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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.

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 in the current environment, 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

There's no question which I'd rather have.

It has been traditional for a client to write a check to their broker's escrow account. Sometimes the check is actually deposited, but usually it's just held. It has recently become become a game with certain listing agents to ask for a copy of that check with the offer. I don't know why. It's not like it means anything beyond that the clients have a checking account.

Asking for a copy of the check doesn't do my listing clients any good. That check may not be good, and you don't have it anyway, nor is it even in escrow most of the time. In fact, even if it's written to the appropriate escrow company, sometimes they don't cash it for weeks. Furthermore, since you haven't agreed upon an escrow holder yet, it's kind of ridiculous to be writing a check when you don't know who's going to be holding it. All of which means that asking for a copy of the check doesn't mean a damned thing.

From a broker's viewpoint, the number one way brokers get in trouble is escrow account paperwork. Stupid, minor little piddly crap on the scale of the transactions we handle, whose entire purpose is seeing that client funds are separated completely from broker funds, but problems are caused by the fact that broker funds have to be used to pay the costs of such an account and therefore incredibly dumb little minor inadvertent stuff can cause a brokerage to lose their license. I'd like to see more unethical agents and brokers get charged with violations on other things that really make a difference to their clients, but that's no reason for witch hunts on the escrow account so long as the client's money goes in and out properly. Nonetheless, since brokerage escrow accounts are a witch hunt mentality on the part of the Department of Real Estate, I don't want custody of client funds if it can at all be avoided, and I see no reason to ask other agents do do something I wouldn't want to, and that doesn't benefit my clients anyway.

What I do want is evidence that the buyer does, in fact, have the money for the deposit. That's it's sitting there in a bank account, ready to write the check. That when they do write the check, the escrow holder will be able to cash it and get the funds into the account for this transaction without delay. I can make acceptance of the offer contingent upon the receipt of good funds by escrow, but why would I want to open escrow if the funds might not exist in the first place?

The first step is verification that the money is, in fact, there - and believably there. I cannot require account numbers, but I can require redacted account statements, or verification of deposit. If we're going to obsess about the deposit money, I'm at least going to obsess about things that mean something to my client, like whether the money is there and available, not whether the prospective buyer is willing to write a check that may or may not have the funds to make it good.

Caveat Emptor

Original article here

This is easy. Much easier than effectively shopping for a loan or a listing agent. So easy that a congresscritter can do it. So easy that congressional leadership can do it.

The only thing possibly moderately difficult to understand is that finding a good Buyer's Agent takes place in two steps, not one.

The first thing to do is figure out your situation. What do you want in a property, and what is your budget? I've written several articles to help you determine your budget, but the one piece of data they are missing, because they have to be, is what the rates that are available to you are. Unless you're sure that you fall into the topmost category - great credit score, no late payments or anything, and you're looking to buy something well beneath what you can prove that you can afford, you can only find this out by having good conversations with several loan officers. Rate advertisements are teasers, aimed at getting you to call, useless in reality. I have never seen an advertisement for a loan that 1) actually existed, and 2) that I would consider signing up for, even if I could get paid for it.

Then, make a list of agents you might like to work with. This can certainly include Uncle Bob, your neighbor, or your poker buddy, but you want more than one agent on the list. My experience is that agents at the big chains are (in the aggregate) not up to the standards of the ones working at independent brokerages, but your mileage may vary. Also, I am a Realtor, but that's for reasons completely unrelated to competence or ethics. I'll believe that Realtors are superior to non-Realtors when the boards of Realtors start handing out penalties for non-compliance with the code of ethics that mean something. Ditto all of those little "designations" that have been cooked up to parallel the ones financial planners get. Unlike many financial planning designations, some of which are graduate degrees of one value or another, these are marketing efforts cooked up to fool a gullible public for sitting through a couple days worth of lecture. The qualifications for the real estate designations are laughable in the context of ChFC (Chartered Financial Consultant) and other financial planning designations that require five to ten graduate level college courses to attain.

Then, have a good conversation with those agents. The first thing you should ask, on the phone, is whether they require an Exclusive Buyer's Agent Agreement, or whether they will accept a Non-exclusive Buyer's Agent Agreement. If they require an exclusive agreement, that should be the end of the conversation, and cross their name off of your list. If you sign an exclusive agreement, you are locking your business up with that agent. You are putting yourself in their hands completely. The only reason that you should even consider an exclusive agreement is if you are asking for something special that costs money - for instance, expedited foreclosure lists (The free lists are a waste of time, because they're already flooded before you get them. The subjects of the free lists have said, "no" to literally hundreds of others before you even got the free list, so unless you've got something very special in the way of an offer, you are wasting your time.)

There is absolutely no good reason not to sign a standard Non-Exclusive Buyer's Agreement. You risk nothing by signing. You lose nothing by signing. You can have any number of them in effect, and as long as you don't sign any exclusive agreements, you're fine. All you do is assure the person whose services you use that if they find and help you purchase the property you like, then they will get paid. The only reason not to sign such an agreement is if you're looking to stiff a good agent who finds you the property you like, so that you can use a discounter on the transaction, and that's shooting yourself in the foot. The money you get back is unlikely to be as much as the difference the good agent will make in negotiations, or the trouble the good agent will save you.

One more thing any buyer's agreement you sign should have: An explicit release if they are the listing agent for the property you decide to put an offer on. It is a very bad idea for buyers to accept a dual agent, because the agent has a responsibility to the sellers, but nearly so deep of one to you. They're on the other side. I wouldn't pick a quarterback that played for the opposition at the same time, and neither should you. Tell them to pick a side and stay on it, and as they already have a listing agreement, they've already chosen the other side. It's great for them and for the sellers that they've sold the property, but their desire to get paid double does not outweigh your right to representation with responsibility to you and no conflicts with other duties.

Tell them what you want in a property, where you would like to live, and what your budget is. Then ask them if it's a realistic, and see what they say. If they say yes, that's great, but wait until you hear it more than once before you celebrate. Many agents will tell you yes, figuring that it's easier to raise your budget than lower your expectations, especially once you have seen this beautiful property that they "just happen" to know someone who can get the loan for. Nor is this a straight yes/no question. They might tell you an unqualified yes, as desirable properties possessing those characteristics you want are available in that area below your budget. They might tell you that such properties are available, but that they are scarce and you must be prepared to act expeditiously when you find one. They might tell you that you're going to need a fixer to get those characteristics, or that you're likely to need to compromise some of them. Or they might tell you that what you want is sufficiently beyond your budget that an alternative approach is probably called for.

Now, whatever the first agent tells you, don't swallow it whole. Get some evidence. If they show you literature for brand new beautiful properties just being sold out that are less than your budget right where you want to live, that's evidence. If they execute an MLS search and the only things that pop up in your budget are out of area properties being cross-marketed, that's evidence. The worse the news they tell you, the more likely it is to be true. Sales persons do not like to be bearers of bad tidings, especially before their commission is paid. But if they're willing to give you evidence that your expectations need to be adjusted downward, that is evidence that this is probably someone who takes their fiduciary duty seriously, and that is an agent you probably want to work with. By comparison, the agent who fills your head with happy thoughts is one to avoid, as millions of people have discovered the hard way in the last few years after they went through foreclosure on properties that they shouldn't have bought in the first place.

Notice that I said an agent you want to work with, not the agent. There's a reason for this. Remember that non-exclusive agreement you signed? Remember that I told you it's fine to sign more than one? Here's the good thing about signing more than one: Now you have multiple agents looking for that special property that will make you happy. You won't pay any more for this than for one agent, because they are all competing for your business and the same commission check. This is the stage at which the agents are actually competing for your business, by looking for the property you want. You don't have to decide who gets paid up front. You wait until one of them brings you what you want. Furthermore, the agents will self-select or disqualify themselves to a large extent.

