Dan Melson: July 2022 Archives

My husband and I are on title and loan to a piece of property with 4 homes on it. We want to add 3 people to title. Can we do this if they are not on the loan? Also, any advice as to where I can find information as to how to hold title? Each party wants their percentage to go to next of kin and not to the rest of us on title.

This is a property that my family all live on. Basically we all bought it but we couldn't put all of them on loan for various reasons. We do have a sort of "operating agreement" going for maintenance and stuff like that, so I just want to know if they can be added to title so it's all official.

There are significant perils in this, especially since you're the only one on the loan. I can envision half a dozen scenarios where you end up liable for the loan even though you no longer own the property, or end up only owning a smaller piece of the property. Nobody likes to consider ending up in court opposite a family member, but family members are much more likely a legal adversary than complete strangers. This stuff happens every day. Partition suits aren't exactly uncommon. I suspect a certain number of them may even be manufactured, because a multi-residence property may be more valuable as multiple legally separate lots. But even if you manufacture such a suit, there's no way to insure that the other party will remain loyal to you.

Quitclaiming is easy, and requires no permission from anyone, but you really need to understand the consequences of what you intend to do before you do it. Furthermore, there's more than one way to hold title, each of which means different things. Joint Tenants, Tenants in Common, trust, corporation, partnership, etcetera. You need to choose a form of ownership that protects you, while still serving your needs.

I'd suggest getting a partnership or corporation agreement executed first, and quitclaiming to that entity, but you really need to pay a real estate attorney for some advice, first, and you'll be better off following their advice than mine.

Not that I'm a big fan of lawyers. But the hour of time you pay for now has a good chance of saving you at least a million dollars down the road, from the type of property you're talking about. Ounce of prevention and all that.

Caveat Emptor

Original article here

I just got off the phone with an agent who claims to have three offers on the property, but he doesn't want to counter the offer. He just wants my client to voluntarily throw more money (or more something) onto the table.

We're going to decline to do that.

The offer we made was good. The other agent, if they knew what they were doing, would just be fishing - or rather, hoping to get us to go fishing voluntarily, adding more and more bait until they finally decide they had better hit it. Not really a horrible strategy, but wickedly vulnerable to agents who understand negotiation. The only reasonable way to respond is to ask the other side to take it, leave it, or tell you what they really want. Someone who understands negotiation is going to tell them exactly what I did - which is "You can take it, leave it, or counter. But we're not going to go on a fishing expedition. Tell us what you want and we'll talk about it."

However this particular agent either didn't know what they were doing or were pretending not to know. As a rationalization for his actions, he said, "I've had multiple offers and lost them all when I countered."

So?

Every listing agent gets desperation checks. Sometimes they're flippers looking to turn a quick buck. Sometimes they're serious investors. Sometimes they are even people who intend to live there forever and ever. What all three of these (and many other situations) have in common is that they say to themselves, "Let's see if we can get it for that."

The intelligent way to respond is usually to counter offer. Below a certain point, of course, you want to respond with, "Offer rejected - do better!". But if they're in the right general ballpark, the way to get what you want is to tell them what you want. You won't get everything. That's what negotiation is all about. But you would be amazed at how often terms that are important to one party are something the other party can meet without any downside.

Furthermore, you don't want to sell to a "Let's see if we can get it for that" offer. Yeah, some folks will walk away if you counter. Those are the folks that you don't want to sell to anyway. Even if every single one of ten offers walks away, you haven't lost anything - because those people weren't willing to offer a reasonable price. If you price the property correctly, it will get offers, and you will be able to sell to one of them for right around the market price. If you over-priced your property, desperation checks are all that you're likely to get. If you underprice the property, you will get hordes of offers, but it's unlikely to be bid up as far as where it should have been in the first place.

(How can a consumer tell if their property is over-priced or under-priced or priced just right? By the offers you get and their timing, of course! It's one of those zen things like the chicken and the egg. It's also why the discussion of list price should not be easy for anyone - because by the time it becomes apparent you went with the wrong answer, fixing it will only repair some of the damage)

You never know which offer is and isn't going to come back with something better. So you give them a reason to offer you something better by telling them what you really want. Yeah, number one on the list is usually money. But sometimes it isn't. And sometimes subsidiary concerns can make all the difference, even getting the property for fewer dollars than another offer.

Being unwilling or unable to counter without losing good offers is the mark of a very weak agent. Unfortunately, by the time you find out they're a weak agent in this fashion, it's probably too late. When I'm the buyer's agent, I don't really want the first offer accepted, and those few of my clients who've had it happen can testify that I really am mortified when it happens. I want to talk about what my client wants, and how we can go from the first offer to something both sides are happy with. Whatever happened to "never take the first offer"? Don't they teach that anymore? The first offer is just an opening, like "hello" in a conversation.

