Buying and Selling: April 2021 Archives

Got this search:
"should I get a buyer's agent if I've already found a house"

The answer is almost certainly yes, but I am going to examine both the pros and cons. Full disclosure: This is most of what I do for a living.

The con is fairly simple. If the seller isn't paying a buyer's agent, they may be willing to sell more cheaply. Then again, they may not. One of the reasons people sell For Sale By Owner is that they're a little too greedy. Even if they have a seller's agent, their listing contract may call for them to keep the buyer's agent's commission if the selling agent sells the property without a buyer's agent involved, and this may cause them to be willing to sell more cheaply. They are under no obligation to do so, however - and without someone who knows the market on your side, the difference in price and terms of the agreement you could get with a buyer's agent is almost certainly more than this difference.

Many think the buyer's agent's job is to say, "Here is the living room." That's like saying the president's job is to look impressive. Sure, most presidents do look impressive and I do say "here is the living room," where it's applicable and something causes me to think my buyer may not have figured it out for themselves. Nor is it about looking in the MLS and my connections to find my buyer a property they like. It's not even about making showing appointments with listing agents and occupants.

My real job as a buyer's agent is to find you the best property for your needs under your constraints and get you the best possible bargain on it while making certain that the seller and their agent aren't hiding anything.

Many folks call the seller's agents and use them as their agent. This is what is known as a mistake. That seller's agent has a listing agreement telling them and the seller what the responsibilities of the agent are to the seller. They may or may not sign a representation agreement with the buyer. If they don't sign one, all of their explicit legal responsibilities are to the seller. They are working for the seller, not for you, and they have a contractual obligation to sell that property at the highest possible price as well as financial motivation in that their commission will be larger. The buyer's interests do not enter into it. Perhaps they do an excellent job of representing your interests anyway, but the odds are against it. Their legal responsibilities are essentially limited to "don't tell any lies and don't practice law without a license." While I was working for the FAA, we found out about an agent who had made a real good living for a while as a seller's agent and how he had done it: By telling everybody he showed a house in the area to that the airport was going to close. Ladies and Gentlemen of the jury, that airport land was dedicated solely to aviation usages by an Act of Congress, and if the county had wanted to close the airport (they didn't; they were making enough money to pay for every airport in the county there, and socking up a huge fund if they ever figured out something else aviation related to spend it on), they would have had to have paid back tens of billions of dollars to the federal government. We got a call from one of his victims one busy Saturday, who asked, "When is this airport scheduled to close?" We advised him that any proposed closure was news to us, and explained the preceding to the gentleman.

Even if the seller's agent does sign a representation agreement with you, in approximately thirty percent of transactions (from my experience) a situation arises where the best interests of the buyer and the best interests of the seller collide, in addition to the unavoidable issue of their interest are diametrically opposed on price. When this happens, no matter what they do, an agent representing both sides is stuck on the horns of a dilemma. If they do A for the seller, they are violating the best interests of the buyer. If they do B for the buyer, they are violating the best interests of the seller. Here's a hint as to which way they are going to jump in the event of conflicting interests: If they violate the seller's interests, they don't have a transaction at all. If you don't buy, they can always sell it to someone else, but if they lose the listing agreement, they are completely out in the cold.

Before I even point a property out to you, or if you find it surf the internet and ask, "What do you think?" I am evaluating the property for fitness, suitability, affordability, how it stacks up to other properties on offer, how many other properties are on offer, and what the details of the property likely mean in the way of potential problem issues. Just a for minor example, a property built in 1975 has to be concerned about both lead-based paint and asbestos; a property built in 1990 still has those worries but to a far lesser extent, as most building stocks with those concerns were long gone, and a property built in 2005 is more likely built over Jimmy Hoffa's final resting place than a repository for asbestos and lead based paint (it could happen, but the odds are long against it). I am not an inspector or a tester, but I can and do alert my clients to safety and environmental issues, potential repair bills, and all sorts of other items before we've made an initial offer. "Best thing you could do with this building is 'accidentally' run a bulldozer through it," is something I told a client in a few weeks ago, in the context of telling him the value, if any, was the land less the cost of demolition and haul-away. Initially built almost 100 years ago and haphazardly added to as well as obviously not in compliance with code, my client would have been facing the possibility of the county condemning the building as unsafe, and quite frankly, I didn't think anyone would insure it outside FAIR requirements. You're not likely to get that kind of talk from a seller's agent. Instead you get words like "charming," "funky!" and the ever popular phrase "needs a little TLC!". If you have a buyer's agent, the sucker they're looking for shouldn't be you. You might decide you want the property anyway, but you'll be aware of the issues going in to negotiations. Most importantly, if the sellers aren't going to be reasonable, you have someone who should be willing to tell you when to walk away. A listing agent cannot do that.

When it comes to the offer, a seller's agent is looking to get the highest possible price. Period. They don't care if you could buy a better property for less elsewhere, their responsibility to the seller and desire for a larger paycheck are in perfect alignment. A buyer's agent is responsible to you, and whereas buyer's agents get paid based upon the sales price, same as the seller's agents, they at least have a legal responsibility to do their best for you. If there are any complaints, a seller's agent can take refuge in the fact that it is their primary duty to get the best possible terms (i.e. highest possible price) for the property. The buyer's agent has no such shelter. Which would you rather have as your representative?

Buyer's Agents do not usually cost you, the buyer, any extra money. I'm sure there are exceptions, but I've never run into one. Both the Exclusive and Nonexclusive Buyer's Agent Agreements used by California Association of Realtors state, in the absence of additional agreement, that any commissions paid out of the "cooperating brokers" amount on the MLS count against the buyer's obligation to the representing agent. This is typically agreed to be two percent in California, and I don't know the last time I saw a residential MLS listing offering less than that to the buyer's agent. The way the transaction is structured is that the selling agent gets the entire commission, but agrees via the listing contract and MLS to share a certain portion with the buyer's agent, if the buyer has one. Good buyer's agents typically beat the price down significantly more than two percent, especially in the current market. I am equipped to do value battle with that seller's agent in ways that members of the general public are not, and whereas it's true they don't have to negotiate with my clients, they've got to sell the property to someone. It's not like the real estate fairy is magically going to convert this property to cash.

If there's something you should know about a property, the buyer's agent makes certain the question gets asked and the answer disclosed to you. This eliminates a lot of potential surprises down the road.

Finally the agent knows how to respond to unexpected or unusual situations. They should know how to deal with little niggling details that aren't quite cookie-cutter. None of these issues are common individually, but when you look at the entire transaction, most real estate sales have at least one such issue. Many of these look minor or even insignificant to those who don't understand the implications, but can amount to tens of thousands of dollars in repair, or even things that make property not suitable for the purpose people want to buy it for. At least 80% of the people who tell me how well they did without an agent also tell me something that informs any working agent that in reality they got taken - and that's without me so much as seeing the property or even the listing page.

In short, buyer's agents are the professional on your side, they typically do not cost you any additional money, they usually save you a significant chunk on negotiations, and if you have one, you're more likely to find out about potential problems with the property before you buy.

Caveat Emptor

Original here

This is a reprint from an older article that talks about a very important distinction between an agent doing well for themselves versus doing well for their clients. It originally ran in August 2005.

Every day I pass by another real estate office where the agent has a big banner outside "I SOLD 101 HOMES IN 2004!"

This is what is called a production metric, and this one sounds fairly impressive at first glance, right? However, all that says is that they sold 101 homes, and cashed 101 commission checks, meaning their bottom line had a very good year. It doesn't make much difference to their paycheck whether the property sold quickly and for a good price. If it takes an extra six months to sell, all that does is push the paycheck into next year. More importantly, if it sells for only 90% of what they could have gotten, they still get 90% of that paycheck, as opposed to nothing. Makes one heck of a difference to the client, as that 10% could be most of their equity - the check they're counting on to help them buy their next property - or even all of it.

The question I want to ask is how good the price was for the seller. Anybody can sell homes quickly by pricing them 10% under the market. Last year's market was a hot seller's market. In some neighborhoods, a monkey could have sold it for $20,000 over the asking price.