Let's say you signed seven non-exclusive agreements. One is Teresa Top Producer, who slams clients into the first property that's even a rough fit. She'll take you shopping one day, try hard to sell you every property, and get upset if you don't make an offer on the first day. By "try hard to sell" I don't mean anything so crass as the hard sell. What happens is she talks up everything she mentions, very little if any compare and contrast, and whatever she does, no calling your attention to defects or undesirable items. In fact, she'll do her best to distract you or get you to ignore them. For savvy, patient, intelligent buyers, Teresa is not a good fit as an agent, and you're going to realize it after one or two properties. And here's another great thing about the non-exclusive agreement: You just stop working with her, and she's out of the picture!

The second person you sign an agreement with is Martin MLS. Martin does an MLS search, and wants you to go around with him to every property on that list. He sets up an automatic notification to you of every property that fits some basic criteria that gets listed, and he wants to go check out every one with you. Lest you not have figured it out while reading the last two sentences, Martin's approach is basically throw a lot of mud at the wall and hope that if he throws enough, a little bit will stick. Martin may or may not have any real idea of the spread and breadth of your market, and he may or may not be able to recognize a real bargain when it bites him, but he probably has a good idea of the general state of the market. You'll get the same idea pretty quickly by working with Martin, after you see fifteen or twenty properties that seem pretty much to run into one another - except for the ones that are drastically over-priced. You get the idea that working with Martin is not an effective use of your time, and soon, you stop, at which point Martin's out of the picture.

The third person you sign up with is Benny Bump. Benny's got his own unique way of making transactions happen. Actually, it's not at all unique. It's common enough to have a general slang term among Realtors. What Benny does is take you to three or four properties that look like war zones, comparatively speaking. These are not desirable properties on the scale you're using. They fall well short of desirable on one scale or another, and usually on several scales. Then, just as you are despairing of ever finding something you like, Benny Bumps you by showing you this absolutely gorgeous property in perfect condition. "Yes!" you happily cry, having quite predictably come to the conclusion that You Want This One, and you'll do Whatever It Takes to get it. You may or may not notice right away that the price is way above the budget you stated to Benny, and he's counting on you not caring when he whispers that he knows how to get the loan, or knows someone who can. The vast majority of people who meet Benny will fall for "The Bump", and most of the ones who don't fall for it will not realize what a vicious, unethical trick it is. You, being that one in a hundred or so who is smart enough to realize what happens next to Benny's former clients, inform Benny that his services are no longer desired.

I have said it before, and I will say it again. You should demand to know the asking price of every single property before you agree to view it, and if the agent can not explain why that property might be obtained within the budget they agreed to work with, that is an offense not only worthy of firing them, but one for which financial prudence demands firing them. You can't fire someone who you've signed an exclusive agreement with except by waiting out the agreed upon period. You can fire someone whom you have signed a non-exclusive agreement at any time by Just. Not. Working. With. Them.

The fourth person you signed with is Rhonda Rebater. Rhonda is a discount agent sits in her office, and waits for you to bring her the property you like to her for negotiations. She'll usually also expect you to meet the appraiser, meet the inspector, etcetera, nor will she shop services for effective value. Quite often, Rhonda has her hand out to these people behind your back. Not necessarily for a lot of money in any one place, but her whole approach to the business is based upon volume. And she does quite a lot of volume, because people who think in terms of cash in their pocket (that rebate of some portion of the buyer's broker's commission that Rhonda gives them back) are her legitimate prey, and they flock to her in droves, like politicians to campaign contributions. If you're savvy enough in the business that the value provided by a good agent is negligible, why don't you get licensed and earn yourself the entire buyer's broker commission? Because Rhonda has little real market knowledge, she's a very weak negotiator on your behalf, and because her business model is predicated upon high volume, she's an awful guardian of your interests as the transaction goes along. So Rhonda may not be precisely out, but she's not likely to go out and find you a real value.

The fifth agreement you signed is with the team of Gary and Gladys Gladhand. Gary and Gladys get their business from social groupings. Gary has a bowling team and a softball team and he's a soccer coach and Gladys is PTA president and girl scout troop leader and organizer of the party circuit. And, of course, their ads are all over the place. "Mr. and Mrs. East Side" on the East Side and "Mr. and Ms. West Side" on the West. Together, their objective is to know enough people, and make certain all of these people know that they are Realtors, that they are always getting referrals from these folk because "of course" they'll use Gladys and Gary, and walk-ins from those stupid enough to believe their advertising. You may have come to them as Uncle Gary and Aunt Gladys, because normally Gary and Gladys don't allow non-exclusive agreements, and they will almost certainly balk at the no dual agency release, even from a relative. Their whole business approach is predicated upon not competing for your business, and locking out the competition so that they don't have to compete by making it a social obligation to do business with them. In point of fact, Gary and Gladys may be decent or good listing agents, but are extremely unlikely to be strong buyer's agents, because all of this schmoozing takes a lot of time that could more productively - from potential buyers' point of view - be spent obtaining market knowledge and finding bargains. Their approach is reasonable on the surface: You want a house and their listing wants to sell a house for too much money and they want to get paid both halves of that commission, so there just isn't any reason not to make everybody happy, is there? But a good buyer's agent is going to be the one that looks at every single property, whether they listed it themselves or not, with a cold, rational, logical mind and clear eyes for comparative value. I don't list many, but I rarely show one of my listings to one of my buyer's clients, because my listings are priced to the market and the situation. This means that while they're not over-priced, they're not the greatest bargains in the market, either. I only need to price low enough to attract people foolish enough to sign an exclusive agreement with one of these problem agents, not to attract a cold, steely-eyed buyer's specialist. Gary and Gladys are going to show you all of their own listings (except the ones that are obviously unsuitable) first, then, all of the listings with other agents in their office that might interest you, and then they are going to start acting an awful lot like Martin MLS: Throw enough mud at the wall, eventually some of it might stick. Are any of these tactics likely to generate a superior value from a buyer's point of view? Not on Planet Earth.

Now, you got really lucky, and beat the odds. Out of the seven you signed up with, you've actually got two agents that are going to do their job by going out and looking for the best values in your current market by actually looking at them and comparing them to each other, from the standpoint of your needs and your desires and your budget. The ratio of these agents in the real world is much lower than that. If you don't have at least a couple agents left on your list when you're done vetting, go out and find more. You can sign any number of non-exclusive agreements, at any time.

When good agents show you a property, they show it to you with context in mind. They're willing to say bad things about every property, not just the ones they don't want to sell you, even though they should only be showing you superior values. They're going to compare and contrast virtues and defects. Lest I be unclear, it is precisely for these virtues that you have been vetting your candidate agents. You can only see real evidence as to whether they are present or absent in action, not during the interview process. Knowing enough to sign a non-exclusive agreement gets you the ability to find the defects in the five agents who didn't do what you wanted, and you didn't need to commit yourself to any of them before you observe them under fire. Instead, you know enough to understand that there is no real need to commit to anyone until you make an offer.

