Keepin' it Real Estate

Delivery of Clean Property

2012-01-13T08:26:00.000-08:00

Dear Peter,
Representing the seller, I recently closed a sale for a one acre site with a house. The house was remodeled and clean, but the grounds were littered with what the buyer is now calling "trash and junk". Prior to closing, the buyers made no mention of the seller cleaning the lot.

Today the buyer's agent called me and said the buyer wants the lot cleaned by my seller, stating, "Per the state GAR contract, the sellers are in breach and we will take further measures if this is not resolved within the next 48 hours."

I'm not exactly sure how to respond to the Buyers Agent. Paragraph 9 of the GAR contracts says, "Seller shall deliver property clean and free of trash and debris at time of possession." However the seller did not clean up the complete acre of ground because there was never any indication from the buyer of cleaning up the grounds.

Since there was no mention of the "junk and trash" anywhere until a day after closing, could there have been any ramifications to the Seller for violating the GAR contract? Was it a violation of the contract?

Sincerely,
Jolted by Junk

Dear Jolted,
"Property" in the GAR means the subject and the subject is real property, which includes all the ground, grass, boulders, driveways, ponds, creeks, paved areas, dirt mounds, gravel pits, fenced areas, tire swings, tree houses, lily pads, drain fields, compost piles and outhouses.

A contract is whatever the parties want it to be, and if these parties agreed to use the 2011 GAR F20, without changes to the pre-printed paragraph about the subject's condition, nor subsequent language to the contrary, then the parties have agreed to deliver and accept the property in clean condition.

If the seller fails to do deliver the condition as agreed, then a tort has been committed, not necessarily a crime. Remedy for the buyer is to (in chronological order, separated by reasonable periods of time):
1) ask the seller to behave as agreed
2) firmly but politely insist a little louder that the seller behave as agreed
3) submit itemized damages to seller
4) firmly but politely insist a little louder that the seller remit payment of itemized damages
5) walk away with display of unmitigated audacity, including simultaneous sneer and a single-digit salute
--or--
5) litigation for damages (this usually depends upon severity of clean-up or irritability level -- when they say, "it's a matter of principle" this means they're gonna sue your keister. avoid this if you can :)

My recommendation to you is this: convince your seller to do as he has agreed and clean up the property. In my experience, best practice is to fully explain the details of an agreement to all principles, mitigating these types of occurrences. When the parties are aware of their obligations regarding an agreement, they are much less likely to abridge these obligations.

If the seller refuses to do as he agreed, then I would relay this information to the buyer's agent and ask that agent to, "Please stop calling me regarding this topic and pursue other remedies. I may be of no further help to you. I understand the buyer is upset and they are calling on you to fix the issue. With respect, you should talk to your broker about it."

Just to be clear about this: Your client agreed to deliver the property in clean condition, whether or not it was verbally discussed.

Binding Agreement Date Question

2011-07-12T11:08:00.000-07:00

Dear Peter,
I have a binding contract date of 3/19 at 5pm. If I have a 10-day due diligence period, is the day that I received the contract considered day one?

I need to know,
Bamboozled by Binding Dates

Dear Bamboozled,
Think of it this way:

You begin counting with the day of binding agreement (day zero). If binding agreement is 3/19, then 3/20 at midnight ends day 1 of the due diligence period. In this case, your due diligence will end at midnight on 3/29.

An issue that you did not mention is how the binding agreement date determined.

NOTE: with regard to GAR forms, the binding agreement date is defined within the agreement. The response below is based upon that definition.

When an offeror makes an offer (or counter-offer), and the offeree finally accepts that offer, the offeree signs and return the now contract to the offeror. The binding agreement date is the date that the offeror receives the signed offer (now a contract) back. If you are the offeror and the offeree signs the offer (making a contract) and also fills-in the binding agreement date, then that offeree has made a mistake. Only the offeror can make the binding date.

I mention this because based on your question, I cannot tell if you were the offeror or the offeree. If you were the offeree, and have received back notification of the binding agreement date, then the binding agreement date is the date on the contract. If you were the offeror, then the binding agreement date is the date that you received the signed contract, regardless of what was filled in the blanks on the contract. If this is the case, and you wish to make it an issue, then you need to get a GAR form called "Binding Agreement Notification", fill it out, and add the line, "Binding Agreement Date on the Purchase and Sale Agreement was scribed incorrectly, and this notification acts to notify all parties to actual Binding Agreement Date".

Some perspective:
The purpose of the binding agreement date is to simply calculate dates within the agreement.
Example: If you make an offer on the first day of the month, with a due diligence period ended on the 14th of the month, but the buyer and seller do not come to agreement until the 12th of the month, then the buyer only has two days of due diligence time remaining.

Short Sale Question

2011-05-19T10:34:00.000-07:00

Dear Peter,
Short sale--The bank has rejected my buyer's offer of $73K and said they wanted $90K based on the BPO results. The listing agent says there is no way she can get $90K for the property, and she has sent them her comps again. The bank disagrees with her. Meanwhile, they have NOT changed the list price of $79.9K. Therefore, we have countered at $80K, which is $100 ABOVE list price. Is a bank obligated to accept an offer that meets the list price?

Please help,
Stymied by Short Sales

Dear Stymied,
Don't think of it as a Short sale. Think of all home sales like this:

An owner/seller may sell their house for any price to anyone at anytime. The house belongs to the owner, and no one (not even their lender) can stop them from selling it at any price. If a seller has a loan outstanding, then that seller must "settle-up" with the lender at the closing table, so that the lender will release the security deed on the house (the security deed is what a seller gives a lender to 'show the world' that the lender has an interest in the property. If the security deed is not released, a seller may not convey a warranty deed because the title chain would be clouded and a buyer's lender would not go for that - but a cash buyer might).

When a seller owes more money on a house than the value of that house, they may sell that house at any price (just as any seller may), however, to get their lender to release the security deed, the upside-down seller has two options: 1) bring cash to the table for the difference owed and the amount collected in the sale or 2) have the lender "approve" the lesser payoff.

Most sellers opt for option 2). When this is the case, a purchase agreement between the buyer and seller is a binding, enforceable agreement with a 'lender price approval contingency'.

This contingency is not different than any other contingency.

In your case, the seller (having two options, and choosing option 2), has an agreement with the buyer to sell at a certain price, but the lender does not approve of that price and will not agree to a lesser payoff. Therefore, the lender price approval contingency will be exercised by the seller and the agreement will die on the closing date of the contract, unless one of two things happen: 1) the buyer and seller amend the agreement in a way that allows the seller to meet their contingency or 2) the seller brings the difference between payoff and sales price to the closing table.

The seller has an obligation to sell to your buyer at the price agreed upon, so long as the contingency is met, but it does not look as though the seller can meet that contingency. The lender is not part of the agreement between your buyer and the seller. This is why the lender does not have to "take your price".

The listing agent put a low price on the house to attract a buyer (and it obviously worked). Once an agreement between the buyer and seller is made, the seller goes to the lender to try and meet the contingency. If the seller is successful, the sale is made. If not (and the buyer does not wish to amend the agreement to the lender's price), the seller is back to the two options.

In a nutshell:
*The lender does not have the power to force a borrower/seller to sell at a particular price.
*The lender is not part of the negotiation between a buyer and seller.
*The lender is the lender. The seller is the seller. Always has been, always will be.
*The buyer has nothing to do with the seller's lender.
*The buyer and the seller have a contract.
*The seller and their lender have a contract.
*The buyer and the lender have no relationship at all.

In a long-winded way, my point is this:
The lender has no duty to your buyer and is not obligated to "take your price" because the offer price was offered by the seller, not their lender. Your buyer and the seller have an agreement with an unmet contingency. If your buyer does not like the price and/or terms the seller is now offering, then attempt to renegotiate or walk away.

NOTE: if the buyer and seller do not care about having the existing security deed released, then there is no need for lender approval.

Three Things You Should Know About Brokerage Agreements

2010-02-27T11:26:00.000-08:00

We engage in brokerage agreements everyday, however many Agents do not fully understand the functionality of such contracts. This post will shed some light on your otherwise dark brokerage engagements.

Before we begin, a shocking fact: many agents have not read the listing and/or buyer agreements. If this is you (or it has been several years since you last read it), then go print a copy and read through it! I am flabergasted at the number of Agents that do not know their tools. A conscientious agent reads all contract forms at least once per year!

1) Your client cannot just "fire" you. Yes, a client may refuse your representation as an agent, and they may engage, through written agreement, another agent to represent them, but they may not just dissolve the brokerage contract with you because they want another agent.

I have heard many, many Agents say, "My broker requires that you sign this buyer agreement, but don't worry, you can cancel it with me at anytime if you want to, without penalty."

WHAT!!??!! -- Then why have them sign the agreement to start with?

If you are in default of the agreement, then yes, your client can dissolve the agreement due to your default and the agreement may be deemed unenforceable. But, if you are doing what is required by the agreement and the client simply decides that they don't like you, or they want another agent, then your client may hire another agent, but that client may still owe you commissions based upon your agreement (listing and buyer agreements).

