Recently in Buying and Selling Category

"overpriced house offer rejected what next"

(Before I get started, I want to make it clear that I am using the same definition of worth found in this article. The property is worth what the seller can actually get a buyer to pay.)

Well, the seller obviously didn't feel that it was overpriced. Given that they were unwilling to sell for that, consider the possibility that you didn't offer enough.

It's human nature to always want to blame the other side. Given the state of real estate prices here in San Diego, I have considerable sympathy for buyers these days. On the other hand, if you look at the sales log, sales are still being made. This means willing buyers and willing sellers are coming to an agreement that both feel leaves them better off, and they are doing it - by definition - at market prices.

Even if you made what really was a good offer, you can only control yourself - you can't control the other side of the negotiation. You have to decide how much the property is worth to you. Is it valuable enough to you to warrant a higher better offer? In some cases, properties offering something you want (or need) that is rare can command a premium over what a dispassionate analysis suggests.

The fact is, there are always at least two possibilities when an offer is rejected, and the truth may be a mixture of the two.

First, that the seller is being unreasonable. This happens a lot - usually around a third of the listings in my market are significantly overpriced. Somebody thinks their property is worth more than it's worth. The agent may be encouraging it in order to get the listing, but that doesn't make the property actually worth more. When people can buy better properties for less, they're not going to be interested in yours. In this situation, you're not likely to get any good offers. You'll get people doing desperation checks - coming in with lowball offers to see how desperate you really are, and if you're desperate enough yet. A very large proportion of these are people in my profession looking for a quick flip and the profit that comes with it, or other investors. Anybody looking at properties priced where this one should be priced is likely not even going to come look.

Second possibility, the buyer is the one being unreasonable. Properties like that one really are selling for the asking price, and you offered tens of thousands less. Some buyers do this because it's all they can afford. Some buyers do this because they want to get a "score". And some are just the standard "looking to flip for a profit" that I talked about in the previous paragraph. There is a point at which I tell all but the most desperate sellers that they're better off rejecting the offer completely than counter-offering. It saves time and effort, and the prospective buyer either comes back with a better offer, or they go away completely. Someone offering $250,000 for a $350,000 property is not likely to be the person you want to sell to. Even if you talk them up into a reasonable offer by lengthy negotiations, they're far more likely than not to try all sorts of games to get it back down as soon as you're in escrow. Better to serve notice right away that you won't play.

Now some bozo agents think that starting from an extreme position, whether high list price or lowball offer to purchase, gives them more leverage, or that somehow you're eventually likely to end up in the middle. This is b*llsh*t. A transaction requires a willing buyer and a willing seller. Price the property to market if you want it to sell. Offer a market price if you want the property.

Now, the Quickflippers™ have had a distorting effect on this, and for several years a disconcerting percentage of the properties being offered for sale were owned by people who bought with the intention of the quick flip for profit, rather than buy and hold. Many of those looking to buy still fall into this same category, and I suspect this is much the same in other formerly hot housing markets as well. They've become addicted accustomed to the market of the last few years, when a monkey could make a profit on a property six months after they paid too much money to purchase it. That is not the market we face today. This market favors the buy and hold investor. Actually, if you remember the spreadsheet I programmed a while back, I've pretty much confirmed that the market always favors the buy and hold investor, it's just been masked by the feeding frenzy of the past few years, where John and Jane Hubris could come off looking like geniuses when it was just a quickly rising market and the effects of leverage making them look good. It's just that the support for the illusions of Mr. and Mrs. Hubris has now been removed.

Now, what to do when your offer has been rejected. There are two possibilities. The first is to walk away. If the home really is overpriced, and there are better properties to be had for less money, you made a reasonable offer and were rejected, you're better off walking away. I don't want to pay more for a property than it's comparable properties are selling for, and I certainly don't want my clients to do so either. The sort of people who go around making desperation check offers walk away without a second thought with considerably less justification.