Is there a generally available "did you sell it for a good price?" metric? Not really. The best I can come up with for a listing agent is whether the appraiser has difficulty getting value to support the sales price so the loan can fund. If the appraisal comes in less than the sale price, the loan will be based off of the appraised value, rather than sale value, and so whereas this is always a difficult situation to be in, that your sale in in this situation says that your agent really did get you a good price. It's comparatively rare, and with the buyer's market we have now, practically non-existent (at the update, it's common but for a completely different reason). But if the appraisal comes in close to the sales price, that says something good about the price. If the spread is appraisal forty percent higher than purchase price (like one property I recently represented the buyers on), not so much - but it does imply your buyer's agent did a heck of a job. Unfortunately for the sellers, the buyers aren't going to tell the sellers about the appraisal unless the value is lower than the agreed upon purchase price.

Production metrics of this nature are easy to game. When I worked in the financial planning business, the metric used was GDC - Gross Dealer Compensation. How much your firm got paid because of your work. Problem was, it always has two components: how much business you really brought in, and how much turnover there is in your clients accounts. I know people who work at the "no load" fund houses, also. That's their metric as well.

It's a good metric to have. Firms that don't get paid enough, don't stay in business. But, as a consumer, it's not precisely the sort of metric you want your financial planner to be judged on, and neither of these components measures anything important to you. Actually, I take that back. If there's a high ratio of turnover in the client account, it's always bad. There's always the temptation to call an existing client and sell them the "hot new investment" than it is to generate new business. If I was shopping for a planner, I'd look for a low ratio of Gross Dealer Compensation to total assets under management.

Matter of fact, there really isn't a metric in the investment world to measure how good an investment person is on any objective scale. What I'd really like to know is something like the return on investment of their lowest 25 percent of clients and highest 25 percent of clients, and compare that with market averages and each other. This would tell me things like "How much (of any gain or loss) is the environment of the market, and how much is them?" and "Are they giving consistent advice?" (Low spread = yes, high spread = no). And not one firm I'm aware of computes this information. Not to pull any punches, what they are all set up to reward is sales ability, not investment genius.

The same goes for real estate. Everybody is focused upon volume, when what's really important to the client is "How good a job did you do with the ones you got?" Not only does using the "volume of business" metric and pretending it's important help the established firms build a moat around their business, it distracts potential clients from what's really important: How good of a deal they are likely to get as individuals. There are any number of production metrics in real estate, but none the nature of "Did Agent A's selling clients get the best price?", or on the purchase side "Did Agent B's buyer clients pay no more than they needed to?"

Nonetheless, here are a couple of other ideas. If everything I sell is bought by real estate agents acting for themselves, it's not a good sign. The average real estate agent is buying property because the price is below market. They think they can re-sell for a profit, and it's usually not a little one. They're probably not interested in the property that doesn't have immediate equity built in.

If everything I sell is back on the market within a few months for a higher price, that's also not a good sign. That also means it was probably priced below the market.

The agent I talked about at the beginning of this article? I picked up a flyer listing about a third of those sales (thirty-two). Then I went to Multiple Listing Service and did a little search. Over half (18) were back on the market within 6 months for much higher prices. Almost forty percent (12) of total number of new owners identified themselves as being owned by licensed real estate agents on the listing. Seven have been subsequently resold for at least a 10% profit, closing within three months of the original sale, even in what became a softening market. Only three are still active. The rest have sold, all at a significant profit, even in what became a much softer market at the time.

So now tell me, does this agent's claim of "101 houses sold" seem like something that should make you want to do business with them?

Didn't think so.

Caveat Emptor

Original article here

I went out looking at properties for clients. From the showing attitudes I got, you'd think it was still 2003 and sellers were lords of the earth, not in a buyer's market where competition for buyers is fierce. One wanted two hours notice. Another wanted four. Two others another wanted twenty-four. Another was "make appointment," and one was even "property shown with accepted offer," which added a little humor to my day - but caused me to un-check it from my list of properties to view, and this won't change until that does or the asking price goes so low that my clients can't help but get a deal. Can you say, "Pig in a poke?" I'm pretty certain that's not the message the owners wanted to send, and their listing agent should have explained it to them. You want me to recommend my clients buy something sight unseen, it had better be priced for the worst case scenario. Sixty to seventy percent of comparable properties is about the most I might consider.

Ladies and gentlemen, when I'm scouting properties I want to go now. I have the time now, the properties are on the active list now, which means they are hoping to attract buyers now. If I print a list of fifteen properties to scout, that's because there's something that drew me to them now - not yesterday, not tomorrow. I go scouting where and when I have a need - a buyer's desire - and time. Sometimes this happens on not much notice. Always, there's the possibility the property gets withdrawn, expired, canceled, or goes pending between now and tomorrow. The kinds of properties I'm looking for are susceptible to all of these. I used to try printing out my lists day before - and it wasted so much of my time that I stopped. My time is valuable - I've only got 24 hours per day, same as everyone else. You want my attention in the form of eyeballs and footprints checking out your property, you'll make it easy for me to do so. Do not give me any wasted breath about virtual tours - what I'm looking for usually isn't there. What I'm looking to avoid certainly isn't there despite it being in the property. I hope I don't have to explain to anyone reading this about photographic manipulation or a listing agent's descriptions of the property. There is no even vaguely acceptable substitute for physically looking at the property. My buyers are hiring me because they trust my judgment, and they want me to weed out the turkeys before they waste their valuable time. There is nothing so precious to my business as the time my buyers give me to show them good stuff. I have learned the hard way to go out and inspect the property myself before I take my buyers.

So when I can make the time, out I go. I choose them now, and I go now. If I leave the office at noon and have to be back at 3 pm and the optimum route puts me past your place at 1 pm, you're not getting four hour notice. If you require 4 hour notice, I'm not dropping by. I may hit your neighborhood again next week or the week after, but if in the meantime I've found my buyers have found something they like, then they're not in the market any longer and I'm not looking for them - not to mention I've still got the conflicts between the constraints you imposed and my own. One thing I guarantee you is that when a buyer wants to make an offer, it takes a spectacular bargain and a rare agent to say, "But you haven't seen this other one yet," and I'm not going to say it if I haven't seen your property myself, because by saying it, I am risking my credibility to zero beneficial effect should it turn out to not be so spectacular. Furthermore, when you're looking for half a dozen buyers, you have zero time to waste. It takes literally every second I can find, make, beg, borrow, or steal to find good appropriate properties for that many at once.

Whether you realize it or not, showing restrictions are part of the whole attractiveness of the property, and they hurt your sales price. Every time they cause someone like me to bypass your property, they cost you money in terms of a delayed sale and missing potential buyers. If prospective listing agents do not explain this to you, toss them out. I strongly suggest my listing clients relocate anything so valuable that they're worried about it to someplace where people looking at your property can't get to - Mom's, storage, a safe, any place you consider safe. Anything else that might wander off will cost less than making your house less accessible. With modern lock boxes, a record is made of which agents were in the property, and we're pretty damned careful about our good name - with buyers or without.

If you're so nervous that you're going to have to hover in the background, your property is a lost cause. Been there, done that. I refuse to deal with aggressive sellers or listing agents while I'm discussing a property's virtues and faults with my clients. There is nothing to be gained for either one of us. I don't have a responsibility to either the listing agent or the seller, even though the seller is paying me. I'm not going to be quiet, I'm not going to agree with you, and if I have to wait until later to discuss your property, you can bet I'm going to include overly aggressive sellers among the downsides to this property. It might give me reason to counsel my buyers to do a low ball desperation check. It won't enhance the value of your property in either my eyes or that of my clients.

This is just as much the case for the do it yourself buyer, the "phone the listing agent now" buyer, and any other sort of buyer or person with the attention of prospective buyers. Most folks act now because they want to go now, and if your property is not available to view now, they will go view other properties now. If they find one they like, you missed out. If they don't view your property, they're not going to make a good offer. Every missed opportunity is a potential buyer you're wasting, and right now, good qualified buyers are scarce, at least in my neck of the woods. It doesn't take many missed buyers to make a failed listing, and if it happens, you did it to yourself. People aren't looking for a reason to buy your property - they're looking for reasons not to buy your property and "They wouldn't let me see it" is one of the best by any rational measure.

