Buyer Hunt - Let a Home Find You

What You Probably Don’t Know About Selling Your Home

One might think that the most important thing a real estate agent does is sell houses.  Of course that’s important.  But the MOST important thing a real estate agent does is protect their client’s interests.  To do that, we must clearly understand the provisions of any contract you enter into, make absolutely sure you understand your rights, as well as any potential pitfalls.

A few examples: 

1. You receive an offer on your home.  The price is too low.  You make a counter offer, as you should.  Be aware, however, that when you make a counter offer, you have unequivocally rejected the Buyer’s offer and made a new offer back to the Buyer, which they can accept or reject.  If they decline your counter offer, you may not be able to get their original offer back.

2. You receive an offer on your home.  You respond with a counter offer to the Buyer.  The contract states that it is open for acceptance by the Buyer until midnight the next day.  At 10:00 a.m. the next day the Buyer signs and accepts your counter offer.  At 10:30 a.m., without knowing your counter offer had been signed, you change your mind and decide not to sell your home.  Are you too late?  Is your home sold?  Answer:  No.  So long as your agent notifies the Buyer’s agent that the counter offer is withdrawn before you receive written notice of acceptance, you are “OK.” 

Usually, an offer or counter offer can be withdrawn at any time prior to acceptance.  Though your counter offer had been signed, acceptance had not yet occurred.  Why?  Acceptance requires all signatures AND delivery of the contract.  The AAR Contract and Counter Offer forms require “a signed copy delivered in person, by mail or facsimile and received by the party originating” to constitute acceptance.   

3. You accept a Buyers’ offer on your home, to close in sixty days.  The Buyers place $100,000 earnest money with a title company.  The Buyers receive a letter from their lender confirming that they are qualified for a loan.  All other contingencies have been met.  You purchase another home.  You’re packed and ready to move.  Two days before closing you receive a call.  The Buyers’ financial circumstances have changed, their loan approval has been withdrawn and they want their earnest money back.  WHAT!!??  Can they do this?

Probably, the Buyers are entitled to a return of their earnest monies. 

Why?  The AAR Contract is contingent upon the Buyers obtaining loan approval without conditions.  I have never seen any loan approval without conditions.  Lenders are cautious.  They protect themselves until the loan is funded.  Buyers’ circumstances and lenders’ requirements can change. 

As a Seller, how can you protect yourself?  When negotiating a contract, language can be added to make all earnest monies nonrefundable after a stated time period. This stipulation allows the Buyers sufficient time to make certain they qualify for their loan, satisfy all contingencies, and will shift the risk of “changed circumstances” from the Sellers to the Buyers.  I recommend that when I represent Sellers.  I don’t, of course, when I represent Buyers. 

I could write an entire volume of real estate  “what ifs.”  These are just a few examples of the importance of clearly understanding the provisions of any contracts you enter into.  There are many pitfalls, even in a “boilerplate” contract.  That’s why it’s vitally important to be represented by a knowledgeable, competent agent.

Don’t Be Fooled By Bad Market Headlines

It’s interesting to me that all the newspapers are running “doom and gloom” articles, lamenting the state of today’s real estate market.  No offense to those reporters, but I believe they’re looking at statistics and missing the big picture.  This is the absolute BEST market I have seen in over forty years (No kidding.)

Lest you think I’ve lost my mind, consider this:

There is an amazing selection of quality properties on the market.  If you can’t find your “perfect home” in today’s market, you probably never will.  Compare the selection today with that of two years ago.  Then, there were only 6,500 homes available in the entire Phoenix Metro area.  Today, there are over 50,000.  Then, you would certainly have had no problem selling your home, but you would have had “slim pickin’s” finding your next home.  To make matters worse, you were likely to encounter a bidding war on even mediocre properties.  So while you could have readily sold, you would have had to “settle”  for a compromise home at a very high price.  The result:  Sell high.  Buy high.  Live in a uninspiring home.

In today’s softer market, your home will sell for a lower price (than two years ago.)  However, you will pay comparably less for the home you buy.  As a bonus, you’ll have ten times the number of homes from which to select.  Today, you really can find that perfect home for you and your family.  Best of all, you’ll be able to buy at a competitive price.  The result:  Sell for less.  Buy for less.  Live in a wonderful home for years to come.

Two years ago, Roseann and I wanted to sell our Paradise Valley home and move to something smaller.  Our three boys were grown and lived independently. We no longer needed a large home.  Roseann looked and looked.  Every time I suggested listing our home she resisted, concerned that our home would sell quickly and we would have to “settle” for our next home and pay “top dollar.”  It didn’t make sense to go to the effort of a move if we couldn’t find a home we were excited about.  How things have changed in two years.  Today, our home is on the market and we have already found several properties that fit our needs perfectly.  All of them are priced competitively.  Unquestionably, our home will sell for less than it would have.  We know, though, that we’ll be able to buy for less and end up with a much better home.  I’m so glad we waited!