The second is to consider that the property might really be worth more than you offered. Okay, a 3 bedroom 1 bath home did sell for that price in that neighborhood, but when you check out the details, that was a 900 square foot home on a 5000 square foot lot and the one you made an offer on is a 1600 square foot home on a 9000 square foot lot, and in better condition with more amenities. It's a more valuable property, and you can refuse to see that from now until the end of the world and you're only fooling yourself. The reason you thought the property was attractive enough to make an offer was that it had something the others you looked at didn't, and most of these attractors add a certain amount of value to the property. The more value there is, the more folks are willing to pay for it. This is why one of the classical tricks of unethical agents is to show you a property that's out of your price range, then figure out a way to get a loan where the payment makes you think you can afford it - for a while. This property is priced higher because it has features that add more value and a reasonable person would therefore conclude that other reasonable persons would be willing to pay more for that property than others. Landscaping, location, condition, more room, amenities. There's something that the seller thinks reasonable people would be willing to pay more for. It's kind of like taking someone who can afford a $10,000 car and showing them a $25,000 one, then telling them they can get interest only or negative amortization payments to get them into it. You only thought you could afford the $400,000 home, but they've got a way that you can get into the $600,000 home, which obviously is going to have many things that the $400,000 home lacks. They manipulate the payment until it appears as if you can afford it, and consumer lust does the rest. Cha-ching! Easy sale, and the fact that they've hosed the client doesn't come out until long after those clients made a video for the agent on move-in day when they're so happy they've got this beautiful house that they didn't think they could afford (and really can't), and they gush gush gush about Mr. Unscrupulous Agent, who then uses this video to hook more unsuspecting clients - never mind that the original victims in the scam lost the house, declared bankruptcy, and got a divorce because of the position Mr. Unscrupulous Agent put them into. You want to impress me with an agent, don't show me happy clients on move-in day. When I originally wrote this, emotional high of being brand-new homeowners aside, any monkey of a loan officer could get anybody with quasi-reasonable credit into the property. What happens when they have to make the payments? More importantly, what happens when they have to make the real payments? Given the environment at the time, the question was not "can I get this loan through?" but "Is it in the best interests of the client to put this loan through?" You want to impress me with an agent, show me a happy customer five years out "My agent found this property that fit within my budget, told me all about the potential problems he saw, got the inspections and loan done, and it's been five years now with no surprises, and the only problem I've had was one he told me about before I even made the offer."

Of course, the real value of the property may be beyond your range or reach. If your agent showed you something you could not reasonably acquire within your budget, you should fire them. I accept clients with a known budget, I'm saying I can find something they want within that range. If it becomes evident I was wrong (eyes bigger than wallet syndrome) the proper thing to do is inform the client that their budget will not stretch to the kind of property they want, and suggest some solutions, starting with "look at less expensive properties" and moving from there to "find a way to increase the budget" and finally to "creative financing options." That's a real agent, not "Start with creative financing options but somehow 'neglect' to mention the issues down the road."

There is no universal always works strategy for rejected purchase offers. It's okay to do desperation checks, but be aware that most sellers aren't desperate and that it's likely to poison the environment if the seller isn't that desperate. Poisoning the environment is okay if you're a "check for desperation and then move on" Quickflipper™, but if you're looking for a property you want and have found something attractive, it's likely to be counterproductive so that you may end up paying thousands more than you maybe could have gotten the property for if you'd just offered something marginally reasonable in the first place. Make a reasonable offer in the first place, and you're likely to at least get a dialog. And if the seller rejected what really was a reasonable offer for an overpriced property, the only one to lose is them. Move on. Their loss is someone else's gain.

Caveat Emptor (and Vendor)

Original here


Time was, a few short years ago, when I could reliably do a purchase money loan in two and a half weeks. That has now changed. There are three separate delays of one to two weeks that have been built into the process since then. I can usually get purchase loans done in 45 days - but it's not a solid bet.

The first delay is due to the Home Valuation Code of Conduct. I keep hearing rumors of repeal and efforts to repeal, but it's still there. Loan officers no longer have any control over the appraiser - who it is or who it isn't. Net result: the appraisal gets done when it gets done. Three days used to be a very long time. Now, I might get it in three days if I put a rush on it and am very lucky. Seven to ten is about what I expect, and if it's fifteen, that's what it is. Neither I nor any other loan officer has any control - or working relationship - with appraisers any longer. The appraisal is now a source for at least 20 times the problems it was a few years ago, and the new standards didn't stop what they hoped they would stop, but hey, this is the result of government work we're talking about here. The politicians got paid to create a new way to make more money off the consumers - and they did so.