By making your property unavailable, you are raising the cost of doing business with you higher than the model match down the street with an asking price $10,000 higher. The hoops someone has to jump through to view your property are as much a part of the asking price as the dollar value you put on the listing. Restrictive viewing can cut your traffic and prospects more than adding $20,000 to the list price. Sometimes $40,000, and it can be six figures at the higher end of the market, but I'm aiming this at the average seller. So ask yourself if requiring 4 hour notice is worth that much money to you.

It's not easy to have your home always ready, I know. It's a real pain to always be on guard, never leave something out of place, never leave dishes in the drain or a full trash can in sight. If you've got a pet, particularly a dog, it's difficult to keep them cleaned up after and confined to the appropriate area every time you leave the house. May The Force Be With You if you've got children, because you're going to have to be a superhero to make it work. But even if your home isn't perfect, better that potential buyers see it in an imperfect state than that they don't see it at all. Agents like me learn to look past transient stuff like toys on the floor, and to help their buyers do so as well. If the buyers see it imperfect, it's possible they'll make an offer anyway. If it's likely to be a less attractive offer, it's still an offer, and you can choose to accept it, negotiate, or blow it off. Advantage: yours. If they don't see it at all, you're not getting an offer, or at least not any kind of offer worth considering unless you're desperate.

Sales is a game of inches, if not millimeters or microns. Particularly big ticket items like real estate. Sometimes sales are won or lost over incredibly trivial differences - and viewing restrictions are not a trivial difference. It's like the difference between a fourteen foot wall and an open door. Many people can't get over fourteen foot walls at all, others think it's too much effort, and still others see no reason why any effort they do make will be rewarded. So you want to present an open door to all potential buyers. Every little increase in the barriers you put in their way will cause a certain percentage of prospective buyers to not want to bother - and you'll never know if that's the one that would have made the best and highest offer for your property.

Caveat Emptor

Original article here

I got a phone call from some out of state relatives looking to buy their first home. They want to buy a lender-owned property, but the only loan they have the down payment for is FHA. FHA has a few requirements that other loans don't about property functionality. It has to do with what they see as reasonable protection both for them and for people they lend to. One of those requirements is that if there is an air conditioner, it must work. It doesn't have to be able to actually cool the house, but it must function. The one in the property my relatives are interested in doesn't. Not only does it not work, it's been torn apart in order to sell the copper wiring inside. There is a loan that the FHA does that is aimed at this situation, called a 203k, but the sellers - a bank - are insisting upon a 21 day escrow. In blunt terms: Not Gonna Happen. I used to be able to reliably fund purchase money loans in less than 3 weeks. Dodd-Frank, however, has added at least 3 weeks to that, and government type loans take even longer.

Their alleged agent has made a suggestion: Pay to fix the air conditioner themselves, prior to purchase, so they can do a regular FHA loan. I have a suggestion for her, but it's not family friendly.

I do have to admit, it might work. But that's not the way to bet. Let's say they pay to fix the air conditioner, and escrow falls apart for any other reason. That money is simply gone. No realistic recourse is possible. If the equity was there to support recourse, the equity would be there to support the owner fixing it themselves. That's what should happen.

Escrows are falling apart these days for all kinds of nonsensical reasons, none of which agents or loan officers can prevent. Most of them have to do with underwriter paranoia on the loan. Because Wall Street has been so thoroughly burned by bad mortgage loans they are inserting extra requirements into loan underwriting. Furthermore, loan underwriters have become the lender's internal whipping boys so they have become extremely reluctant to pass anything that might strike them as a little bit out of the ordinary. Problem is, almost everyone has something out of the ordinary going on with their finances. It's the way things are. Net result: lots of loans denied for no reason the loan officer could have predicted.

Perhaps the inspection reveals more things wrong with the property. The seller obviously doesn't have the money to fix them, so the buyer has a choice between walking away - leaving their repair money behind - or accepting further defects and repair bills.

Perhaps something in the disclosures is a reason why the buyers decide they don't want the property. Maybe someone died there. Maybe someone was killed there. Maybe something related to religion pops up. Again, they're out any repair money they spend.

Things that need fixing on a property are the owner's problem - period. They are responsible for bringing the property into the condition required - not the buyers. If the sellers cannot or will not do this, that property is not one these buyers should consider. Similarly, if the buyers need a loan where the sellers are demanding things that preclude that loan, that particular property might as well be 100 times the price and located on the moon - it's not going to happen.

If there's a necessary repair that the buyers are willing to accept the property without the sellers making that repair - and their lender has no problems with it - that's perfectly fine, so long as everyone knows about it, it's fully disclosed and agreed to, etcetera. I have never seen a situation where such a needed repair didn't impact the price by more than the cost of the needed repair, but that's what negotiations are for. The bottom line is: Buyers should never spend money to repair a problem that belongs to someone else.

(Just to be clear, once you actually own the property, please make all the repairs it needs. But not until the Grant Deed records and you actually own it)

Caveat Emptor

Every once in a while, a listing agent will get an offer in where the Buyer's Agent did their research, got lucky, or both, and the offer indicates that the buyer is aware of one or more problems that really do exist in a property.

Contrary to most people's immediate reaction, this is a good thing, as I am very happy to explain to my listing clients. It means they know about it and are want to buy the property anyway. Not only can you build a serious case that this means there is no contingency period applying to that particular defect, it means that these buyers are willing to deal with the defect. As opposed to the buyers who discover the problem during escrow, there's a much higher chance of that transaction going through, and going through at the contracted price.

Matter of fact, a good listing agent will disclose that problem in the listing itself.

Why in the world would you do something so stupid, you scream? It's really very simple. Pretty much every problem is going to be discovered even if you don't disclose it, and selling a property has a major component of managing buyer expectations. They come to the property expecting a beautiful turn-key property, and when they actually lay eyes upon the thing, it's got this problem. Kind of like picking up what you think is a gold nugget, and finding out it's really donkey droppings. The predictable reaction is revulsion. This is one reason why there may be a lot of showings, but no offers.

You're going to have to price the property for the fault, of course. But if you don't do that, it's not going to sell. Prospective buyers are looking for reasons not to buy your property. Whether they look at it as overpriced or priced correctly but with a fault they don't want, they're not going to put an offer in. No offer, no purchase contract, no sale. It's that simple.

Suppose, as with a property I looked at yesterday, it's not an obvious problem. This thing had been made seductively attractive on the surface, but it was really a cash-sucking vampire property ready to pounce upon an unsuspecting buyer. If you do get an offer where they don't understand and you do get an offer and negotiate a contract, what happens? I'll tell you what happens. Their inspector tells them about the problem. Okay, so they've committed maybe $400 for the inspection, so there's some buy-in, but now they find out about this problem that you should have told them about that's going to cost something in the five figures (possibly six) to deal with. You've just been caught leading them down the primrose path. What's your level of credibility? My experience is that the average buyer is just going to bail out at that point. If they are willing to re-open negotiations, the prognosis is not good for a new agreement. Net result? You've taken the property off the market for a couple days to a couple weeks, and anybody else who may have been interested has crossed it off their list. Furthermore, when it returns to the market, it shows as having been listed that much longer ago, making it less attractive to new buyers coming into the market.

What if it actually gets through escrow and the purchase is consummated without the buyer finding out? That's the worst situation of all, because now the courts are going to get involved when the buyer does find out. Otto von Bismarck said that people who like treaties and sausage shouldn't see them made, but if he had ever been involved in a twenty-first century US lawsuit, that would have been first on his list. You're probably going to pay your lawyer more than whatever extra profit you made, and you're going to end up paying their lawyer plus damages as well. Plus, you might very well be ordered to buy the property back. No. Thank. You.

Now, suppose you disclose the problem, and price the property accordingly. You might not get Mr. and Ms. Yuppie looking for the perfect little place for them - but you can quite likely get Mr. and Ms. Yuppie looking for an investment opportunity. You've obviously decided that fixing the problem is not something you're willing to deal with, for whatever reason, but perhaps they are. You have decided you want it sold, and here's the opportunity for that. They know about the problem, and they're interested anyway. It's a matter of managing expectations. Remember up above, where I talked about revulsion? But if your prospective buyer is expecting the problem and prepared to deal with it, they're much more likely to make an offer when they visit. No, you're not going to sell for the same price as the showplace up the block. But you wouldn't sell to that buyer anyway, and trying to do so is one of the biggest wastes of time and money that would-be sellers of real estate talk themselves into.