2) You can write special stipulations into your brokerage agreements. The following are some examples:

Listing Agreements:

-All parties agree that if no offers are accepted, the price of this listing will be reduced every thirty days.

-If Seller requests this listing to be removed or transferred from MLSs during term of this agreement, then Seller will pay Broker $_____ prior to removal or transfer.

Sometimes FSBOs have special requests:

-If Joe Blow or Sally Slander make accepted offer to purchase during term of this agreement, then commission charged to Seller shall be $______.

Buyer Agreements:

-If Buyer contracts to purchase a property within the first thirty days of this agreement, then at the closing, Agent agrees to provide a home warranty by Great Home Warranty, Inc. (not to exceed $345) and reimburse Buyer up to $300 of home inspection costs if Buyer contracts Billy Bob Home Inspector.

-If Buyer contracts to purchase a property after viewing ten or fewer listings, then Agent agrees to provide a home warranty by Great Home Warranty, Inc. (not to exceed $345) and reimburse Buyer up to $300 of home inspection costs if Buyer contracts Billy Bob Home Inspector.

You get the idea. Remember, brokerage agreements are contracts, just like all other contracts. And just like all contracts, brokerage agreements may be written in any way the parties agree.

3) Your brokerage agreement may be entered into now, but not take effect for several weeks (or months). This means that if you and a seller agree to list a property for sale, but the property needs repairs prior to going on the market, you may sign an agreement that begins in the future.

Many agents do not practice this way, and run the risk of the seller meeting another agent between now and the listing date; thereby losing the listing.

This method is a great way to secure the listing, without breaking the law (remember, once the listing period begins, you must hold it out for sale). Plus, the MLSs will penalize an agent with fines for not inputing data within time limits set by the listing agreement.

To do so, simply date the agreement for today (date agreement is made), and date the listing term (date the listing goes into effect) for the dates you and the seller agree to. If the seller needs three weeks to repair the property, then your listing is secure.

The same method may be used in Buyer Agreements. Sometimes a buyer wants to buy a home, but is going on vacation first. Secure the agreement prior to her leaving town, and when she returns, you still have a client.

Don't forget to make those agreements enforceable!

Do You Have a Plan? Really. Do You?

2010-01-03T06:44:00.000-08:00

It's the New Year again, and you are thinking this year has got to be better than last. Right!?! You may have given yourself an exit from the business ultimatum, or perhaps you've already taken "a real job" to make the ends meet.

If this is you, there is a secret that you should know. Agents that are not just surviving, but thriving in this market all share one common aspect (and if you sigh and mutter, "yeah, they're all REO agents and they get all the listings easy," then you are extremely jaded and probably should go get a regular job because that attitude sucks raw eggs).

The secret is this: You need a business plan!!!

Imagine a ship that sets sail with cargo and crew, but no charter. Where will they end up? When will they arrive? I can promise you this: the ship will dock somewhere and at some point in time, but without a charter and map, there is no telling when and where they will arrive.

Think of a treasure seeker with shovel in hand, but no map by which to dig. Will he find what he's looking for? He will find something, that's for sure, but without a drawn-out map, he must settle with what he gets.

Wishing upon a star rarely makes reality happen. You need a plan, a dreaded business plan, with numbers and written words, and all that dry, boring stuff.

Your plan needs to encompass:

-Gross Commission Income

-Net Income

-Cost of Sales (expenses)

-how you are to make sales (number of sellers closed, buyers closed)

-average sales price

-average commission earned

-lead-generation model (methods and time spent)

-lead and client conversion ratios

Break everything into smaller pieces (annual numbers into monthly numbers by dividing by twelve, and monthly numbers into weekly numbers by dividing the monthly numbers by four - easy). Then make daily and weekly activity tracking charts and track all your numbers.

You can find sample business plans for real estate agents here and here.

I teach a business planning workshop, where agents complete their plan in class. If you wish to attend the next session, email me.

Real Estate Honey

2009-11-08T10:26:00.000-08:00

Did your mother ever tell you that you catch more flies with honey than vinegar? She was right, and when it comes to real estate sales, agents are best served by following mother's advice.

Other agents are your best friends in real estate sales, but for some reason, many agents either forget this fact or never seem to grasp the concept. Being nice to everyone is the way to get what you want (within reason).

When a co-oping agent does not understand your point of view, or asks to negotiate the commission split (not a reason for you to be upset, by the way), or presents a low-ball offer, or becomes upset, or sends you a nasty email, or threatens to tell her broker on you, or says your listing is over-priced, or insists their client keeps the earnest money, or "steals" your client, or does not follow proper protocol, or well... you get the idea, DO NOT LOSE YOUR COOL.

These are not reasons to throw stones in their general direction (or directly at them). These are opportunities to win that agent over, and get your way.

To do so:

1) Take a deep breath.

2) Take a ten-minute break to your "happy place".

3) Seek counsel to ensure that you are not in the wrong. If you are, then apologize and be nice.

4) Create a response that is not inflammatory. Diffuse the situation; do not exasperate it.

5) Communicate your position with poise, clarity, and calmness.

When you act calm and rational, it is difficult for the other party to remain upset. So long as you do not become obsequious, or condescending.

Then again, some people are just difficult to deal with. Try your best to be nice (it's always the best policy), but do not let anyone take advantage of you, your client, or the situation. Never become a push-over, but remain nice!

Get Addicted to Prospecting

2009-09-16T15:24:00.000-07:00

ad-dic-tion (ə-dĭk'shən) n. The condition of being habitually or compulsively occupied with or involved in something.

pros-pect (prŏs'pěkt') v. To search for or explore a region for possibilities.

Habits are formed by repetition. Money comes from possibilities. Therefore, to become addicted to prospecting a person must first begin to develop such habit. When you prospect, you get many options and possibilities naturally unfold from this. The more you prospect, the more possibilities you get. The more possibilities you get, the more likely you are to earn money.

Start your habit small, with two hours each day. Start by going to your favorite places and engaging in real estate discussion and ask for referrals. Start by calling the people in your cell phone and always ask for referrals.

I've heard experienced agents claim that their business is nothing but referrals from people they know. When I ask if they called upon those people and ask for referrals, they usually answer, "No." This is not "working" a sphere of influence (not spear of influence, as I sometimes hear it called). This is simply the benefit of years of being in the business and knowing lots of people. These agents would have money falling outta their ears if they were proactive with prospecting to this vast well of contacts!

I know an agent that was brand-spanking new to real estate and got 18 listings his first month in the business because he prospected for six or more hours each day!!! That agent went on to sell 52 houses that year! He tells me that if he does not prospect for at least four hours each day, that he feels naked, and that he's failing his family.

Get good at prospecting. Practice scripts. Spend time thinking of new scripts to develop. When the market changes, see it as an opportunity to develop new scripts. When interest rates drop/go up, see it as an opportunity to develop new scripts. When national home sales numbers are released, see it as an opportunity to develop new scripts. When... anything real estate-related happens ...see it as an opportunity to develop new scripts. That's a BIG part of your job!

Prospect in many different places, and do it whenever you are not either sleeping or working with a client. If all your time is spent with clients, leaving very little time to prospect, then it is time to hire an assistant and/or a buyer's agent.

Learn statistics and keep abreast of current events that affect real estate. Use these statistics and knowledge of current events to steer discussions. Knowing that today's average 30-year fixed rate of 4.78% is the lowest-ever in recorded history (data began in 1971), then sharing this info with everyone you meet during the next two weeks, will surely develop dozens of leads.

Even if this process yields more referral leads to refinance loans than leads for your business, you will benefit in several ways by: 1) strengthening your relationship with your go-to mortgage gal 2) helping lots of people save money or avoid foreclosure 3) creating lots o' goodwill 4) strengthening your habit to prospect.

Simply speaking about real estate with everyone you meet will lead to possibilities, and we know where possibilities lead...

Places to prospect:
-college campus - carry a clipboard and ask passersby to participate in a "survey". Question 1) Do you own or rent a home? Question 2) What is your perception of the current real estate market? Question 3) Who do you know that is currently looking to buy or sell real estate?

-on the phone/internet - Call on likely buyers and sellers. Call on friends/acquaintances. Post ads on craigslist. Send monthly newsletters via email.

-anywhere you currently are - Talk to the guy on the train. Talk to the cashier. Talk to the dentist and her assistant. Talk to your pet groomer. Talk to your bookie.

Through repetition comes perfection. Imagine two people are challenged with the task of building a perfect clay pot. One is allowed to build hundreds of pots, over and over again throughout the month, while the other is required to work on only one pot, the guy that built many pots is much more likely to build a perfect pot, while the other guy will have an ugly ashtray for mom.

Prospecting has a negative connotation, but it does not have to.

Simple ways to feel good about prospecting:

-Let's face it, real estate is a sexy subject. Most of the wealthiest people made their money in real estate doing something or another. Everyone knows that. People also have a compulsive urge to watch a train wreck. Put the two together and it's an easy subject to discuss.

-Have discussions about real estate. Learn to initiate and steer discussions about real estate with natural ease.

