Real Estate Pro’s & Woes

I finally sole my house. It was a nightmare. The sale was made!

It’s late October 7, 2008. Escrow closed August 21, 2008. My brother hired a U-Haul truck and collected me on that date. It has taken until now, October 7 to get myself fully situated in my new home.

Within days (virtually) of my sale finally closing, the stock market took a dump. Banks closed. The government had to “rescue” Fannie Mae and Freddie Mac. Then, I’m sittin’ up here, and Washington Mutual and Wachovia take a dump. The Dow-Jones goes 800 points into the toilet.

I’m thinking…

“There IS a God.”

Just in time!!

More to come…

Three very interesting videos discussiing the concept of a bubble in the real estate industry in the context of overal economic conditions.

Real Estate Bubbles and California’s Economic Growth, Part 1

An economics presentation at Humboldt State University. Special guest lecturer Dr. Christopher Thornberg of Beacon Economics discusses the current housing bubble and its effects on California.

Real Estate Bubbles and California’s Economic Growth, Part 2

An economics presentation at Humboldt State University. Special guest lecturer Dr. Christopher Thornberg of Beacon Economics discusses the current housing bubble and its effects on California.

Real Estate Bubbles and California’s Economic Growth, Part 3

An economics presentation at Humboldt State University. Special guest lecturer Dr. Christopher Thornberg of Beacon Economics discusses the current housing bubble and its effects on California.

There is a term in real estate that refers to the deposit money placed by buyers to open escrow. The term is Liquidated Damages. I recently learned the hard way that this is a term to be reckoned with, and to which close attention must be paid.

The following is from the C.A.R.(California) Statewide Buyer and Seller Advisory, Item 41. It is part of the paperwork that must be agreed to by both buyer and seller in any real estate transaction in California.

“LIQUIDATED DAMAGES: Buyer and Seller are advised that a liquidated damages clause is a provision Buyer and Seller can use to agree in advance to the amount of damages that a seller will receive if a buyer breaches the agreement, and generally must be separately initiated by both parties to be enforceable. For any additional deposits to be covered by the liquidated damages clause, there generally must be another separately signed or initiated agreement. However, if the Property contains from 1 to 4 units, one of which the Buyer intends to occupy, California Civil Code Section 1675 limits the amount of the deposit subject to liquidated damages to 3% of the purchase price. Even though both parties have agreed to a liquidated damages clause, an escrow company will usually require either a judge’s or arbitrator’s decision or instructions signed by both parties in order to release theBuyer’s deposit to the Seller. Buyers and Sellers must decide on their own, or with the advice of legal counsel, whether to agree to a liquidated damages clause. Brokers do not have expertise in this area.”

“Brokers do not have expertise in this area.”

In the purchase agreement, an amount is established as a good faith deposit, also referred to as an “initial deposit,” to open escrow. The amount is arbitrary, and can be as little as $1,000. It’s simply a deposit to indicate serious intentions on the part of a buyer to purchase real property.

It may also be established in the purchase agreement that the initial deposit is to be added to in increments over a period of days. Assuming a lender’s requirement that a down payment of 3% eventually be reached, but no later than 3 days before the close of escrow, those additional deposits may or may not total the full down payment required.

Nevertheless, according to the above quoted Item 41, “additional deposits” beyond the “initial deposit” must be expressly included as part of the “liquidated damages,” else they are random amounts to be applied to the “down payment.”

In the event of cancellation of escrow by the buyer, subsequent to the contingency period, any deposits made as “additional deposits” after the “initial deposit” and not covered by separate paperwork cannot be claimed by the seller as liquidated damages.

Let me cite my case specifically. My house was “sold” for $565,000. The purchase agreement specified a 3% down payment. The buyer put $7,500 as a good faith deposit, with a commitment to add $10,000 within 10 days. All commitments were met. The buyers removed all contingencies. They then cancelled escrow 4 days before its scheduled close, citing fraud on the part of their realtor. He never actually got them a loan.

