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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)

Original here


This has always been a portion of the market, but right now, more and more people are emphasizing it, or at least the ones who are able.

Actual Rent to Own is rare these days, a sign that the market is being driven by sellers, selling to poorly advised buyers. I can't remember the last time I heard of one happening, because there is an actual ownership interest right away, and the buyer is entitled to a share of the money put into rent, whether or not the deal is actually consummated. On the other hand, Lease Option seems to be a common Idea of the Moment, because the prospective buyer basically gets nothing if they don't want to buy, or if they cannot qualify for the loan.

Just like any other purchase contract, everything about these is negotiable, but the basics are thus: Buyer and seller reach a purchase agreement, with the date of actual purchase delayed by some amount of time. In the meantime, the agreement is for for the buyer to rent the property, usually for an above market rent. Part of each payment gets set aside for the buyer's down payment if and when the option is exercised. The difference between Rent to Own and Lease with Option to Buy is that in Rent to Own, a part of each payment is actually due back to the buyer if they decide not to buy, whereas in Lease with Option to buy, that money is just gone if the option to buy is not exercised.

Why do this?

For the prospective buyer, it's a way to engage in forced savings for a down payment. If rent is $2000 per month, with $1000 being credited to the buyer and $1000 in rent, over a period of two years, you've got a $24,000 down payment, and this is treated exactly like any other down payment, except that the seller already has it, so you only have to come up with the purchase price less this down payment money. This is useful for people with rotten credit and/or poor savings habits, especially if credit is expected to improve within the time frame of the agreement. It's horridly inefficient, and I've never seen a residential situation where it wasn't better to buy outright, but if you have a problem qualifying for a loan or saving for a down payment, this is one way to go about dealing with that problem. With 100% financing currently dead except for VA loans and a few Municipal first time buyer programs that run out of money at warp speed every time they get a fresh allocation, this is one way for people to get their foot in the door of property.

For the seller, it's a way to create a captive purchaser. These buyers have rotten credit and/or zero dollars for a down payment. Nobody else can do business with these buyers, because the buyers will not qualify for the necessary loan. They have Hobson's Choice: This one or none at all. This creates bargaining power for the seller even in the strongest of Buyer's Markets, because most sellers in such markets do not have the ability or willingness to offer a Lease with Option to Buy. They're not as powerful as offering a Seller Carryback, but they definitely give sellers pricing power they would not otherwise have. You can get an above market rent and an above market price, to boot, and the prospective buyers are more motivated than your average tenant to take good care of the property.

So why isn't everybody doing them?

First of all, the reason the seller has the property on the market is because they want or need to sell now, not two years from now. With either rent to own or Lease with Option to Buy ("Lease Option"), they aren't getting any equity out of the property now to enable them to buy their next property. Furthermore, they've still got all of the expenses of owning that property. Finally, the reason that buyer can't buy anything else is because the most generous assessment of their financial skills possible is "Needs improvement." Bad credit does not, generally speaking, happen like a lightning strike out of a clear blue sky. It happens because they don't pay their bills on time. There are some exceptions - mostly people who had major unexpected medical expenses, but there are limits to how badly one account can hurt your credit. Chances are high that they'll be late with the rent - which is money you're counting on to pay your mortgage, your property taxes, your insurance, etcetera. It takes a certain financial solvency to be able to offer these. Not to mention that until the tenants exercise the option to buy, you still own that property, which means you've got all of the headaches and obligations of being a landlord, or you're going to have to pay someone else to take care of them. Repairs, maintenance, etcetera.

For buyers, the prospective pitfalls are even worse. First, you're paying above market rent and agreeing to a price that is usually significantly above the current market. It might be below market when you actually exercise the option, but right now, it's almost certainly a goodly premium over the price that you can get similar properties for - because they're offering something extra that most sellers are not willing or able to offer, and if you didn't need it, you wouldn't be willing to pay for it, right? If you don't exercise the option to buy, the extra rent money you fork out is basically gone. There has to be equity in the agreed upon sales price, and there has to continue to be actual equity. No lender in the known universe is going to approve a short payoff for a Rent to Own or Lease Option, no matter how ironclad your contract. If the current owners lose the property to foreclosure, you're basically SOL. And it wouldn't be the first time sellers pocket the rent while not paying the mortgage, or even taking a cash out refinance. I'm not certain what the law is on this point, but I don't see a way to keep the current owners from doing any of this. It's a good idea to record the option, but that doesn't mean anything if the lender forecloses or is owed more money than the strike price. You can sue, but suing broke people is throwing more money down a black hole from which you're not going to recover it. Finally, and here's the rub that kills a very large proportion of the prospective buyers who enter into these agreements: You're still going to have to qualify for a loan for the rest of the agreed upon purchase price ("strike price") before the option period expires. Usually the market goes up, but sometimes it does go down, and the appraisal is less than the purchase price. If you can't make up the necessary difference between the biggest loan you can get and the strike price, you're not going to be able to buy. For that matter, if interest rates go up significantly, you could find yourself unable to afford the payments on that loan. In fact, these two phenomenon usually go together. Rates go up, therefore payments and cost of interest on the same number of dollars rises. People in the aggregate cannot afford to pay as much for real estate as they could formerly, and therefore, prices fall. Basic economics.

There usually is a significant deposit made, as well. Not as much as a regular purchase contract, but just because there's a time delay involved doesn't mean the seller isn't going to demand a deposit they can keep (maybe), or rent to a tenant without a deposit. The rules on whether they can keep a tenant's Rent To Own or Lease/Option deposit are also somewhat different and more advantageous to the current owner than California's renter-landlord law generally is (Don't ask me for details - I'm not a lawyer. I'm mostly parroting what I've been told on this point).

The prospective seller is entitled to do all the due diligence than any normal prospective seller or landlord is, and ditto the prospective buyers/tenants. Personally, I would want that inspection contingency period to run the full duration of the option period, and there really isn't an effective loan contingency period, as the owners already have the prospective buyer's money, and most Lease Option contracts are pretty solid upon the point of not getting it back. This point is negotiable, but usually that money has already gone to pay mortgage, property taxes, etcetera. What did I just say about suing broke people?

Rent to Own real estate and Lease with Option to Buy real estate are always a risk for both parties. The tricks are myriad, at the very least. This is not something to try without a very sharp agent representing your interests, and as for dual agency in this situation, I have it on excellent authority that slow roasting yourself while basting with acid is less painful for prospective buyers. With that said, if the situation is right and both parties act in good faith, it can be a way to make both sides of such an agreement very happy, when otherwise they would both have been very unhappy because neither could get what they want. The seller gets an above market price, albeit delayed, and a much improved cash flow in the meantime. The buyers can buy property, where otherwise they would not be able to.

Caveat Emptor

Original article here

Dan,

Okay, so now I'm in the process of just making an offer on a house and it's already getting confusing despite all my reading. It would have been worse has I not spent all this time reading but just when I think I have a solid grasp of this process something else springs up.

The agent is saying that with the offer we have to say who the lender is and if we change lenders we have to ask the seller for permission, basically, since it's a part of the offer. Is that normal?

It's a short sale (seems like everything we look at is!) and on the home there are two loans. This is what I heard from the sellers agent. The first lender signs off on just about any offer (and so far I'm told there are offers all the way to $189k) because for the most part they're going to get all their money back. The second lender has not signed off on any offer so far but the sellers agent says if you offer X (it's $199k in this case) they'll take it. First of all, how can the sellers agent even go into details like that? (And he told ME because I called him after I talked to our agent because I couldn't believe she knew all those details about first and second loans and what the second lender would settle with.) Second, how would he know how much they would settle for and third, why would that lender tell anyone what the lowest they would take is? Seems to me this is all speculation on what that second lender might do.