I should also mention that where lenders would formerly accept loan packages with a pending appraisal, and even grant underwriter approval on them with a "prior to docs" condition for an acceptable appraisal, they are now generally requiring the appraisal be in the loan package before they will accept the package. Why? Because it didn't take them long to figure out how many problems the appraisal was now causing. Why should they do all that work when it's so likely the appraisal will render the whole thing moot?

The second delay has to do with underwriting. To cut right to the point, the current underwriting environment is super-paranoid. Underwriters are encouraged to dig for reasons you might not qualify. The lenders are judged and paid by the secondary loan market based in part upon default rates. If you've been paying attention, you know that there have been an awful lot of defaults lately. The lenders are determined to get the default rates down. Wall Street adds its own nonsense to the mix - many of the secondary market buyers have added requirements to the mortgages they will consider buying. Since the lender wants to be able sell these mortgage anywhere, they add all the requirements to their loan underwriting. Net result: Lots of delays to get to your file, extra hoops to qualify when they do look at it, and a very high proportion of rejected loans - many for absolute nonsensical reasons.

The third delay has to do with more direct government nonsense - Regulation Z and redisclosure of APR. Specifically, changes to the rules arising out of Dodd-Frank and a couple other congressional actions that claim to have been for the consumer but were in fact made to advantage large campaign contributors. There isn't a lender out there that doesn't force a recalculation and redisclosure of APR with a mandatory regulatory 7 day delay built in before you can actually sign loan documents. If they don't, they can be sued - but if they do they are legally covered - even if the old number was closer to what the correct answer is. Furthermore they can generate lock extension fees out of it, while incurring no costs. Nor is this the only possible delay caused by new government regulation - but this one hits Every. Single. Loan. Other potential regulatory delays can add three additional weeks to the time it takes to get your loan.

If I do my job correctly and manage everything just right, I can and usually do close loans in six weeks or a little less - those that aren't rejected in unpredictable ways, that is. However, that's a far cry from the under three weeks it used to be, and there are things beyond my control that can kick it over the 45 day mark. Furthermore, I have one of the lowest average closing times out there - the industry average is better than half again mine and a lot of the high volume places are more than double that 45 days it takes the good ones.

When I'm wearing my Realtor hat, I really hate this (actually I hate it as a loan officer too), but it's the way things are. I tell my buyers to write a 60 day escrow period into the contract. I'd rather the offer be rejected upfront due to the escrow period than have it accepted and lose the deposit when the buyers can't perform on time because the loan isn't ready. On the rare occasions I list one, I tell my sellers it's going to take sixty days for any buyers to qualify for a loan, and while the all cash buyer is certainly nice, restricting yourself to all cash offers will result in a lower sales price and less money to the seller. Furthermore, an offer written that includes both a loan and a shorter escrow period is a red flag in no uncertain terms that there is something wrong with the agent. Any agent who hasn't figured out that the 30 day escrow isn't going to work by now (at least for purchases with a loan involved) is incompetent or actively plotting something. There really is no third option. Sometimes I can tell which right off the bat, other times I need to call the agent. So if there is a loan needed to consummate, plan on a 60 day escrow for your purchase or sale of residential real estate.

Caveat Emptor

With housing prices having crashed in most of the higher cost areas of the country, many people who were formerly priced completely out of the market have become interested once again in purchasing property. The drawback is that because lenders are scared of zero down payment programs right now, if you haven't got a down payment you are just as solidly locked out of property as if you could not afford the payment. So I thought I'd go over the down payment requirements for purchasing real estate. Keep in mind as you read that these are minimums. If you have more of a down payment, that's better. You cut the amount you need to borrow, thereby cutting the payment and increasing affordability still more, and you also likely improve the loan you are eligible for.

More mortgage insurance companies are becoming willing to go 95% loan to value ratio, but the catch is they want to see at least a decent credit score (680+, with the best rates not coming until 740 or so) and a slightly lower debt to income ratio than if you had a larger down payment. If this isn't you, I would plan on having 10% of the purchase price for a down payment with conventional conforming loans - especially if you want to split your loan to avoid PMI. On a $400,000 property, 10% is $40,000, which is quite a chunk of change for most folks. This is the "no government involvement necessary" loan, up to $417,000 of loan amount (not purchase price, a critical distinction to make!). If you're putting 10% down on a $450,000 property, what you have is a conventional loan amount - $405,000 - not nonconforming, but a full on conforming loan, assuming you qualify on the basis of credit score debt to income ratio and loan to value ratio.