It went to mediation, and it was determined that I was entitled to the initial $7,500, but not to the entire $17,500. The reason was that the additional $10,000 was not agreed to specifically as being part of the liquidated damages. After negotiation, I was awarded $7,700, minus attorney’s fees.

How were they able to remove the “loan contingency” without having full loan approval? Obviously, they were taken by an unscrupulous “real estate agent.” If this doesn’t convince you that you MUST investigate and choose your real estate agent carefully, I don’t know what would.

My realtor should have known about Item 41. The agency whose sign is on my lawn should have known. Certainly, her agency’s in-house law satff should have known. But no one did. Further investigation on my part revealed that many agents and firms don’t know about this.

In fact, it came as a complete surprise to my attorney, who specializes in real estate law.

Why?

It’s another reason you have to be particularly choosy when it comes to selecting an agent to help you sell you house.

In real estate, the “contingency period” is a time, determined and agreed to by buyer and seller, for both parties to do what’s known as “due dilligence.” It’s a set number of days during which either party can change his or her mind and cancel everything without penalty to either party.

The contingency period begins on the day escrow is opened, and continues, unless otherwise agreed, for 17 days (in California). During this time, both parties must meet certain obligations, primarily for their own protection. Most often, in real estate, the investment involves six or seven figures or more, and that is substantial enough for state law and industry regulations to consider the rights of, and obligations to, each party. Real estate is serious business.

Caveat Emptor

During the contingency period, the buyer is encouraged to learn everything possible about the property to be purchased. He or she should arrange for a complete, professional home inspection. This helps determine what, if anything, might be wrong with the house or property that will require additional expenses to repair or replace above and beyond the purchase price. The buyer is also entitled to certain federal, state and local reports regarding geo-hazards such as earthquake or flood area reports and the like. The seller is required to provide such reports and information.

The seller is also required to provide what is known as full disclosure. This is done by a detailed form listing anything and everything that the seller knows about the property, including such things as boundary disputes with neighbors, leaky pipes, street traffic and noise, proximity to airports and associated noise, lead-based paint or asbestos insulation — it gets quite intrusive. The seller is also required, at his or her expense, to provide a Wood Destroying Pest Report, also known as a Termite Inspection. If termites or other pests are found (and they usually are) the seller must agree to pay for extermination.

All of the information reported by the seller may affect the buyer’s decision to complete the purchase, or require a reduction in the purchase price or additional monetary considerations from the seller.

Of utmost importance to both parties is that, during the contingency period, the buyer must obtain full loan approval. One of the contingencies that must be removed is the loan contingency. If the buyer cannot get the necessary loan (mortgage) to purchase the property, there cannot be a sale, after all.

At, or before, the end of the 17th day (or other period agreed upon), all contingencies must be removed by signature of the buyers, and agreed to by the seller. At that point, the purchase agreement becomes a binding contract between buyer and seller. Failure by either to complete the transaction can be considered by law to be Breach Of Contract.

It should be noted that in order to open escrow in the first place, a “good faith deposit” must have been placed into trust with escrow by the buyer. This can be all or part of the required down payment. If a seller and his or her prospective buyer cannot negotiate terms for a purchase, no agreement can be signed and that’s that.

I’ll have more to say about those deposits in my next article, “Liquidated Damages.”

My house is currently in escrow.

There are problems, though.  In today’s market, I believe these problems are common. So does my realtor.

Up until a year or so ago, the real estate market was booming. It was a Sellers’ Market, and people were trying to snatch up properties for both personal and investment reasons. Lenders were offering outrageously low “introductory rates,” to encourage buying and selling and increase their own profits. They’d been doing this for years, and suddenly they found the rug being pulled out from under them.

My house was appraised at $565,000 at the time I inherited it, upon my mother’s death. I put it on the market in July of 2007, and it immediately “sold” for $563,000. I was ecstatic. But it fell through. The buyers’ real estate agent was unable to secure them a loan under the terms to which the parties agreed.