So an offer where the prospective buyers indicate that they are already aware of an existing problem is not an offer to be blown off. It's a serious offer from interested parties. It is a lot more likely to get the property sold, and it pretty well vaccinates you against later lawsuits on the issue. You can waste your time trying to find and sell to the Suckers of the Century, or you can decide to accept that the property is what it is, and sell to someone who understands the situation from the outset. You're a lot more likely to end up better off in the end result from the latter - because even the Suckers of the Century can get themselves a good lawyer and sue you when they do discover the problem. They are on the hook for several hundred thousand dollars. They're not just going to blow it off and say, "Oh, well," and when they do get that lawyer, they're going to get a lot more out of you than the difference between what you got, and what you could have had without trying to pretend the issue doesn't exist..

Caveat Emptor

Original article here

Continued from Part I

Interview lots of agents. Once again, my experience is that the agents at small independent brokerages tend to be sharper than the ones at large chains, but that's only true in the aggregate, and the large chains do have lots of suckers wandering into their offices, which translates to captive audiences they can direct your way. You may be more likely to get a quick "lay down" sale with large chain, but if you don't, the agents who work the independents will almost always serve your interests better. I know that I speak most strongly against Dual Agency, but that's from a buyer's point of view. If the buyer is dumb enough to go in unrepresented, as someone using a dual agent is, as a seller that is no skin off your nose. Matter of fact, it's likely to be less skin off your nose. On the other hand, many agents push unqualified buyers on their listing clients precisely because they will get both halves of the commission if it actually closes. Me, I'd want to remove that incentive if I were a seller. Put it into the contract that they agree to do this listing for a flat percentage contingent upon successful close, and if the buyer is unrepresented, you the owner keep the buyer's agent commission, or all except half a percent, reasonable considering the extra work they will do (You don't want them shooing away a sucker, either). This also removes the incentive such agents have to discourage viewings by people they don't represent, sit on offers represented by other agents or not pass them on, or all sorts of other games that get played because they want both halves of the commission. So if they won't agree to work for the listing commission only, I'd advise you to cross them off your list. I'll admit this is guilt by association, but there is no way of telling that any one listing agent won't play any of the games that discourages other agents from bringing their clients to your property, which you want to get sold, and for the best possible price, not a lower price or weaker purchase offer to the one who causes your agent to be paid double if it actually closes.

You want an agent who knows where the buyers are, and where the good buyers are. About 70% of people searching for a home start their searches on the internet, but these are not necessarily the best buyers. The ones who look in the internet are looking numbers. The ones who start by driving around your neighborhood want to live in your neighborhood. The ones who start with the monthly shill magazine are usually somewhere in between. The ones who start with the Sunday paper are vary over the spectrum from absolute sucker to moderately savvy, while clumping at the ends of it. And the ones with buyer's agents vary also, depending upon the attitude of that buyer's agent. Some of them (grin) are absolutely the most dedicated to getting the best bang for the buck there is to be had, while other agents' devotion seems to be primarily towards obtaining a large commission check soon. I actually know a couple traps for encouraging the latter sort, but pardon me if I don't share them. Some things a guy's just gotta keep to himself. It's my job!

One of the things you want to use to interview agents is how to stage your property - what to do in order to make it show better. In general, you want it to be uncluttered, have nothing in it you can't live without on a daily basis (if you're living there), and nice clean walkways and lines of sight. All of this makes it feel bigger. Some agents will tell you they hire professional stagers, while others will want to wait until after the listing contract is signed. First off, you're not going to hire the stager if you don't hire the agent. Second, what you're looking for is some evidence they really know what they're doing. It costs me nothing to walk through a property and tell you how to make it more appealing to buyer's and their agents, and it demonstrates product knowledge to someone who has no real evidence whether I'm the best Realtor ever or the most recent product of Shake and Bake Real Estate School. Before a good agent will do that, however, they're going to ask about your budget in time and money for staging. If your budget is less than a stager costs, it does no good to say they'll hire a stager unless they also pay the stager, in which case you're liable to be reimbursing them if the listing fails.

You don't want the agent who pussyfoots around and flatters you - you want the one who tells the bald truth. This is not about flattering your ego - it's about your wallet. If your ego is more important to you than that kind of money, you're looking for the wrong professional - you want a sycophant. Your search for a listing agent is not just a fact check - it's an effort check and, most importantly, an attitude check. Trying to market a property as something it's not is a guaranteed recipe for failure.

You want to interview an agent for what they're going to do about publicizing your property. Most searches start on the internet, but putting them in MLS automatically or semi-automatically puts them in most of the biggest property sites, including IDX, which is the thing most members of the general public mean when they say MLS. The major difference is that IDX doesn't have information that the general public doesn't need to know, like showing instructions. Many of the larger, national houses for sale sites are based upon local IDXs. There are exceptions. I have a rule here about not mentioning specific providers, so I won't. Over seventy percent of all house hunting searches start on the internet, so even the smaller providers can be worthwhile, but it has to be some website people make a habit of visiting that site for that reason in order to predictably do you good. Agent and Agency websites are not likely a source of good traffic. My websites get way more traffic and have much higher SEO than most, and I got not one contact from my website on my last listing, because that's not why people visit my sites. I did get traffic from the other places I advertised, of course. What I'm saying is that websites under the control of any given agent or agency are not likely to be where people go. I've got an IDX link on my site - but people don't use it that much. Even if it's Major Chain Real Estate, web searchers don't want to make a habit of going there, preferring some place "more comprehensive" or "more neutral." Individual websites such as 1234mainstreet.com are a joke for selling a property. Unless they are already looking for your specific property - in which case they'll find it easily anyway - they're not going to find a "Selling my house" website. You're just not going to get very high on more general search terms unless you're darned lucky, or control another high page rank site or two. This is not to say "don't bother." This is simply to say that individual agent, agency, or "selling my house" websites are not something to pin any significant amount of hope on. If I thought 1234mainstreet.com was worth such hopes and likely to sell the property, it'd make a listing agent's job much easier. You might get lucky - but that's not a bet that's likely to pay off. Kind of like buying a lottery ticket. Someone always gets lucky, but for every lucky schmoe who wins the grand prize, there are forty million poor dumb schmoes out there with worthless paper. The odds for smaller websites selling your property aren't that bad - but they're not great, either. For example: When I originally wrote this, I had had one worthy property on my agent radar for eight months in case I found a buyer for it, and it took me most of that time to find out it had a website. Does that website seem like something you want to invest all your hopes in? Didn't think so.

You also want to make sure your agent hits all the relevant dead tree publications. They may not be as powerful as they once were, but paper media is still important, and the buyers from there are often buyers you'd rather have, as opposed to internet junkies. Whatever the prospective agent says they intend to do, insist that it be incorporated into the listing contract if you choose them. You are betting a large amount of money upon their competence, whether you realize it or not. All the agent has at stake is a potential paycheck. You have your biggest investment on the line.

One of the reasons why you want to interview multiple agents is pricing advice. Some agents have no clue where the market really is. They'll be happy to take the listing at any vaguely reasonable price you want, or even above. But we know what happens if you overprice a property - it sits unsold. This costs money. Others will tell you it's not worth as much as it is, so they have an easier sale, but you end up short-changed. Others will take the listing at any price you say, but start arguing you to reduce it way earlier than they should. What you want is evidence. You want strong solid examples of recent sales in your market and what's out there available right now - the properties you are competing against for the available buyers. You want someone who is going to compare your property to those with a cold calculating eye. You don't want to be high on the asking price, but you don't want to be low, either. Preferably this someone will be an agent who has actually seen and been in at least some of those other properties before they sold. Compare and contrast. I know it's a lot to ask, but try to step aside from pride of ownership and approach it from a buyer's perspective. Unless you're some kind of a celebrity, the fact that it's yours means nothing to the prospective buyer. They're looking for something they see as a bargain, not for a way to give you an extra $20,000 of their hard-earned money.

