Buying and Selling: February 2012 Archives

I hear people complain that they've never had a good buyer's agent, that they can't find one, or that they one they had hosed them (Sometimes, they're wrong about that, by the way). I also regularly get email from people claiming they did fine without one, often despite evidence in their own email that says they didn't.

Finding a good buyer's agent is trivial. Literally as easy as moving your eyes and turning your head to look around. Open your phone book. Run a search engine. If you're in San Diego County, contact me. You get the idea. At last resort, stick your head out the window and yell. Seems you can't swing a dead cat without hitting a real estate agent.

The one thing to understand, and you need to understand it before you start looking, is that for every good buyer's agent out there, there's at least one not so good one. The best way to handle this is by giving every agent who wants one a chance to work with you. You have literally nothing to lose beyond a little bit of your time. But while you shouldn't give anyone an exclusive agreement, there is no reason whatsoever not to sign a non-exclusive representation agreement. A non-exclusive buyer's agency agreement is quite literally a bet that consumers cannot lose. And here's the rub: The agents who won't work without an exclusive contract are the ones that can't really compete. The agents who will work on a non-exclusive basis are the ones that know they're good. I don't care whether someone is working with just me, or has ten other agents on the line. I am willing to make the bet that in heads up competition, I can beat anyone else. If I'm wrong, then I get the important benefit of knowing I need to improve. And the agents who are not willing to make that bet are among the ones you should avoid at all costs. Nor does the mere fact you have an agreement mean you must continue to work with them. On the contrary, all of the good agents maintain something close to a "fire me at any time!" policy - it's implicitly part of the non-exclusive agreements I advocate.

There are only two reasons why you didn't get a good buyer's agent: ignorance and not trying. Ignorance as in you don't know that a listing agent is working to get the best deal for the seller. That is their contractual and fiduciary duty. A seller wants the highest price, quickest sale, with the fewest problems possible, and it is the listing agent's responsibility to see that they get it. If you bought when there was a better property cheaper, if the seller would have negotiated a better deal, if you don't understand that the disclosure they bury in the middle of 425 other pieces of paper is really important, that's not the listing agent's problem. Ignorance as in you don't know how critically important it is to get expert help in the biggest transaction of your life. Ignorance as in you didn't do the tiny bit of research that lets you know not to sign an exclusive agency agreement. Ignorance as in you don't know how much you don't know about putting all of the information in the proper context, whether something is trivial or whether it really is a deal killer - information you have no hope of knowing unless you make a habit of buying and selling real estate in this area. Ignorance as in you don't know that the number one set up for buyers who spend too much to buy properties they should not have considered purchasing at all is that they don't have an expert on their side.

Not trying explains itself. You just didn't try, whether because you thought it wasn't important (there's that ignorance factor again), or because you thought you could save yourself money by not having one (ignorance yet again). Go ahead and tell that to a roomful of agents sometime. Buyer's agents or listing agents or both, it makes no difference. The good ones will all laugh because no matter how often they hear it, they've learned enough that it's still funny, and we're always encountering examples. If it isn't the funniest thing I've ever heard, it's a real contender. When I try to explain what they did wrong to people who ask, they say something like, "You're blowing the tiny details way out of proportion!", usually in quite a defensive manner. Ladies and Gentlemen, real estate is all about the details - lots and lots of details. Details ad nauseum, and even small details can make a difference of tens of thousands of dollars in the value of a property. Furthermore, it is precisely those details upon which your agent will be judged. It doesn't do yourself any favors to pretend you didn't cost yourself four or five times or more what you saved. If your agent was yourself, look in the mirror for the person to blame. There is no one else. If the ego thing is more important to you than the money, that's fine, but you need to admit it to yourself at least. Otherwise, get a buyer's agent before you start looking. A good buyer's agent is far more important than a listing agent. There is no other factor that even compares for predicting how well you will do in real estate. Get more than one if you like. As long as you don't sign any exclusive agreements, you can always hire more and fire the bad ones you already have.