-It's a contact sport. Communicate with as many people as possible. Say the right things and the possibility of earning money increases exponentially!

If you get addicted to prospecting, money will become plentiful! I promise.

Careful Cleavers are my Favorite Agents

2009-07-31T12:17:00.000-07:00

I have noticed that many agents do not stop and carefully consider all issues when conducting their business. They get into a hurry. They do not slowly review all documents. They fail to include certain disclosures. They fail to prepare a contingency plan when negotiating repairs. Etc, etc.

This post is intended to help you from falling prey to simple mistakes.

I love my work, but the worst part of my job is, upon requested help, having to tell an agent that they have not properly represented their client. Worse yet is that now, that agent must go and tell their client that due to improper representation, the client's choices are bad and worse.

The following are a few examples of how getting into a hurry can hurt you and your client (each a real life example. Names and some details have been changed to better illustrate the example):

1) Failing to put a date on the Seller's Disclosure Statement:

Agent Amy is representing a seller. The day before closing, the buyer calls and declares they will not close and demands their earnest money to be returned immediately. The buyer says that material facts have been discovered that change the value of the house to be purchased. The buyer further cites that relying upon the seller's disclosure statement has been to the buyer's detriment, claiming that the seller either lied or misrepresented facts that would harm the buyer.

On the Seller's Disclosure Statement, the question was asked: Are there any encroachments, unrecorded easements, or boundary line disputes with respect to the property? to which the seller checked, "No."

As it turns out, there was a boundary dispute with a neighbor, but the seller was unaware of this dispute. The buyer is now claiming that even if the seller was unaware, the seller should not have checked "No" unless the seller knew for certain that there was no boundary dispute. Because the seller checked "No", then the seller was warranting such and since the buyer relied upon that disclosure, the seller has defaulted on the agreement. Sure, the buyer has to perform their own due diligence, but it now appears as though the seller has misrepresented material facts.

Another fact is that at the time the seller filled-out the disclosure statement, the seller was being truthful. The neighbor had not begun the boundary dispute proceeding until six months after the seller had completed the disclosure statement, however there was no date on the disclosure statement.

Agent Amy has always told her sellers to leave the date blank on disclosure statements, because if a date is added, then the buyer and his agent can tell how long the listing has been for sale. This is a really silly reason to leave the date off, and in this case Agent Amy has cost her client more than $5000 in earnest money (and the property did not close).

2) Waiting to negotiate repairs with only one day remaining in contingency period:

Agent Andy and his buyer have ten days to complete their due diligence and determine whether or not to proceed to closing. The pair wait until the ninth day to submit a list of repairs to the seller. The next day, they still have not heard back from the seller.

Agent Andy calls the listing agent and asks for an update. The listing agent says that the seller is still thinking about it and "don't worry, all repairs should be made. We will give back word soon." They don't hear anything more that day, but the following morning, they receive word that the seller will make no repairs because the seller is flat broke; no money. The buyer does not like that idea and decides to look for another house. Agent Andy fills out a unilateral termination and submits notice to the seller.

One problem: Agent Andy and his buyer submit this form on day eleven of the contract; they are a day late.

What should Agent Andy have done differently? He should have had the unilateral termination form filled out and ready to send to the listing agent on day ten. Once Agent Andy had not heard from the seller, he should have sent the termination. Even if he sent the termination and the seller was willing to make the repairs, the parties could have re-entered into an agreement to purchase the very next day.

As a result, Agent Andy's buyer lost $1000 of earnest money.

Note: anytime you send notice, especially unilateral termination notice, always get confirmation evidence or proof with time and date, and be certain to send that notice through the channels delineated in the agreement.

3) Failing to submit notice through the proper channels:

Agent Anna is in the same position as Agent Andy, only Agent Anna is on the ball, and submits her unilateral termination notice on day eight. She calls the listing agent and tells him that her buyer has decided not to proceed with the sale because there are too many repairs needed. During the conversation, the listing agent tells Agent Anna that he is currently at the beach, so please fax the termination to his hotel. Agent Anna does so.

Three days later, Agent Anna gets a call from the listing agent. He says that the seller wants the buyer's earnest money. Agent Anna reminds the listing agent of her termination notice and how she sent it to him at his beach hotel. The listing agent says that he never got that notice, and adds, "besides, the means of legal notice regarding this transaction are my home fax and email, and I never received notice by either of those means."

The listing agent is right. Agent Anna should have sent all notice through the channels outlined in the contract. She could have still been polite and sent the notice to the beach hotel, but should have also sent that notice through the other channels of legal notice.

Due to Agent Anna's misstep, her buyer lost $2500 earnest money.

This last example is an important one to note. Always let the other party add their means of notice to the agreement. Also, always make certain there are means of notice.

So, when conducting real estate business, keep Ward, June, Wally, and the Beaver in the forefront of your mind. Being a Careful Cleaver will save your hide and better protect your client.

3 Potential Short Sale Pitfalls for Agents

2009-07-17T12:34:00.000-07:00

New markets bring new opportunities for savvy people. Not all savvy people have your client's best interests at heart. As an Agent, you have a responsibility, a legal duty, and a moral obligation to represent your client above all else, including your own interests.

Within recent years, the number of foreclosures have exploded, leaving many with a loss: borrowers and lenders alike. Due to this, lenders have turned to an exit strategy called the Short Sale, and truant borrowers are seemingly eating it up.

A short sale is when the lender agrees to allow a borrower to sell his property, but not requiring repayment of that borrower's loan in-full. Imagine the borrower owes $100,000, but the home is currently worth $70,000, and the borrower cannot make payments. In this instance, the lender would rather accept $70,000 today than to foreclose on the property, because if the lender forecloses and resells, then the amount of re-couped loss will most likely be less than the $70,000.

!!!Herein lies the opportunity for the savvy person!!!

Now imagine you are a listing agent. Your newest client is the one described above (owes $100,000 but her house is worth $70,000), and she has missed the last three months of payments. Your client's lender has contacted her and insists she make her payments or foreclosure is imminent. You mention the short sale to your client and she thinks it sounds like a better option than foreclosure.

The following are three of the most common scenarios that play-out next:

1) You get your client's permission to contact the lender directly and upon doing so, present your short sale idea. The lender agrees and asks you to submit any and all offers you receive. You list the property, and three offers are made within two days. You take all three offers to the lender and await their approval. The lender (eventually) accepts one of the offers and the sale is made.

2) You list the property for sale and almost instantly you get a call from another agent that has an investor that will save the day. This investor is the nicest guy in the world. He has so much kindness in his heart and tons of experience working with Big Bad Bankers. He will call the lender and negotiate the short sale terms and in the meantime, his agent will list the property for sale (as explained, they work as a team only). The investor and his agent will find a buyer for your seller (he sounds like Robin Hood). To do so, you must surrender your listing to this new agent, but do not worry, the new agent promises to pay you x% of the sales price once it closes and is nice enough to sign an agreement that says so. You and the seller are off the hook now, so just sit back and wait for the money to come in.

3) You list the property for sale and call a negotiator that you have met. This negotiator has a unique business model. He negotiates with the lender on behalf of the seller (don't worry, the negotiator's fee is paid by the lender and so is your commission). You keep the listing, the negotiator gets the bank to agree to a price that should sell fast, and all will be happy. Soon, a buyer comes along that is willing to buy at that price, and the sale is made. This scenario helps you tremendously because you are not a short sale expert but the negotiator truly is, so your client gets the best of both worlds and you don't have to spend all those countless hours on the phone with the lender.

Now the question comes:

In which scenario(s) were you representing your client as required by law?

Think about it. I'll wait.

If you are a full-time agent, you have likely encountered one of these scenarios in recent months. It is also likely that you have been challenged with the above question of legal responsibility, fiduciary care, and meticulous representation to your client, but you may not have even regarded it as such.

Before answering the question, consider this: the short sale is not a get outta jail free card for the borrower. There are penalties to not repaying one's debts, some immediate, others long-term. As an agent of the seller, it is your responsibility to fully explain the pros and cons of your client's actions regarding her real estate transaction; if you do not, then you are not fully representing your client. The Mortgage Forgiveness Debt Relief Act has taken some of the sting outta the short sale (recently extended through 2012) , but the lender may still insist upon the seller signing a deficiency judgement or promissory note for the difference of amount borrowed and the amount received at sale before the short sale is completed. This means that in the above scenarios, the seller would still be liable for $30,000 repayment.

Time for answers:

In scenario 2): you have abandoned your client once you willfully dissolve your listing and allow the new agent to create a "listing agreement" with the investor. The investor has negotiated a short sale price for himself and hopes to resell the property to a buyer willing to pay more than the lender is willing to sell. This is how the investor profits. If the investor cannot find a buyer willing to pay more than he can purchase for, then he will abandon the project and your seller becomes the newest foreclosure in town.

If the investor and his agent are able to attract a buyer, then you could have done the same. So, why would you need the investor and his agent? Imagine this: the investor negotiates with the lender to sell at $60,000, then finds a buyer to pay $70,000. The penalty to your client for your abandonment is another $10,000 (the investor's gain) in deficiency judgement. In this scenario, you have not represented your client unless you have fully disclosed all of the above-mentioned pros and cons (plus several others) and your client has signed-off to the possible risks. That extra $10,000 is your client's money and you have let it slip away without any effort.