Now, which one of these two of three good agents gets paid? That depends upon which one of them does a better job of finding you the property you want. Best trade-off of those things you want in a property versus price. Of course, you won't be sure exactly what price you can get it for until you go through the negotiations. And it is possible that one of the others really does have something good, if not nearly so likely. In my experience, Martin MLS will eventually get the job done, if you have enough patience or he gets lucky. Rhonda Rebater will be there if you get frustrated enough to take matters into your own hands. And it is possible that Gary and Gladys Gladhand have something you like, but it is unlikely to be a superior value. Teresa Top-Producer and Benny Bump are deadly poison, as far as buyers are concerned, and once you discover this hidden attribute, you should give thanks that nothing you saw with them was attractive to you. But none of these others has gone out and physically looked at all those properties, which gives those two good buyer's agents you did find an unbeatable amount of market knowledge, which they can then turn around and use to your benefit in negotiations. When they can tell you what the bad points in a property are as compared to the other stuff, you have evidence that they can explain it to the agent on the other side of the transaction. Except for those owners who just won't listen to reason because they want their property to be worth more than it is and they are not going to entertain evidence to the contrary, this evidence is powerful stuff, and can make a huge difference on the price you end up paying, even on a property that is legitimately an above average value to start with.

Caveat Emptor

Original article here

There are all sorts of reasons why escrow falls through, but they fall into three main categories. They can best be described as failures of qualification, failures of the property itself, and failures of execution.

Before I get into the main subject matter of the article, I need to define a contingency period. This is a period built into the beginning of the escrow process when one party or the other can walk away without consequences or penalty, usually for a specific reason. For instance, the default on the standard forms here in California is that all offers to purchase are contingent upon the loan for seventeen calendar days after acceptance. If the loan is turned down on the sixteenth day and the buyer notifies the seller that they want out immediately, the seller should allow the deposit to be returned by escrow. If it happened on the nineteenth day, the buyer should be aware that their deposit is likely forfeit. A contingency, just like anything else, is something negotiated as part of the purchase contract. If it's in the contract, you have one. If it's not, you don't, although some states may give buyers certain contingency rights as a matter of law.

Failure of the buyer to qualify for financing is by far the most common reason for escrow failure. This means that something goes astray with the buyer's quest to acquire necessary financing. They cannot qualify for the loan, they do not qualify within the escrow period under the contract, they allow their loan officer to spin all kinds of fairy tales about what the market is doing or likely to be doing when the plain fact of the matter is that the loan officer just can't do the loan on the terms they indicated when the poor unsuspecting consumer signed up. Maybe it existed at one time, or maybe they just hoped it would. In any case, it wasn't locked in and it certainly doesn't exist now, so rather than pay the difference out of their commission, the loan officer delays and hopes for the market or a miracle to save them. Or they told the consumer about a loan they thought they might be able to qualify them for, only to find out they don't, and they're stalling, hoping a better alternative will open up. Due to changes in lending law and practices, it's now taking a minimum of 45 days for loans, but when I originally wrote this, if a loan officer couldn't get the loan done in thirty days, I'd have bet money they couldn't do it on the terms stated in the initial documents.

Sometimes it does happen that consumers don't qualify for the loans due to real problems that just don't come up until the file is in underwriting. Since this can cause you to lose your deposit, it's a good idea to ask your loan officer about any potential problems before you make an offer. You know your personal financial situation but you probably don't know what all of the potential disqualifying issues for a lender. The loan officer should know what the issues are that may cause lenders to have difficulty approving your loan, but they don't know your history and situation unless you tell them. Many things that underwriting will catch do not necessarily show up on a loan application or credit report, so if you have an unpaid collection, monthly expenses that might not show up, a lien, a dispute in progress, any issues with your source of income, or anything else in your background that you have any questions about whether it could impact your loan, it's a good idea to ask right upfront, before you get into the process. Sometimes these issues mean that you flat out do not qualify, sometimes they mean that instead of 90 percent or more financing, you only qualify for 70 percent. Unless you have that extra 20 percent of the purchase price lying around somewhere, the transaction isn't going to fly, and the sooner you find out, the better. A loan officer who can't show you a loan commitment with conditions you can meet before the end of the contingency period is not your friend.

The second category of reasons escrow fails are failures of the property. Some defect is disclosed by the inspection process that the owner does not want to correct or is unable to correct, and the buyer decides that the property is not for them under the circumstances. Mold, termite damage, seepage, damage to the foundation, and all of the other usual suspects fall into this category. Title issues are here also, although they usually become unsolvable when they impact the loan. If the seller can't deliver clear title, the title company won't insure it, the lender won't lend the money, and any rational buyer should want to walk away. Why do you want to give someone money when they are likely not legally entitled to sell you the property?

For defects with the property, providing it was discovered within the contingency period, it's up to the seller to convince the buyer they should still be interested. After the contingency period is over, things are more complicated as there is the possible forfeiture of the deposit to weigh. Good agents that you want to recommend to your friends get out and get the inspections done right away to avoid this issue. Agents that are looking to line their own pocket wait until the contingency period is over before doing so, as this gives the buyer more incentive to stay in the transaction. Let's say you've got a $5000 deposit on the line and seventeen days to remove contingencies, as is the default here in California. Would you rather your agent got an inspector out within a couple of days, or waited three weeks? Keep in mind that you're going to pay the inspector, but that's money you're going to spend regardless. The first possibility means that you find out about potential defects while you can still recover your deposit, while the second possibility means the seller can likely keep that deposit. I know which situation I'd rather be in.

Failures of execution are likely to be because someone messed up. The seller didn't do this. The buyer didn't do that. One agent or the other dropped the ball. The escrow officer didn't do their job. Loan officer failures would be here if loans weren't a whole category on their own. This category covers all the little details in the purchase contract, each of which has to be met before the escrow officer can close the transaction. These failures may or may not be actionable, in the sense of you being able to hold them responsible for their failure. Many times, the escrow officer is used as a whipping post for the failures of other parties, but some escrow officers do screw up big time. Sometimes it takes an outside expert to dissect things dispassionately in order to figure out what went wrong where and whose fault it was, but outside experts cost money, so most of the time everybody just fades into the sunset pointing fingers at each other, unless there's some pretty significant cash involved. The transaction is dead and it's not coming back. Unless there's a good possibility of recovering enough money to make it worthwhile, let it go.

Caveat Emptor

Original article here

Listings from Non-MLS Websites

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About once a week, I get an email from a client or prospect asking about a property they found on a site not sourced from MLS. These properties are pretty universally non-existent, at least as far as being for sale for the advertised price.

MLS listings have to pass some very important tests. Other agents, and for that matter, regular clients have got to be able to verify that they exist. What is it being offered for, what are the showing instructions. Agents who put properties in MLS without having listing agreements are subject to pretty severe sanctions when it is discovered. Fines, Loss of MLS access, possibly even regulatory action if it's severe enough.

That's not the case with the rest of the websites, the ones that get their listings from somewhere other than MLS. I'm not going to name names, but it's pretty easy to discover whether a site is sourced in MLS or not. I will say that client gateways and emails and IDX sites (such as agent websites that say "search MLS!" and are sourced on MLS. Sites sourced on MLS will still have puffery, but the property exists, is for sale for the listed asking price, and the hard numbers will be as correct as possible.

If the site does not source its listings from MLS, then agents can write up any property they want. In the past month or six weeks, I've had clients ask about

  • properties that were already sold - escrow closed before the ad was written
  • properties that aren't on the market and haven't been for years
  • properties allegedly priced at sale prices from over ten years ago
  • one property that doesn't exist anymore because it was torn down for new development

What is going on is that agents are writing up false listings for the express purpose of trolling for clients. Getting people to call so that they can maybe pick up a new client. This is very subject to the "talking a bigger better deal" phenomenon, because the person that talks the biggest best deals gets the most calls.