The critical point I'm trying to make is that pricing is not easy, and the pricing discussion should be cause for some real give and take. Pricing discussions without evidence, without serious examination of the property and comparables, and pricing discussions that don't end up with as many good arguments for going lower as for going higher are likely to result in bad pricing decisions. Maybe a couple of agents get hot under the collar. Maybe you do, maybe more than once. So long as it is for the right reasons, this is a good thing. The agent who argues persuasively, even passionately, and with evidence, for setting a different listing price is likely to be a much better agent than one who accepts a listing for whatever price you want. The agent who's too high and mighty to justify their reasoning should be informed that their services are not desired, and in your snootiest English butler accent. Don't choose the agent who promises or agrees to the highest listing price. That's called "buying a listing," and it's a recipe for disaster. Pricing is part science, but part art as well, and it doesn't have to be perfect for an optimum result - just close. What you're looking for here is not only product knowledge, but attitude. The one who cites the most evidence and argues with you the hardest may be the very best agent to list with, even if they are thousands or tens of thousands below the listing price recommendations you get from other agents. Then again, they may not. It depends upon who displays the most evidence, the most knowledge on the state of your market, and the right attitude. The agent who tells you your property is worth a little less is not your enemy. They may just be lazy, but if they can provide evidence for their contention, that's not the way to bet. They may be your very best friend in the entire world. If the market won't pay a higher price for your property, they are saving you the expense of having the property sit unsold - thousands of dollars per month - and when it does sell, it will reliably be for less than you could have gotten by pricing it correctly in the first place . When is the last time one of your friends saved you that kind of money, at the risk of not getting a paycheck? And they are risking their paycheck. Because out of every ten price discussions, at least six people in your shoes won't want to hear it and won't consider hiring them. Takes no small amount of professionalism to tell you the truth that will make a lot of people not want to hire them, don't you think?

You do want to ask about is whether an agent shows their own listings to their buyer prospects, and why or why not. I'm not talking about the people who call out of the blue about your listing, I'm talking about people they have an existing buyer broker agreement with. I would actually prefer a "no" answer, were I looking for a listing agent, but the reasoning on why is more important than the actual answer. My answer is that I don't unless the sellers are so desperate that they want to price that low. Most of my listings do not, the way things are, need to be priced to attract buyer's agents like me. Therefore, I'll freely admit - to contracted buyer clients - that there are better bargains out there. I don't ever want to let my listings get that desperate that they need to attract my buyers. My job is to sell it for the best possible price as soon as possible, and if it gets to the point where my clients are desperate, I haven't done either half of that job. If all listing agents had this attitude, it'd make life a lot more challenging for buyer's agents. Nor is it my job to be fair to prospective buyers when I'm listing - unless I've already got a contractual obligation towards them. If a prospective listing agent is willing to hose people they have a buyer's agreement with, that's not a good sign for how they're going to behave towards you. But absent that exception, my job as a listing agent is to get the property sold for the best price in the shortest time. I have a listing contract that spells out my responsibility to that owner - and listing contracts conquer all, as far as agent loyalties go. I can refer even my contracted buyers to someone else for negotiations, releasing both of us from obligation, if they're sure they want to put an offer in. I cannot do that for the people I have a listing contract with. Whether you are buying or selling, you should know that the seller has a right to expect the listing agent's absolute loyalty within the confines of the law. They can't lie about the property. They have to tell the truth as they know it. Beyond the reservations set down in the law, their job is to get the most money out of the quickest sale. Period. Anything else translates as a way to hose your listing clients.

No matter how good any one agent sounds, no matter how much pressure they put on you to get you to sign the listing contract right now, don't do it. There's nobody that much better than the competitors. Take your time and make your decision when there's not anybody pushing you. Unless you have a short deadline to sell, you'll come out better. If you do have a short deadline, you might want to be more intensive and more concentrated in your search, but cutting down on the number of agents interviewed is not a good response to the situation. It's even likely to be counter-productive. Don't let the agent's urgency to get the listing infect you or stampede you. Until you hire them, that agent has no reason to hurry. Their motive for building urgency is to stampede you into listing with them. Rhinos stampede. So unless you're a large blundering near-sighted herbivore with small sycophantic hangers-on, don't let yourself be stampeded.

One technique some listing agents will likely try to seduce you into is the short term listing. Sixty days with an agent to see what kind of traffic they drag in, sixty days for that agent to demonstrate exactly how well they look after your interests. Takes all the pressure out of choosing an agent, right? You can always change to someone else, right?

Wrong. Wasting the first days in the time on market counter will most likely hurt your sales price significantly. The agents in the area with any kind of a clue are going to know that you've been through 4 agents in the last eight months. There are also complications in when a given buyer may have been introduced to the property, so which agent is entitled to the commission becomes a bone of contention. Most contracts give the agent the commission for ninety days after their listing expired, if they provided the introduction. Meanwhile, you've got someone else who now has an exclusive right to sell. It's bad business for someone to insist upon a commission they haven't earned, but I am continually reminded how many bad businesspersons are out there. If you've got to do a short term listing, insist upon some short hold over period of no more than seven days, and don't list it again until that period has expired. It may be overcautious, but it could save you being in the middle of a nasty court fight.

Furthermore, the short term listing is a tactic that's completely unsuitable for people with a limited time in which to sell. Every time you change the listing agency, the promotion is essentially starting over from scratch.

Finally and most importantly, most people suffer inertia. They'll renew that listing contract whether or not the agent has actually done enough to earn their business. Agents know this; that's why they propose the short term listing. It's a trap into which most people are only too happy to fall - the trap of not making a decision, or making it on the cheap, under the guise of postponing the day of reckoning. Most folks are better off getting into all of the issues right up front, and making the difficult choices. If you're really looking hard in the first place, with an eye towards committing yourself, you still may not make absolutely the best choice. But the idea of putting a property on the market is that you want it to sell, and quickly. The best time to sell a property is right when it hits the market, not on the third short-term listing five months down the line. Take the time, and make the hard choice of the agent you're going to be with before you list. You can change later, and the hard choice will be better than the choice which really isn't a choice, as short term listings are. Why? Because before you commit yourself, you're going to know that agent is at least competent.

Let me go over some of the common agents you might meet.

Our old friend Martin MLS figures putting a sign in the yard and the listing in MLS is enough. Most of the searches come off the internet, right? He's right as far as he goes, but that's not how to obtain the buyers who are interested in the property because it's where it is or because of something it has. That's the way you find the buyers who want the lowest price. Furthermore, if listing it on MLS was all there was to it, there would be no reason to pay your agent more than $100 or so. Martin's a rotten agent. I know, because when I first got into the business I used to be Martin. Briefly. I know better now.

Tina Teaser uses her listings to make contact with buyers. That's what she really wants. She'll tease you with showings while talking up other properties when you're not there. Unfortunately for you, when your property goes into escrow she doesn't have any other means of attracting buyers, so she doesn't want your property to actually sell. Showings are good, but then she has a whole stable of properties she wants to show them, rather than losing her opening wedge with the buyers who really furnish her income. Unfortunately, there's no easy way to spot Tina. Only a very careful examination of her attitude when you're vetting agents, or watching her in action. If you get dozens of lookers and no offers, something is likely to be wrong. That something could be that you're overpriced, or it could be Tina.

You may remember our old friends Gary and Gladys Gladhand, who get their business by making it seem like a social obligation to give them your listing. Repeat after me: "I don't owe anyone my listing." Now repeat it over and over again until you can look into Gary or Gladys' eyes and demand, "What are you going to do for me?" With that said, Gary and Gladys can be very effective listing agents if they pass all of the attitude tests. That social pressure approach works wonders on most people. Just remember that Gary and Gladys get their pool of suckers from the same social pool you swim in, and aren't always smart enough not to poop where they eat. Most buyers aren't savvy enough to realize what Gary and Gladys did or tried to do - but it only takes one who is. You also need to be concerned about them turning into Sherrie Shark or Tina Teaser.