In scenario 3): you may have been fooled by the negotiator. He is most likely performing the same investment strategy as the guy in scenario 2). The problem here is that you may have introduced your client to a wolf in sheep's clothing. Many times, the negotiator is looking for a buyer also, but he allows you to keep your listing and hopes you attract the buyer. This way, the entire thing looks like he is working on behalf the seller, but he is really working for himself. You have not represented your client by allowing an outsider to "negotiate" on your client's behalf. That is your job. The result is increased financial liability for your client. Not good.

That leaves scenario 1): but you have not exactly represented your client's best interest in this scenario either. Remember that your client is the seller and only the seller. Your client may need the lender's blessing by selling her house for less than she owes, but that does not mean that the lender becomes your client. When you do as "instructed" by the lender and present all the offers you have received, you have abandoned your client's best interests because it is none of the lender's business how many offers your client receives (the lender is not your client). When you present more than one offer, the lender will take longer to decide upon an acceptable price because they may feel the price is too low and it may attract a better offer.

Remember this: you have a legal duty to represent your client. When you engage in actions that do not represent your client, then you are committing a crime and are opening yourself up for legal liability that may cause law suit and/or license revocation. Always stop and consider who your client is and if your actions are congruent with their needs and interests.

In the above scenarios, the investors are working within the boundaries of the law. They are doing nothing wrong (however, I think the negotiator in scenario 3) is guilty of fraudulent representation by not disclosing his plan fully). However, by allowing (or worse--encouraging) your client to follow their lead is a crime unless you have fully disclosed all the risks to your client (if you do this, then get it in writing).

If you feel that the short sale process is over your head, then you should refer that business to another agent. If you do take the short sale, then do your best to interpret the value of your client's property, list the property at that interpreted value, and get the highest price possible.

A point of note: If you attended at three-hour CE class on short sales, this hardly enables you to declare to the world that you are a short sale specialist or expert. Remain mindful of your fiduciary responsibilities and curtail your actions to meet those imperatives.

Just Say Zerooooooooooooooh!

2009-07-15T21:24:00.000-07:00

I like to cut to the point with zeros. I think simplicity works best.

There are several benefits to keeping it simple when pricing your listing:

a) The buyer knows that $99,900 is the same as $100,000. The buyer isn't stupid; he thinks less of you .

b) Pricing at $100,000 gets you into two MLS searches: $75,000 up-to $100,000 and $100,000 up-to $125,000 - your listing at the top of one range and at the bottom of another. Pricing at $99,900 only gets you into one MLS search: $100,000 down-to $75,000 - your listing near the top (and near is never as good as on--we're not playing horseshoes).

Remember, these MLS searches are markets created by agents and buyers. That being so:

The best pricing-position for increased market exposure is being priced in two markets.

Two markets are always better than one; you're being seen by more eyes. Priced at either the top or the bottom of the list also makes you stand out. For this reason, an agent should price their listings at the top and bottom of markets.

These markets are generally:

$100,000 to $300,000 in $25,000 increments
$350,000 to $600,000 in $50,000 increments

Just as offering a listing for sale, lease, lease/purchase, and owner-financed opens that listing to several different markets, so does pricing on the zero.

Some agents add their signature to a listing with the last three digits of a price, like this: $100,123. I think this is a mistake because this cute little pricing display does not allow a listing to be at the top or the bottom. Besides that, who notices this gimmick? Other agents? Yes, but do they really care? I don't think so.

A listing priced at $99,900 isn't fooling anyone. Embrace the zero. Your listings will get more exposure, and more exposure means greater likelihood of selling.

How's the Market?

2009-06-12T10:15:00.000-07:00

When someone asks you, "How's the market?", do not reply with "Great!", "Outstanding!", or some other optimistic response that causes that someone to look upon you with doubt.

Instead, respond with the question, "Why do you ask?"

This question will open the door to conversation. Often times that someone will answer you with, "I've been thinking of selling my house, but I hear that market is BAD." Do you smell a listing appointment??? Or the response is, "My brother has been talking about buying a rental property, but he's waiting for the market to bottom out." Does this sound like an opportunity?

The best policy is to not mislead people, rather to converse about their needs and interests. The simple script, "Why do you ask?" does just that. Armed with this script, everyone wins. The client's needs are met and the agent lives to work another day.

Try it out. Smile when you ask, "Why do you ask?" It works wonders.

Foreclosures Count as Comps!?!?

2009-05-13T06:38:00.000-07:00

I have heard it time and time again...

"I'm having a hard time finding comps. The only Sold comparables are all foreclosures and I can't use those. What should I do?!?!"

Our beleaguered agent has the premise all wrong. Let's start with the definition of the word comparable:

Comparable -- com⋅pa⋅ra⋅ble [kom-per-uh-buhl] – adjective
capable of being compared; having features in common with something else to permit or suggest comparison. With synonyms being: like, equal, equivalent, and similar.

Comparables are used to compare a subject property for the purpose of interpreting it's value.

In times past, foreclosures were typically houses that were blighted, damaged, dismantled, run-down, mangled, and otherwise wrecked, making them NOT comparable. This is no longer the case. In fact, many foreclosures today are in move-in condition, with some in much better condition than the average non-foreclosure.

So, the new rule is this (actually, its always been the rule): foreclosures can and should be used as comps, as long as the condition matches the subject property. Remember, value is not determined by who the owner is, rather by what another is willing to give.

This rule is distressing to homeowners because they see foreclosed properties bringing the surrounding values down. This is not exactly the case. Surrounding values are determined by what a buyer is willing to give, and in a market with a surplus of supply and a shortage of demand (like most current markets in Metro-Atlanta) values will drop until an equilibrium is met.

The real difference between a bank-owned house and an owner-occupant house is that the terms of a bank-owned sale are based without emotion. The bank will look at market statistics and make a decision quickly. For this reason, bank-owned properties are usually priced much lower than an owner-occupant seller is willing to price.

Think of it this way:

One year ago, values were A.

Current values are B (where B is less than A).

Based on market stats, we believe values one year from now to be C (where C is less than B).

In this scenario, today's value is less than yesterday's value but more than tomorrow's value. When the market is declining in value, a seller nets more money selling sooner rather than later (unless later is much, much later, once values begin to rise again, but this is another topic).

Another name for this is market-correction, whereby values return to value of equilibrium based in supply and demand. On Wall Street, this happens all the time, and usually takes only three or four hours from top to bottom, whereas a housing market-correction may take three or four years because reluctant sellers drag their feet on listing price. Banks take advantage of how slowly the correction occurs by pricing right and selling quickly, because they understand, without emotion, that as time marches on (until the bottom is reached) values will continue to decline. But to say that foreclosures are responsible for declining values is not entirely correct.

Bottom line: When interpreting the value of a house, use comparables that are comparable, meaning the condition is similar.

Take into account that condition is: location, layout, style, construction material, age, effective age, size, acreage, amenities, cleanliness, etc.

Do not take into account the owner of the property.

Bad Market? No Such Thing!

2009-03-19T22:36:00.000-07:00

There is no such thing as a "bad" market, just like there is no such thing as a "good" market. There is only, "the" market. And "the" market just is.

For a market to be either good or bad, that market would have to help little ol' ladies cross the street or pull on little ol' Suzie's pigtails.

Instead, the market experiences supply and demand fluctuations, thereby changing the market value of individual commodities within that market. A Buyer's Market occurs when there is an abundance of supply and a shortage of demand. A Seller's Market is when there is a shortage of supply and an abundance of demand. Regardless of the market type, there are individuals that stand to profit.

So, why do people call the market bad? Because a Buyer's Market either does not meet their interests at the time (seller that needs to sell, but owes more than market value) or because it does not meet their motivation (agent that does not prospect routinely) or because it does not meet their skill (agent that does not know how to prospect or sell).

I can sympathise with the seller, but not the agent. Sellers lamenting the "bad" market are understandable, because they stand to lose money or they don't like their options. However, agents belly-aching over their "bad" market-woes can do something positive to correct their stance.

There are four things that every agent must do to survive (and hopefully thrive) when market values are dropping: 1) prospect every day for at least two hours 2) practice scripts for at least three hours per week 3) learn the proper way to value property 4) speak with conviction.

A closer look at each:

1) Prospect - at least two hours per day. Lack of disciplined prospecting is what keeps most agents from succeeding.

BIG HINT: The quantity and quality of an agent's prospecting is directly correlated to the quantity of that agent's closed sales.

Prospecting involves picking up the phone and calling people, discussing real estate, and asking for appointments/referrals. There are methods to make the likelihood of success more probable:
a) call on likely buyers and sellers (FSBOs, expired listings, renters, college students, investors)
b) call on likely alliance partners that are likely to give you referrals (sphere of influence, attorneys, mortgage officers, home inspectors, barbers, shopkeepers, bartenders, etc.)
c) call on follow-ups. Get out all those phone numbers from the last several months that you have put to the side, the ones that you are embarrassed to call because you failed to follow-up in a timely manner, or those that are a long-shot of listing or becoming qualified to buy. Talk to them! These are still warm leads.