Okay, so the asking price is $199k and my agent knows we have about 3.5% saved, that's it! So we go and get pre-approvals from lenders for $200k. So far so good. Then we find a house we like and the asking price is $199k. And we lean that if we offer the asking price chances are it'll get accepted (usually we learn that there are 3 offers already and we need to offer more . . . yes, even in the down market!). Once I finally get over the fears and decide to do it the agent tells me we should offer $204,500 to cover closing costs. WHAT? I'm confused again.

Any light you can shed will be greatly appreciated.

I don't know much about your local market and its current state. Some things are appropriate in some buyer's markets, but will only get the door slammed in your face in seller's markets. On the other hand, some things are necessary in seller's markets, but are giving away far too much in buyer's markets, and there is an entire continuum between buyer's markets and seller's markets. Handling offers and negotiations in a manner inappropriate for the current market will pretty much guarantee failure, either by asking for something so outrageous that the door metaphorically gets slammed in your face, or by giving away all sorts of things including money that there is no need for. To know what is and is not appropriate, you need an agent who knows your local market, who's willing to really work on your behalf, not just fax offers back and forth.

As far as the lender goes, I have NEVER named a buyer's lender in a purchase offer, and I'm not about to start, for precisely that reason - and the fact that it's none of the seller's business. But it might conceivably be part of the standard contract in your state, for reasons I don't understand, being a California boy. Some state laws are a bit, shall we say, different? On the other hand, some lawyers I'm aware of could build a serious case that this particular item is a RESPA violation, which is federal law and applies everywhere in the US.

It's easy to figure out approximately how much they owe. The original dollar amount of existing liens is public record, everywhere in the US. From there, you can make a pretty good estimate of how much they owe. Not that it's generally a good idea to focus on what is owed. Whether it's free and clear, or upside down, the property is only as valuable to you as it is. You're not going to pay $400,000 for a property that's only worth $200,000 if they're upside down. Neither is there any reason to be willing to pay less if they own it free and clear. It's still worth what it's worth, and failing to understand that, by either the seller or the buyer, is a recipe for failure. Buyers do not care what a seller "would like to get," and sellers don't care about what a buyer can afford except as it applies to the question, "Can they afford this property?"

A short sale is a short sale is a short sale. Unless there are reasons like "pretty much everything is a short sale", buyers should avoid short sales. Even done right, it's a month and a half or more process of the lender trying to beat everyone up for more money by wielding a VETO. If you do decide that you want that particular property badly enough to fight through the short sale process, I wouldn't start by accommodating the lender. They're still going to try to beat you up, only they're starting from a better point for them and a worse one for you.

As far as over offer to cover seller paid closing costs: We do live in a net world. Are you asking for seller paid closing costs? You shouldn't if you don't need to, but if you are, it's kind of like an equation. If X, a price they will accept on an offer without seller paid closing costs, equals $200k, then X plus $5000 for closing costs is $205k. Actually, since they pay commissions on the higher amount, you should feel lucky if they agree to a price that doesn't add anything more than the closing costs cost them. Some markets, however, are priced to include a certain amount of sellers paying buyer costs, and if that's not needed in your case, you should be able to get an offer that's lower by about that number of dollars to be accepted.

The critical questions I usually ask are: Suppose you get it at that price. Happy or sad? Suppose you don't get it at that price, but someone overbids you marginally and does. Angry, or don't care? Finally, how many real competitors for your business are there? Is this property head and shoulders above everything else with a comparable asking price, or are there hundreds of other properties just as good, that you could just as easily make an offer on and be happy with? The answers to these questions will help a good agent determine what a good offer is, and what it isn't. A bad offer can poison the well, and a too good offer gives away too much. You want the property on the best terms possible, but you do want the property or you shouldn't make an offer. If you're a flipper looking to score on a low ball offer, you don't care if you poison the well (you're pretty going to walk away if they're not desperate enough to take the first offer or something close), but pretty much everyone else does.

From your email, I'm getting suspicious there's some tendency on behalf of that particular agent to inflate the price so they get paid more, and possibly even collusion. But there's no way to be certain, and no way to tell that it's even the way to bet without knowing more about your market. Only another agent in your market would know about that, which is one reason why any specific negotiating advice you're going to read in a forum with a national audience is so much wasted breath at best. There are possible exceptions to everything I've written in this article, and I know what they are and where they would be applicable, but it all has to do with a given local market at a given temporary time or specific situations where you're going to be getting something extra in exchange for giving up something that isn't normal. For anything beyond a particular local market under particular market conditions that apply in a very time limited fashion, detailing these would be so much wasted space on the page. All of this is one more reason you want a good buyer's agent on your side before you start looking at property. Dual Agency is a recipe for disaster for buyers (and for the sellers too!).

Caveat Emptor

Original article here

I had made a request to repair that included $3700 credit for closing costs. I wanted to get things done like safety issues and more critical maintenance issues done. Our estimate said that it would be about $4900 to do all the maintenance we were looking for. The seller was doing a bit, but not all.

The seller apparently balked at giving us any credit. He felt they conceded all they could. Anyway, my agent convinced them to at least counter. I was a bit angry at the initial balk. (the emotion part of the deal). After the initial anger, I went looking for problems and found one that frightened me. My agent had given me the inspection report from the seller's purchase of the home six years ago. There were things on there that were still a problem two years later. Primarily, high water pressure in the house (with the dire warnings of damage to pipes and fixtures as the potential side affect). Secondly, ants. The report six years ago had mentioned ants. Every time I looked at the house, (we visited it 5 times), I always saw ants not many usually only 1 sometimes 2. So, my residual anger ballooned these concerns way up. My ignorance was on the pipes. I have since talked to one plumber and an extended family member who is a retired contractor, home builder and home inspector. It was his comments that alleviated my fears about the pipes and allowed me to calm down a bit. He basically said, "Wow, six years of a pressure test - and it passed. Great! We usually only do two hours." He also said, get a regulator on it, but you shouldn't have a problem.

So, emotions, ignorance and too much time to think - nearly killed the deal.


Sometimes, people get all worked up over the little stuff.

On the other hand, sometimes people don't get worked up when they should. This person wasn't clear, but I'd get upset if my agent tried to placate me with a six year old inspection - as in "Fire him and sue him" upset. If it's just compare and contrast with a brand new inspection, fine. But if someone else paid that inspector, they may not have any responsibility to you, and you want them to be responsible to you. I wouldn't accept the inspection that the previous prospective buyer had done. Sometimes, agents trying to make sure a transaction goes through will try to give you an existing inspection, because they know what problems that will show. This is always the hallmark of a commission grabber, and you should fire them and file a lawsuit and a complaint with your state regulatory agency if they won't go quietly. Then start looking for something else.

An inspection around here will almost always reveal some defect which wasn't dealt with in the first round of negotiations that resulted in the purchase contract. Usually, they're dinky little stuff. Replace one light bulb, brace the water heater, maybe replace the garbage disposal. Sometimes, however, it is major work: rotting substructure to the roof, foundation damage, etcetera.

It does not matter if it is major or minor. It needs to be fixed. The way I usually explain minor stuff to sellers is, "You don't want to lose a $500,000 sale over $30 in repair work, do you?" It does sound rather silly, doesn't it?

If it's major, it still needs to be fixed. Here's a new defect in your property that causes it to be worth less than the agreed upon price. You can often get the buyer to accept the property for a lesser price - estimated cost of repairs plus an allowance for them being the person who has to deal with it. You're not getting out of major repairs on the cheap unless the buyer's agent hoses their clients. I want a reliable contractor out there to give my buyers an estimate for major repairs plus some money for all the ancillary expenses, and you'll find that's about par for the course. As the seller, you can have your choice between fixing it, giving them an allowance that makes your buyer happy, or losing the transaction.