But here's the catch: These bigger better deals don't exist. What happens when you find out that deal doesn't exist? When you discover that an agent dishonestly claims to have a property for sale that they don't in order to get your business. Does that sound like the kind of agent you want? Of course, if you've already signed an exclusive agreement by then, you're stuck. Yet another reason to prefer the non-exclusive agency contract, where you can fire that agent by simply not working with them any more.

I have also seen the actual listing agent writing up ads on third party sites for far less than the list price of the property - a violation of fiduciary duty if ever there was one. This isn't a buyer's agent saying "I think I can get it for $X" This is a listing agent essentially repricing the property without consultation with the client. Nor can they have it both ways. If they believe that is a correct pricing of the property, why haven't they persuaded the owner of that, so the listing is priced correctly in MLS?

It is to be admitted that every once in a while - maybe one in a hundred - the property in question is a "For Sale By Owner" that hasn't figured out how to put their property on MLS through some discount service, or is too cheap to spend sixty or a hundred dollars to do so. Neither one of these is a recommendation for the property. If they're too greedy to spend that small an amount of money that will get the property sold better and faster than everything else, that doesn't bode well for their negotiating stance. On a $200,000 loan at six percent, $100 is three days interest, and that's a tiny loan around here. If the property gets sold three days faster by alerting the agents (and all of their clients with automatic feeds) to its existence, that owner is ahead. And if they can't figure this out, or don't care, how likely are they to negotiate in good faith?

On MLS, there are checks. The property is linked to public records. Other agents who know the area can challenge it. Not to mention the fact that the price listed must be the current asking price per the listing agreement. There are penalties for claiming something that is objectively untrue. There is a limit to the puffery due to these facts. Third party sites, not so much.

I suppose I should mention that it's not the MLS name that's important, nor ownership by Realtors. It's the fact that there are mechanisms for verification and challenge built into the website - mechanisms that are easily invoked, and once used, are actually followed up upon quickly with bogus entries being promptly removed or corrected and penalties applied for having put them there. I can send a complaint to my local MLS in about thirty seconds, the bogus information will be gone within 24 hours (usually within 30 minutes if it's during their business day), and the broker who put it there is likely to have some adverse consequences. Those are the important reasons MLS can be accorded some measure of respect.

All of this is quite aside from the fact that Dual Agency is a recipe for disaster, but at least a third of the buyers out there don't know this, because that's about the ratio of buyers that use the listing agent, according to Association of Realtor figures.

But the key feature of the third party sites for these ads is that they are not checked by anyone. The only way to find out if they're BS is by calling - and that's what the agent wants you to do. If they can convert one call in twenty to a client by writing an ad for a nonexistent listing on a third party site, they are way ahead of the game. The other nineteen weren't going to be their clients anyway, and one client with a $150,000 purchase - tiny around here - can put anywhere from $4500 to $9000 in their pocket. But do you really want to work with an agent who got your business by telling a lie?

I wouldn't.

Caveat Emptor

Original article here

We read Searchlight Crusade every day and consider your essays a priceless education in avoiding the major pitfalls in the home-buying process. On behalf of all of us consumers, thank you so much for your hard work!

Please comment on any pitfalls in selecting a property to purchase that is on a community water system. How do we find out how many homes share the resource, how often the water is tested and what the results mean, the GPM rate and whether it's sufficient for usage without any rationing, etc. We've had a long-time driller tell us NEVER to share a well, but this is a community system, not a single well. Unless the system uses only a single well...?

To be honest, there aren't a lot of properties around here still on a well. The water table has gotten too low in the populated areas to make it work. Most of the properties that are on wells are isolated and in rural or quasi-rural settings.

First a little background for folks who may not understand anything about wells. You have to be aware of the well parameters, of which there are three that are most important: "How deep has it been drilled?", "How big is the holding tank?" and "How fast does the pump replenish it?" These aren't the only issues to pay attention to, but they're the ones that are guaranteed to bite you if you don't pay attention. Wells do silt up over time and may need to be re-drilled. Pipes and pumping mechanisms corrode, get old and break down. And water quality is sometimes a very big issue - for instance if the tank at the town filling station springs a leak, and it may even be caused by something nobody knows about. I knew a gas station owner who got fingered by the EPA for a leak and spent 4 years and over $100,000 digging it out, diluting the underground flume he couldn't get to, and everything else anyone could think of before someone discovered an old forgotten military tank left over from WWII that was the real cause of the whole thing. (No, he didn't get any of his expenses back). Not to mention the water may just taste bad. It happens.

Finally, I should also mention that most of the properties I know of that are on wells use septic waste disposal systems. It may be revolting if you think about it, but in some areas you won't have any choice if you're going to live there. People have been doing fine with these systems for quite a while and it's quite safe - but you need to be careful that both systems are completely up to snuff and separated by the appropriate buffers. I'm no expert on what those are, but be certain to check with someone who is an expert before you buy. This can also make it very questionable as to whether you're going to be able to do any expansions you may desire in a legal and safe fashion. Septic systems are only rated for so much, and if you want to add additions, you may need to expand them - if the soil will absorb the extra, and if there's room. Sometimes the soil won't, and there may not be the necessary expansion room even if the soil will take it.

Now, getting to your specific question: Do you know how many wells we're talking about, and what the communal capacities are? Ask yourself how much water you're likely to use, and multiply that by the number of folks on the system. Ask if there are any agricultural or industrial users on the system, and how much water they use. Add in a finagle factor for bumps in demand - for instance, if a main pipe or holding tank springs a leak, one of your neighbors hosts a family reunion with a fleet of RVs, etcetera. If one of the users is agricultural and it's a dry growing season, they're going to put a lot of demand on the system. I haven't encountered it personally, but given that southern California used to be the citrus capital of the world, I've heard older relatives tell me about water wars between citrus growers and between citrus growers and everyone else. It still happens today, even though most agriculture has now left the area.

Now, let me ask what feeds your water supply? What's the source of the water? Is it just rainfall, or is there some permanent stream nearby that feeds it? How is the water table holding up under current and projected demand? Is it holding steady or dropping? Go ask some people that have lived there for a while about dry years and whether they have water worries. Ask about whether there has been more demand placed upon the water available in the past few years. Ladies and gentlemen, my father told me stories about the San Diego River filling Mission Valley from side to side, so there wasn't any way across that didn't involve boats. I remember floods that completely filled the underground garage at Mission Valley Center, right up to the ceiling. In the last thirty years, however, there has been too much demand placed upon the water table for it to flood like that.

My point is this: water tables don't replenish themselves. There has to be water coming in to replace what is used. If there isn't enough coming in to replace what's going out, there's going to be a problem. Eventually, everybody is going to be out of water if this is the case. The only question is when. Do you want to buy into a situation like that? They can drill deeper and all the other stuff; it only delays the day of reckoning and makes it worse. This was one of the root causes of the Dust Bowl back in the 1930s - everyone had kept putting increasing demand upon the aquifer that underlay an area basically several states in size, drilling ever more deeply to be able to water their crops one more year. A tragedy of the commons if ever there was one.