2) Practice Scripts - speak like an professional agent! Every client/prospect objection has already been heard before; many, many times. As well, a script (or ten) have already been developed to handle those objections. When you learn these scripts and internalize them, you are able to actually listen to people, because you are not always thinking of what to say next. An objection is not a "no". An objection is an "I'm not yet convinced that what you are saying is true or accurate".

BIG HINT: Know your business! Doing your homework, utilizing scripts, and continuous learning is the only way to do so!

The scripts that should be mastered are: prospecting scripts, pricing scripts, listing scripts, commission scripts, brokerage agreement scripts, closing scripts, presentation scripts, market statistics, etc. The point here is that all scripts should be mastered. Seek them out. Practice them with role playing. Practice them some more. Practice scripts every day. Over time you will become a Script Jedi. Use The Force!

3) Learn to Value Property - speak with appraisers, do homework, study market stats, practice, practice, practice. Learning this skill is imperative to an agent's success. Without a firm ability to value property and the conviction to convey opinions to others, an agent is doomed and prone to blame the market.

BIG HINT: Learning to properly value property is not a difficult skill to acquire, and is worth millions of dollars!

4) Speak with Conviction - tell it like it is, have an opinion, make a decision, stand by your word. When someone speaks with conviction, that person is more believable. Will you sometimes be wrong? Yes. We are all wrong from time to time, but when you hem and haw you never win, and you rarely get your way. If you hem and haw and you are correct, others will not believe you.

BIG HINT: When you are prepared (know scripts, know market stats, know how to value property), it becomes easier to speak with conviction.

You already know more than you think you do. Act like it!

Remember, you are asking a person to trust you with their $250,000 investment. You need to convey some confidence or you will have only schmucks for clients (and believe me, a schmucky client is not an easy one to work with).

Sellers lamenting the "bad" market are hurting and are in the wrong place at the wrong time, but when those sellers hire an agent lacking motivation or skill, the market becomes even worse!

So, when it comes to the market, there is no sinking ship, only sinking agents. The best part is this: you don't have to be one of them. You know how to stay afloat and you know how to sail into calmer waters. Is this market as easy to navigate as the market of the late 1990s and early part of 2000s? No, but it is navigable with consistent prospecting, script mastery, property evaluation skills, and conviction of speech. Sink or swim? The decision is yours to make (and if you choose to not act, you still have made a choice).

The Importance of Being Earnest Money

2009-02-15T14:03:00.000-08:00

After seeing yet another agent fall into the abyss of earnest money ignorance, I decided to write this article. It seems a topic often misunderstood. Curious how the internet defines earnest money, I surfed its pages to see, and what I found surprised me a little bit: each entry was on the right path, but failed to completely explain the concept. The following is my attempt.

Simply:
Earnest money is collateral security a buyer posts, showing seriousness regarding the consummation of a contract, which may act as liquidated damages to remedy the seller should the buyer not perform.

From this definition, there is much to discuss:

First and foremost, earnest money is not required to make an agreement enforceable. As well, earnest money is not unique to real estate contracts.

Unless the agreement states otherwise, earnest money is returned to the buyer at the time of closing. Because the buyer often is required to pay additional monies at time of closing, earnest money is returned "on paper", and used as a credit toward other buyer costs. These costs may include down payment, closing costs, or agent commissions.

Earnest money shows the buyer's good faith, because the seller is taking their house off the market for a period of time (usually thirty to forty-five days) while the buyer readies himself to purchase, precluding the seller from entertaining other offers during this time.

The agreement may be written to include contingency stipulations, protecting the buyer's earnest money (so long as the contingency is written to protect that money). These contingencies commonly include time for inspection, loan qualification, and appraisal determination, but may be written to include any event the parties agree.

If the buyer exercises a contingency and opts to dissolve the agreement, his earnest money will be returned to him. However, if the buyer opts to act in a manner that causes his default of the agreement (not closing), the seller may be entitled to the earnest money as liquidated damages.

Liquidated damages are a payoff to the damaged party of a contract. If the damaged party accepts these liquidated damages, then that party may not seek further damages and the dispute ends there. If the damaged party does not accept the liquidated damages, that party may sue for specific performance of the agreement (enforce the buyer to buy), but this is usually not practical. Suing a buyer for specific performance is costly (tens of thousands of dollars), time-consuming (one to three years), and unlikely to succeed. This is the reason a seller should consider the amount of earnest money posted seriously.

I often feel that due to custom, earnest money is not used to it's full potential. Sometimes it is the seller that needs to be kept honest. A defaulting seller can damage a buyer, too. Buyer's often spend hundreds or thousands of dollars on inspections, appraisals, and loan fees, while preparing to close. Not to mention, a damaged buyer may have also missed an opportunity to purchase another property that is now off the market. Where's the buyer's remedy? The buyer could sue for an injunction and specific performance, which is often not practical due to expense and time, or the buyer could sue for damages, but this is also time-consuming and with cost.

Therefore, should both parties not put earnest money into another's trust?

Questions:

Who holds the money?
Earnest money is held by whomever the parties agree. This means the holder can even be the seller, but this practice would be a foolish one. The safest holder is a neutral party with a trust account, because there are laws that protect interested parties regarding the handling of trust money. While Georgia real estate brokerage custom dictates the holder being the broker representing the buyer, it is not a rule.

How is a dispute resolved?
The agreement should state the rules of disbursement. If those rules, or the contract itself are disputed, the holder interprets the agreement (or has legal counsel interpret) and makes a decision regarding disbursement. If either party is still dissatisfied with the decision, further arbitration or lawsuit may be pursued; so long as the agreement allows.

Why is it called earnest money?
Because calling it collateral security is cumbersome, and because most people post money (cash or its equivalent). However, any item that is agreed to by the parties may be used as earnest money: jewels, a car, another house, etc.

How much is enough?
Earnest money is whatever the parties agree, but is customarily between one-half and two percent of the purchase price.

How do You Determine Market Value?

2009-01-26T11:27:00.000-08:00

When asked how a listing price was determined, most agents will tell you that they looked at three comparable properties that closed within the last six months. When asked where these comps are located, the answer is usually, "In the subdivision. Duh!"

That may be fine and dandy for an agent listing in a broad Seller's Market, but in the broad Buyer's Market of today, the same agent should expect a loooooooong listing period. This credulous creature is probably not selling too many of his listings because his listings are not priced right, (this is not say that a quick study of a subdivision's recent past will not bear the right price some of the times -- statistically even a blind squirrel gets a nut some of the times).

First, what is a market?

A market is demand for a commodity.

A house is a commodity.

All of the houses located in Cobb County is a market.

This is a broader housing market.

A house with certain features is a commodity.

All of the houses located in the Suchensuch School District, valued between $350,000 and $500,000 is a market.

This is a narrower housing market.

A house with specific features is a commodity.

All of the houses located with a two-mile radius, valued between $350,000 and $400,000, contemporary design, with four bedrooms, a basement, and a modern kitchen is a market.

This is a specific housing market.

Remember, each house is unique; no two are exactly alike, so study of several different markets is needed to interpret the value of a single house.

Secondly, what is market value is?

Market Value is determined by only one factor: where the demand for a commodity meets the supply of that commodity.

this can also be written as:

Market Value is determined by only one factor: what an individual is willing to pay for a specific property -- that one time.

You cannot determine market value. The seller cannot determine market value. An appraiser cannot determine market value.

Only a buyer can determine market value!

If the house sells, market value is what the seller will get in exchange for the house; everytime.

Once again, market value is determined at the time of a sale, and only at the time of a sale. For this reason, the "market value" of a commodity may always be changing, because with each new sale of a commodity within a comparable market, the interpreted value of all other commodities within that same comparable market will also change. This fluctuation will show a trend - upward (possibly into a Seller's Market), downward (possibly into a Buyer's Market), or remain flat.

Notice the terminology: an agent interprets value (using tools to do so) and a buyer determines value (by willingness to do so). This is because until someone comes along and buys at a certain price, the market value of a listed house is nothing more than a hypothesis.

* *** *

Three main tools an agent should use to interpret market value:

-Absorption Report

-Macro Comparable Market Analysis (CMA)

-Micro Comparable Market Analysis (CMA)

How do these tools help to interpret market value?

An Absorption Report is a general comparison of the broader market, a snapshot. It is helpful because it shows the current number of properties in a given market (price range and MLS area) that are actively for sale and the number of properties in that market (price range and MLS area) that have actually sold within the last twelve months. From this, the number of months of inventory (at the current rate of absorption) can be surmised.

After knowing the months of market inventory, determining whether the subject property is currently in a Buyer's Market or Seller's Market is quite easy: properties in an area with four or less months of inventory are in a Seller's Market, five months or more are in a Buyer's Market. Properties in an market of twelve months or more are in an extreme Buyer's Market.