Lest you think, "I'll just forget about that prospective buyer," even in seller's markets the next one that comes along is likely to find exactly the same set of defects and want exactly the same set of repairs, which is going to cost - you guessed it - pretty much the same amount of money. The only differences are one, in the meantime, you've spent some money on your mortgage, taxes, etcetera, and two, the earlier offer is usually the better one. In other words, same situation, but you're out more money.

Somebody's going to ask about "as is" sales. They really don't make much difference to this fact. I'm not going to let a buyer put in an offer on an "as is" property without an inspection contingency. The inspection shows something major that we didn't already know about, the choice is going to be give us an allowance, fix the problem, or lose the transaction. It's only an actual "as is" sale if the inspection doesn't reveal anything new and major. Matter of fact, selling "as is" is a red flag that tells me the seller probably knows about something major, unless it's a lender-owned property. If it is lender owned, "as is" and "without warranty" are the ways that business is done. Otherwise, it really doesn't mean a lot beyond that you are indicating that you would rather give an allowance at close of escrow than pay for repairs.

For buyers, you don't need to freak out about every last little thing. If you're getting a screaming deal, the fact that you need to put a handrail up in the stairway at a cost of a couple hundred bucks shouldn't cause you to pull out of the deal. If the owner doesn't want to make repairs, be willing to accept the cost plus something reasonable to represent your time and the decreased utility in the meantime. Don't demand triple the cost of major repairs unless you really are going to have to spend that much sitting in hotels and eating out until the work is done.

A reliable contractor is your best friend in subsequent negotiations. First off, it should tell you what it really is going to cost. If they've said that it's going to cost $7500 to fix, that's better information than any agent or inspector can give you. This does wonders for peace of mind, knowing that it's going to be $7500 to fix the problem after you're in title, not $75,000.

An allowance for construction work from the seller can be a great opportunity if you've got some cash left in your pocket after the sale. For example, if you're going to have to replace the green board in the bathroom anyway, it doesn't cost that much more to add some nice updates and upgrades. An extra $500 for better materials can really go a long way. When you go to sell, more money in your pocket. In the meantime, a much nicer bathroom. Even more to the point, one much more aligned with your personal tastes.

Every negotiation after the initial purchase contract is at least as dependent upon the good will of both parties as the initial purchase contract. If one party or the other thinks they got the worst of the initial negotiations, you can expect that to be reflected in how far they are willing to go for you when the inspection reveals defects. You want the person on the other side of the transaction to be thinking they get a decent bargain, one that they would make again. That way, they won't want to blow it off before it happens, by being unreasonable about the repair negotiations. Yes, this is one more reason that you want a buyer's agent to help with negotiations.

Caveat Emptor

Original article here

With the current popularity of pursuing a "green" lifestyle and some sustainability (garden plot, edible landscaping, micro-orchard, etc.) in one's yard area, I value your input about what to look for in an older subdivision with larger lots that aren't "vampire properties." And how do you factor in local ordinances? Thanks!

First off, I want to say that it's not my place to pass judgment on anyone's housing preferences. This person wants more green, so I'm going to help them with that. If someone else doesn't, I'll help them with that too.

If you're really looking to be green, there are a lot of reasons not to buy a single family detached home. In heating and cooling, materials, and most especially land use, single family detached homes are about as un-green as it comes. Talk to the sustained use experts, and they'll tell you that single family detached housing is horribly wasteful of everything involved. The "greenest" housing is high rise condominiums and apartment buildings. Not what everyone wants to hear, but nonetheless the truth.

With that said, there are degrees of "green". Small sized plots are not agriculturally efficient - that's one reason why Zimbabwe (to name the worst example) has gone from breadbasket to starving in a few years time - they broke the big farms up into little farms supporting one subsistence level family each. So you're not going to produce enough to offset what the land could do as part of a commercial farm or large public park, but you can do fairly well if you check with your local greenery experts. Locally, Kate Sessions (our most famous landscaper) was known for gardens that were both beautiful and water efficient - to the point where the City of San Diego doesn't water large portions of Balboa Park at all. Pretty much every greenhouse locally has someone whose advice to make the landscaping efficient is worthwhile. Even townhomes can be worthwhile - I know folks with dwarf fruit trees in the back yards of their townhomes, and if a homeowner's association was to make an effort, most of them would make far more more difference than a single plot owner - because while it is a common interest development, when you put them all together, you usually have several times the land available of most single family detached urban dwellings. Trees provide shade in summer and keep it cool - and they help break the wind and lower heating bills in winter. Obviously, check with someone local to you for specific recommendations because I'm pretty sure orange and lemon trees don't do so hot in Minnesota winters. Grass is nice, and good for resale, but it's a big user of water - a no-no for Green living in most of the west. It wouldn't be such a big deal to water grass with 'gray' (used water, no longer potable) if lawns weren't so notoriously un-"green".

For heating and cooling, double or triple paned windows and good, tight weatherstripping are pretty much mandatory for greens. Newer housing has this sort of thing already installed, and lots of older ones homes do, as well. Given the cost, it probably is not worth the cost on a purely monetary basis to replace existing windows with modern ones for that reason alone, but that doesn't stop a lot of people. I'd think wood floors - replaceable, polishable, durable - would be superior to anything else, but I can't cite chapter and verse. I know a lot of beautiful hardwood floors that are the better part of a century old - while even travertine starts looking dingy and ready for replacement in considerably less time than that. When wood starts looking old, it can be re-polished to its original shine more easily than anything else I'm aware of. Finally, wood is a much more renewable resource. Trees grow back. Quarries do not. Petrochemicals do not.

Good insulation is a feature of eco-friendly housing as well, but be careful: Too much can actually be a health hazard, as it can cause Radon gas to build up to levels that are illegal in uranium mines.

Modern air conditioning units work without CFCs. R410a ("Puron") is what home systems are in the process of converting to, as CFCs and HCFCs are being phased out. I don't have any first hand experience with this, but if you're replacing your system, it appears to be worthwhile to consider replacing with a high efficiency modern system. The difference in price is smallish, and the difference on your monthly bill significant. The upshot is that you'll pay for replacing your prior system with a high efficiency system a lot more quickly than a low. I'm also told that simply running the ductwork underground for a certain distance can negate the need for heating and air conditioning altogether - all you need is a good fan to pull the air through. Be careful that the static ground temperature in your area will support this first - check with a local expert. Needless to say, that last suggestion about burying roughly 100 feet of ductwork isn't really an option for the owners of anything but single family detached housing, even though it needn't be in a straight line..

The square-cube law is always in effect. Heat and cold leak in and out via surface area, while you're heating or cooling cubic volume. The smaller the surface area, as a proportion, the longer it takes for heat and cooling to leak out. A featureless cube (or better yet, sphere) is more efficient than a rambling single story ranch house. Nonetheless, it's more efficient to heat a small structure than a large one, and body heat from the inhabitants helps more in winter. A 1200 square foot dwelling is more "green" than a 3000 square foot dwelling for the same family. Is that going to stop me from showing 3000 square foot dwellings to those who want them? Absolutely not. Once again, this is "other factors being equal."

If you really want to go green, especially in the west, you're going to get into recycling the water you use. Laundry water can be used for a lot of plants, as can bath water. The ultimate instances of this are pretty disgusting if you think about them, but people do go a lot further than this, and every drop of water on this planet has gone through such a cycle multiple times. It's all pretty much dependent upon how far you want to go on your own hook. My main objection to the City of San Diego's water recycling plan was that it wasn't good enough to get out all contaminants, and people weren't going to get their own discharges back, so they could drop stuff into the drain like old engine oil, and be confident it wasn't coming back to their tap.