95% financing for conventional loans has become more available, making it more likely to work. When all that's available is one program from one lender, it can be withdrawn at any time, or you can fail to qualify, and that's it. Things that only one lender offers can vanish at any time, and there is no Plan B. If that lender pulls the program while we're in escrow, that's not Monopoly Money my clients are risking. But when there's multiple lenders and a couple different insurers, that's less likely to vanish like faerie gold. 5% of $400,000 is $20,000, which is a lot easier to get than $40,000.

FHA loans now require a 3.5% down payment as opposed to 3%. On a $400,000 property, that's $14,000. On the plus side, the funding fee (Currently 1.75 points) can now be added back in to the loan amount, yielding a 98.25% loan to value ratio when everything is said and done, but you need a 3.5% actual down payment or the deal is off. Furthermore, they have a financing insurance charge of 0.5 or 0.55% on top of your note rate, but better to pay the charge and get the loan you need than not pay the charge and not get the loan.

VA loans really have become the magic bullet. Not only do they not require a down payment at all, but closing costs of the loan (including the VA Funding Fee, if it applies) can be rolled into the loan on top of the purchase price. Furthermore, there's no financing insurance charge, and only very minimal loan adjustments, if any at all.

The good news, to counterbalance the increased down payment requirements, is that prices are much lower. The bad news is that if you wait for the lenders to lower down payment requirements again, prices will be much higher then. You see, it's the difficulty in finding people who can get a down payment that is partially fueling the fall in prices. They're not going to stay this low when that changes.

So how do you take advantage now? Where can you get the money for a down payment quickly?

I'll skim over the obvious and simple candidates: Savings, investment accounts, sell some of your stuff. If you have a spare Ferrari lying around you're not using, that's probably a peachy down payment for just about anything. Just because folks were all wanting to buy without a down payment, to the point where it became unusual for folks to actually have a down payment there for several years, does not mean that doing so is in any way mandatory. But if you are in one of these categories, you probably don't need to hear me tell you that money you have stashed away could be used for a down payment for the purchase of real estate. I'll bet you can figure it out on your own.

So let's look at the non-obvious ways.

Let's start at the least painful, at least personally: Retirement accounts. The tax code allows you to withdraw up to $10,000 from certain IRAs for the purpose of a down payment (talk with your accountant for details). Put two spouses together, and you've got $20,000. That may have been only 3% when properties were $600,000, but when the property is $300,000, $20,000 is almost 7 percent - more than enough for an FHA loan or even traditional financing now that PMI companies are back at 95% financing.

Second option: 401k and its siblings and cousins 403b, 401b, 457, etcetera. These are group retirement plans where you cannot withdraw the contributions for so long as you work for the company, government, or non-profit. But the majority of these have plan documents that allow those who have previously contributed to take out loans from their balance in the plan and repay those loans from future contributions. Let's say you've contributed $30,000 which has grown to $50,000. The mechanics do vary, but if you take a $30,000 loan and repay it $200 every two weeks from your normal 401 contribution, that's mostly a wash in most cases. Be careful for rules on interest rate charged and method of repayment, but the federal government's Thrift Savings Plan (among many other employer sponsored plans) allows loans for this purpose. Meanwhile, your original contributions may even continue growing. Once again, it depends upon your plan document and everything it lays out. There is a drawback: If you leave that employer, the loan may become immediately due and payable, or it may be converted into a heavily taxed withdrawal. Again, consult an accountant for details

If your family (or your spouse's family) wants to give you a gift for the down payment, that works. FHA rules specifically allow up to a 6% gift from family members, VA rules are similar even though they don't require a down payment, and even conventional lenders make it easy enough to use family gifts for a down payment. This may seem like a no-brainer, but many times Junior wants so much to do it on their own without help, that they refuse to see a very obvious solution even though it is the best and most painless way under the circumstances. You can always save up the money to pay them back even though it was a gift. Just because it's a gift doesn't mean you can't give them a gift back later; it just means that it cannot be a loan masquerading as a gift.