Which segues into another issue: All it takes is a small proportion of nitwits to exhaust the community water source. I've heard that your area is dry - perhaps not as dry as some of southern California, but that it doesn't get a lot of rain due to being in the rain shadow of some high mountains. If a few of your neighbors want to simulate a rain forest, it can leave everyone else without enough water. Exactly how many it takes depends upon the system and how much extra capacity it theoretically has. Even if everything is hunky dory now, all it takes is one water hog buying a property that's served by the system to possibly create problems. So let me ask you what the provisions are for limiting the water of abusers of the system? If you have to get law enforcement involved and go to court for years, where is the community going to get the money? Can you afford your share? Not to mention you would probably like to know where you're going to get water in the meantime. And what happens if the community water authority is run by control freaks? You don't necessarily have to do anything wrong to incur their wrath. Sometimes, all it takes is changing something they're used to, and even though it doesn't impact water use adversely, they'll try and use the water authority as a means of getting back at you (I suppose I should thank Larry Niven for introducing me to the concept of hydraulic despotism at a relatively early age). How big is the community water system? The bigger it is, the more nitwits it takes to drain the system, but the smaller it is, the more likely everybody is to make a good faith effort to get along and the less likely it is that some people see it as a lever for power over others. The issues aren't at all unlike those encountered by common interest developments in the cities, except that it's water rather than parking, recreational access, or loud parties that make it difficult for everyone else to live their lives, and a board that's more interested in its own power than in harmonious administration of common resources for the benefit of all. Unfortunately, these are all depressingly common occurrences.

Caveat Emptor

Original article here

There are actually several different kinds of listing agreements. They get their names from the rights conferred when you sign the contract. The vast majority of agreements concluded are either Exclusive Right to Sell or Exclusive Agency.

Exclusive Right To Sell means that no matter who buys the property, that agent will get the listing commission. There is an intelligent reason why most listings are Exclusive Right to Sell: If I can spend all that money and time doing the work to sell your property, and then you can not pay me for it even though I'm successful, well, let's just say I'm not going to be so enthusiastic about spending that money and that time if the prospective buyer can then go straight to the seller and I get nothing for my efforts. Some agents won't accept other kinds of listings. Other agents will only do so on a flat, up front fee basis, as opposed to deferring their fee unless and until the property actually sells. If you want a good agent to devote their full energy to selling your property, this is the kind of listing contract for you. If there is one particular person you think might buy direct from you, the owner, that can be handled via an Exclusive Right with Exception, which designates one of more persons who are exceptions to having to pay the agent, but even that is a marginal idea. Yes, it might save you a commission. But it will definitely create some doubt in the agent's mind, and less willingness to spend what they might really need to in order to get a sale made. Better to get a solid yes - or no - from that person who is an exception ahead of time. If they really want the property, they won't have any problem committing saying they want it when you ask them. And you can't sell to more than one person, right? So you shouldn't be wondering about somebody you found when you contact an agent. And before you condemn agents for acting like this, ask yourself how hard you would work at your job in order to maybe get paid, or maybe not, even if the job is successfully completed.

Exclusive Agency means that you won't pay agent commission if you sell it yourself, but you will pay if they, or some other agent, brings you the buyer. Any agent with a buyer is presumed to have been procured through the listing agent's marketing efforts. Nonetheless, this does allow for random people to knock on your door and buy the property direct from you - despite the fact that the listing agent's efforts were what alerted them to the existence of the property. Since most agents have been burned on this one or know someone who has, few agents want to accept this style of agency without requiring you to at least pay for their efforts, and they are mostly not the top-notch ones. But if you really want to exercise the escape clause in having to pay the agent, count on being on your own through the negotiations and escrow process. A very large proportion of prospective buyers who will go around your agent to negotiate with you directly are sharks, unqualified buyers unable to buy, or possess some other characteristic that's going to cost you a large amount of money, time and frustration. Real estate sharks like being able to cut an agent out of the transaction, because if you negotiate a direct sale, your agent is certainly going to pack up the tent and leave, which then leaves the shark a clear field with nobody who knows how to deal effectively with that shark.

Limited Service listings are popular with discounters, but they typically do not work on the basis of commission delayed and contingent upon a successful sale. They want their money up front. Cash, check, or, sometimes, charge. Furthermore, the reason they are called limited service listings is because they are not fulfilling all of the services that real estate agents are normally expected to fulfill, and their responsibility to you is also much lower. Might be a good thing to do if you're a former real estate agent who knows how to do it, but the average client doesn't know how much they don't know. The pitch is "save money!" but that's not how it usually works out. When the agent on the other side is a discounter, a good buyer's agent knows that their client is going to end up very happy - especially once it's been on the market a while. The same thing applies when a good listing agent gets someone represented by a commission rebate buyer's agent. In both cases, the difference in sales price is likely to be several times the commission difference. One more thing I should mention: A lot of both types make their living by shifting their work onto the full service agent that they presume is going to be on the other side of the transaction. What happens if there is no such full service agent - in other words, if the other side is using a limited service discounter also? The work needs to get done, and neither agent is going to do it. You're going to do it yourself or pay a lawyer - and paying a lawyer to avoid paying a real estate agent full commission is like spending a dollar to save a few pennies.

Open Listings are listings where there is no single agent that has a right to get paid. Of course, no one has the responsibility to act on the owner's behalf, either. Not to market the property, not to make certain you get the best deal possible, and not to represent your best interests in other ways. Therefore, most agents and discount listing services usually want a flat fee in advance for open listings. It may be small or relatively small, but it's cash upfront. There may or may not be a listed payment to buyer's agents in open listings, and therein lies the horns of a dilemma. You don't list a buyer's agent commission and buyer's agents avoid you because there is nothing in it for all of their hard work. You list a low one, and they're still going to take their buyer's elsewhere. You list a good one, and they'll bring their buyers all right - while working on their buyer's behalf to get them a better deal. Kind of like an arms race, except it's not life or freedom at stake, only money. Still, you just invited a bigger, better equipped army than yours into the fight, on the other side.

Probate is a special purpose listing when the property is being controlled by the estate of someone who died. Probate listings almost always go to full service agents because the probate judges are looking to get the best deal possible. Furthermore, the probate attorneys and executors aren't going to do the work, and the deceased definitely isn't going to do the work. There are often debts and there are almost always tax bills, and there are always heirs looking to get the most money possible. Probate is a real pain to deal with, and it takes forever, because the courts are involved. Nor are they necessarily great deals. For most local probates as of this writing, the court or the heirs have set a minimum bid that's more than the property is worth, because they evaluated the property on the basis of the prices when the owner shuffled off the mortal coil. However, with declining values, they're only hurting themselves. There's one not too far from my office where I had a client it would have been perfect for - except that the minimum bid is at least $40,000 more than the property was worth on the market back then. It had been on the market for a good long while before I found it, and it's still on the market today, more than six months later. If they'd priced it $20,000 lower, it probably would have sold within a month of going on the market. By the time I found it, prices were diverging by $40,000. Now, it's more than that.

I'm the sort of agent who believes in competition, and an exclusive right to sell kills competition once it has been signed. Nonetheless, there are enough countervailing reasons why it is in your interest to sign an exclusive right to sell. I may not like it, but you can have agents compete before you sign a listing agreement. Your house is a half million dollar investment around here. You probably want to interview at least as many agents as you would visit stores when you're looking for major appliances, before you trust anyone to handle that kind of investment. The difference in likely results is a lot more than the entire cost of a refrigerator.

Caveat Emptor

Original article here

I find it fascinating the number of people who will claim that because no college degree is required to become a real estate agent, that agents can't possibly be worth any significant amount of money.

The reason no college degree is required is because no college curriculum can teach what a good agent needs to know.

Oh, there are license preparatory schools in abundance. They'll teach you what you need to know to pass the licensing exam. You do need to know that stuff to practice real estate, but doing a good job on real estate is a lot harder than answering multiple choice questions on a government exam. You have to understand how it all fits together. No school in the world teaches that. Real estate law and practice is an extremely complex profession, and every situation, every real estate transaction, is different because no two properties are the same, no two sellers are the same and no two buyers are the same. There are common recurring elements, but there is not one line of the standard eight page purchase contract (in California) that there isn't occasional reason to change via negotiation, and there isn't a school going that teaches what those exceptions are.