Green construction is no better and no worse, as far as intrinsic durability and aesthetics go, than non-green construction. It can be more expensive (How many hardwood floors have been laid down these last ten years?), but quite often, you can actually save yourself money in the end if you're willing to make the up-front investment. How far you want to go is a function of your preferences, pocketbook, and your area of the country.

Caveat Emptor

Original article here


That's way up there on the list of complaints buyer's agents get. Probably number one, definitely no lower than number three, and it's only going to get worse when the markets recover. There's really only one honest response:

"Well, duh."

I'm talking about the one where the owner fixed it up and made it beautiful. Those properties are the equivalent of a hot chick in a singles bar. Their owner has gone to the trouble of making them visually attractive to the vast majority of potential buyers. People are visually oriented - as you should know if you've ever watched the crowd interact with said hot chick. She may be an abusive gold-digging stone cold female dog with enough external baggage to fill an freight train all by herself, but that's not visually obvious; people see the attractive surface and they want it. In case you're female, I'm informed by some people I know that this effect is even stronger with respect to "hot dudes". So feel free to mentally switch the sex when I talk about "hot chicks", it's just as applicable.

You are always competing with other buyers. If someone else is attracted to the property to the point of making an offer, the owner is going to choose the offer that's most attractive to them. Most of the time, this will be the one for highest number of dollars. There are ways to be the offer chosen without being the high bidder, but they do not work every time or even close to every time.

The "hot chick" property is not one where you get a bargain. If everyone finds it attractive, expect everyone to be making offers. The owner and their agent are going to do their dead level best to get prospective buyers to stumble over each other fighting to put in the offer for the highest price. The only way to win that game is not to play. If you must put an offer in on such a property, make it an attractive offer, but one that you would be happy to have accepted. Refuse to bid against everyone else - offer what the property is worth to you. Look for things other than cash that the seller may be interested in. I know I'm always looking for something about the seller's situation that tells me something else is important to them. A more certain transaction, a willingness to work with special seller requirements, whatever. There isn't always such a hook, but where it is present I want to offer it to them.

The property where you get a bargain - I mean the type of bargain where you're thinking "Score!" ten years later - is to look beneath the surface. Instead of looking for the property where everything is already perfect, look for the property where the underlying basics are there but the owner hasn't put the finishing touches on it that make it obviously attractive to everyone. The solid construction with good layout in a neighborhood where most properties are more visually attractive. You make a few improvements over time, and you have a huge profit in just a few years if you decide to sell, or are the envy of your friends who ask "How did you manage to afford such a wonderful property in this expensive neighborhood?" The answer is that you were looking for the right things, where the person looking for the property that everybody wants is mortgaged up to their eyeballs and not as happy with the results because it's got some problems he ignored because it was "just so beautiful!". He managed to pick up that hot chick with all her baggage, where you went after the quieter lady with her head on straight and a healthy sense of humor. It's amazing how often such a lady turns out to be a lot more beautiful than the "hot chick" once you understand what you're seeing. This works in real estate, too.

All of the best negotiating techniques work much better when you're the only offer than they do when there are a dozen. It's very hard to get someone to accept an offer for $20,000 or $50,000 less than another offer on the table. It doesn't work every time, or close to every time. Upon those occasions when I successfully did it, I can tell you it was by selling something else the seller was interested in.

You've got a lot more bargaining power when you're the only offer on the table. The property is on the market because the owner has decided they want to sell, that their best interest lies in selling. If the alternative is another offer that's for just as much money (or more) you're not in a strong bargaining position. If the alternative is maybe not selling, they're going to be a lot more willing to compromise with you.

The way to successful buying in real estate is to find a property you think would be good, and making an offer you would be happy to have accepted. Some sellers are not disposed to be rational. Some, like the owners of the metaphorical "hot chick" property, have a reasonable and rational expectation of better offers than other owners. If they won't take an offer you're happy to have accepted, the intelligent thing to do find another property. Getting emotionally attached and thinking you've got to have a particular property because "it's so beautiful" is a recipe for disaster - just like marrying the "hot chick" in order to secure a one night stand, and for essentially the same reason.

Caveat Emptor

Once we figure out when we are going to be ready to buy, how early is too soon to get a buyer's agent and start looking.

You are ready for a Buyer's Agent when you are ready to act on it if that agent finds you something that meets enough of your criteria. By act, I mean put in an offer and consummate the purchase. If you're not ready to act, you are just wasting everyone's time. If you are ready and willing to act, then there's no reason to wait.

If you are not willing to act, you're engaging in mental onanism. Kind of like fantasy stock market traders. Doesn't matter how well you do, it's not real. As Sir Sidney Poitier once observed, it produces nothing. If you don't understand the difference between playing with real money and playing with meaningless number scores, get a guardian.

Being unwilling to act frustrates the agent and wastes the time that they might spend prospecting for you, and productive agents have to be jealous of their time. If you waste their best efforts when you aren't ready to act, don't be surprised if you're not their top priority when you are. You avoid this trap by not approaching them until you are at least willing to act.

It does no good to store up "prospects for later." Good stuff doesn't last for months. It probably won't last for weeks. It may not last to the end of the day. It only lasts until one person who is willing to act discovers it. If you're not willing to act, you are wasting your time looking at property for sale. Six months from now, when you are ready to act, that property won't be there, the market will be totally different, and interest rates may well have moved to where you cannot afford what you could afford today.

Markets change over time. The market today where I am is a very different market than two months ago, which was different from two months before that, and also different from the market as it's going to be two months from now. This is one of the many reasons why attitude is worth more than experience in an agent, but it also means that market research you do now is worthless a few months from now. The markets vary not just with macroeconomic factors, but also with time of year. The upshot is that the market today is different than it will be in two months, different than it will be in late summer, and is already different than it was a few months ago. You try to look at your fifteen to twenty-five properties today with an eye towards buying in six months, you are doing worse than wasting your time. You are actually confusing yourself with data that is certain to be outdated by the time you go to apply it.

Furthermore, there's a well-known comedy schtick routine in the industry: Q: How often does the deal of the century happen in real estate? A: About once a week. The point of the matter is that if you are looking for a property that's a real bargain, they aren't that hard to find. The more difficult skill is recognizing them when you see them. The average buyer is looking for something that is both perfect and a bargain - and the intersection of those two sets is pretty universally null. The reason the current owners spent all that time, effort, and money fixing them up is because they expect that effort to be handsomely rewarded by buyers who don't understand or don't care about the economics involved.

You probably want to talk to someone who does loans before you talk to a buyer's agent. Find out from them what real rates are that can really be done for you. This, together with how much you make, gives you your budget. It may change, going down if rates rise or up if they fall, but this way you know how much you can afford to spend. I have said this many times, but it's a good idea to repeat it at every opportunity: Shop by purchase price, not by payment. If you shop by payment, you are laying yourself open to all kinds of games by unscrupulous lenders and agents looking for quick, easy sales. Of course, if you find somebody who does both loans and real estate, that's fine, as long as they pass the tests you'd administer to both. Among which, of course, are Questions You Should Ask Prospective Loan Providers and being willing to work on a non-exclusive buyer's agent basis.

Caveat Emptor

Original Article here

(This is a companion article to What Sellers Need: What Buyers Should Want to Supply)

Quite often, I hear people talking about the real estate market as if it's all some amorphous blob, and buyers and sellers are no more different than they are in the stock or bond market, or for that matter, people using the bank to make deposits or withdrawals.

I cannot agree with this concept. Real Estate is not liquid, and real estate is not commoditized, and in the absence of some future world government building precisely one identical housing unit with precisely the same environment for everybody, I daresay it never will be. Since the chance of the rulers of that government limiting themselves and their cronies to the same housing everyone else has are nil, you can take it from there.