I can’t tell you whether real estate prices will rise or fall in 2008, but I can tell you this:  The price of the home you sell will move in tandem with the home you buy.  However, the selection of properties may never be this good.   Therefore, if a different home would better fit your current lifestyle, what are you waiting for?  Now is a great time to make your move.

The state of the market?  Don’t be fooled by “Bad Market” headlines.  Today’s market couldn’t be better for you!

The Pricing Game

Some agents suggest unrealistic prices to sellers to secure listings for themselves.  It’s like little boys who boast “My Dad is tougher than your Dad.”  In this case it’s “I’ll get you more than he will.”  The difference: This is real life and people get hurt.

No, it’s not a game show.  You can’t win (but you can lose!)

Two years ago I met with a gentleman who wanted to sell his small (tear down) Paradise Valley house.  It was situated on a beautiful two acre lot.  This was a wonderful parcel for a builder to construct a high-end luxury estate. The property had recently appraised for $2.3 million. We were in an aggressive market at the time.  I told him I thought his property would bring more, perhaps as much as $2.8 million.  This would have been a record high price for a land sale in the community.

A few days later, he called to let me know he was listing with another agent because they had promised they could sell his property for more.  I was surprised because “my” price of $2.8 million was aggressive at $500,000 dollars above appraisal.

Later that week I noticed the property in the MLS.  I was stunned!  The “other” agent had listed it for $8 million. I’ve seen overpriced properties, but this was ridiculous.  Of course, the property is still on the market today, two years later. And now, in a more challenging market it’s worth less than it was back then. 

Why would agents want to collect grossly overpriced listings?  Perhaps they hope the sellers will eventually reduce their price.  Maybe they want to impress the public with lots of signs.  Undoubtedly, they hope those signs will generate lots of buyer calls.  These are short sighted views.  When your listings don’t sell, your sellers become disappointed.  Your reputation suffers. No one wins!

As a seller, how do you protect yourself against this “pricing game”? 

A few tips: 

• When interviewing agents don’t disclose the price opinions of other agents. This only encourages them to “better” the other agents, rather than telling you what they really think.

• Choose your agent based on their qualifications and success at selling homes. Evaluate the percentage of their listings that sell, not the number of listings they have.

• Have your home appraised by an independent appraiser who is on your bank’s recommended “list.” Insist on an appraiser with experience at valuing homes in your community.

• Don’t base the value of your home on the asking prices of other homes. Remember, those homes haven’t sold.

After thirty years, I can say with confidence that most agents value their reputations.  They will tell you what they really think and do their best to accomplish what they say.  Unfortunately, some agents do play “the pricing game.”  Don’t play it with them!

One other thing:  Some sellers ask about pricing their homes above the market hoping someone might “fall in love” and pay too much or at least make an offer.  The problem: When a home is priced substantially above market, the buyers who see it are the wrong buyers because the home is now outclassed in that price range with other homes that are much nicer.  Therefore, they walk away without even making an offer.  And, if your home is overpriced it will linger on the market.  Then, when you finally reduce your price to the correct level, buyers will try to buy it for considerably less because it has been on the market for so long.  The solution: Choose a real estate agent based on his record of selling homes, not on the number of for sale signs he has on unsold properties.  And, price your home correctly.

Loan Fraud and YOU???

It’s all over the newspapers and headlining the nightly news.  Loan FRAUD.  The very name indicates deceit or untruthfulness.  But, does it impact you?

Not long ago, a typical loan fraud scenario involved borrowers “telling a little white lie” by bumping up their income or downplaying their expenses on a loan application.  Nevertheless, it was fraudulent, a federal criminal offense and punishable by fine and imprisonment.  Today, puffing on a loan application only scratches the surface of the myriad of schemes and scams designed to take advantage of lenders, home sellers, you and me.

A few examples I have encountered:

• A friend of my son recently called to ask my opinion.  She planned to refinance her home, rent it and move in with a friend.  She was uncomfortable with advice from her loan officer, suggesting that she “dummy up” a phantom lease for her home to be submitted with her loan application.  “It’s no big deal,” he’d told her, as she planned to lease her home anyway.  My strong and unequivocal advice:  Don’t do it!   It’s LOAN FRAUD.

• An agent had a home listed for $3,800,000.  The sellers were behind on their payments and foreclosure was imminent.  A man knocked on The Sellers’ door and offered to pay $4,300,000 for their home.  The catch?  They had to agree to pay the $500,000 overpayment to a designated party “on the side.”  This payment was not to appear on the purchase contract or closing statement.  The Purchaser wanted the appraiser and lender to think that he was paying $500,000 more for the property so that he could borrow more.  Initially, the Sellers were thrilled.  The sale would solve their financial problems.  The Sellers declined the offer, however,  after their agent cautioned them that should they accept, they would be participating in  LOAN FRAUD .