Popular media loves to gloss over what agents do. People see the media depiction and think they can do it. Ladies and gentlemen, the reason the media glosses over it is because it's boring detail work, and most of the dramatic interactions take place between pieces of paper. When's the last time you saw a legal thriller that spent a proportional amount of time on all the boring background work that goes on? Same principle. I was an air traffic controller for twelve years and I have yet to see a single media program get that right, and ATC is considerably more interesting to the outsider. People are not on the edge of their seats to see if form WPA or the addendum controls in this instance, the way they are when there's two 747s on a collision course and Jack Bauer (24) has to save the day - but the real estate agent has to know, and if they don't know, they have to find out without anyone giving them the answer. It's not exciting to watch the agent visit the comparables to compare features and condition and figure out what a good offer or a good price is. It might be good drama to watch a good listing agent talk a potential client into listing for the right price as opposed to their fevered dreams of avarice, but few media writers are that good - and even fewer have a clue that this is a good thing to be doing. It's definitely not drama the way a good agent closes with prospective buyers, the best way being to show them they've already convinced themselves that they want it.

Most people also don't have the critical skill necessary for an agent - the skill of betting their paycheck on weeks or months of work that may or may not move to a successful conclusion. If the transaction doesn't close, we get nothing. How many doctors you know work on that basis? Lawyers? Even the ones that work on contingency want their expenses paid, and that includes office staff, and they're not likely to take contingency cases without a very large prospective payoff. Nobody but agents bets weeks to months of their time for such a small payoff. The whole mindset is completely foreign to educational faculty. Grant application papers, yes - but they're getting a regular salary while they write those. The fact that you've got to go out and get hired at least a couple times per month in order to survive is also completely outside their frame of reference, as well as most other members of modern society. For academics, even if they're turned down for a grant, they've still got money coming in. Even if they get refused tenure, they only need to get hired again once to have a new regular paycheck rolling in.

Most importantly, real estate markets are both hyperlocal and changeable. I've written a series that's eight or nine articles long about the neighborhoods of La Mesa, a city of about 60,000 people, and I have at least as many more to write. Those markets are different today than they were three months ago, and three months from now, they'll be different again. The only way you can keep track of what's going on in those markets out there is by being out there in those markets and living those changes. You can't do it from the inside of a college classroom, grading papers, and agents can't get this information from a college professor because that college professor doesn't know. That property that sold last week for $487,000 - what condition was it in? What amenities did it have? How big was it, really? Were those floors good hardwood or cheap pergo? This property right here that meets these client's criteria - What are the competing properties, and where does this one shine by comparison, and what are the problems with it? (There are always problems with every property). What were the recent sales really like? You don't know unless you were there. Old listings on MLS don't give you a good idea. It takes a good agent maybe two weeks to learn not to trust MLS claims, MLS pictures, or MLS video. A bad agent might learn, they just don't act like they've learned. It's a very rare consumer who doesn't take it as gospel.

This segues in to the war of information. Listing reports are, in a very real sense, a battlefield of information. You can only learn by experience what is and is not important, what had damned well better be correct versus what's in there for purposes of puffery, what's important and real, what's useless and unimportant, and what's in between. What, you didn't realize that sellers and listing agents want to present the property in the best possible light? Ladies and Gentlemen, they're practicing informational warfare with the goal of making this house seem like the bargain of the century. Lest you think I'm getting all holier than thou, I do this too, when I list a property. It's my contractual fiduciary duty to sell my listings for the highest possible price on the best possible terms in the least amount of time, and it is my job to tell the property's story in such a way as convinces someone to buy it on those terms. And roughly a third of all buyers use the listing agents as their buyer's agent. Scary, when you think about it. Do schools teach how to fight that informational war? Maybe the military educational establishment does, but nobody else, and they don't show how the principles apply to real estate, and even the marketers who've learned a good informational offense are sometimes stumped as to providing any defense whatsoever. Furthermore, an inappropriate or overly aggressive response to the situation can sink you worse than doing nothing at all. Did you learn all that in college? Me neither - and I took marketing. I had to learn how to handle the informational war by doing it.

Admittedly, a lot of agents don't know, either, and won't make the effort to learn, which is why I'll back a newbie with the right attitude and a brand new license over someone with thirty years experience and the wrong attitude any day of the week. Nothing says "bozo!" like the agent who brags about thirty-seven years of experience and acts like a deer in the headlights when he's presented with facts he'd rather pretend don't exist. But the point is this: the good agent didn't pick it up in school, and the rotten agent thinks they already know everything there is to know because they've got the license and one or two of those meaningless NAR designators designed to gull the public as you sit through 18 hours of class to put initials after their name. I just did six hours calling around and reading today and yesterday on a subject I researched and wrote about two years ago, and learned some things I didn't know. The final answer wasn't what my clients wanted, but I'd rather find out now, before we've made the offer than after we're in the middle of a transaction and my clients are out appraisal and inspection money and their deposit is at risk. I know for a fact that the answers to my research weren't in any NAR class, or anywhere else in any educational curriculum. Real estate is one of those fields where you've got to be prepared to learn as you go, but unless you've got the background of detailed knowledge of the field, quite often you run into a landmine you never knew was there, simply because you weren't looking for it. Someone a little more complacent than I am would never have questioned the obvious answer, which turned out to be wrong (It had to do with a municipal first time buyer program). My client is still questioning it, it's so counter-intuitive to a layperson, and I don't blame her. But there are huge and obvious traps that claim large numbers of victims. For example: the roughly one-third of all buyers who don't have a buyer's agent at all, using the listing agent to facilitate the transaction.

It's very hard to dodge landmines you're not looking for, and once the explosion happens, the damage is done. To be fair, even the best agent hits a landmine sometimes. But I'd rather be avoiding the mines in the first place than doing damage control afterward, and the odds of doing that are better if you've got someone on your side who knows what to look for, and is in the habit of questioning every irregular feature of the landscape they can before you drive over it, and who recognizes what an irregular feature is, because it's the hazard that you don't understand is a hazard that gets you. I say this regularly because it bears repeating at every opportunity: with the dollar amounts at stake in real estate, there are a large number of people out there who regularly and easily make multiple tens of thousands of dollars extra because the people on the other side of the transaction weren't careful enough.

Caveat Emptor

Original article here

Not too long ago, I started negotiating for a property. I did extensive research online, and and I and my clients visited several competing properties. We made an offer that was a little under 90% of the asking price, and I justified it in a cover letter with several direct comparisons. The property has potential - but my clients were going to have to really work at realizing any of that potential - and I don't mean just carpet and paint.

The owner's response? They did come down a little bit - about 2% of the asking price. But all they said was, "We want $X"

That's it. No, "But the kitchen is beautiful, it's 500 square feet more than those, the location prevents it from getting socked in by traffic noise." None of which was true, but are examples of the kinds of things they could have said.

Instead, just an ultimatum. I don't believe anyone can legitimately call that "negotiation", unless you want to include the sense that a flying creature with feathers that waddles on land, swims on water and goes "quack" can be labeled a Doberman Pinscher. It's still a duck, no matter what you call it, and that's still an ultimatum. If you look at diplomatic ultimatums, what spot do they occupy in the hierarchy? They're the last step before war. Similarly, in real estate, they're the last step before walking away. They should be a sign that negotiations have essentially failed. They're certainly not the way to start successful negotiations.