The big thing to evaluate agents on is not experience, but attitude. Not have they been doing transactions for eighty-three years, but are they going to tell you about the problems and issues they see with this property? I would work with a brand new agent with the ink still wet on their license who will bring your attention to issues over the most experienced agent in the world who won't. Heck, I'd advise still working with the newbie even if the more experienced agent also will. For that matter, in my personal experience, an agent who says "I've been doing real estate for (some number of) years!" is most likely about to tell you what they've been doing wrong for all those years. Experience doesn't make it right, particularly in the face of the complexity of real estate and the fact that most state regulators don't know any more than beginning consumers, and it can be almost impossible to prosecute for some of the worst abuses there are (e.g. buying listings)

It may take some cut and try for find a good agent, but firing a bad one takes no effort and shouldn't require a confrontation - if you signed the right agreement in the first place. You just stop working with them. Whereas if you sign an exclusive buyer's agency agreement, firing a bad one takes a formal release, and you can't force them to do it. It's bad business, but probably the majority of brokerages won't sign such a release. What they'll do is talk like they will, in order to get you into the office, but if they can't get you calmed down or substitute another agent, they refuse to actually sign. If you sign a non-exclusive agency agreement, on the other hand, you just stop working with them. If there was something they showed you that you liked enough to buy, you would have already made an offer. Furthermore, you probably wouldn't want to fire them. Therefore, you just leave that agreement in place and stop working with them, and your problem is solved. Pretty neat, huh?

Caveat Emptor

Original article here

When I'm doing my initial automated search for properties for my buyer clients, I always pay close attention to listings represented by agents out of the immediate area. Why? Because an agent from fifteen or twenty miles away probably has no understanding of that neighborhood, and it's rare that they have done the necessary research of viewing the competing properties.

There are exceptions, of course. Agents who habitually work Santee despite the fact that their office is in downtown or La Jolla. Agents who habitually work La Jolla despite the fact their office is in Penasquitos. And there are always agents, who have a prospect that motivates them to do the necessary work outside of their usual area. I just finished one set of clients I was looking for in Clairemont, and I'm working with another set even further away. I've been out working for these people most of the last month, getting an understanding of what their market is really like in their price range, and I'm not showing them any property until next week.

Even a lot of agents don't understand how local markets really are. I just helped some folks buy a property right in the middle of my usual area. But they're looking to turn around and sell a property they have a partial interest twenty miles outside my usual area. I told them I would be happy to help them, of course, but that I'll need some time to do my research as to how to price the property, and while I'm doing that, I'll also have to figure out what the effective advertising venues are in the area. One of their siblings talked to an agent at the other end of San Diego County, and this clown told them, "no problem," and gave them a price - sight unseen - that was appropriate for the high cost area where that agent works, a place where everything is basically completely different. Lifestyle, demographics, commute. I couldn't say for certain yet, but the preliminary work I did indicates that this agent missed an appropriate price by at least ten percent.

Missing an appropriate price is a recipe for problems, whether it's over or under. If you're over-pricing the property, it's not going to sell - and you will almost certainly end up selling for less money than you could have gotten if you priced it correctly in the first place. If you're under-pricing it, you're getting less money than you could have gotten. If you offer too much, not only are you making the seller extra money but it is very likely the appraisal won't come in, making the whole thing a waste of everyone's time. If you offer too little, the seller is unlikely to accept your offer or even counter.

It took some time to sink through my head when I started acting as an agent, myself. But unlike mortgage information, where the information is good for the entire state of California with only minor changes from some lenders for differing counties, and I can stay abreast of the entire state's lender market for about the same effort it takes to stay current anywhere, real estate is hyper-local. If an agent wants to work outside of their usual area, they're going to have to do some serious extra work. Even within my usual stomping grounds, La Mesa is different from El Cajon is different from Santee is different from the adjacent areas of the City of San Diego. Each of them has neighborhoods and developments of different design and character and things going on, and there are only so many you can keep track of, because there are only so many hours in the day.

Now it is to be admitted that a lot of agents don't understand this. I've met a lot of them who won't do the work to stay current in their specialty areas, let alone outside. Prices move, neighborhoods become hot and cool off, and time of year is a variable as well. Major projects happen. The market you knew cold six months ago has changed, and you don't know it at all today unless you have kept up or caught up.

My point is this: When you choose an agent who doesn't make a habit or working the neighborhood, if they're being honest with you, they'll tell you it's going to take some time for them to learn enough of the market. If you're a buyer, chances are that you've got plenty of time, but if you're a seller with a deadline, the time it takes that agent to figure out the market can take a large bite out of your sale time. The alternative is to take a chance on pricing from an agent who really doesn't know your market, and marketing from an agent who may not know how to get your property sold effectively here and now. Far better to insist on evidence that the agent knows your particular market today

Caveat Emptor

Original article here

One of the best ways I have of telling how good a listing agent is is whether they get the counter to me before the offer has expired. Not that someone who gets the counter back to me quickly is necessarily wonder-agent, but that someone who doesn't sure isn't.