One legitimate fear is that an unqualified buyer may sign a counter exactly as it is, creating a purchase contract that ties the property up for months while you find out they can't really qualify. That is the only situation where I delay the actual counter until I am certain the buyer can qualify. But I do call the offering agent and ask for more evidence the buyer will be able to qualify. This is in line with the precept of "ask for what you want, and explain why they should give it to you" precept. After they provide information that persuades me these folks will qualify for the necessary loan, they'll get a counter.

Counter as fast as you can - within a day is best if you can. Don't wait for X number of offers before you counter. Every day you delay is a chance these buyers will get interested in something else and walk away, or just get tired of waiting and move on with their search. It does no good to counter six weeks later when they're almost ready to close escrow on a different property. Even if they're not in escrow on something else yet, if you take more than two weeks (within three days is much better!) at the most they've mentally written your property off and moved on with their search. It's no longer fresh on their mind. You've lost your window of opportunity.

If a qualified buyer signs one of several counters my clients make, that's not a disaster. That's exactly what I want. Every counter I put out there is something that would make my client happy. Do I care which offer gets signed? Well, sometimes when something about their situation (like having a known problem agent representing them) makes me hope it isn't them. But that doesn't stop me from putting the offer back out there. It's my clients needs that are important, and if my client needs me to deal with these issues, that's part of why I'm getting paid.

Not being willing to counter is like hoping the fish is going to jump right into the boat. Yes, you know they're out there in the lake, but you haven't hooked them and you definitely haven't landed them yet. The property is the bait, but the counter is the hook - it lets them know exactly what you want, and why they should give it to you. You're more likely to get what you want by telling a buyer what that is.

Caveat Emptor

Original article here

The stock market has a phenomenon where a company's stock is "Priced for perfection." It may sound nice, but "priced for perfection" is emphatically not a good thing. It's where the stock price of a company has been bid up so much that only if absolutely everything goes the company's way is it going to be a good investment. If anything doesn't fall the company's way, their stock will prove to have been overpriced because the income stream will then not support the stock price at current market levels. In a nutshell, an analyst who tells you a stock is "priced for perfection" is telling you that it's very likely you'll lose money in the short term, and even if it's a good solid company the time to buy is not now.

Real estate has a similar phenomenon. Real estate agents aren't stock analysts, so I've never heard someone else use the phrase in this context, but it's very similar to the stock market phenomenon of the same name. I saw a property a few days ago that brought the concept to mind more strongly than any other I've seen recently.

The first thing that leaped out at you was that this property was a work of art. Someone had put a huge amount of money and labor into this property. The kitchen was almost brand new, well laid out, and had pretty much every amenity or convenience I can think of. The floors were all beautiful. The back yard pool needed to be resurfaced, but the entire thing was laid out beautifully for entertaining. The front bedroom had been converted to a very functional and attractive office. Both bathrooms were gorgeous and modern. The electrical was wonderful. Even the garage had been done up with a dozen or so tall cedar (cedar!) storage cabinets.

But the more I thought about it, the less I liked the property. First off, it was a tiny house with tiny rooms on a tiny lot - it was only the fact it was vacant that prevented it from driving this point home on the level of a ball-peen hammer between the eyes. My clients were talking about moving walls to make it more livable, and with everything they thought of, I immediately had a reason why they didn't want to do that, relating to either eventual sale value or severely impacted livability in the meantime. You literally could not do anything to improve the house without adversely impacting something else. My clients were hung up on how gorgeous the whole thing was "But this room is small and we want it bigger" and I had to explain that you could get the room by taking it from the kitchen or garage. If you take it from the kitchen, there goes that beautiful kitchen you love and the family area goes away. If you take it from the garage, you lost half those storage cabinets you love. Want to expand the master? Same trouble. The Second bedroom? There goes a third of that yard you love, and all that's left is a small ring around the pool. There simply was no room. The current owners had done literally everything that could be done.

Then there was the matter that the neighborhood was in such a condition as led me to believe it had seen better days, and this was the smallest house on the smallest lot. The investment potential in such circumstances is limited, to say the least. The house was priced with a premium for how beautiful it was now - but new appliances get old, beautiful surfaces do age, and entropy will take its toll. The more I thought about it, the more strongly I was against my clients buying it. The only thing in favor of buying it was the same thing in favor of buying any residential property right then - the generally low price condition of the market in general.