If you want more for the property, tell me why in the heck you think I should give it to you. What you want (more money) is irrelevant. It's counterbalanced by what I want - which is the exact opposite, to pay less money. Start a conversation for crying out loud - that's what I was trying to do. I didn't expect them to take my first offer, but my clients have the ability and interest to give them what they want - cash - for what they have: a property they don't want. Even if my clients are getting a loan, it still amounts to cash for the sellers. That's what any offer is really saying - "We're interested in buying this property, if we can reach an appropriate agreement." The initial offer is your bona fides as to what sort of agreement you're willing to reach. I don't make first offers I expect to have accepted, but neither do I make hopeless low-balls unless it is just a shot in the dark and I don't care if it "poisons the well" of possible rapport. I do want a reasonable response, and I do everything I can to encourage such a response rather than an ultimatum.

Duelling ultimatums is kind of like throwing matter and anti-matter at each other. Often, there's an explosion, and even when there isn't, nobody is happy because the radiation when they combine poisons everything. If you do end up with a purchase contract, there's still no rapport, so anything that comes along later is likely to cause the whole thing to fall apart. Why in the nine billion names of god would anyone want to do that? You don't get any empathy, you don't get any respect, and you're very likely not get a transaction, which means the buyer is unhappy, the seller is unhappy, and both agents are unhappy. Nobody is happy. It's nearly as certain as gravity. Why would you want to "negotiate" by dueling ultimatums when you know it's going to cause you and your client to end up unhappy?

I know how this happened. During the seller's markets, sellers had all the power. For a couple of years, there were dueling offers on almost every property on the market that was even vaguely reasonable in asking price. Listing agents got used to being able to dictate terms, and buyer's agents went along, in part because they could only hope to extract one or two things and going along with everything else was the only way to make it happen, and in part because the next time they made an offer to that listing agent, they didn't want it rejected out of hand. And it's taken three years of a buyer's market to start to get the message across that buyers are in command right now, buyers have needs of their own, and in the current environment if you don't give one buyer what they need in order to qualify or want in order to prefer your property to another, you may not get another buyer. You want to play hardball with this buyer, they're going to go down the street to the competing property, leaving you as the seller high and dry.

We're moving back to a more normal state of affairs now, but this doesn't mean sellers can play the autarch again. You have equity in a real estate property. You can't spend it at the grocery store, the gas station, or put it into your 401k. It's a real pain to swap it for another property, and if you're not willing to dive in and negotiate, you're not going to do well there either. You need the cash from a buyer - not necessarily this one, but how many do you think you're likely to get? There are almost always more properties for sale than there are people looking to buy them, and more coming onto the market every day. You can compete strongly enough to convince one buyer that they want your property instead of a competing one, or you are wasting your time. Effective negotiations are a large part of that competition.

A negotiation is first and foremost, a conversation. You ever had someone you got off on the wrong foot with, but then you had a conversation and found out they're a pretty swell person? Guess what? When you negotiate in good faith, both sides stop thinking of the other so much as "the enemy" and start to see each other in more human terms. This is good.

Negotiations are also an argument. A civilized refined argument. Many of us have forgotten how to have an argument that doesn't end up with lost tempers. You can find examples of this on both ends of the political spectrum - a sort of take-no-prisoners way of talking past each other - argument by slogan. Argument by putting the worst possible spin upon everything the opposition says or does (and conversely, the best on everything your side says or does) is worse than argument by slogan, as it shows actively bad intent, rather than just closed ears. Sometimes, one side is entirely in the right (or the wrong), but that's not the way it generally happens. Most times, there's evidence on both sides and some darker and lighter shades of gray involved, some justice and points on one side versus some justice and points on the other. In politics, the posturing is showmanship intended to woo third parties, but in real estate negotiations, the transaction is entirely dependent upon the two parties coming to an agreement both sides think makes them better off. Neither one can force the other to sign on the dotted line.

And what happens when you recognize the virtue of something the other side says? Yes, you give away something, but you get something as well. The other side takes a step back and says, "Wait a minute. This person is not just a member of the ravening horde, simply intent upon taking everything they can get." Yes, I'm trying to get everything for my client that I can, but if I try and get it by ultimatum, what happens when the other side is in a stronger position? If I try and get it at sword-point, what happens when the other side is better with sabers than I am? Even the very best lose at violence sometimes. This is why the idea of negotiations started - both sides end up better off and nobody ends up dead. The whole "defeat the vikings/huns/mongols" idea goes out the window when they start seeing you as human. Maybe when you say you see one of their points, maybe they come back and acknowledge some of your points as valid, and they give up something too. Guess what? The more both sides do this, the more likely the negotiation and transaction is to succeed.

Not everybody will negotiate in good faith. You always have the option of walking away from the negotiation table if they don't. I'm walking away less often these days than formerly, but it's still on the table. Knowing when is a matter of judgment and experience, and maybe training if you can find someone good enough, but you're not going to learn it all in one transaction. Sometimes walking away will knock some sense into the other side, most often when you've seen the virtue of some of what they're saying and they suddenly realize that in order to salvage this deal they want, they're going to have to get with the program. Sometimes, it doesn't. But in that case, there are other properties and other buyers out there that will be a better fit and give you a better bargain. If there isn't something better, then you shouldn't have walked away. It's as simple as that (Pssst: You can go back. Really. It's not easy, and you're likely to end up less well off than if you hadn't walked in the first place, but if it's still the best fit and the best bargain out there, you should).

So don't just trade ultimatums. Tell the other side why what you're asking for is necessary, reasonable, or both. Listen to what they say in response, acknowledge not only that you heard the response, but that you might even see the justice of some of it, if you can. They'll usually do the same. Give some ground where it is appropriate, and I am confident that your negotiations will come out better, as mine do, because we're not going back to a situation where one side dictates to the other any time soon. But you neither I nor anyone else can hold a conversation with the other side of a transaction if the other side is unwilling to hold it. If you are always willing, and always trying to start such a conversation, the odds of a successful negotiation increase dramatically.

My transaction? I think I've finally persuaded them to actually talk to me, rather than just trading ultimatums, both sides still have the ability to talk it over in private and think about it for a day or two. I was expecting an answer to my most recent proposal the day I originally wrote the article. We did eventually come to an agreement and consummate the transaction. Everybody ended up much happier than they would have had I not been able to talk them away from their ultimatum.

Caveat Emptor

Original article here

What Does Escrow Do?

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This is a question that gets asked a lot.

Escrow is nothing more or less than a neutral third party that stands in the middle of a real estate transaction and makes certain all of the i's are dotted and t's are crossed. They make certain that all of the terms of the contract have been met, and then they make certain that everyone who is a party to the transaction gets what is coming to them via the contract. Given the complexity of a real estate transaction, you want this. In California, that's an eight page basic contract. Do you want to go through and verify that it's all done? Suppose there wasn't an escrow? Given a half million dollar transaction, do you think it might be possible that some people would try to arrange to be paid without handing over a good Grant Deed or clear title, or that they might try to pay with nonexistent funds? Escrow puts a stop to someone not giving what they agreed and still getting what they want.

Many times folks complain about the escrow company or escrow officer, when it's not escrow's fault and the problem lies elsewhere. The escrow company is obligated to make certain all of the terms of the contract have been followed, not just most of them. I've talked before about how if the contract is not accepted exactly as proposed in the most recent modification, you don't have a deal. There cannot be any points of disagreement, or you don't have a purchase contract. Similarly for escrow. Usually problems that the client sees are not the escrow officer's doing, but rather someone else's. Quite often, the person complaining is the person who caused the problem. The escrow officer can't do anything without mutual agreement. If the loan officer doesn't get the loan in a timely fashion, it's not the escrow officer's fault. If the agent doesn't meet the inspector or appraiser so they can get their work done in a timely fashion, it's not the escrow officer's fault. If you can't qualify for the loan, if you have to come up with more money, if you don't get as much money as you thought, it's not the escrow officer's fault. But in many cases, the escrow officer makes a convenient whipping boy for the sins of others.