What do buyers need? They have the cash the seller (that would be you) wants, or the ability to get it via a loan, which comes to the sellers as cash - providing they can actually qualify, hence the preceding paragraph. What they need in exchange for that cash is the the assurance they will be getting a clear title, unencumbered by outside interests who may come after them later. They also need an assurance that the building - which is what the vast majority of buyers are really interested in - is going to continue standing in good, inhabitable condition for the foreseeable future. If there is a loan involved, the lender will want reasonable assurance that they can recover their investment if something goes wrong with the loan, which also requires clear title among other things. Just as seller's issues become buyer's issues, so do buyer's issues become seller's issues.

This makes delivering clean title imperative. If there's a possibility buyers are going to put every penny they saved for three years into purchasing a property, together with putting themselves into debt for thirty years, and end up not owning that piece of property after all, it shouldn't be difficult to figure out that the property is worth much less to that buyer - or any other prospective buyer. There is a profitable niche in clearing title on real estate, but you've got to really know what you're doing, and you've got to be prepared to lose everything invested in a given property. There's a reason the standard California purchase contract requires the seller to purchase the buyer a specific very broad policy of title insurance, and why it allows and requires negotiation as to which title insurance company issues that policy. I want a good solid company that only insures good risks, because I want them to be around and able to pay the claim if one happens - even forty years down the line, as opposed to Fly Tonight Title that disappears as soon as it has the premium payment. If a good reputable company won't insure title, there is a reason, and title insurance that isn't there and solvent years later is useless. Actually, it's worse than useless because without that title policy that turned out to be useless, nobody in their right mind would have paid that anywhere near that price for that property. So yes, a good policy of title insurance costs money. However, without that title policy the property is worth a fraction of what you might get for it with that title policy - and this fraction is well under 50%. Paying for a title policy is part of the cost of getting as much cash as possible for the property. Examined in terms of return on investment, there's nothing that even vaguely approaches it.

As far as the building's structural integrity, inspections cost money: hundreds of dollars. It's not cost-effective for buyers to perform inspections on every property they want to make an offer on, and the owners - or their tenants - might have a little something to say about an inspector invading their personal spaces for three hours or so. But it is necessary that the inspector have legal responsibility to the buyer, and that's the reason why sellers are wasting their time getting an inspection. Yeah, it can help you fix problems before you put the property on the market. But no competently advised prospective buyer is going to accept such an inspection, because if there's something wrong or something missing, that buyer has no recourse to sue an inspector that was, after all, working for the seller. If you're planning to sell, and want an opinion as to what needs fixing, get a contractor out. But if their inspection reveals problems, the buyer is going to want the ability to negotiate repairs, compensation, or to get out of the contract entirely, hence, the inspection contingency. This is one reason why sellers misrepresenting the condition of their property are not only fooling themselves, but costing themselves money as well. Furthermore, the general inspector can recommend further inspections if there is something beyond their competence. Until somebody pays you the necessary cash to purchase the property, the problems that may exist aren't buyer problems - they're seller problems. Buyers can always (at least until the inspection contingency expires) choose to instead walk away and make an offer on the identical floor plan down the street without these issues. It's up to the seller and their agent to motivate them not to do that. Consider that if this prospective buyer's inspector found the problem, it's likely that the next prospective buyer's inspector will, as well. Actually, a good buyer's agent will probably spot things before it gets to the point of an offer. Until you have that escrow check in your hand for the equity, these problems are the seller's problems. Remember, that prospective buyer can simply decide they don't want the property. Until the property is successfully exchanged for cash, all of those problems are part of owning that property, and you need to find a buyer who's willing to deal with these issues in order to sell. Delivering what buyers need, a solid property without objectionable issues, is a seller concern. Good agents will help, but bottom line, it's the seller's profit or loss.

With the exception of all cash sales, a very small proportion of real estate sales, there is going to be a lender involved, and when there's a lender, the issues that buyers have with lenders become seller issues as well. It may be precisely the opposite of the inspection situation: It's always the seller's choice as to whether to work with a given prospective buyer, and buyer issues in this regard are subject to finding a seller willing to deal with them. Nonetheless, the vast majority of all buyers don't have the cash to buy your property without a loan, and if you want to restrict yourself to prospective buyers willing and able to offer all cash for your property, that's your prerogative. Doing that, however, restricts your pool of potential buyers far more than anything else. Drastically lessened number of buyers who could choose to offer all cash drastically reduces the sales price. Even those buyers who have the ability to pay all cash often do not want to, for various reasons, and this unwillingness on your part means that they will be willing to offer much less for your property.

Every loan does have the real possibility of being turned down. I can do everything from verify all the buyer's information to checking the prospective loan against lender guidelines for issues, but if that underwriter turns down the loan, or (more commonly) puts conditions on an approval that the prospective borrower can't meet, that's pretty much the end of the loan. There is one vote that counts, and it belongs to that underwriter. The loan officer can reason, wheedle, and appeal, but the bottom line is that if the underwriter can't be swayed, the loan is dead. They don't reject loans very often when a loan officer has done the work beforehand, but it does happen, and is the reason that nobody except a loan underwriter for the lender you're submitting it to can guarantee the loan will be approved. Since no loan gets to the underwriter without a fully negotiated purchase contract and no borrower ever communicates with an underwriter directly, there is always a very real possibility that the loan the borrower is counting on will be turned down. For most loans, there's other places that will do the loan, albeit upon slightly different terms. Occasionally, though, there are loans where it's this lender or nobody, as nobody else has loan guidelines that will allow that loan to be funded. These two terms add up to the necessity for a loan contingency. If the buyer can't find someone to loan them money on terms that satisfy this purchase contract, they don't want to lose their deposit, and definitely don't want to be obligated to purchase the property. If you, as a seller, do not want to allow a loan contingency, that is certainly something you can choose to do - but it's going to cost you in terms of the proffered sales price, probably a lot more than the amount of any deposit. If a seller doesn't have good evidence prospective buyers can qualify for the necessary loan, I don't know any reason why they would agree to work with those buyers at all. If they do have such evidence, I don't know of any reason why they would want to focus on the deposit instead of the purchase price. The deposit is iffy at best and takes paying legal costs to get, not to mention it's usually not going to pay for the costs of the escrow period. The purchase price, once you get it, makes those costs stop, and it's a lot more probable than getting that deposit.

What the lender is looking for (absent evidence of impending fraud) is two things: Evidence of borrower ability to repay the loan, and evidence that they'll get their investment back if the borrower defaults. It is to this end that lenders require an appraisal from a licensed appraiser who has some demonstrated ability to (insurance or a bond) to repay them if the property does not, in fact, possess that value. Now, here's the kicker: If the appraisal is too low, you can pretty much bet that any lender on earth will reject that loan. There really isn't a need for a separate appraisal contingency, and if I and my buyer clients don't see the value in the property, we're not making an offer in the first place. Even in those rare instances of "all cash" purchases, that appraisal should be nothing more than a confirmation for the lender of something I and my buyer client already know. I'm willing to counsel my buyer client to offer that much because I believe that property is worth that much for their purposes. If they're intending to "flip" the property, we should both have looked at that situation and decided we're comfortable with it before making an offer. If my client intends to hold the property some number of years, that appraisal has absolutely zero bearing on what it will be worth at some indefinite date in the future. And even if they are that rare "all cash" buyer, if the value isn't there in front of your own eyes to justify that price, why did they and their agent make that offer? Therefore, there really isn't a good reason for a buyer or a competent agent who knows what they're doing to object to dropping the appraisal contingency. When I'm listing a property, I'm very cognizant of the fact that insisting upon an appraisal contingency is a sign of an uncommitted buyer, overly cautious or overly opportunistic, who's insisting on having everything exactly their way and is likely to chip and chisel at every opportunity. Such a buyer is also likely to bolt at the first chance of a better deal. It's also usually a sign of an agent who doesn't understand the process covering themselves in CYA to a pointless degree, because they should explain it to their client when the issue comes up if not before. This kind of agent is analogous to someone who calls themselves a paratrooper because they wear a parachute - even though they've never actually used it and have no intention of making a jump. Both such a buyer and such an agent are signs of a deal that's likely to not get consummated.