Many locally based first time buyer programs exist. There programs lend (not grant) you the money for a down payment. In some cases, 20% or more of the purchase price. Most of these take the form of a "silent second" mortgage where there are no payments due, and it you hang onto the property for a certain amount of time, the loans can even be forgiven. The drawbacks are several, but the usual elephant in the room is that these programs run out of money at Warp Speed every time they get a new allocation. I've heard of people who had tried three, four or more times at intervals separated by six months and still couldn't get into these programs due to budget limitations. It can be very difficult to get in on these programs. I applied for one back in April for some clients. Despite the fact that we were less than two weeks out of the starting gate from when the budget allocation had been received, there was nothing left in the program. So even though your loan person may be eager to participate in such a program, the fact that your application is competing with those of many other people may preclude it actually happening.

The final possibility is a personal loan. These can be either from banks and credit unions issuing a fully underwritten loan with market rate interest, or from family members deciding to make a below-market rate loan based upon the fact that they like you. Lenders take a truly large number of precautions to prevent the down payment money from being borrowed unbeknownst to them, but a fully disclosed personal loan, not secured against the title of the property, is perfectly acceptable in most cases. If does impact debt to income ratio, because you've got to make payments on the personal loan as well as the real estate loan, so it does constrict what you could conceivably afford in the way of purchase price. On the other hand, it does put the purchase money in your bank account today, when you need it, rather than two years from now, when there is an excellent chance prices will be much higher by then.

So there you have them, half a dozen possible ways to get a down payment quickly, while it really makes a difference to the home you can afford the payments for because prices are down. Which they are, in part, because people with down payments available to them are so difficult to find. If you need a down payment to buy and neither these not any other method of acquiring one will work, you're just going to have to wait it out until the guidelines are relaxed, or until you do manage to save up the money for the required down payment.

Caveat Emptor

Original article here

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 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 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

This really ticks me off.

I just got done going around about this with a clueless Realtor. According to them, it's not available. It's simply pending contract signatures. But it's showing as "Active" in MLS.

This is not a minor issue. Let me illustrate why. After I was told it was sold, I had a friend call and inquire about the property. He was told it was "available." The agent wanted to set up a time to get together and show it to him, and were there any other properties he wanted to see?

Now I'm fully aware that this may be an instance where that agent wants both halves of the commission, in which case they are violating their fiduciary duty to their listing client by telling me "We accepted another offer." But I'm going to presume that everything is exactly as they told me, in which case they are still violating both MLS and ethics rules, as well as trade law.

If everything they told me is absolutely true, they are still using the property as bait for a "bait and switch" game. If what they told me was true, they do not in fact have the property available for sale. My client and I did come in and make an offer, but they're telling me that the property is not available. But for those people without an agent who call, they're using it - dishonestly - as a means of gaining buyer clients. People should never call the listing agent, but more people do than don't. This is not a small ethics or practices issue. I understand that the hardest issue in obtaining clients is getting that first initial face to face meeting - I face that very same obstacle. But if someone gets a first meeting with you because they claim to be listing a property that is not, in fact, available, exactly how is that morally different from just making it up out of thin air (an activity that is also quite common)?

In fact, they claimed that their listing client didn't want it marked as pending yet. I understand the position they're in, but what the client wants is not on the list of available options. If the property is not available, it cannot be in the Active register. That's what we all have to agree to in order to get access to MLS. That's what the ethics we agree to as Realtors says. If you're not going to play by the rules, you shouldn't have access to MLS, and you shouldn't be able to call yourself a Realtor. There's also a section of commercial law that deals with false advertising. Somebody advertises something people want, the FTC and various state regulatory agencies have grounds to get very interested if you do not in fact have it. You might ask Big Bear supermarkets about that. Such an action is what put them out of business around here. I guarantee that six figure real estate is lot more important than 5 cans of peas for $1 in the estimation of the regulators.

The upshot? I told them to get it off the active list by 9:00 the next morning, or face a formal complaint to MLS and the Association of Realtors. I have a client that wants that property. If it's in MLS, they understandably want to know why their offer is not being considered. If I don't take action, my client will be justifiably curious as to whether I am somehow complicit in whatever is going on. This problem could be more severe than the listing agent is representing it. It could be a fiduciary and agency failure on their part, trying to get both halves of that commission, requiring a client to employ Dual Agency in order to get the property, in violation of fiduciary duty, agency law, and RESPA. It could even be an Equal Housing Opportunity issue. But one thing is for certain: as long as it stays active on MLS, there is something major significantly wrong. This isn't a minor bookkeeping issue. This is the bedrock of what we agree to in order to participate in the system, and someone who cannot adhere to this should not be in the business at all.