This is not to say that it's never the escrow officer's fault that something goes wrong, but if one party or the other is not in compliance with the terms of the agreement, the only options the escrow officer has are to get an amended agreement or get them into compliance. Nonetheless, I have seen many transactions fall apart because the escrow officer was a bozo. The really good escrow officers are like chess masters - several moves ahead of the whole game, and when I find one, I want to use them all of the time. Unfortunately for buyer's agents, the seller often has the real control over where the escrow transaction goes, and when the seller's agent decides they want to use some bozo, that's probably where it's going. I can do all kinds of things that should move them, but the bottom line is they want to use their broker's pet escrow (who is more likely to be staffed by bozos than any other escrow company, as they've got captive clients), I as the buyer's agent cannot force them to go elsewhere. It's a violation of fiduciary duty for them as well as a RESPA violation, but if I complain to the appropriate agencies, what are the chances of my client getting this property they've decided that they want?

As the escrow process moves forward, the escrow officer collects documentation that the various requirements of the contract have been fulfilled. When they have all been fulfilled, the transaction is ready to close and record.

The loan is usually the last thing left hanging after everything else is done. There are a variety of reasons for this, most obvious of which is that the loan's conditions are likely to include everything else being done before the loan funds. Appraisal, grant deed, inspection, etcetera and ad nauseum. When the borrower meets underwriter's guidelines, they go and sign loan documents. Signing loan documents does not mean the loan will fund, and it is a major misapprehension to believe so. It is legitimate to move conditions from prior to docs to prior to funding if doing so serves some interest of the client, such as funding the loan before the rate lock expires. If they go to documents before the client's income and occupational status have been verified, that's an unethical lender looking to lock the client into their loan or none at all. Always demand a copy of outstanding conditions to fund the loan before you sign loan documents.

Once the loan documents are signed is when the real fun begins, because that's when the underwriter takes a step back and the funder steps to the forefront. The loan funder is an employee of the lender who fulfills much the same function as the escrow officer - make sure all of the conditions have been met before they release the money. The loan funder has responsibility only to the lender, though, not the borrower, not the seller, not anyone else. It's their job to ask such questions as when the homeowner's insurance got paid (and where is the proof?), has the final Verification of employment been done (assuming they aren't required to do it themselves), or work out a procedure whereby they get proof that all of this stuff is satisfied before the funds get released. If the loan officer has done their job correctly, the funder is working primarily with the escrow company. If I have to talk to the funder as a loan officer, that's usually a sign I should have worked a little harder earlier on, because my part should be done before the funder gets involved.

Once all of the conditions to fund the loan and close the transaction have been met, the escrow officer records the transaction. In point of fact, it's the title company who usually is set up to record the documents, something they will charge for. Until the transaction is recorded, the lender can pull the funds back. It's not the escrow officer's fault (in most cases) if they do this. It's because something about the borrower's situation changed, and now the lender is unhappy and unsatisfied with the level of risk of losing some or all of their money. Only rarely is it caused by a bozo of an escrow officer who doesn't understand what's going on, and tells the funder something that causes the lender to get nervous. Remember, the lenders are loaning a lot of money, and the list of reasons why lenders justifiably get nervous is fairly long, especially as a certain percentage of all mortgage applications are fraudulent.

Once the loan is funded and the transaction recorded, the escrow officer has some final stuff to do. Send out the checks to everyone who's getting one, complete with an accounting of the money. Make certain all charges relating to the transaction are paid, for which they will usually keep a small "pad" for last minute expenses, so that the buyer and seller are likely to see a small check a few days later after the escrow officer has made certain everything is paid to the penny. And so ends the transaction, and this article.

Caveat Emptor

Original article here

I keep getting search result hits for the string "fsbo horror." It's an amalgamation because I haven't done any postings on this specific subject.

Both buyers and sellers have problems relating to For Sale By Owner issues.

For sellers, the largest issue seems to be properly disclosing all relevant items to satisfy the liability issue. There are resources available, but the question is whether the you took proper advantage of them and made all the legally required disclosures on any issue with the property there may be. If you have an agent that fails to do this, you can sue them. If you are doing it yourself, the only one responsible is you. You are claiming to be capable of doing just as good a job as the professional, and if you didn't do it right, the buyer is going to come after you. You have all the legal liability.

Now I'm going to leave the marketing and pricing negotiating questions out of the equation, because with a For Sale By Owner most folks should understand that in return for not paying a professional to help you, you've got to do it yourself. What many For Sale By Owner folks seem to fail to understand, however, is that if you haven't met legal requirements, the real nightmare may be just beginning when the property sells.

Let's say it was something fairly innocuous, like seeping water from a slow leak you didn't know about. A couple years pass, and now there's mold or settling. Perhaps the foundation cracks as a result of settling. Bills are thousands to hundreds of thousands of dollars. Your buyer goes back and finds that your water usage went up by fifteen percent in the six months before the sale. He sues, saying that even though you didn't know, you should have known based upon this evidence. Court cases are decided based upon evidence like this every day. A good lawyer paints you as maliciously selling the property as a result of this. Liability: Steep, to say the least.

Now, let's look at it from a buyer's prospective. You have a choice of two identical properties. In one, a seller is acting for themselves, in the other, they have an agent. The price may be a little cheaper on the for sale by owner one, or it may not - usually not. The most common reason people do for sale by owner is greed. But when I'm looking at a for sale by owner, the question that crosses my mind is "Are they rationally greedy, or are they just greedy?" Are they going to disclose everything wrong or that may be an issue with the property? At least here in California, the agent has pretty strong motivation to disclose if something is wrong that they know about. If they don't, they can lose their license, and even if they keep the license, they have potentially unlimited personal liability. If they did disclose, they're probably off the hook, and even if they aren't, their insurance will pay for the lawyers, the courts, and any liability. If there's one thing all long term agents get religion about, no matter their denomination, it's asking all of the disclosure questions.

This is not the case for many owners selling their own property. Some few are every bit as conscientious as any agent. A good proportion, however, are intentionally concealing something about the property. What's going to happen when it comes to light? If there's an agent, there's a license number, a brokerage who was responsible for them, and insurance. The latter two are deep pockets targets for your suit, and you can find them. Once that owner gets the check, you can find them unless they're dead, but they may not have any money. Even if they do have money, it may be locked up and inaccessible via Homestead or any number of other potential reasons.

One of the reasons that I, as a buyer's agent, am always leery of a for sale by owner property is that I have to figure that first off, there's a larger than normal chance that this property has something wrong that's not properly disclosed. When that happens, my client is going to be unhappy. When my client is unhappy, they are going to sue. The first target is the seller, but if they're gone or broke, who does my erstwhile client come after? Me. So I have to figure that not only is there a larger chance of there being something wrong, I have to figure there is a larger chance of me being held responsible for something I took every step I legally could to avoid. For Sale By Owner properties usually have to be priced significantly under the market in order to persuade me that not only am I doing the right thing by my clients by showing them them this property, where my clients have to pay my buyer's agent fee out of their pockets rather than out of the selling agent's commission, but also that the heightened risk of future problems is worth more than the price differential to my clients. Unless the answer is a strong solid "yes" that I can document in court if I have to, I'm going to pass it by in favor of the agent-listed property next door or down the street. That's just the way things are.

Caveat Emptor (and Vendor)

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