Billy Buy is remarkably amiable about the list price. Whatever you want to ask, he's certain he can get it. Owners see dollar signs, and sign on the dotted line. For about the first two weeks of the listing contract, you may wonder what he's actually doing. Then he walks in and starts pressuring you to drop the price, after wasting your period of highest interest. Billy's worse than a rotten agent. He's a menace, because after he's "bought" your listing with false dreams of avarice, you're going to have to drop lower than the price you should have set in the first place, in order to attract the same kind of traffic and interest you should have had in the first place - if Billy knows how to attract them, which is highly doubtful. Most Billys make most of their sales after they've gotten the owners to drop price below market. Only way to spot Billy is to have that hard talk about pricing. You may not Identify the agent as Billy, but you'll figure out you're wasting your time with him.

Sherrie Shark is a variation on Billy. She's okay with you setting the price too high, because once you get desperate enough, she or someone she knows will make a low ball offer and turn a flipper's profit on your property. Sherrie regards any offers that do come in for what the property is worth to be poaching on her turf - she earned this payoff fair and square by her lights. Fortunately for her, she can dismiss them as "low balls" - right up to the day she thinks you're desperate enough and springs her trap, Sherrie is also the Agent Most Likely To Pretend Offers Never Happened. Offers come in and go directly from the fax machine to the trash can - if they get printed out in the first place. This happens with just about every agent who wants both halves of the commission, but with Sherrie, it's an automatic reflex. The only way to spot Sherrie is to have all those pricing discussions I mentioned earlier. By the way, you should never sell to your listing agent, or anyone else at their brokerage. They're not a disinterested party. I know of places that advertise they'll buy your property if it doesn't sell. Once you know about agents like Sherrie, you should realize the nature of that trap. If an ethical agent wants to make an offer, they'll refuse the listing in the first place, or wait until you're listed with someone else. If you really want Sherrie's kind of low ball offer, I can bring in any number of people and save you the time and money in between listing with Sherrie and the springing of her trap, and they are even happy to pay my agency commission, so you come out ahead in every way.

Donnie Discounter may actually be the way to go in a voracious seller's market like we had several years ago. Sign in the yard, listing in MLS, and presto! It sells quick and for less commission than you would have paid. Of course, if your property is curb-appeal challenged, or if the market isn't a strong seller's market, Donnie is worse than useless, he'll be a waste of your time of highest interest. Nor will he be a strong advocate on your behalf. He doesn't really understand your market. He's just turning numbers in the computer. He isn't going to help you stage, he isn't going to do much to set your property apart, and he's definitely dependent upon internet based bargain shoppers to get his listings sold. Chances of you getting the highest practical number of dollars in your pocket: Not good. If a property sells for $510,000 full commission, you end up with more money in your pocket than if it sells for $500,000 through Donnie, and chances are that the difference will be more than ten percent, as opposed to the measly two percent he saves. Strong buyer's specialists love Donnie. He makes their buyer clients so happy because he doesn't have the time to properly represent the sellers!

Sometime during this process, somebody may recommend you just sell it yourself. Possible, I must admit. Some people do a creditable job, if they prepare enough. But not likely. Most people have a deadline that's too short, and won't spend the effort required. They don't have time to prepare and they'll try to shortcut the process, in which case they either sit on the market unsold, or make some buyer's agent very happy. Listing property is a job, and it does take work and skill and knowledge. I'm learning more with every property. I figure I'll have it completely wired in about a hundred years or so. The vast majority of "For Sale By Owners" have no idea how much they don't know.

Fannie Friendly isn't particularly hard to spot. She just makes you feel like you're her special friend, and that you'll be essentially kicking a puppy if you tell her know. All she is saying is give guilt a chance. Not really much different than Gary and Gladys Gladhand, except buyers are rarely guilted into buying a property. You've got what is likely to be your biggest asset on the line. Forget guilt, and forget Fannie.

There is something to be said for considering a buyer's specialist to list your property. Actually, there's a good deal to be said. They know the market, they know the competition, they know how buyers think, they know what is attractive and what isn't because they spend weeks to months with each set of buyers hearing about it. They know what causes buyers to say "ooooh" and what causes them to say, "EEEEEW!" Buyer's specialists may not be the absolute strongest listing agents, but the good ones are up there. When I'm done discussing staging and price, that owner knows precisely what niche their property would occupy in the market, what their competition is, and what they need to do to sell their property. They may choose not to believe it, but that only hurts themselves.

As a closing thought, when you are listing a property, time is not your friend. Even if you have a good long time in which to sell, all of the agents and most of the buyers in the area are going to know that property has been on the market forever. The longer it takes to sell, the worse the price. The whole notion of "let's just see if we can get a higher price" is the most common way home owners talk themselves into getting less money than they could, and taking longer to sell, with all of the costs associated with both. If you approach it with the firm idea that you are dealing with one of the biggest investments of your life, and ask the hard questions and take the time to hash out the hard details in the first place, chances are you will end up much happier. Don't allow emotion into the decision, don't allow ego in, don't allow friendship or love or anything else beside what is likely to have the best results for you color your decision. Odds are that you will end up much happier. If you're looking for a guarantee, I can't give it to you. One of the things agents learn is that weird stuff happens. But this is certainly the way the dice will fall the vast majority of the time. Bet on one die, anything from one to six is equally likely. Bet on two dice, and the most likely results are right around seven, as anyone who's been to Las Vegas knows. This is like betting on ten throws of those two dice, where they could theoretically add up to anything between 20 and 120, but the odds cluster very sharply around seventy, and anything more than a few numbers away from that is very unlikely indeed.

Caveat Emptor

Original article here

This is the final article in this series, and the most difficult. The reason is very simple: Unlike shopping for buyer's agents or shopping for loans, you have to make a binding choice - it is in your best interest to make a binding choice - before you obtain the result you want. With buyer's agents or loan officers, you can judge by actual results - the bargain properties they show you and the loan they actually deliver when the trust deed and Note are all ready to go. Shopping for an effective listing agent is always a leap of trust. It shouldn't be a huge leap into the unknown, but it's a lot easier to talk a good game than it is to deliver.

The important thought to remember as you read this article and shop for a listing agent is this: You might get what you pay for. You won't get what you don't pay for. Make certain you understand what the level of services provided are by a given agent before you sign on the dotted line, whether their fees are contingent upon a successful sale or are paid up front with no guarantees. I wouldn't sign on the dotted line without compensation being contingent upon a successful sale. If they're not confident enough of their abilities to bet their paycheck, I wouldn't bet on those abilities either. Of course, the contingency commission will be for a higher dollar amount, but ask yourself this: Suppose you got $10,000 for successfully completing a project at work, nothing for failing. Is your motivation to get it done, and get it done sooner, more or less than if you get a flat $5000 in advance whether you complete it successfully or not? Would you be willing to put in more effort? Spend more money? Be more aggressive? I assure you that real estate agents have basically the same motivational attitude as the rest of the world.

Most people do not take sufficient account of the time critical factor: Nothing happens immediately in real estate. If you have ninety days to get the house sold, you've really only got about thirty days to get an accepted offer - due to regulatory requirements, loans take a minimum of about 45 days now, more likely 60 and loan officers without a serious dedication to getting it right in the first place may take 3 months or more! I used to be able to reliably get a loan done in under three weeks - not any longer. The quicker everything moves, the better off everyone is, but even in the most optimistic scenario, this means that if you need the property sold in ninety days, you need an accepted offer within thirty. If you need an accepted offer within thirty days, you need an initial offer you can negotiate within fifteen to twenty days. When I originally wrote this, I had just opened Escrow March 21 on a negotiation that started February 7th (all of my client's responses were same business day, but the other side wasn't nearly so punctual). Forty-two days is definitely on the marathon end of negotiations, but you do need to make allowances for the time it takes. Furthermore, all of your advertising (except MLS and internet) takes anywhere from three days to thirty to appear. So from the time you know you need to sell in 90 days, you may really only have fifteen to twenty days to entice an offer. Understand that. Many agents don't.