Why is this helpful to know? Because properties in a Buyer's Market need to be priced more aggressively (right at or just below the price of Sold Comparables) because there is much more competition and less demand. By the same token, properties in a Seller's Market can be priced right at or a bit higher than Sold Comparables because there is a shortage of inventory and more demand.

If you believe the subject property's value to be near the edge of two (absorption report) market-price ranges, opt to list in the one that is more of a Seller's Market.

Note: the more Sold properties a given market has, the more accurate the inventory figure, and thereby the determination of Buyer's or Seller's Market, will be.

Another Note: a Seller's Market sticks out like a sore thumb in the Absorption Report. That thumb points directly at house-flippers and prospecting agents. Selling property in a Seller's Market is where everyone wants to be. Look for it! Prospect to it!

The Macro CMA is a study of (mostly) comparable properties in a geographical 'area of interest' to a buyer. That area may be an entire MLS area, or a high school district, or any other wide, geographical area that likely buyers will consider buying in.

When searching for comparables, use factors like number of bedrooms (don't worry so much about number of baths -- but be careful about what the listing agent considers a bedroom), whether or not it has a basement, the overall size of the property (and lot size if larger than a few acres), and use the same price range as on the Absorption Report (if on the line, use two price ranges). Do not exclude properties if they are of a different style (traditional, contemporary, mixed-style) because that is a specific taste. Most buyers looking for certain amenities and size of property, will consider different styles of construction.

The Macro CMA is a great tool because it shows the amount of competition (active listings) and it shows Solds that are more comparable to the subject than the Absorption Report.

The Micro CMA is the smallest area of study (most specific), and is usually the subdivision, but if there is no subdivision -or- if the subdivision is too small -or- if the subdivision does not have many Sold Comparables, then the Micro CMA will be three to five properties within a few miles radius of the subject that are extremely comparable; having the same number of bedrooms, bathrooms, basement, construction style, etc.

If you preform a good Micro CMA, no adjustments to the subject need to be made.

Note: you should put the most emphasis on Sold and Pending Comparables in your CMAs. The Solds show the actual price someone else got for their properties while the Pendings show the price that attracted an offer. Your Sold comps need to be no older than a few months. Active listings are not to be used to determine list price, only to show current competition, so do not put much (if any) emphasis there.

So, now let's answer the original question: How do you determine market value?

You don't! But you can interpret market value using the Absorption Report to figure market trend, and using the Macro CMA to compliment the Micro CMA when honing in on a price.

Hitting the bulls eye with the right price at the time of listing is the single most profitable action you can do for yourself and your client. Take time researching it and explaining it, then insist on it!

(for more on this topic, click here)

Who Made That Offer?

2009-01-25T15:08:00.000-08:00

Is it the Offeree or the Offeror?

Who sold their house?

Is it the Grantor or the Grantee?

Who gets the loan?

Is it the Mortgagee or the Mortgagor?

There is a really easy way to keep all of these straight. Just think of a hickey!

The person wearing the hickey is the Hickee and the person that gave this decorative gift is the Hickor. The Hickor gives and the Hickee receives --everytime.

Applying this mnemonic device, ask yourself, "Which party is the Hickor?" The answer is simple and funny. The Offeror makes the offer. The Grantor sells her property. The Mortgagor gives a mortgage in return for money (loan).

So, when you forget which term to use, think back to your turtleneck days of high school (you can leave the image of square pizza behind, though). Just don't let your clients see you pucker up.

What's Time Got to do with It? Got to do with It?

2009-01-23T12:21:00.000-08:00

If I had a nickel for every real estate offer I've seen submitted without a time limit (an expiration of the offer) I'd probably have an extra ten or twenty bucks.

If you leave the time limit space blank, please know that you are planning for danger. If the offer has no expiration, it is essentially open for the Offeree to contemplate forever. Without an expiration, the Offeree may wait six months (or longer) to accept. Not good.

Lesson here: put an expiration date/time on all offers; counter-offers included. Now we know a date is necessary, but what is a reasonable time limit?

In my opinion, a 24-hour window is more than enough time for the Offeree to decide on an offer, but I prefer six hours.

The Offeree has three choices with regards to the offer: accept, reject, or counter-offer.

Remember, the Offeree may accept an offer outside of its expiration, but the Offeror is not obligated to go along. Therefore, there is not a big risk to placing a short time limit on all offers.

Examples:

a) You represent a buyer making an offer on a Friday at 4pm, just before a three-day weekend. You call the listing agent to announce your offer coming by facsimile. The listing agent tells you that the seller is outta town until Tuesday at noon, and will be unreachable during the weekend (they are apparently vacationing in a Cambodian prision camp).

Q: Do you put an offer expiration of Tuesday at 6pm?

A: No. Leave the time limit open until Saturday at 4pm (24 hours).

If you set the expiration for Tuesday at 6pm, what happens on Sunday when your buyer calls and says that she wants to make an offer on another house (just listed that day) because this is truely her dream house?

So, you make the offer on the new house, it's accepted, you forget to withdrawl the offer on the first house, the sellers come home from the Gulag and accept your offer in full. Now you're in trouble. Your client has contracts to close on two houses.

Note: you can always withdraw an offer in writing anytime before the Offeree accepts, however it is easier to set a short time limit and wait for it to expire before exploring other options.

b) You make an offer on a bank-owned foreclosure. The listing agent tells you the bank is slow to return word on offers, sometimes taking up to a week.

Q: Do you make the offer expire within 24 hours?

A: Yes.

But the listing agent said an answer to our offer will take several days!!!

It does not matter how long it takes the Offeree to get their act together. To protect your client, and yourself, no more than 24 hours is needed on an offer.

What can happen if my expiration time is too long?

You may be inviting a bidding war. If you make an offer to me on Friday, with an expiration of Monday, I would wait until Monday to see what other offers I may receive. If I get more than one, I could drive the price up like at auction, pitting the buyers against each other. On the other hand, if an offer came to me on Friday at noon, set to expire by 6pm, I would have to decide quickly.

Note: if your offer is expired before the Offeree gets a chance to review your offer, the Offeree may decide that you are no longer interested and not consider your offer at all. This scenario rarely happens, and if you feel it has occured, simply submit another offer (with another expiration 24 hours or shorter).

Also note: an offer that is accepted after the offer is expired is not technically accepted. If this happens, there are several remedies to consider. 1) Re-write the offer, just as before with a new six-hour expiration and have the Offeree sign. 2) Write an amendment to the original offer, extending the expiration time.

Another also note: if the Offeree counter-offers your offer after the original offer has expired, there is no reason to re-write the original offer because the Offeree has now become the Offeror (technically not a Counter-Offeror) . At this point, your camp has the same options as any Offeree: accept, reject, or counter-offer.

Big Lesson here: do not write offers without an expiration! If you do, you are inviting trouble to yourself and your client.

Lease/Purchase v Lease/Option

2009-01-09T06:49:00.001-08:00

What's the difference between a lease/purchase and a lease/option? A subtle one, but it makes all the difference in the world. There are nuances in all agreements that make them unique, therefore the following is a generalized explanation.

A lease/purchase is two agreements that are attached to each other -- one a lease, the other a purchase agreement and both are executed in full.

Think of lease/purchase as a sales agreement set to close months into the future (and not before), and in the meantime the to-be purchaser leases the property. This being the case, the to-be purchaser conducts an inspection and the to-be seller makes repairs -- all before the tenant/purchaser moves into the property. As a result, during the term of the lease, the tenant/purchaser is responsible for all repairs and maintenance required to the property. The seller is not a landlord in the traditional sense, he merely collects the rent payments.

Not only is the closing date determined upfront, but also the price and all other details of the sales agreement. Typically, the purchaser pays the seller a down payment prior to moving in, to be discounted from the purchase price at the closing table. A portion of each rent payment may also be rebated at the closing. If the purchaser defaults on the purchase agreement these payments are not rebated.

A lease/option is comprised of three agreements -- a lease agreement, a purchase agreement, and an option agreement.

The difference here is the option agreement; notarized and filed at the courthouse to put the public on notice. The to-be purchaser buys the option (this is not a deposit - the money belongs to the seller at this point) to purchase the house at a later date, anytime before the option expires. If the option is exercised, the seller may discount the price of the home by the cost of the option, but this is not always the case.

The seller may sell the house to another party before the option holder exercises his option, but the new owner must still honor that option. That is why the option should be filed at the county courthouse.

All the details of the would-be purchase are arranged upfront as before. The would-be buyer is not penalized anything for not closing because they never agreed to. They merely said that they might close and if they choose to close then it will be according to this purchase agreement and they will make their decision on whether or not to close before a certain date expires.

It should also be noted that not all option agreements accompany a lease, but usually do. Some investors buy options, hoping to find a buyer at a price higher than the investor's purchase price plus the price of the option.

Under a lease/purchase the buyer must wait until the lease expires, then must purchase the house. Under a lease/option the buyer may exercise the option to buy (or to not buy) at anytime before the option expires, and when he does this, the lease is automatically terminated.

So, that's the difference. Each arrangement has it's place, determined by the needs of the parties.

