who wants to buy a $400,000 property with a 10% down payment needs to be making almost $82,000 per year. Them's the facts, and that's not including any existing debt service they may have. Credit cards, car payments, student loans, etcetera. If other debt service is $500 per month, you raise the income to qualify by over $1100, and the yearly income by $13,000 plus change. San Diego's Area Median Income is a little over $69,000, and a family making that much money can afford a loan of about $320,000 currently - if they don't have any other debt. If they have a huge down payment, of course, it's easier, but how many people have you encountered recently with huge down payments?

Now, let's consider people who actually have a 20% down payment. Most likely, they bought a condo a few years ago and now they've sold it, but they had enough equity in the condo to account for that 20% down on the more expensive property. Or they sold the condo and bought a starter home, and now they've sold that and are looking to move up again. This is without PMI, and having some equity means that not only are the terms of the loan more favorable, but you don't have to borrow as much to buy a property that costs the same, and so a property of the same value is much more easily affordable.

Once again, this assumes there's no other debt service involved. But if you've got a home with a $700,000 price tag, you're still looking at trying to lure in a buyer family that makes a minimum of at least $10,000 per month. These kinds of buyers are not going to go for old carpet and a carpet allowance. They want the seller to have already dealt with it. Even if it's the cheapest, most beat up property in Rancho Santa Fe, on the smallest lot, the sellers are still going to take a hit on the price that's a lot bigger than the actual cost of such things for not dealing with it themselves.

For a successful listing, you need to know your target market - know who you are trying to sell to. It's a hard lesson to get across, but it really is necessary to pick your targets in order to hit them. Some people do buy properties that are apparent mismatches between their lifestyle and the property, but not many. As listing agents, we need to understand what is and is not a match before setting off to attract a buyer, and recommending appropriate measures to the owner before it goes on the market. We need to write the listing promo appropriately to attract to needed demographic, and not only we but our clients as well are much better off by concentrating our marketing efforts where they are most likely to net a fully consummated transaction at the best possible price.

Caveat Emptor

Original article here

There's been a great deal of jawboning in the real estate community recently over "divorcing the commissions", changing the current practice of the seller paying the commission of the buyer's agent. Well, I've said my piece on that, why I don't like it but it's in the seller's best interest to pay the buyer's agent commission, because they can expect to end up with more money in their pockets because of it.

That got me to thinking about issues of how to improve seller satisfaction. As I said in Exclusive Right to Sell Versus Exclusive Agency, it is in the client's best interest to sign an exclusive right to sell, because the agent will have no mental reservations about whether they will get paid if the property sells.

Nonetheless, exclusive agreements always leave a lot of room for agents to misbehave. Quite illegally of course, but if such behavior is undiscovered, it will not be dealt with, and the law places quite a few impediments on monitoring your listing agent. When I'm acting as a buyer's agent, my client knows whether they want to put an offer in, they know whether or not they've signed it, and they know that because I'm working on a non-exclusive agreement, if I won't do my job, there's no reason someone else can't.

This doesn't apply when there's an exclusive agreement in effect. It's illegal in California (at least) to solicit listings from people who already have a listing agreement in effect, but that doesn't stop some agents. Last time I had a listing come off MLS, I forgot to change their phone number to mine. My client told me they received in excess of 100 calls that day, from agents who wanted the listing. None of them asked if there was still a listing in effect, which there was. None of them bothered checking the "do not call" list, which the phone number was on, evidently thinking that the fact it came off MLS meant my clients somehow didn't care about about the "do not call list." This is why agents usually don't want to put client phone numbers on MLS, and why even if they do, they'll change it before it comes off.