You need to have figured out what your time frame for selling is. If you need the transaction done in ninety days, we've already seen that you really have about twenty at most to attract a prospective buyer. If you have to sell in thirty days, you waited too long to list it. If you have to sell in sixty days, you've got maybe a week to get an offer. If it's rented with tenants and your cash flow is positive, you don't have a real deadline, but having tenants in a property you're trying to sell raises its own issues and you are unlikely to get anything like the price you would from a clean and vacant property. Otherwise, until the whole thing is finished, as in grant deed signed, loan funded, old loan paid off and you get your money and your Reconveyance, you are paying mortgage and property taxes, either insurance or homeowner's dues, and possibly several other monthly fees. To pick lower than typical numbers, on a property in California that you bought for $200,000 and has a loan for that same amount at 6%, that's roughly $1600 per month it's costing in money out of your checking account. Most folks can't add $1600 to their monthly cost of living for very long. A $400,000 property with a $400,000 loan would be roughly $3100. If it doesn't sell before your reserves run out, you've got yourself a real problem.

The absolute first thing people look at is price. If your asking price is more than people are willing to pay for a property of those characteristics in that neighborhood, the buyers and their agents are going to ignore you. In fact, your traffic will largely be governed by the relationship between your asking price and everyone else's, in conjunction with your days on market counter. Price it right in the first place, and you get lots of traffic your first days on the market. Wait until later, and you'll not only miss out on your time of highest interest, you'll have to price lower to attract the same level of interest. So if you've got a short deadline, I'd be careful to price under the market. What's a short deadline? That's determined by how long properties are taking to sell. If everything listed is pending within three days, you're likely to be okay as long as you don't overprice. If the average property is sitting for ninety days or more and you need to have it not just in escrow but sold in ninety, I'd offer it up below the comparables were I you. Once you know you need to sell, you're the one who knows how long you can manage to keep paying for the property. It needs to be sold before that time runs out.

Condition can mean a lot more than square footage or number of bedrooms and bathrooms. Sometimes the first thought in my head when I drive up or walk in the door is, "It may be larger, or it may have this or that where the competing property doesn't, but I like the other place more because it looks better cared for." I assure you that I'm not alone. Thinking "The buyer will be able to spend $20,000 fixing it and have a million dollar property," does not justify a $980,000 price tag in anyone's mind. Get that whole idea out of your head. If you want the money fixing it up is going to bring, do the work yourself. Price the property for its value and condition now. In other words, even if you're right, you have to spend the $20,000, and be the one to deal with the hassle of making it happen yourself, in order to get that $980,000 net. But it's hard to quantify condition. Even most agents don't look at enough properties to be certain. I'm out there looking at a minimum of twenty per week, which means I know what the ones that sold recently looked like, but if you're outside my normal stomping grounds it's going to take me at least two trips looking in your area to figure the optimum listing price. That's a cold hard truth. It's critical that your listing agent makes a habit of working in the neighborhood the property you want to sell is in. I see something listed with an agent outside the county or even a different part of the county, the odds are that agent has no clue what they should have listed it at. Such listings are what real estate sharks call an opportunity. In urban areas such as San Diego, even a few miles away can be bad news. I'm not certain which is worse: an agent thinking "La Jolla" when the property is in Santee or an agent thinking "Santee" when it's in La Jolla. The former will overprice the property, resulting in the property sitting unsold, and probably all kinds of unpleasant consequences, the most important of which is that the property won't sell until you're desperate, and for far less than you could have gotten if it had been correctly priced in the first place. The latter will under-price the property, resulting in less money than you could have gotten, and usually way less net. There aren't any rules of thumb you can follow - you just have to know the neighborhoods, and even though these neighborhoods are only fifteen miles apart, anyone who tells you they know both is lying. There's too much for one agent to know. I've lived here essentially my whole life, and it takes me two "fishing trips" to neighborhoods I've known my whole life in order to start really understanding enough about that neighborhood professionally that I can start spotting which properties are bargains and which are not. The markets change way too fast for anyone to keep track of too much area. I might believe someone could understand the entire Manhattan condo market. Doubt it, but I might, although I'd be more inclined to trust the agent who said they specialize in a smaller area. I wouldn't believe they could understand Brooklyn or the Bronx as well. Where population is less dense, which San Diego definitely is, I'd say about quarter million population, tops. Out in rural areas, probably less than a third of that. I'd want to see something that indicates your neighborhood or area is one the agent really makes a habit of working before you list with them. This is more important than just about anything else in a listing agent.

Your time of highest interest is right when your property hits MLS. The vast majority of buyers are out there looking at what hit MLS this week, or today, not what hit six weeks ago. The feelings I hear most buyers articulate is that the good stuff gets found quickly. This is something which is generally true - most of the good stuff does get found quickly - but is not universally true. Some of the good stuff slips through under the radar. Some stuff becomes a worthwhile bargain when the seller gets real on the asking price after their deadline to sell has already passed. It may be crazy, but I've heard people talking about blowing off properties that looked like great bargains because they saw that the "Days on Market" counter was too high for their tastes. So you want to keep this in mind. Your agent is required to put your property in as quickly as possible once they have the listing contract, unless you instruct them in writing not to. If your deadline to sell is not looming too quickly, it can be a good thing to delay the actual listing of the property on MLS while you prepare the property for market. This gives your agent time to get longer term advertising ready! You don't want the advertising to appear first, but the property gets stronger traffic if the "days on market" counter says 4 when the ads appear than it does at 45 when those potentially interested see the ad.

Open houses are worth doing, but not worth doing too often. I want to do one the weekend after a property hits MLS without fail, and before that I want the neighborhood to know there's going to be an open house. When the neighbors bring you a buyer, that's a good way to sell the property for more than the typical MLS searcher. The latter is looking for a bargain. The former wants to live in this neighborhood, and already has a connection to it. I may also do an open house aimed at brokers and agents that first week, during the week, and a caravan is a good idea also - which is another possible reason to delay the listing appearing on MLS if either takes more than a few days to arrange. On the other hand, if there's an open house every weekend at Joe's house, there's no urgency. Many agents do open houses to meet new buyer prospects - that's really why they want a listing. I used to space them about four weeks. Now, I usually don't consider a second open house until six weeks out (and my few listings generally are in escrow well before that), and it seems to work better for actually getting interested buyers for that property.

Broker caravans and broker open houses can help, but they require the agent be willing to actually share the commission with a buyer's agent. If they're not, you're wasting your time, and likely turning off prospective buyers as well. If you can do these the week it hits MLS, you're ahead of the game.

If you're getting the idea that agents shouldn't list more than one property per week, you're getting the right idea. When I first wrote this, one listing per week was likely too many to service well in the current market - because if they price it right, the average property was not going to sell in three days. In strong seller's markets where things do sell that quickly, yes, one listing per week is doable. In buyer's markets where things are sitting ninety days and more on average, you are begging to become neglected with a listing per week agent unless you're paying the highest prospective commission. If someone has more than four to six listings at any one time, I'd cross them off the my list, no matter the state of the market.

Continued in Part II

Original article here

I just got a google search where the question asked was "What if the mortgage is recorded in the wrong county?"

I've never actually seen this (and San Diego County, once upon a time, included what is now Riverside, Imperial and San Bernardino counties), but if it's the mortgage on your loan, no big deal. You should get a copy of the recorded trust deed, and the county recorder's stamp should tell you the county it was recorded in. You probably want to record it in your own county, as when the document is scanned in both recorder's stamps will appear, thus making it obvious that these two documents are one and the same. There may be better ways to deal with it. Since the error was (everywhere I've ever worked) your title company's, they should be willing to repair it to eliminate the cloud on your title. If and when you refinance this loan or sell the property, make sure that the Reconveyance is recorded in both counties, and references both recordings.

More dangerous is the issue of what if it's the previous owner's loan that was wrongly recorded. The previous owner is obviously no longer making payments on the property. The lender may or may not have been paid off properly; if they were there may not be any difficulties. It could just disappear into some metaphorical black hole of things that weren't done right and were never corrected, but just don't matter because everybody's happy and nobody does anything to rock the boat. However, unlike black holes in astronomy, things do come back out of these sorts of black holes.

However, if the previous lender was not paid off correctly, or if they were paid but something causes it to not process correctly, they've got a claim on your property, and because the usual title search that is done is county-based, it won't show up in a regular title search. Let's face it, property in County A usually stays right where it's always been, in County A, as county boundaries don't move very often. There is no reason except error for it to be recorded in County B. Therefore, the title company almost certainly would not catch it when they did a search for documents affecting the property in County A; it would be a rare and lucky title examiner who caught it. Furthermore, since it likely antedates all the current loans, such a lien would be senior to them, and need to be paid off in full before any of the more recent loans got a penny. This is one of the reasons why lenders require borrowers to pay for a lender's policy of title insurance.