The whole idea of the purchase contract is that it becomes a legally enforceable contract when accepted. But if you're missing the "little detail" of timeliness, the contract hasn't been accepted, indeed it becomes impossible for it to be accepted unless someone is capable of time travel.

Missing offer deadlines has become common of late, with sellers hoping for better offers, so they sit on this one until too much time has passed, thus hurting their case further.

The other side missing the detail of timeliness gives my clients power. Now my clients can choose to accept what has become a counter-offer rather than an acceptance, because even if the other side intended to give a full acceptance, they haven't. There's this not so little niggling detail of the fact that the original offer has expired. It's dead. It's an ex-offer.

The other side missing deadline gives me information. When they respond after the deadline, I'm pretty certain there aren't any other offers going on, no matter what the other agent says. If there are other offers, they're not good offers. If there were other good offers, better than mine, why are they countering me so late? When I have multiple offers on one of my listings, I get each counter out there as quick as I can, and the proviso that another offer is not previously accepted is on every single one of them.

This means that my client is in a stronger position than they were in initially. Not infinitely stronger, but noticeably stronger. Particularly in the buyer's market we have locally and in most of the rest of the country. Even in a seller's market, it tells me that no one else wants this property at that price. It may be grounds to counter even lower.

This means that an agent who sits on an offer (or counter-offer) is weakening their clients bargaining position, i.e. violation of fiduciary duty. Unless it's the client who just can't respond, that agent has now incurred the possibility of action. Even if the client has been told of the offer, I always feel that I need to tell them that most offers have expirations, and the sooner they counter, the stronger their perceived bargaining position.

It's no better for a prospective buyer to miss a counter than it is for a prospective seller. There must have been something about that property that was attractive to you. Properties for sale never last longer than the first person who does what is necessary to get the seller to agree to terms. Once it's in escrow with someone else, it's too late to decide you want it. Unless it falls out of escrow - something not under your control - you are out of luck. Being a back up offer is basically a sucker's proposition.

This doesn't mean I make a habit of demanding responses within 24 hours. That's overplaying your hand in most situations. But a deadline of three to four business days is quite reasonable, and situations where it may be to your advantage to delay are rare. If you can't respond to an offer or counter-offer in that amount of time, something is wrong.

Caveat Emptor

Original article here

Not too long ago on a property I was selling I called an agent up on the day a transaction was supposed to close. He asked me the question, "Well who says it has to close today?"

"The contract that both of our clients agreed to," I told him, "I'll be bringing over a notice to perform later today."

He got all huffy and defensive and tried to talk me out of it, of course. His client was having difficulty finalizing the loan. He offered to fax me over a loan commitment, and it wasn't even in compliance with the purchase contract. The other agent didn't have a clue, being unwilling to take the few minutes to figure out what it said. Buyer's market or no buyer's market, he got the notice to perform as fast as I could take it to him. I didn't fax it; that could have been claimed to go astray. I hand carried it over. My client kept the deposit.

Now had the loan commitment been in compliance with the contract, I would have been considerably more forgiving, and counseled my client to be the same - but that doesn't mean I would have ignored the fact they had blown the time issue. Sometimes things go over for no fault of the loan officer or buyer's agent. When I originally wrote this, I had just finished a transaction where escrow took over three weeks of a thirty day contract to get me escrow information I had to have for the loan (I want a minimum 60 day escrow now due to loans taking longer). Add that to the logjam for loan underwriting we had, and thirty-nine days was what it took. Had the seller been hardcore about it, not only would they have lost the transaction, but it would have taken an absolute minimum of four or five weeks longer to get the property sold. The seller was quite properly due some consideration for the extension, but it is in their interest to stay in the transaction.