But a lot of agents go well past that stage. They decide that if the listing commission is good, that plus the buyer's commission is better. If they don't want to pass an offer to the client, there is no way to make them. I can point to agents where I suspect that incoming offers go straight from the fax machine to the wastebasket, it they even get printed. This has gotten so bad that my local MLS service has finally given buyers agents the right to present offers to the sellers in person. Not to be present for discussions, but to present the offer. I can't make them accept the offer, but this way the listing agent can't pretend it doesn't exist. Furthermore, enough buyer's agents tell the listing client where the market really is, and the listing agents are going to have trouble pretending the property isn't overpriced. Agents who "buy" listings by pretending they can get more than the market will support are going to be in a world of hurt. The first offer is usually the highest offer you'll get, and letting the first offer go will usually result in less money

Sometimes, listing agents bypass such tactics in favor of making showings difficult. They simply make showings difficult for other agents and their clients. The clients and I have time now. An hour is usually no big deal. But requirements for four hours notice or to "make appointment" are more often intended as barriers to other agents clients, and anyone who calls them directly gets preferential treatment, after they've signed an exclusive buyer's agency agreement, of course. Some agents go so far as to claim they're trying to sell the property, while in reality using the listing as a way to chum for buyer prospects who don't know that's a rotten way to shop for a buyer's agent. When the property sells, these agents lose their wedge for meeting more buyers, so they don't want it to actually sell.

Net result, they're not exactly shutting out the clients of other agents, but by putting up barriers to showings, they make it much less likely that anyone not represented by them will put in an offer. But you, as the owner, want to get the best possible price from your buyer, for the quickest sale - not limit yourself to the one who gets your agent paid twice for the same transaction, or to being the bait for buyers. A listing agreement is not a license to abuse that owner.

The person with the power to challenge this is the owner. They do have a right to monitor their own listing. Owners should periodically wander into your listing office, and demand a full copy of the listing, as seen by other agents. An agent who doesn't play these games has nothing to fear. An agent who does, deserves to get fired. And if you get showings but no offers, there's something wrong. It may be that the property is overpriced too high, it may be that your agent is rejecting them out of hand, or it may be that they don't really want to sell your property. Another tactic to fight all of this is to limit the listing agent to one side of the transaction. I don't have any problem agreeing to only the listing side commission when I'm marketing a listing - if the buyer is silly enough to want to be unrepresented by a buyer's agent, that's not my client's problem. Actually, that's a good thing for my listing client in most cases. Nonetheless, it doesn't mean it's in my client's best interest to shoo away prospective buyers represented by other agents. It's not.

But perhaps the deadliest scheme to a client's well being is the agent who wants to buy their client's property themselves, or recruits a straw buyer to buy it for them. Never ever sell to your listing agent, and be very careful that any buyer represented by them is not a straw buyer. Most often, they'll wait until you get desperate before trying this trick, and a nasty one it is, too. Get the listing, Shoo off other buyers, wait until the client is desperate, then make a lowball offer yourself. Unscrupulous agents can make more with this trick than any commission, and they don't have to share the return that comes from flipping the property with anyone else. If there's a buyer's agent involved, it makes this scam a lot tougher to pull off because there needs to be collusion between the two in order for it to work. I should mention that there are agents and brokerages who brag that they'll buy the house if no one else will. To someone who understands what's really going on, this is like a mile high flashing neon sign that says "Stay away from the shark!" I suppose it's possible for it not to be a scam, but I wouldn't be a nickel on it at a thousand to one payoff.

One thing I'd like to see, for those places that haven't granted buyer's agents the right to present offers themselves: The ability for offering agents to drop the owners a standard postcard, through the local MLS provider if that's what it takes. Enter the address of the property, pay fifty or seventy five cents, and the association sends a postcard out to the owner of record that says "Someone made an offer to purchase your property. If you already know about this, this postcard should be of no interest to you. If you don't, chances are that your agent failed to pass along an offer that was made. If you contact the association, we will provide the contact information of the person or agent who made the offer."

There's a lot of listings out there right now that say, "shown with accepted offer only." This is ridiculous, and nobody's going to make a decent offer for such a property. Me, I just laugh and move on, unless I see evidence that the owners may be desperate enough to accept a half price offer. Listing agents who don't explain this to the client are not working in the client's best interest. There could be another standard postcard that tells owners their showing instructions are too strict, although it would have to have something attractive enough about it to make it worth my bother. Agents who faithfully adhere to their duty have nothing to fear, and such things would actually enhance their credibility. Agents who don't would be in a world of hurt, and there could also be consequences for agents who claimed they made an offer, but didn't. This is the age of transparency and accountability, and such a development favors both.