The entire effect was a property that just oozed the "I'm beautiful! Buy me!" vibe that works so very well on the majority of middle class buyers. And if it was a "forever and ever" house where you just wanted to live there exactly as it was, and didn't care about how much your heirs get after you die, there would be no reason not to buy it. But such buyers are exceedingly rare. I can think of one such set I've had in the last three years, and the people I was with weren't them, so as I explained the property's shortcomings to them, I kept going back to what their Plan was, which included likely moving again in a few years.

Lest you misunderstand, it was neither a Misplaced Improvement nor a Vampire Property. It was in excellent shape; the only repair bill I could see coming was resurfacing the pool. And the neighborhood supported its value just fine, thank you. No, the neighborhood wasn't beautiful, but it was decent, and everywhere you looked were bigger properties on bigger lots. If they weren't so exquisitely cared for, they still supported the value of this property just fine. The problem with this property was precisely how beautiful it was, which made it attractive to Mr. and Ms. Middle class, and therefore quite likely to bid the sales price up and considerably over the real value of the property. Future value appreciation would be limited to general market increases, less the effects of time on all of the beautiful surfaces that are freshly installed now, less the effects of what looks like a neighborhood that is on a gradual downslope relative to the general market.

Would I have pointed any of this out if I were the listing agent? Are you out of your mind? When listing, my responsibility is to get the highest price for the quickest sale and the fewest issues. If I were the listing agent, I would have pointed out all of the beautiful areas and exquisite craftsmanship, and kept my mouth shut about how small it was and how their plans to move this wall or that would adversely impact everything else. That's the listing agent's legal duty, it's good business and it's even fair, honest and ethical dealing.

In this case however, I was acting on behalf of the buyers, so I had an obligation to talk to my clients and save them from being seduced by the property, or at least enter into the relationship with their eyes open. If on sober reflection they had wanted to make an offer anyway, I certainly would have done so, but it's the buyer's agent's legal duty to point out and explain any downsides they see to a property. That many alleged buyer's agents fail in this is not an excuse for me to do so. It's also a crucial difference between a discount agent who rebates a percentage of their commission and a real buyer's agent. I saved my clients a lot more than the entire agency commission by talking them out of this property; something a discounter would never do. Not to mention that they would have been miserable the entire time they were in the property. Which means I may not get paid for my work that day, but when I do get paid, I will have earned every penny before they even see the property they eventually do buy, by keeping them out of this financial disaster waiting to happen. It will happen to someone - but not my clients.

This is one more illustration of why you want a good buyer's agent, and why you want to sign a non-exclusive buyer's agency agreement. A bad or discount agent will never spot this problem, and if you don't give them the security of knowing you're willing to keep working with them as long as they do a good job, there's no incentive for even the good agent to mention it. I would have told them anyhow - what's right for my clients is right for me, period. But it shouldn't be news to anyone that there are agents who will keep quiet about such things if you're only asking them to show you one property. Find a Good Buyer's Agent and be willing to sign the standard non-exclusive agency contract. It really does protect you.

Caveat Emptor

Original article here

I am buying a home, but the contract said they wont sell the oil rights, what does this means? should I buy

That was J Paul Getty's great contribution to real estate, and why he got so rich. He retained the mineral rights on every parcel he sold, and it has become standard practice in the industry nationwide, if not worldwide, with respect to most property. Such rights typically pass without any rights of ingress (meaning they can't enter your property), but it typically isn't difficult for the holders to buy rights of ingress from someone in the area. This means they can't sink a mine shaft on your property unless you sell them the rights to do so. It is to to be noted that you're not likely to be real happy if one of your neighbors sells them access, either, but you can't control that directly. Zoning boards and conditional use permits and all of that, not to mention the courts. I'm neither a lawyer nor any kind of elected official so I am not going there.

Odds are that the person selling you the property does not, themselves, own the mineral rights. Most developers have bought the property without mineral rights attached, or if they did buy them, they have most likely long since sold them to some speculator. Even if you buy from a developer, they probably don't own the mineral rights any more, let alone the property's post developer homeowners, who didn't buy them in the first place. Since they can't sell what they don't own, that's what the contract is going to say, period. It isn't a matter of negotiating skill or them holding on to a mineral windfall at your expense. Those mineral rights are no longer part of the surface parcel - they've already been sold off, most likely before the developer did the first minute of work on the land to get it ready for the houses to be built. Somebody else owns them. If you want a parcel with mineral rights, look elsewhere. If you want a place to live, all it means is that the chances of you getting a mineral windfall change from remote to zero.

Caveat Emptor

Original here