Just like sellers and everyone else involved, buyers would really like a nice smooth transaction that moves from fully negotiated purchase contract to complete consummation as quickly as possible without bumps, burps, or deal killers. There will be bumps in most transactions that can't really be avoided, but most bumps are caused by problem personalities on one side or the other of a transaction. Unfortunately for sellers, there's a lot more information on their attitudes (and those of the listing agent!) in a typical listing than there is information on the buyers and their agent in a typical offer. Don't raise the barriers to a successful transaction any higher than you need to - and don't let your listing agent do so, either. Quite a lot of them will insist upon useless pre-qualifications and pre-approvals from their favorite loan officer. Not only is requiring someone to patronize a particular third party in this manner steering, and therefore illegal under RESPA, but it doesn't do you any good on determining whether or not they actually will qualify for the loan, and this notation can warn potential buyers with competent agents off your property until that property has been on the market so long that you're desperate. Listing agents will often insist for no good reason "seller to select all services." What's going on is that they want to select all services so that certain specific title and escrow companies are happy with them. You didn't tell them you wanted to select the services, did you? Even if you did, the law is quite clear that it is subject to negotiation, not that this stops that sort of agent. Wander into their office at random intervals, demand a listing agent copy of your property listing (You are entitled to such on your own property) and if it has any of these notations, fire that agent and their brokerage immediately. You've got all the justification you need in the fact that they're not only violating the law, but your best interests as well.

Now that we've gone over what sellers need, let's look at what seller's want. As any good salesperson knows, wants are far more important to making a sale than needs. People are funny that way, and one of the harder parts of a good buyer's agent's job is keeping the actual needs front and center with the wants. Most people would not believe how many buyers will ignore faults that will cause them to hate this property in about two months in favor of really neat, but unnecessary amenities.

What buyers want is the perception of a bargain. Notice I didn't say they want the bargain - but they do want to believe that the property is the best bargain they could have bought for the price they could afford. Quite often, the appearance is more important than the actuality, and I've certainly experienced more than a few people who thought they got a deal and couldn't wait to brag to me - but here's the kicker: They never want to hear the evidence against the brag they're trying to make - and there's always evidence against as well as evidence for. Every last negotiating coup I've pulled off had evidence on the other side - that's what a good negotiator uses to convince the other side to deal. If they don't want to hear the evidence against, that's a pretty good indication it's stronger than the evidence for, and that they didn't get a very good bargain.

One of the ways in which this manifests is buyer behavior. If your property is more expensive than another one that's essentially similar, those buyers are not going to want your property. You have to convince those buyers that there is a rational reason why they should want to pay more for your property than for the competing properties. If you cannot do this, your property will sit unsold. This is the reason every competent agent in the known universe counsels against overpricing a property. It's not like all the sellers in your local MLS receive offers in turn, strictly in accordance with order of listing the property for sale. Quite predictably, buyers make offers upon the properties that are most attractive to them at a given price. If you cannot convince your own agent that the property is more valuable than the competing properties, that agent is doing you a favor by telling you to reduce the price. I guarantee that not only that your agent will be kinder than any prospective buyers will be, but that they're trying to save you money as well. It's always a balancing act between too expensive to interest anyone, and not expensive enough so that you lose money you could have gotten. But remember that it's the appearance of a deal than most buyers want, far more than the actuality. Most have no clue what stuff costs and how easy or difficult it is to accomplish a given upgrade. They only know that they didn't have to deal with accomplishing it, and for that, they're willing to pay quite a lot under the right circumstances. A good agent will help you with all of this.

Caveat Emptor

Original article here

(This is a companion article to What Buyers Need: What Sellers Should Want to Supply)

Quite often, I hear people talking about the real estate market as if it's all some amorphous blob, and buyers and sellers are no more different than they are in the stock or bond market, or for that matter, people using the bank to make deposits or withdrawals.

I cannot agree with this concept. Real Estate is not liquid, and real estate is not commoditized, and in the absence of some future world government building precisely one identical housing unit with precisely the same environment for everybody, I daresay it never will be. Since the chance of the rulers of that government limiting themselves and their cronies to the same housing everyone else has are nil, you can take it from there.

Let's ask: What do sellers need? Cash, the universal problem solver. As much of it as possible. Why? Because there is something about this property that no longer fits their needs, and it would be more trouble, and more cash than it's worth, to change the property. If it was cost effective to convert the property to the configuration desired, nobody in their right mind would want to go through the process of a real estate transaction twice in order to sell this one and buy something else. The only thing they can really transfer from this property to that next one is the equity. More equity means they owe less on the next property, they can afford a better property, or they have more money left over after buying the next property. Most sellers want more money than is possible or likely, going to far as to shoot themselves in critical locations in pursuit of it. If they are not ready to be rational about it, there is nothing you can do to force them. You can decide you want the property bad enough to pay the extra or you can move on to other properties. Of course, in the former case, the property wasn't really overpriced, was it?

There is nothing sellers want so much as as much cash as possible. If the transaction doesn't get completed, they don't get their cash at all - so if the transaction doesn't complete, they don't get any of what they really want: cash. In fact, they spend cash for every day that property is on the market, or in the process of the transaction. Even if you don't understand this, whether you're a buyer, a seller, or an agent, you had better act as if you do. Even if they're in a short sale or other distress situation, time is important to sellers. I would rather have no offer than an offer a buyer cannot or will not make good on. Every day that property sits unsold costs that seller money - and this time does not end with entry into escrow and a pending sign. It ends only with a successful sale.

When sellers enter into a purchase contract, they are essentially closing down the prospects of any other buyer. A real estate purchase contract gives one particular buyer the sole and exclusive right to purchase that property until it is properly terminated. It not only gives that buyer the right to buy that property, it requires the owner to sell it to them on specified terms. If someone else comes along and offers a better deal, the current owner is not free to take that deal - they are contractually bound to the existing one.

Buyers therefore need to convince property owners of two very important things: First, that theirs is the best offer that the sellers are likely to receive. Second: That they are capable of consummating this transaction, as proposed, in a timely fashion with as few uncertainties as possible. Many listing agents want to take this way too far, into the illegal territory of steering, but their client, the seller, does have a legitimate need to know that prospective buyers can consummate this transaction in a timely fashion. That seller is making a decision whether to grant a buyer credit, just the same as the lender. They are entitled to ask for information that paints a coherent picture of the prospective buyer in fact being able to carry through on their end of the transaction. Sellers are not entitled to steer the transaction, and unless they're agreeing to a carryback loan, they are not entitled to information of a level sufficient to enable identity theft, but they are entitled to ask for and receive information as regards actual FICO score, verified income, current debts, source of down payment. In other words, an attestation where the person making it can be held accountable for any misstatements. The standard pre-qualification and pre-approval letters are a joke - not worth the paper they are printed on. I do them because lazy and irresponsible listing agents ask for them, and it's easier (and more profitable for my clients) to comply than argue them out of it. But the seller's issues become the buyer's issues, because if the prospective buyer cannot convince the seller that this is the best offer they're likely to get, the seller won't agree to sell to them.