Make Your Agreements Enforceable

2009-01-07T12:04:00.000-08:00

Although we engage in contracts on a daily basis, most agents do not know what is needed to make their agreements enforceable. If this is you, then do not fret; just read on...

To understand what makes a contract enforceable, we must first understand the purpose of a contract. An agreement is written to ensure all parties act as they have agreed to. This might seem obvious, but most contracts we enter into are executed immediately (an example of this is when you go to the store, put a widget on the counter, the clerk says, "Five dollars.", you pay five dollars, he gives you a written receipt, and you walk out). Real estate contracts are executable, meaning a period of time will pass before the transaction is consummated. The written agreement allows us the peace-of-mind that the other party will not forget what he has agreed to.

However, if the other party does not do as he has agreed, or does other than he has agreed, our agreement must be enforceable to protect our interests.

Enforceability means that a judge can enforce one or more parties to act in accord of the agreement, and there are five elements needed to make any contract enforceable (not just real estate contracts; all contracts).

1) Name the Parties. The buyer and seller's names must appear on the agreement. Easy.

2) Description of goods or services. If you were selling a car, it would be the VIN number, if it were a television, it would be the skew number on the proof-of-purchase bar code and the make and model number. When it comes to real estate, it's the legal description: State, County, District, Land Lot, Lot number, as well the deed book and page numbers that cite your source of this information.

When filling-in this data on the pre-printed contract form, make certain all blanks have a character in them. Remember, zeros have a value and are not to occupy a blank space. You should use "n/a" or "xxxxxxxxxx". If you use the x-ed out routine, initials of all parties must accompany. Also, if you have "lot 3", it is safer to enter "lot 003". This practice helps to mitigate the chance of fraud.

An incomplete legal description is the easiest way for any party to withdraw from an agreement without penalty. This is because without a proper and complete legal description, there is no agreement.

I cannot count the number of times an agent comes into my office, asking to get their client out of a contract. The first thing I look at is the legal description. So many times it is inaccurate, incomplete, not cited, or otherwise. One of the best ways to avoid this misstep is to attach a copy of the deed to the agreement by exhibit (some legal descriptions are metes and bounds -- if this is applies to the subject property, just attach a copy of this description to the agreement and cite your source). Cobb County deeds may be accessed online here. Cherokee County deeds here.

It should also be noted that an address is not a legal description. An address is the place where they bring the mail and the pizza.

3) Consideration. This is the goods for service, money for goods, service for money, goods for goods, etc. Earnest money is not consideration!

4) Date of Execution. This is the date at which the agreement must be satisfied (in real estate, this is the closing date). It cannot go on forever.

5) Signature of the Party to be Charged. Simply put, the party that is to be enforced must have signed the agreement. Of course, we want all parties to have signed the agreement prior to any enforcement, but this is the way the law is written.

Now you have it. These five elements are required to be in your agreements, or they are not worth the paper they're written on! Most contracts have four of these elements perfect, but the legal description is lacking in some way. The lesson here is to always take the time to validate the legal description for yourself; do not rely on the listing agent's MLS data sheet.

If you do not validate the legal description yourself, you are not providing the fiduciary care your client expects and deserves. Lack of care in this field is no different than allowing the other party to go without signing the contract, or failing to inscribe the closing date.

You've Got Five Choices. Make One!

2009-01-06T09:50:00.000-08:00

In today's market more and more homeowners are finding the need to move for various reasons, but don't have enough equity in their house to break even on a sale, let alone make a buck. I'm sure you've encountered clients that insist they must have blank dollars, or they can't sell. Now you've got a script for them.

Remember, life is full of choices, and every homeowner has five choices regarding the ownership status of their home at all times. These choices are presented here in no particular order:

1) Keep On Keepin' On. Continue to pay the bills and live there. The house is not for sale, just the place where they live (seems obvious, eh?).

2) Bite the Bullet. Under this scenario, the owner sells the property at it's market value. This may result in the owner bringing money to the closing table, because he does not have enough equity in the house to pay for the expense of selling. Or maybe the owner is biting the bullet because she wanted to realize more equity than the market will bear. This scenario also includes the dreaded short sale.

3) Rent it Out. Find a tenant. This is not what most people would like to do, because there is effort and expense involved in maintenance and upkeep, and maybe the market rent is less than their mortgage payment. These are true, but it is also better than making two mortgage payments, or allowing the house to foreclose. Sometimes mitigating one's loss is better than losing it altogether. Renting the house for a year or two will allow the owner to realize the appreciated value that occurs between now and then. This option includes lease/purchase and lease/option.

4) Let it Foreclose. Stop making payments. Eventually the bank will send the Sherriff to your house with a writ of eviction and put your belongings out on the curb. It's embarassing and will stain your credit, but still an option. Many people opt for this by not taking advantage of their other choices sooner. They sometimes bury their head in the sand and hope it won't happen to them. Remember, if you choose to not decide, you still have made a choice (not a good one).

5) Burn it Down.

Now you've got a script that will take the heat off of you and help the owner to make a decision about the direction he/she will take.

Just say, "You have five options. Choose one."

Note: Peter Porcelli is not serious when he says that burning your house down is a viable option. His comment is meant in jest and humor (a little sugar to help the medicine go down). You may not prescribe to this particular sense of humor, however given the thousand times Peter has delivered this particular script laughter was the goal every time, as well the result ninety-nine percent of the times. Burning your house down may be considered fraud if your intent was to place a claim against an insurer.

Stop! Referral Time!

2008-12-10T08:52:00.000-08:00

Hello Sports fans, and welcome to my favorite time of year. The mistletoe is hung and the tree is strung, while the reindeer and the antelope play.

This is also the easiest time of year to get referrals! How, you ask? Just follow my three-step program to easy referrals:

1) Call someone you know, it could be anyone: family member, friend, old acquaintance, neighbor, your kid's teacher, the mailman, another agent, your mechanic, or your doctor.

If you are having difficulty remembering the people that you know, pull out your cell phone and look in the stored numbers directory (this way you can put a name with the number). Start with the As, then call the Bs, etc. I guarantee you will have several leads before you get through the Cs.

2) Deliver your script. Simply say, "Hi. I need your help. Who do you know that is currently looking to buy or sell real estate?"

Then shut up for a minute. Allow your contact to think for a moment (important notice: do not ask, "Do you know...". The script is "Who do you know..." for a reason. The first question can be answered with a simple "No." The second question requires a name). If your contact cannot think of anyone, say this: "It seems that I've put you on the spot. It is likely you think of someone within the next few days. Would you be offended if I call you again at the end of the week?" Only the Scrooge would say "No." to that!

Remember to say, "Thank you." Then hang up, because it's time to...

3) Repeat. Do it again. The more people you call, the more referrals you get!

Note: Many agents experience anxiety when it comes to asking people they know for referrals. If this is you, consider the following: if you knew a guy that sold cars, and he called and asked if you knew anyone in the market for a car, would you be offended? If you knew a gal that was starting her own flower shop and she asked if you knew anyone getting married, would you think less of her?

Of course you would not, because you enjoy helping people. It's the same thing here. You offer a professional service; one that more often than not runs on word-of-mouth. If you're not already asking, chances are great that your contacts are already referring real estate leads to another agent. Wanna guess who that agent is? You guessed it: It's the agent that asks for referrals, so let that agent be YOU!

Also, don't be afraid to have a normal conversation with your contact. Remember, they are a person, and you have some kind of connection with them, so use that connection to drive some meaningful conversation. If you know them from Little League games, ask about their fastball. If you know them from the bowling alley, ask about their gutter ball. If you know them from cooking class, ask about their holiday cheese ball. Just be relaxed, and ask the most important script to your real estate career:

"Who do you know that is currently looking to buy or sell real estate?" Easy.

You've Gotta List to Last!

2008-10-07T09:50:00.000-07:00

Ever heard this real estate maxim? Regardless of the market, this jewel of a statement is always true.

I frequently overhear agents lament over the lack of buyers in their world, muttering, "I don't want anymore listings. If only I could find more buyers, I would make some money in this slump of a market!" What this agent fails to recognize is that listings generate buyers.

Not just any old listings do the trick, though; well-priced listings generate buyers. This happens because everyone is attracted to listings at the right price! But you're gonna need a steady stream of these well-priced listings because they will sell quickly, as well.

So, how does one acquire these so-called well-priced listings, and just what makes one well-priced? I'm glad you asked:

The first thing is lots of listing appointments, because most sellers are unwilling to list at a price that will sell. They believe their house is worth more than market value, but it is not; nothing is worth more than market value. To see how many sellers are unwilling to price at market value, just look in the MLS - there are more than 100,000 of them.

What makes it market value? That is determined by how much that one buyer is willing to give for the property. How do we know what that price most likely will be? Look at the Sold comparables, no more than three months old. If your seller is unwilling to price it there, then move on to the next listing appointment. It's that easy.

You probably have several listings right now, but they aren't showing, or are showing but no offers. Either way, that listing is over-priced. Don't be that agent that says, "I've got this listing that is priced really well, but no one ever looks at it." This statement is untrue, because if the house was well-priced, it will sell quickly (within sixty days).