Caveat Emptor

Original article here

A search hit that I got:

What is the reasonable amount of notice to give when changing contract terms in California

Unfortunately for this person, a real estate contract is not something like Lando Calrissian's bargain with the Empire in Star Wars, where Darth Vader was free to alter it at will backed by Stormtroopers and Star Destroyers.

The real estate contract is negotiated until both sides are in complete agreement as to the terms the exchange will be made upon. There cannot be any differences in the terms of the proposed agreement and accepted agreement, or you aren't done negotiating yet. Actually it's stronger: If you're not in complete agreement as to terms, you don't have an agreement.

Once accepted by both parties, the contract terms are not unilaterally alterable by either party. You can, in most cases, walk away from the deal completely if something isn't right, but you can't say, "The deal is still on, but you're paying me $5000 more than you thought," any more than they can tell you, "And I get your car, too!"

If something pops up such that you don't think it's a good exchange to be making any more, in most cases you can walk away from it, albeit with possible consequences for the deposit. In such cases, if the other party wants to keep the deal going, they can offer concessions, just as you can ask for concessions, but you cannot force them to change the terms of the contract. The same thing holds true in reverse. They can't force you to alter the terms of the contract, but if they're ready to walk away and you want to keep them in the contract, you can offer concessions or ask what it would take to keep the transaction going. If you don't like what they say, you don't have to accept those terms, any more than they had to accept the contract in the first place.

In some cases (consult a lawyer in your state), the other party can force you to live up to the original contract via a court action called a suit for specific performance. It's also possible for them to sue you for more money than the deposit. I consider this an excellent reason not to sign a contract you're not completely satisfied with. I also consider it an excellent reason never to offer something I wouldn't happily accept as a purchase contract - because the other side can always just accept the offer and it then becomes a binding contract. But notice the essential elements: offer and acceptance. Both parties declaring their acceptance of the terms.

In short, contracts to purchase real estate are two-sided contracts, and are not alterable by any party to it without the agreement of all parties. Any alteration of terms must be agreed to by both parties, and if you cannot agree on those alterations, the contract is essentially dead. There are circumstances, however, where the other side can hold you to the original contract. Consult a lawyer for details.

Caveat Emptor

Original here

Seller Carrybacks

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A seller carryback is when the seller agrees to "carry back" at least part of the purchase price themselves. In other words, instead of getting the full sales price of the property (less outstanding liens), the seller accepts a certain amount of the purchase price in the form of a promissory note from the buyer. This note is usually secured by the property, making it a "purchase money" loan for purposes of determining recourse, which means there usually isn't recourse on the buyer, at least in California. Furthermore, the seller's trust deed is usually in second or third position, behind the primary loan and possibly a secondary loan.

The reason behind doing this is that some buyers cannot qualify for a sufficient loan, or have credit sufficiently bad that no lender is willing to loan them the necessary percentage of the value, considering the down payment they have (usually zero). But sometimes, every last potential buyer is heavily sought after, and some sellers are willing to do whatever it takes to make the transaction happen. Particularly as being willing and able to do a seller carryback is one tool for being able to get full price or more from a buyer who needs one.

As an example, let's consider someone with a 560 credit score and less than 5% down payment in the current lending environment. They can't get an FHA loan, they can't go A paper and there is no true subprime. A portfolio lender might consider a 70% loan at most. These folks might be able to get 70% financing full documentation, and even that is iffy. But all they've got is less than 5. If the seller wants to do business with them, it takes a carryback to make the deal happen. If the buyer needs a carryback, he's got to be willing to meet the seller's terms for making it happen. This gives the seller who is willing and able to do a carryback access to potential buyers that sellers who are unwilling or unable to do so do not have. Furthermore, it gives those sellers who are willing and able to carryback part of the purchase price leverage in negotiations to get a higher price than they otherwise would have. Not every seller has the option of a carryback. Matter of fact, right now relatively few have that ability. With the loss of equity current homeowners have gone through and the need they have to use what equity they may have as down payment on another residence, sellers who can do carrybacks are scarce.