One more thing sellers want. Actually, both sides want this: a nice smooth transaction, that moves from accepted offer to consummated transaction without any problems, hangups, or deal killers. If there's anybody who's willing to stand up and say they want all of these obstacles, I've certainly never met them. Here's the issue: Even the biggest problem personality in the known universe wants a smooth transaction. It's just that their definition is where they proceed to chip and chisel away further concessions the entire time. When a good agent submits an offer, they want it to move as quickly as possible and without the need for any further negotiations to a consummated transaction. Ditto a good listing agent on the counteroffer. Every time there are further negotiations, there is the possibility that intransigence on someone's part send the whole transaction south, and the reason you agreed to that contract in the first place was that you thought it was a good bargain to be making, and therefore, you should want it to close. There are good reasons why there are further negotiations after the contract on most transactions, but there shouldn't be multiple sessions, let alone one every couple of days when the other side thinks of something else they want.

Unfortunately, there is no method known to man that can guarantee to detect such twits before entering escrow. A good agent can know what the signs are, and at least as important, what they are not, but sometimes the warning signs aren't there, and sometimes they are there for someone who really is going to play it straight. The only real way to deal with these twits is upon confirmation of their nature. You don't want to refuse any transaction that very well might lead to a consummated sale, but you do need to be prepared to exit the transaction when such twits reveal their true nature, and if you don't understand when and how to do it, a good agent will really save your bacon - from a suit for specific performance, and paying their legal fees as well as your own.

Needless to say, you don't want to be one of these problem personalities either. So when you agree to a contract, it should be with full intent of carrying through on exactly the terms agreed - no chiseling allowed, only specific solutions for concrete issues that happen despite anyone's best efforts. The best way of preventing problems later is to come to an agreement in the first place which the other side should be pleased to honor.

Caveat Emptor

Original article here

do you agree that a non recourse loan on a single family home is loaned with out financial risk to the borrower... if they do not want to keep their home when the market drops below what they owe, they can walk away with immunity to any financial loss & the most the lender can do is take back the home, & if the borrower has made all their payments on time & have returned the home in the same condition as when they moved in, their credit will not be negatively, by the lender??? my reference is http://wwlaw.com/forecl.htm

Yes, it is true that purchase money loans are largely non recourse in California. However, I do not agree that there is no financial consequence.

First off, there are credit repercussions for up to ten years. Among other things, this will make it more difficult for the buyer to rent the next property they will live in, as well as making it more difficult to obtain financing on the next property they want to purchase, when they really are ready to join the grown-up world.

Second, just because the lender cannot seek a deficiency judgment does not mean that the IRS will not tax them for debt forgiveness (This is currently suspended but that suspension will expire soon). If the lender loses $50,000 in debt forgiveness, they will report it to the IRS, because they want that deduction from income. The IRS will then tax the now former owner whatever tax would be due upon the residence. Income from debt forgiveness is ordinary income, and it is fairly likely to boost the taxpayer up in tax bracket in such a case. So now they have to come up with thousands of dollars. If they had those thousands of dollars, they probably wouldn't have lost the property. So now the IRS is looking for other ways to get their money: attaching wages, confiscating other property, etcetera.

I should also note that there are significant exceptions to the law limiting deficiency judgments for purchase money loans. Fraud is one such limitation; if the buyer had to state more income than they in fact make, that would certainly prove to be an interesting case. I didn't do it, but that doesn't mean it never happens. Furthermore, just because the buyer doesn't fall into one of the exceptions does not mean the lender will not contend in court that they do. The law doesn't actually prevent the lender from seeking a deficiency judgment; what it says is that they're not entitled to one if certain conditions hold. Proving that proposition in court is expensive, and the lender can always hope that you simply default by not showing up or something similar.

There are very definitely negative consequences. Buying a property is a complex decision, and should not be done lightly, on the basis of "Walk away if it doesn't work out." The consequences, even if not direct, spread out like ripples in a pond when you drop in a stone. Real estate is a fantastic investment, properly approached. With the tax code and the way leverage works, among other things, it trivially beats anything of equivalent risk for potential reward, or alternatively, beats anything of equal potential for reward as far as low risk. But that risk is not and never will be zero. Indeed, it cannot be. Real estate isn't liquid, and you never get to play with someone else's money risk free. Those are two of the many reasons why you need competent professionals on your side.

Caveat Emptor

Original article here

From an email:


I was in the process of buying and selling the house when we saw a FSBO house we liked was for sale. But sale fell through, which is a good thing anyway because of contigency on our house. But I also suspected it failed because the seller refuses to pay commission to our buyer agent.

My question is that this real estate agent that would represent us as a listing agent is also a buyers agent. However, I had another friend look into the contract and the buyer's agent agreement is valid until December 31, 2005. So that means anytime we find a house, he will be paid? We do the work to find a house and he gets paid? It didn't strike to me as ethical or fair. It will simply takes us off the real estate market until January 1, 2006 when we can start all over with a clean slate. Correct?

We don't think it should've been in effect until December 31. It should be in effect only for that FSBO house we liked, and if the deal falls through, then his job as a buyer's agent also stops.

Am I dealing with a greedy real estate agent or is this typical?

Can I have one agent to sell our house and another agent that represents us to buy a house?

This depends upon the nature of the agreement you signed with him. I use non-exclusive buyer's agreements, which basically say that if I introduce you to the house you decide to buy ("procuring cause"), then I get paid when you buy it. Others use exclusive buyer's agreements, where they get paid no matter who finds the house.

If I have an exclusive buyer's agreement with you, then I am going to get paid on any house you buy. If I have an non-exclusive agreement, I will only get paid if I introduce you to the house, and you may have any number of non-exclusive agreements in effect as long as you are careful to inform each agent you are working with that you have previously been introduced to a given property, and therefore, any commission that takes place will be paid to the other agent. All of the forms used by California Association of Realtors state that you will pay a commission to the agent if the seller won't, so an agent has comparatively little stake in which house you buy, as long as you buy one through them. This gives them the largest possible incentive to work on your behalf, without binding you to one particular agent who rather be working with another client who came along with a bigger budget, and therefore a bigger commission in the offing. When looking for homes to show, ethical agents won't seek out a For Sale By Owner (FSBO) for reasons I go into near the bottom of this article (basically, protecting your pocketbook), but these do not apply if you, the client, choose to make an offer on a FSBO.

I suspect that you signed an Exclusive Buyer's Agent Contract with him, something I would not do unless he's providing you with lists of foreclosures or something that costs him money on an ongoing basis. Once such a thing is signed, that agent is going to get paid no matter what house you buy during the agreed upon period. I would never agree to either a listing or buyer's agents period longer than six months. This gives the agent plenty of time to sell your house or find you one. So if the agreed upon expiration is December 31, 2005, then if you buy before then, that agent will be paid - out of your pocket, if not the seller's.

There are two competing factors here. One is your desire not to pay for services not provided for this particular transaction, versus the agents desire to get paid if they actually do the work anyway. If they serve as your negotiating agent, or help expedite the transaction by providing services, they are ethically entitled to be paid whether or not they introduced you to the property. On the other hand, if all they do is obstruct, there is neither a legal nor an ethical reason why they should be paid. Depending upon the nature of their obstruction and how much it cost you, you may wish to contact an attorney to recover, or your state's Department of Real Estate

Sad to say, there are agents out there looking to line their own pockets in any way they can. A better agent wants to get paid, but realizes they will make an excellent living - better in the long term - by putting your interests first. Without more evidence, I cannot say for certain, but it appears at first glance that this agent had you sign an exclusive buyer's agent agreement in order to represent you in a transaction you found. I am not aware of any regulation prohibiting this, but it does seem like it's excessive from a neutral viewpoint. It is probably not voidable, however.