The issue at stake, most critical to sellers, but important for buyers also as well as costly to borrowers, is time. That seller can only have one escrow transaction on their property in the works at one time. If this buyer cannot perform in a timely fashion, they are spending money they would not otherwise have spent because of it. In most cases they are paying for an extra place to live while this joker of a buyer, or more precisely their agent or loan officer, bumbles about and wastes time. Around here, that's usually thousands of dollars per month. It has gotten to the point where one of the options I always consider is asking for an explicit "per day" escrow extension penalty for my client right in the purchase contract. That way, the buyer had better know right up front there is a deadline and will not treat it in some lackadaisical fashion, and if their agent does, well that's between them. Of course, in a buyer's market like this one, it scares a lot of buyers away, so discretion is advised.

Another way to cut unnecessary expense to my listing clients is a leaseback clause. What this means is that they can stay in the property, paying only appropriate daily rental on an equivalent property, for 30 to 60 days after the transaction records. That way, they don't have to arrange for new housing ahead of time; they can wait until the transaction is actually finalized, and then make arrangements. Of course, this means the buyer doesn't get possession right away, which many of them don't like, to say the least. They've gone to all this trouble to qualify for the property, scrimped and saved and now they're paying a mortgage and don't have the property. Nonetheless, it's a viable alternative to penalty clauses and sits a lot better at the beginning of the process when many of them are nervous about qualifying. As one final note to this idea, in order to get "owner occupied" loan rates as opposed to higher "investment property" rates, most lenders have a requirement to move in within 30 days, and this can, theoretically, create a conflict for the buyer.

On the flip side, suppose the seller is unable to perform? Cannot deliver good title, cannot get the clearances and inspections done, cannot get their lender to approve a Short Payoff, any one of a number of issues? Now the buyer is sitting here with an approved loan, and the clock is ticking on their rate lock. The days of always having a rate lock that will cover the entire contracted escrow period are gone, but it doesn't mean the seller can dawdle, and once the rate is locked extensions cost money. So now the contracted escrow period is up and my client's loan is ready to go and the documents have been signed and it's ready to fund and for the entire transaction to record, but the seller is sitting over there with their thumb metaphorically you-know-where and the rate extensions are costing my client a tenth of a point for five days or a quarter point for fifteen (depending upon the lender), always charged in full on the first day of the extension. On a $500,000 loan, a tenth of a point is about $500, and a quarter is about $1250. In a buyer's market, like this one, it may be a good idea to pre-negotiate a "seller unable to perform" penalty.

Of course, in most transactions, it's not the buyer and seller who are really at fault. It's the agent or the loan officer. They are getting paid for getting it done on time, among other things, and they are dropping the ball, either due to a "manana mindset" or because they are responsible for too many transactions or because they don't want to tell their client they have to spend some money, or because they're just an incompetent flake.

For loan officers, add "they promised a loan they couldn't deliver" to the list. It happens disturbingly often, as the incentives are in place to promise the moon in order to get potential borrowers to sign up, then play the "wait and hope" game of waiting and hoping the market drops far enough that they can deliver something that at least looks similar to what they promised. There are no loan extension fees in this case, or at least there shouldn't be, because to lock your loan would defeat the entire purpose of "wait and hope." On the other hand, in those situations the market has a distinct tendency to rise, and when it does, you pay the new rates that are even higher than what was really available at the time and that you could have had if you has listened to the guy who told you that rate really wasn't available at that cost. If the rate is locked and the rates go up, I don't care and neither does my client. If the rate is locked and the rates go down, renegotiation isn't a given but it is certainly possible. If the rate isn't locked, you are stuck with whatever happens in the market. Period.

The point of this article is that it is likely to save you money to get everything done right away, and even if the other side in the transaction doesn't, it puts you in a much stronger position from the point of view of negotiating, or from the a legal perspective if the whole transaction goes down in flames. Yes, an appraisal is somewhere between $350 and $500. Yes, a building inspection is about the same. Yes, the other reports run into some significant money, as well. But delaying will cost you more, which may be measured in terms of small percentages of the overall transaction, but when you do the math, it works out to thousands of dollars, not mere hundreds.

Don't wait for the deadlines. Definitely don't wait until after the deadlines. Deadlines are there for a reason, and missing them will cost you money. Get it done right now, and if your agent or loan provider will not or can not, document it. Loan providers you can drop any time until you sign the documents and often afterward, but you typically are stuck with agents once the transaction begins, at least until it finishes. Nonetheless, wouldn't you really rather that agent (or their insurance) was liable to cover your losses plus the cost of recovery? Document their failures to indemnify yourself.

Caveat Emptor

Original here