Buyers and buyer's agents can complain all we want to zero effect. The listing agent doesn't have a responsibility to us, so we have no grounds for action, legal or otherwise. But when owners are informed that there is a failing of the listing agent's responsibilities to them, and the owners want to complain, that's a different matter entirely.

Good agents should want to change for more transparency, if we're going to prosper as a profession in the Age of Information. The first group that gets the idea of competing with MLS with the addition of verifying agent performance is going to reap the vast majority of the market very quickly. We have to be verifiably demonstrating to the client on the value we provide, or there is no reason not to go with any cheaper alternative that presents itself. It's not like the clients enjoy giving us money that would otherwise end up in their pockets. If we want to do well, not only as individuals but as a profession, we have to be able to demonstrate that those dollars clients pay us translate into more dollars in their pocket. If we cannot do this, they are correct to choose the cheaper alternatives.

In the meantime, what can you do as an individual to combat these tendencies? Make the listing agent's compensation a fixed percentage, with only a small amount of additional compensation if they accept dual agency or the buyer is unrepresented. They're supposed to be trying to sell the property to all comers, not raising the bar against potential buyers who won't cause them to be paid double. Monitor your agent, so you're confident they're not putting up barriers to sale. Most importantly, learn as much about your market s you have time for. If you know your market, it's a lot easier to spot the agent who's working on their own behalf, and ignoring your best interests.

Caveat Emptor

Original article here

Somebody asked me that.

Well, I'd want to set some aside for liquidity and reserves, in case something happened where I needed money now. invest those funds in a diversified mutual fund and money market portfolio. Once that's done, I'd buy some rental properties, because when government inflicted economic sabotage shakes out, anything I buy now is going to be a lot more valuable in real terms. Leverage the money right, and we're talking at least two to one return, probably more like four to six.

Specifically, Condominiums, and Townhomes. High density housing.

Why? Well for an illustration as to the first part of that reason, look at my article Economics of Home Ownership in High Density Areas. We're in a phase here in southern California where we're getting ready to switch, by economic necessity, away from the single family detached property on its own lot and towards the community interest lot. Land is just too expensive. The average person or family, making an average paycheck, can no longer afford single family detached housing within commuting distance of work unless they've got one heck of a down payment. The demand is too high, and the supply too limited, for everyone who wants one to have one. When that sort of situation happens, price goes up until enough people get priced out.

Here's the trip: When you're talking rent, half million dollar single family detached housing rents for maybe $1800 per month. But if you buy a $200,000 condo, it rents for $1000 to $1200. Put 20% down, and it's very possible to have a positive cash flow on such a unit - something it's not currently possible to have with the detached house. The fact that the spread is so small is temporary, of course, but in the meantime it's an opportunity for a sort of arbitrage.

Furthermore, the average family can afford a fairly nice condominium or townhome. It's just that during the Era of Make Believe Loans, people were told they didn't have to "settle." So they purchased properties far beyond their real means, because they were being told they could qualify for those ridiculously high dollar value loans.

(I call it the Era of Make Believe Loans because the agent made believe people could afford more expensive properties, the lender made believe that people could qualify, and the consumers made believe that there weren't deadly traps they were falling into on every single one of them. It was seductively easy for everyone. The agent didn't have to sell only the property the client could afford, or "settle" for the smaller commission. The lender and loan originators could make money hand over fist on paper. The consumers could pretend they could afford a property far beyond their means, and didn't have to "settle" for what they could really afford. And people are still making believe that the Era of Make Believe Loans is going to come back.)

But denial has a definite half life when it encounters pervasive economic reality. Once it's become accepted that the housing market has stabilized from its free fall, people will be forced to look reality straight in the eye. We had the bubble, we had the pop, and now it's time to start going up again. Once it starts happening, families will be forced to confront the fact that they can't get the American Dream all in one easy step by essentially clicking their heels together and declaiming, "There's no place like Oz!" They will have three options: Stay a renter forever, move away to somewhere there is less demand or more supply, or settle for what they can afford, leveraging it to something better. When larger number of people realize that those are their choices, the demand for and price of condominiums is going to shoot up.