There are standard California Association of Realtors (CAR) forms for both exclusive and non-exclusive buyer's agents agreements, and this applies in every state I'm aware of. Look up at the title of your copy. If it says "Exclusive", you are stuck with this person. If it says "Non-exclusive" you may do business with anyone you please, as it applies only to those properties this particular agent works on. Of course, many agents and brokers use non-standard forms for this, as the standard CAR forms are readable and understandable by anybody. If they want to throw curves, non-standard forms are one of the best ways to do it.

As to whether you are dealing with a greedy agent or if this is typical, the truth lies somewhere in the middle. As in all sales occupations, the idea of locking up your business creates powerful motivations for them to have you sign exclusive agreements. There are nonetheless, people such as myself who feel that if I am not helping you, I don't deserve to be paid, and let someone else have a shot. But if I've got an exclusive agreement with you, I should be providing daily foreclosure lists, copies of all new listings with personal feedback from having visited, or at least something that goes above and beyond sitting on my hands.

Many agents want you to sign an exclusive buyer's agent agreement before they do anything else. Unless you're getting something special out of it, you shouldn't sign one at all. Offer to sign a non-exclusive buyer's agent agreement - that way you have leverage over them, not them over you. They are motivated to work for you and find you a property that is attractive to you at a price you want to pay, because if they don't, someone else will. Even the best agent can't find stuff that doesn't exist, like a 3 bedroom home in La Jolla for $250,000, but if it does exist I'm going to work to find it first, and I will get paid for it because our agreement says I will get paid if I introduce you to it. If you have signed an exclusive agreement, there is no particular hurry for them to help you.

Finally, listing agreements for sale are (in general) individual agreements for a particular piece of property for a particular period of time. As long as there is no more than one listing agreement per property in effect at a time, you can have any number of different agents for sales, even if you have signed an exclusive buyer's agreement for purchases. Furthermore, I would never consider using the listing agent as my buyer's agent - all the agents legal responsibilities point towards the seller in such a case.

Caveat Emptor

Original here

This woman made herself a victim


stayed in a hotel for 7 weeks looking for my "Dream Home." And, when I found it, even though it wasn't in my price range, I knew I would do anything I could to get it. I was vulnerable, emotional and became a victim.

Actually, that is not quite accurate - I made myself a victim.

First mistake: shopping outside your price range. Assuming that you get it, the bottom line is that you are going to have to make the payments, every month, from here on out. I can get you the loan, any competent loan officer can get you the loan (or at least we could when the article was originally written), but I would not even look at any home not in my price range. First, it's a useless exercise. You can't afford it. Why torture or tempt yourself? Second, the reason it's outside your price range is because it has something extra. So it's going to be more attractive to the average buyer than the ones you should be looking at. Many agents will capitalize on this by showing you such a property, knowing that a large percentage will fall in love with the property right there, and bingo, they've got a higher commission for an easy sale. Despite their highly touted "code of ethics" the proportion of Realtors® who do this is every bit as high as non-realtor agents. Ditto (if not worse) for every highly advertised national chain. "Well, it's just a little bit. I can handle the extra." Demand to know the asking price before you agree to view the property, and if it is outside your range, refuse to go. Fire any agent who suggests this to you more than once. I'd fire them the first time, myself.

Being self-employed, (actually at the time, I was on disability from hand surgery), the only loan I could qualify for was a Stated Income Loan. That's where you just tell them what you make, and it is not verified except through two years old tax records and your FICO score

This is not correct. You do sign an IRS 4506 form, but the whole idea behind a stated income loan is that the bank agrees not to verify your income. Maybe the lender wanted her to feel psychologically more comfortable, or something, but if you can show the income on current tax returns that's not a stated income loan - it's full documentation. And the lenders don't care what you made four years ago - they want documentation for what your making to be as current as possible - starting now and going back maybe two years. For Stated Income loans (no longer available anywhere I'm aware of at this update), they verify only that you have a source of income, and the amount you claim you make must be reasonable for someone in your profession in your area. If you can show income via two years of tax returns, that is a full documentation loan, and you get better rates (See this for information on documenting income). However, documenting income via tax returns is tougher because whereas the bank loves doing it, the number they will accept is the number that is after all the write-offs, often a significantly lower number. This is the reason for the stated income loan in the first place. Many business people, particularly small business people, are earning a heck of a good living but they find legal ways to pay for most of it with before tax dollars that they then are actually able to deduct. So they're living as if they make $10,000 per month, which they do, but the tax return only shows $3000 per month. Stated Income is intended to serve this niche, not the niche of people on weekly paychecks who don't really make enough money to justify this loan. Stated Income loans have, since the article was originally written, been essentially banned - something that's really hurting a lot of self-employed businessfolk.

six months later, when the interest rate changed, my payment went up. But I still had some disability money, so I didn't think about it - I just knew work would come.

What she is saying here is that she had to accept a short-term adjustable rate mortgage in order to get a rate low enough to qualify. Or that she was sold one on the basis of "low payment" and she didn't bother to check the fine print.

There are loan officers and real estate agents and realtors out there who make one heck of a living off the fact that people buy loans (and homes) on the basis of payment. They have short-term "interest only" and even negative amortization loans out there. During the Ear of Make Believe Loans, some agents and loan officers were doing 75% or more of their business in negative amortization loans. You should never buy a home with a negative amortization loan; it's a good way to get yourself in serious trouble. Of all the home loans I've done (and I've done a lot of loans) I've never seen a situation where I would recommend it on a purchase and the only negative amortization refinance I tried the loan was turned down by five lenders even though it met the written guidelines.

Look for terms that are going to be stable for at least a couple of years, preferably five, particularly if this is your first time in a home or the payments are going to be near the upper edge of what you're comfortable with.

I:

• Did not shop lenders (I felt I wasn't in a position to).

• Did not tell the truth about my income.

• Took the first loan they offered me.

• Didn't read the fine print.

• Did not fix a budget and stick to it.

• Bought way too much house.


Fact: If anybody tells you not to shop lenders, what they are really telling you is that their loans are not competitive and that they are afraid of the competition. The National Association of Mortgage Brokers got a law through congress a few years ago that all the mortgage inquiries within a thirty day period count as one inquiry on your credit report, so it no longer hurts your credit score to shop around.

There are issues out there with loan providers who will tell you with a Good Faith Estimate or, in California, Mortgage Loan Disclosure Statement, that they can do the loan on a given set of terms when they have no intention of and no ability to actually deliver those terms. Certainly the HUD 1 form at the end of the loan process is nothing like the earlier form. Furthermore, many loan providers cannot or will not deliver within a stated time frame, which is critical when you're buying, and still important when you are refinancing. So look for someone who's going to stand behind their quote with something that says they mean it.

(It's hard for anyone you'll actually be able to talk to to use the word "guarantee" with regards to a loan. It's not just loan providers who pull unethical tricks. People attempt fraud regularly. Furthermore, there are "nobody's fault" impediments that happen regularly, and they always change the transaction. That property doesn't appraise for enough value is probably the most common. Only an underwriter can give a loan commitment, you as a loan applicant will never talk to your underwriter, and until you've got that commitment, there is no guarantee it can be done at all. So the real guarantees from a loan officer are always conditional).

Here is a List of Red Flags, real estate and loan practices that should have you running away, and here is a list of Questions to You Should Ask Prospective Loan Providers. Those who are doing business honestly should be happy to answer these sorts of questions - it gives us assurance that we're not going to be competing with somebody blowing sunshine and wet sloppy kisses at you. Because the fact that you're asking the questions means you're not going to do business with those who give you unsatisfactory answers. Finally, here is an article on What to look for at Closing, to make certain all of your due diligence paid off.

Caveat Emptor

(and I'm always happy to get suggestions for additions to the lists)

Original here

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