It's not easy to have the price-reduction discussion with your seller, but you owe it to them. Show them the most recent sold comparable list. Explain why this is the right price to attract a buyer, and encourage them to adjust the price immediately. If they resist your insistence, you should let them go. What is the point of continuing a charade with this seller if you aren't going to accomplish his objective, which is selling the house.

So, how do I find sellers that are reasonable? Great question. These sellers are everywhere, but you need to talk to lots of people to find the few. That's why it's called prospecting. Just as the the Old 49er set out every morning with a pickaxe and pan, the productive agent does the same. Each prospector spends the day sifting through muck to find traces of gold, and with persistence, a vein is discovered.

Spend your day speaking with likely sellers. Discuss the right price. Insist on it. Show your value. Get good listings.

...and buyers will flock to you!

Note: If you establish your resolve to only list properties at the right price, you will turn down many listing opportunities. These listings are not worth the time or cost to you, at this point. So stay in contact and demonstrate your value to these not-yet-ready-for-right-price sellers (if listed with another, wait for expiration). Often times you will list them at the right price in due time.

Stay Outta Real Estate Jail

2008-10-06T09:14:00.000-07:00

When it comes to making a commission from real estate sales, a state issued license is required. "Well, duh!", you might think aloud, but nearly every day, agents risk losing their license, and therefore a legal right to commissions, by overlooking simple rules.

It has always been a passion of mine to operate within the limits of the law. This requires an effort on my part to seek understanding of the activities within I engage. Ignorance is not an excuse that the law recognizes, so I am ultimately responsible for my actions, and so are you for yours.

At the same time, I am passionate about helping you to understand the law and how it pertains to your sales activities. Therefore, I have compiled a list of the most common violations of license law. Please do not find yourself in violation of these statutes. With repeated infraction, and depending on the crime, non-compliance of these laws will cost you your license and your ability to earn commissions.

For starters, you can find all the code pertaining to your license at the Georgia Real Estate Commission Website (GREC). The following are common violations:

520-1-.11 Licensees Acting as Principals. (1) Written Notification to Broker. No licensee shall be permitted to list, sell, buy, exchange, rent, lease, or option or offer to list, sell, buy, exchange, rent, lease, or option real estate, either in individual or multiple parcels, in the licensee’s own name or in the name of any other firm or entity in which the licensee is an officer, employee, beneficiary, or member of such firm or other entity acting as principal without first advising, in writing, the broker for whom the real estate licensee is acting.

This means that before you list, or make an offer to buy property for yourself, or through a corporation that you are an officer within, for personal or investment purposes, you must notify your broker in writing that you are doing so. Most brokers have a form for this purpose. Just ask and ye shall receive.

520-1-.09 Advertising. (7) Firm Names and Telephone Numbers in Advertising. In advertising a specific property or specific properties for sale, for rent, or for exchange in any media:
(b) the name of the licensed firm offering the property for sale, for rent, or for exchange shall appear in equal or greater size, prominence, and frequency than the name or names of any affiliated licensees or groups of licensees; (c) the firm’s telephone number shall appear in equal or greater size, prominence, and frequency than the telephone number of any affiliated licensee or groups of licensees, and it must be a number at which the public can reach the broker or a manager without going through the affiliated licensee(s) listed in the advertisement.

This means that you must include the brokerage name and the office phone number on all your advertisements, including, but not limited to: flyers, craigslist, twitter, facespace and mybook.coms. You must also submit ads to your broker before publishing.

520-1-.08 Managing Trust Accounts and Trust Funds (1) The Designated Trust or Escrow Account. (b) A licensee shall place all cash, checks, or other items of value received by the licensee in a brokerage capacity into the custody of the broker holding the licensee’s license as soon after receipt as is practicably possible.

This means do not pass go, do not collect $200, but go directly to the office and remit.

These are the most common violations of license law by agents, but there are others. Agents found guilty of these rules can find themselves in HOT water with their broker and with GREC. If you are currently breaking these rules, please stop immediately.

Do not allow the license law to paralyze you. If you are uncertain about the law, call me. I am here to help and I am glad to do it. Remember, ignorance is no excuse.

Show Your Expertise Through a Blog

2008-09-05T08:33:00.000-07:00

Blogging is not new to the internet, but within the last year, it has become nearly as standard to the real estate professional as a website. So, what is a blog and why do you need one?

Blog, from the ancient greek for web log, is an online journal. It can be used for fun, or for business.

Keeping an updated blog is the most proactive way for agents to remain viable (and not just on the internet) to their sphere of influence, while attracting more into their sphere. Remember, people do business with those that they know, like, and trust. Blogging is an excellent way to build that trust as an expert in your field. Here are some ways it can benefit your business:

1) You can include your blog address in your email signature. This invitation will drive curious traffic to your blog. Those that you know will be impressed with your knowledge of real estate, and become more likely to refer you business (once you ask) because they feel confident in your abilities.

2) Let's say you go on a listing presentation, and the seller is contemplating several agents for the job. If Mr. Seller is at all savvy, he will Google all the agents' names to see which have web presence (and how much). An agent with a relevant, updated blog will make a more positive impression over those that do not, and will come up higher in an organic web query (that's a good thing).

Sounds good, but what should you blog about? What if you're not yet an expert in real estate? Here are some tips:

Write about real estate happenings that are important to you. Do you have predictions on the housing market? Does the subdivision that you farm have an upcoming event? Do you believe the new strip mall being built in your neighborhood is going to improve the standard of living? Blog about it. Give your opinion, or just state some facts that will be interesting to your readers.

Are there common questions that clients ask you? Blog the answers. Have a new listing? Add the details to your blog. Haven't been an agent long enough to know much? Reprint news articles on the local market (be certain to cite your source).

Blogging is not only an enterprising tool, it's fun too! Get into it with a free blog from one of these places:

Active Rain
Blogger
WordPress
LiveJournal
ClearBlogs

Need some more help getting started? Try these links:

Matthew Stibbe gets you started
Robin Good makes it easy
Dumb Little Man has some great insights on blogging

Before you know it, blogging will part of your day, and if done correctly, will bring you increased profit.

Three Factors to Sell a House

2008-09-04T11:15:00.000-07:00

In today's real estate market, many sellers are going months without an offer, sometimes without showings, and are scratching their heads, wondering what it will take to sell their home. However, of those homes that are selling, the average time spent on the market is only sixty days!

Why are some houses selling fast, while others stagnate on the market? The answer is quite simple.

Three factors apply to selling anything, whether it is soap, office chairs, computers, peanut butter, or houses. It makes no difference if your house is made of stacked stone, with a gourmet kitchen and marbled bathrooms, or if it has a dirt floor and an outhouse; the sale is predicated upon price, condition and market exposure. Let's use the bar of soap analogy to look at each, individually:

Price: A surprise to many, the average American does not like to bargain or haggle. They would prefer to purchase items that are marked at what they believe to be a fair price. In today's competitive market, adding "negotiating room" when pricing may only serve to disadvantage the seller.

If there are 100 like-bars of soap on the shelf (all at slightly different prices), and 20 people buy a bar of soap per week, then 80 bars will go un-sold. If the shelves are once again stocked to 100 bars, and the demand remains 20 per week, then 80 bars will go un-sold again. If yours is one of the 80 un-sold bars, you will have to lower the price to attract a buyer; otherwise, another 20 bars will replace the ones sold, and your bar will most likely go un-sold again.

In real estate, the longer a home is on the market, the less attractive it becomes to buyers, and those offers received usually decrease over time. The best strategy is to price a home in line with the most recent, comparable sales.

Condition: The condition must match the price; it's the value for the dollar. If a bar of soap is the same as another, but has torn packaging, that bar of soap will not sell for the same price as the bar in the perfect wrapper. However, the bar in the ripped packaging may sell for the same price, if the packaging is replaced, or it may sell if the price is lowered to reflect the ripped package.

The same is true in real estate. Waiting for a "serious offer" before making repairs or updating a house is a bad strategy, and one that usually leads to months without showings or offers. Homeowners have two choices: 1) bring the condition up to meet the price or 2) bring the price down to match the condition. Typically, a seller will net more return and sell faster by bring the condition up.

Market Exposure: If no one knows a home is for sale, no one will buy it. A soap seller attracts buyers through advertising. In real estate, this is achieved through the MLS and lots of online marketing.

Today's buyer is looking online as much as six weeks prior to contacting an agent and will typically have a few homes picked out. Do not miss this important step of selling! The more exposure a home has, the more offers it will receive, thereby increasing the likelihood of getting full price.

Remember, three things sell a house: Price, Condition, and Wide Market Exposure. If your house isn't selling, one or more of these factors must be addressed. Most often, price is the culprit. The market will tell you if you get it right, for when you do, an offer will appear.

(I first wrote this article for TheHousingGuru.com)

This is my first post

2008-09-01T08:02:00.000-07:00

Welcome to my blog!

This forum is designed to allow my agents a place to find topics that are discussed in the office. Please visit often and participate by leaving comments on my posts.

I will update this blog at least once a week, but sometimes more often (as I see fit).