Lest there be any doubt, a carryback is not something you keep secret. You don't need to shout it from the rooftops, but at a minimum, all of the lenders involved have to be notified in writing as to what's going on, and have to accept it, also in writing. There are some lenders who will not permit them at all, even though their loan takes priority. There are other lenders who will accept them but impose conditions. They are all going to want to see a loan repayment schedule, and include that in debt to income ratio calculations. It may be possible, in theory, for a "silent second" type carryback to be approved, but the lender wants to see something that seller is getting in return for extending financing, and most such loans will not meet the underwriter's "smell test," particularly not in the current loan environment, which has gone within a from being far too permissive a few years ago to completely paranoid today, as the lenders scramble to avoid consequences of years of bad decision-making, after they are already suffering from them. Trying to game the system in this environment in order to get a higher debt to income ratio through the system is highly likely to be interpreted as fraud.

I've mentioned that sellers' trust deeds will be occupying second or even third position, which means that in the event of default the loans occupying higher positions are paid in full, before there is one penny paid to the sellers for their subordinate loan. It therefore behooves sellers to be extraordinarily careful about extending financing, as if the people were able to qualify for the full amount of financing they need with regular lenders, chances are that they would have done so. Furthermore, not having a down payment, or only a clearly insignificant one is not a sign of sterling financial discipline. Furthermore, if the holders of the higher priority trust deeds foreclose, your deed will be wiped out by the action of the trustee's sale. Concrete example: Let's say that a $500,000 purchase is financed 80/10/10: 80% ($400,000) on a first trust deed, 10% ($50,000) on a conventional second trust deed, and 10% ($50,000) on a seller carryback. The buyer discovers that they're in over their head, and even if prices don't recede the property only nets $450,000 at auction. Less the costs of the trustee's sale, that first trust deed gets all of their money (or at least most) the second trust deed might get some of theirs, but there is no way that seller carryback going to see a penny of that money. Even if prices go back to ballooning like they were several years ago and the property is now worth $700,000 after two years, they might not see any of their money unless you go to the trustee's sale armed with cash to defend their interests - just like any other holder of a junior trust deed.

Servicing can be a real issue as well. Do you know the proper way to service that loan in the state you are operating in without missing any i-dottings or t-crossings? If not, you could lose most or possibly even all of your rights under the loan contract. Professional servicing organizations exist, but they 1) cost money that cuts into your margin, and 2) make mistakes anyway, which you are responsible for. Not too long ago I fought and won a battle with an out of state servicing company that was violating California law. If I had wanted to, I could have sued both them and the holder of the note as well as making criminal complaint. Servicing requirements are deadly serious.

With all that said, many sellers right now are in a situation where a carryback means, "Hey, I might get the money, where if I didn't, I definitely wouldn't." If this describes your situation, a carryback might be something you should consider.

Lest you not understand, most sellers want cash, not a loan. It's very hard to use a loan, particularly a private loan of dubious quality, to assist you in buying your next property. You can't just spend a promissory note like you can cash. There are loan buying services out there, but most of the time the amount you get will be heavily discounted, particularly if you cannot document a history of on-time payments and you are in a bad credit situation. It is this fact which sellers who are able to offer carryback financing leverage use in order to get better deals.

There are those out there who like carryback financing. Most often, they are real estate sharks. What they are hoping is that they will get their twelve percent for a couple of years, during which time value will go up, and when they turn around and foreclose, having not only been paid their above market interest but also having leveraged that loan into renewed ownership of the property at an appreciated price. Another one of their tactics to use the existence of the carryback as leverage to get a price significantly above market for the property from desperate buyers who can't get anything else, and as soon as the buyer has made the payments for a few months, sell the note. However, the note buyers have caught on to that little trick, and in the current environment of decreasing or stagnant prices (flat locally), they are balking at paying full price or anything like it for those notes.

And that's where I'll stop, lest I inadvertently release more scams into the wild. Suffice it to say that there is sufficient potential for abuse in the practice of carrybacks that lenders have become very sensitized to the possibilities, and have taken what they feel are appropriate steps to limit their potential for losses due to the abuses that have taken place in the past.

Caveat Emptor

Original Article here

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