In some states, they still don't use title insurance, merely attorneys examining the state of title. When the previous owner's lender sues you, you're going to have to turn around and sue that attorney who did your title examination for negligence, who is then going to have to turn around and sue whoever recorded the documents wrong. If it's a small attorney's office and they've since gone out of business, best of luck and let me know how it all turns out, but the sharks are going to be circling for years on this one, and the only sure winners are the lawyers.

In most states, however, the concept of title insurance has become de rigeur. Here in California, lenders don't lend the money without a valid policy of title insurance involved.

Let's stop here for a moment and clarify a few things. When we're talking about title insurance, there are, in general, two separate title insurance policies in effect. When you bought the property, you required the previous owner to buy you a policy of title insurance as an assurance that they were the actual owners. By and large, it can only be purchased at the same time you purchase your property. This policy remains in effect as long as you or your heirs own the property. The first Title Company, which became Commonwealth Land Title (now part of the Fidelity group), was started in 1876, and there are likely insured properties from the 19th century still covered. If you don't know who your title insurance company is, you should. Most places, the company and the order of title insurance are on the grant deed.

The other policy of title insurance is a lender's policy of title insurance. This insures your lender against loss on that particular loan due to title defects, and when the loan is paid off (either because the property is sold, refinanced, or that rare property where the people now own it free and clear), it's over and done with. Let's face it, most people are not going to continue to make payments if they lose the property. If you take out a new loan, your new lender will require a new policy of title insurance. You pay but they are the ones insured by the policy. It's a requirement imposed on everyone who wants to borrow money for real estate.

To get back to the situation, what happens when you order title insurance is that a searcher and/or an examiner go out and find all of the documents they can find that are relevant to the title of the property. These days, they typically perform an automated search, and sometimes documents are indexed and cross referenced incorrectly and therefore they do not show up when they should. Nonetheless, the title company takes this list of documents and tells you about known issues with the title, and then basically says "We will sell you a policy of title insurance that covers everything else." This document is variously known as a Preliminary Report, PR, or Commitment.

Now it shouldn't take a genius to figure out why you want a policy of title insurance. Around here, the average single family residence goes for somewhere on the high side of $500,000. You're committing a half million dollars of your money on the representation that Joe Blow owns the property and that if you give him half a million, he'll give you valid title. I would never consider buying property without an owner's policy of title insurance. Even with the best will in the world and my best friend whose family has owned it since the stone age, all kinds of issues really do crop up (Another agent in the office has a client right now who bought a property via an uninsured transfer - and there was an unrecorded tax lien. Ouch. Say bye-bye to your investment). The lenders are the same way. No lender's policy, no loan.

So what happens when this old mortgage document is uncovered? Well, that's one of the hundreds of thousands of reasons why you have that policy of title insurance. You go to your title company and say, "I have a claim." Since they missed that document in their search, they usually pay off the loan (there are other possibilities). After all, if they hadn't missed it, it would have been taken care of before the Joe Blow got paid for the property and split to the Bahamas.

None of this considers the possibility of fraud, among many other possibilities, but those are all beyond the scope of this article.

So when buying, insist that your seller provide you with a policy of title insurance. When selling, it really isn't out of line for your buyer to require it - it shows that you have a serious buyer. Some places may have the buyer purchasing his own policy, but most places that use title insurance, the seller pays for the owner's policy out of the proceeds. Of course, anytime there is a loan done on the property, the lender is going to require you pay for a lender's policy. If the quotes you are given do not include this, be certain to ask why.

Caveat Emptor

Original here

A while ago now, I spent several hours showing properties I had found to a couple of investors. One was a lender owned fixer, fairly priced at $440k. It needed carpet, paint, landscaping, and some facade work. The last comparable sale in the neighborhood was $575,000. There was also another lender owned property in a neighborhood where similar properties in good condition were going for $460,000 to $480,000. This one was also pretty fairly priced at $380k. The first one needed maybe $30 to $40k in work, the latter about $20k. It took me a lot of hours to find properties where there was a good profit to be made buying near or even at the asking price in this market. Not enough for these people. They had to put in offers for eighty thousand less. Needless to say, these offers were dead on arrival. Complete waste of my time.

The reason these properties were fairly priced was that the owners had taken a realistic look at the state of the market and the condition of the properties, and decided they wanted to sell the properties sooner, rather than spending months with their capital tied up only to reduce the price so they can sell later. They were justifiably upset at the low-ball offers, given that they had actually priced the properties correctly for their condition, a rare thing in this market. Even if these people now follow up with a reasonable offer, I have reason to believe that these wells have been poisoned. It's going to take something basically equal to the asking price from these people. They have marked themselves as being unable to be dealt with on a reasonable basis. Other folks might be able to start the negotiations lower, but not them. Maybe not me, either, despite the fact that I was just the agent, making it worse than a complete waste of my time, a likely destroyer of some of my most valuable information - the location of profitable properties.

Low-balls are not the way you acquire the property you've got your heart set on. Low-balls are not the way you acquire property that is already correctly or bargain priced. If it is already bargain priced, all you're going to do is deal yourself completely out of the picture, where you could have made a nice profit if you had offered something reasonably close. Low-balls are the way to acquire property where the owner is so desperate, they'll take anything and you can't hardly help but make a profit. Lest you be unclear on this fact, lender owned properties are not good targets for successful low-balls. That lender wants to get rid of the property, but they've always got money, and unless they're facing the regulatory deadline, that offer is going to be rejected 100 percent of the time. If they are facing a regulatory deadline, somebody internal will have already snapped it up.

If you're going to insist upon low-balling, the way I found those properties is not the way to do it. No need to invest time driving around inspecting the properties, or the effort of going into records. Just write an offer. Write lots of offers - no need to be picky. At that price, you'll make a profit if they accept, have no fear. But, if you're going to offer that far below market, you're going to have to kiss a lot of frogs before you find one that's desperate enough to turn into a prince, and most of the frogs are going to be mad. Real quick now: What's your first reaction to being told you're not worth what you think? "You're not a college graduate, you're a high school dropout!" It's more effective to write dozens of offers sight unseen, and give yourself a few days after acceptance for inspections if you're really worried about it. 99 out of 100 will just be angry and insulted, and that's all the further it will go. You're going to move on, because any possibility of a transaction is dead.

You can raise the hit rate, of course, and a good buyer's agent is invaluable for this. But the best targets for low-balling are not those who have priced the property reasonably, but rather those who have over-priced their property. Hit the people whose properties have been on the market for a long time because they're overpriced. Best is if they've expired off MLS at least once, and if they've changed listing agencies because there are a large proportion of agencies out there who will take even the most over-priced listing. Expired twice is better, more is ideal. Multiple drops in the asking price are also a good indicator of a good time to low ball. Of course, you've got to watch the market over time for that information, because even most MLS registries don't give you this information directly. There is no way around market knowledge, but the way to get a low-ball offer accepted is to be the first under the wire after the the owners realize they are desperate. There is no universal indicator of desperation, or everyone would be on them at the same time. If you're going to do this right, you have to have some things going for you that everyone doesn't - patience and persistence, and the ability to slave away on those offers. It takes as long as it takes, and likely candidates can and will be pulled out of the the available pool at any time. Even if they aren't, the owners can and will simply refuse your offer the vast majority of the time. If you get frustrated, you're doing it wrong. This isn't like being a used car dealer. The marks have an alleged professional on their side. If the listing agent were a real pro, they'd have persuaded them to price it right for the market and condition in the first place, and it would have sold before you got to it, but they're going to be good enough to recognize your desperation check when they see it. In order to consider accepting the offer or even seriously negotiating, the owners have got to have suddenly realized how desperate they are. That's the magic ingredient to getting a low-ball accepted. There is no magic way to telling when this has happened, or everybody would be doing it. Think of yourself as a telemarketer with a very low conversion ratio. You're metaphorically dialing a lot of numbers to get one sale, but when that one sale does hit, you've got one heck of a paycheck.

Caveat Emptor

Original article here