It turned out, months after the fact, that the real estate agent involved was a crook. His primary business was as a mortgage broker. Licensed mortgage brokers are normally granted a real estate license as a matter of course. He knew nothing about real estate, per se. It was actually his first sale as an agent. Prior to this, he’d brokered mortgates exclusively.

The market was changing, however. Major lenders were suffering major profit losses, and in the weeks to come, some of the biggest names in the lending industry would be verging on bankruptcy.

It’s their own fault. For years they were profiting wildly from the common practice of offering prospective buyers extremely attractive “introductory rates” They were greedy, offering buyers rates that made it easy to buy a house. But, since the rates were only “introductory,” after the specified period, the rates increased. New homeowners found their monthly payments increasing beyond their means. Coupled with rising costs of living in other areas — gasoline prices, food prices, etc., they couldn’t meet their monthly payments.

Foreclosures ran rampant. Lenders were forced to foreclose on delinquent mortgages, and suffer the loss because they weren’t able to sell the hou8ses at a price that covered the loans. They lost money, to the tune of (collective) trillions of dollars.

With so many foreclosures available to prospective buyers, the actual value of houses like mine decreased rapidly. Why would someone pay $565M (or so) for my house, when they could get a similar house for far less?

Now, my house has sold again, but for $60,000 less than before. And the buyers are having a hard time with the lenders. Why?

Because the lenders today are being far more careful about the details they conveniently (and selfishly) overlooked when they stood to profit wildly. For example, the two brothers who are trying to buy my house have been gainfully employed for several years by the same company. They have sufficient financial resources, and a FICO score to qualify for the loan. But the lenders are balking for a picayune reason.

Recently, the two partners in the company the brothers work for had a minor parting of the ways. They split the company into two divisions. One of the brothers now works with one of the partners, while the other brother works for the other partner. But both brothers still work for the same company, just different divisions. The lenders’ Underwriters look at this as the two brothers having entirely new jobs! The Underwriters are saying that they do not have sufficient “job history” to qualify. They’re turning down the loan on that basis alone.

If this has anything to do with the real estate industry as a whole, and who you should trust to handle the sale of your home, it is this:

You need an experienced realtor with a strong sense of ethics and knowledge of the industry at its best and at its worst. You need someone with a proven track record, who’s successfully completed transactions in varying circumstances, and without resorting to questionable tactics or methods.

Whether you’re buying or selling, you need a Realtor you can trust, and whom the Industry as a whole can trust.

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It’s no secret that there is a good deal of money to be made in real estate. In fact, many of the rich and famous have made much of their fortune by investing in real estate. But, what kinds of things should one be aware of when investing in real property? There are many aspects to consider but this post will mention two very important facets to consider when investing in realty.

Fixer Uppers
If you are investing in a property it may be a good idea to do your homework. There are so many things to consider when making a real estate purchase. Often times one can find homes that are in good condition, but need a little attention. Putting some time, effort, and money into a property can yield beneficial results. Knowing some of the common “little things” and how to fix them can certainly boost the gain potential of a home that just needs minor repairs.

Where does one find the information? There are many sources that offer insight on various aspects of renovating properties. Perhaps you can find advice from a book about home improvement or help from a home remodeling website. In any case, The more knowledge that can be applied to investing, the more effective the one that uses the knowledge becomes at finding the income generators.

Know the Area
Another important aspect of investing is becoming educated with the area in which you are investing. Buying a property for the purpose of reselling is good but there might be potential snags that aren’t readily apparent. Getting good information from public records and resources on the internet can simplify research.

For example, One real estate agent in Missouri has implemented a search tool for real estate in the Branson area. If you open that link and click the search options link just below the 76 Realty logo, you’ll find that the tool has many features to search on. Each property can be mapped if you so choose and you can map locations of offenders in the same area. Having knowledge of helpful tools like this one can make researching the home in which you are looking to invest much easier and beneficial in the long run.

Source: Investing