So, put $40,000 or $50,000 into a $200,000 condo, rent it for $1200 per month, and your cash flow is just about even. That's the second half; the situation right now, as it exists. I've predicted rents are heading up in the near future several times (and they have been). Rent goes up, I'm making a couple hundred dollars per month while values are climbing. In a few years, I've a property that has doubled in value while making me some small cash in the meantime. Multiply this by a dozen, and I've got two to three million dollars from an investment of six hundred thousand or so. Plus, of course, I'm going to pull all the old flipper's tricks just before I sell them. Yes, there's risk - risk that can be minimized and dealt with. That's why I wouldn't be sinking every last penny I had into it, a mistake way too many people have made in the last few years.

Right now, the market in Southern California is very highly segmented, meaning that prices and demand for some things (Single family residences in desirable parts of town) is through the roof while there's a glut of other things (condos in most places). Condos are, for most people, what my econ professors used to call substitute goods for single family detached housing. But when people figure out that it's condos or rent or leave the city where they really want to live, they'll start going for the condos. The hassle of HOAs is nothing near as bad as having a landlord.

Of course, nobody's giving me a million dollars. But if you have $50,000 sitting around, you can make about 10% per year in the stock market with a reasonable amount of risk, Over ten years, that's turning your money into about $138,000. Or, if real estate increases at an average rate of 5% per year for the next ten years (our forty year average is about 7%), that $200,000 condo turns into a $325,000 condo, while your loan has been paid down to $125,000 and you walk away with $200,000, not counting the cash in your pocket between now and then. If we should actually tie our long term average of 7% annualized increases, that's a $390,000 condo and you walk away with $265,000. Meanwhile, the cash flow picture gets better every year as rents increase. Your choice, of course, but I'm not the only one who sees an opportunity here.

Caveat Emptor

Original article here

If a home for sale has a refrigerator included on the listing report, and the buyer's agent does not write that it goes to the seller in a contract, is the buyer actually entitled to the refrigerator. I am actually going through this right now.

The listing does not matter. What does the purchase contract say? That is the complete controlling fact of the whole entire transaction.

If the contract is silent, what matters most is whether the refrigerator in question is appurtenant to the land or not. Appurtenances are things which are physically and structurally attached to the land which is always the primary thing being sold in a real estate transaction. For a standard house, nobody would seriously argue that they have the right to remove it, because it is attached securely to the property. There are service pipes coming out of the ground attached to the ground and a foundation it is attached to. There are electrical service wires, telephone wires, and cable TV wires. All of which would come up if you pulled the house away. So the house is appurtenant to the land. This is how all real estate transactions are really structured, by the way. You are buying the land, and the house, if there is one, comes along because it's attached to that land.

So if the refrigerator is somehow built in, such that removal would be a nontrivial project, then it's appurtenant to the land. If all you have to do us unplug it and push it away on a dolly, that's not appurtenant, and there is no more reason why they should have to leave that than why they should have to leave their dog, cat, or child.

Now this is not to say that you can't build an excellent court case based upon the fact that there was an implicit promise made in the listing, and everything else in the contract was built off of what that listing said. Talk to an attorney for more information than I can ever give you on that score.

Even if they're not obligated, the seller might leave the refrigerator anyway. Maybe they've got another, maybe they are just living up to what they promised even though they might not be legally required to do so. It's not like most people go around looking for ways to be evil. I've never met anyone who acted like a Disney villain. I have met some pretty shady characters, but mostly they're more sophisticated about it.

The thing to do, if you're concerned about the refrigerator or anything else where you want it to stay, is to put it in the purchase contract. If the listing says these appliances stay, putting it into the purchase contract won't offend the owner - it should be something they expect.

In any of these cases, the seller can force you to go to court by being an obstinate donkey, even when they haven't got a leg to stand on, legally speaking. It's not like you have the magic power of enforcing agreements. That power belongs solely to the executive branch of government, which will take no action in cases like this without a court order. Whatever the court says is final. Be aware, however, of the cost of bringing the law into it. Unless it's some $25,000 wonder fridge, it is not likely to be worth going to court over, and maybe not then. Much cheaper to buy a new refrigerator, and your expected return on investment is much higher.

Caveat Emptor

Original here