• An offer was made on a firm’s listing.  It contained a substantial cash credit to a third party representative, which was not to be disclosed to the lender or in the closing statement.  Throughout the purchase process, the Buyer’s agent was uncomfortable, as the Buyer had never viewed the property.  He had never even met the Buyer.  Everything had been handled through the Buyer’s” representative.”  After a little investigation, the agent tracked down the Buyer.  This young man explained that he had “lent” the representative his good credit rating (for a fee) to purchase homes for investment.  He had also agreed to sign all purchase documentation without ever seeing the property.  He was simply participating to earn his fee.  The purchase contract, however, stated that the Buyer was buying as a personal residence.  Clearly, LOAN FRAUD. 

This particular “credit borrowing” scheme is one of the newest loan fraud scams.  Here’s how it works:  The cash credit is used to make the down payment on the property, pay a fee to the Buyer lending his credit, and the representative pockets the balance.  After purchasing a series of homes using the young man’s credit, the representative abandoned the properties and the young man’s credit is ruined. 

My best advice is to exercise caution.  A “little white lie” can become a big, bad problem.  Keep your eyes open.  Be aware so that you don’t innocently participate and fall victim to a loan fraud scheme.

Are You Protected If Your Bank Fails?

Ben Bernanke, Chairman of the Federal Reserve, recently roiled financial markets with his prediction that there will be a substantial number of bank failures this year.  While four U.S. banks failed last year, there are currently seventy-six banks on the FDIC “Problem List.”  The FDIC will not disclose the names of these financial institutions, to prevent depositors from “making a run” on the banks, withdrawing their funds and sealing the fate of these struggling firms.

You’ve heard of money stuffed in the mattress?  It was for good reason.  Between 1921-1929, an average of six hundred banks failed each year.  To restore confidence in the banking system, Federal Deposit Insurance was established in 1933, through formation of the FDIC (Federal Depositor’s Insurance Corporation.)   This insurance generally covers your deposits with registered banking institutions of up to $100,000 per bank.   This limit has not changed since it was increased in 1980. 

If your funds are deposited with stockbrokers or institutions other than FDIC insured banks, they are not covered.  In that case, you will want to make certain that you’re comfortable with the liquidity and solvency of those firms.

Strategies to Protect All of Your Funds

1. Spread your funds among several banks.  The $100,000 limitation applies to your deposits in each insured institution, provided they are not affiliated.  Therefore, you can make $100,000 insured deposits in multiple banks.

2. FDIC insurance covers individual retirement accounts up to $250,000.  This is in addition to your $100,000 coverage for an individual non-retirement account at the same institution.  Stocks and other investments acquired with retirement account monies are not covered.

3. The $100,000 insurance limitation is per person, not per family.  This means you, your spouse and children can each have separate insured accounts at the same bank.

4. Joint accounts are covered up to $200,000.  To qualify for this coverage, each account holder must have equal withdrawal rights, without requiring permission from one another to make withdrawals.

5. “POD” accounts are covered separately.  An account naming a spouse or loved one as sole beneficiary, payable upon your death (POD), is insured up to $100,000 separate and apart from any other accounts you or your beneficiary maintain at that bank.

Taking Full Advantage of the Rules

  By combining the strategies I have outlined, you and your spouse can have

  FDIC coverage for $1,100,000+ per bank:

  Your individual account                              $  100,000

  Spouse’s individual account                                    100,000

  Joint account                                                    200,000    

  Your IRA account                                              250,000

  Spouse’s IRA account                                              250,000

  Your POD account, naming spouse beneficiary            100,000

  Spouse’s POD account, naming you beneficiary      100,000

                                                                       $1,100,000

 

PLUS:  POD accounts, naming others beneficiary              100,000 each

The FDIC states that approximately 38% of the $6.9 trillion in bank deposits are currently uninsured.  Most of these are individual accounts that exceed the $100,000 limitation.  However, there are other ways to lose coverage.  For example, if you have accounts at banks that merge, you have full coverage on each of your qualified accounts for six months following the merger (in the case of certificates of deposit, until they mature.)  After that, the insurance limitation applies to your combined deposits in the merged banks.  Also, if you have a joint account and your spouse dies, the $200,000 joint account insurance limit is reduced to $100,000 six months following the death.

My advice:  Make sure your deposits are insured or with uninsured institutions that

have strong financial capability.  And, verify the applicability of my advice with your

bank, attorney or financial advisor to determine your best strategy.