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Great Real Estate – For new and experienced agents, tips and opinions on how to market better both online and offline… and thrill your sellers.

– Roger

I have no problem with investors making offers, and there are some sellers who are happy to take them. But don’t waste my time so you don’t waste yours!

I’m talking about the way these offers are made. Top investor offer problems that bug me and my sellers:

1. Fax after hours on a Friday to the office fax, and don’t call the agent to check on the fax for days. You think we have an assistant at the office 24/7 monitoring the fax machine? I much prefer when agents call first, so I can give them my home fax number.
2. Make no deposit. It’s “upon acceptance”. Great, so we can accept the offer and you back out with no skin in the game? That’s not how we do things for “normal” buyers so what makes the investor special?
3. Leave out all the addenda. Lack of a Lead Paint Rider is a problem for me… I can’t allow my seller to accept anything until I have it and the buyer’s acknowledgment of seller disclosures.
4. Provide a contact number that gets me to a voice mailbox that’s full. Yup, you faxed off 20 offers and left town for the weekend…
5. Don’t go in the property, save that for the AS-IS inspection period… when the investor will suddenly realize the kitchen needs another $10k of work. I don’t like to take my listings off the market for this.
6. Leave half the contract blank, and use one that’s several years out of date. Technical problems mean my seller can’t accept it. “Owner of record” and no legal description? Please fill in all the blanks!
7. Make it assignable. So you don’t really want to buy it, you want to flip it to someone while we wait or back out if you can’t? Please find that person first, and have them submit the offer to us!
8. Corporate buyers and scribbled signatures. So we don’t know who the authorized company representative is? Please type the president’s name below the line.
9. Forgetting to date the contract. OK, now it looks like the agent got a blank, signed contract from an investor last month, and is filling in the blanks afterwards…
10. And the worst? Adding a batch of onerous clauses in an addendum. Like “buyer chooses title company, seller pays for it, and if the deal doesn’t close, seller pays the costs anyway.” That’s just one… I’ve seen others. I’m glad you have a cranky attorney but my seller won’t accept that. Use the standard contract please.

But not all “escrow accounts” are the same, and the buyer and/or seller may be disappointed…

In Florida, a Real Estate Sales Escrow Account is governed by the Florida Real Estate Commission (FREC). The account is managed by the broker. Some brokers have been tempted by all that cash, and FREC has imposed fines and worse for misuse of escrow funds or just failing to manage it properly. So a lot of brokers do not want this hassle, and do not maintain an escrow account – instead, they have a friendly title company or attorney handle the funds.

But a title company escrow account is not governed by FREC.

In the event of an escrow dispute (buyer and seller disagree or both claim all or part of the deposit), typically FREC can review the details and issue an Escrow Disbursement Order (EDO). Easy solution, and the funds get to where they should go.

However, FREC doesn’t do this for a title company or attorney escrow account. Instead, the title company must turn to the courts. Without getting into all the legal stuff (I’m not a lawyer and this isn’t legal advice, and please consult your own attorney), a title company has to file an interpleading and I’m told that much of that deposit can get applied to filing fees, attorney fees, and other legal costs involved in resolving the dispute. The buyer and seller get less than the full deposit amount. And it’s possible that during all this, the dispute clouds the property and it can’t be contracted by another buyer.

Our own title affiliate will hold funds if necessary, but they remind us of what could happen if a dispute arises. Sure it’s unexpected, but it’s a risk. That’s one reason Illustrated Properties maintains a real estate escrow account for its customers.

Do your customers a favor, and use a Real Estate Escrow account. If the buyer’s broker doesn’t maintain an account, use the seller’s broker’s account. It’s in everyone’s best interest.

What really bugs me… the DOJ says “Consumers can save thousands of dollars”. They even chart the savings of choosing various business models such as flat fee MLS, limited services, and sale by owner. That’s so cool, when I was a kid my dad would tie a string to my loose tooth, the other one to the doorknob. We all know that saves about $100 in dentist visits, but the risk of something going wrong is pretty low (make sure it’s a baby tooth, and it really is loose, and “no brainer”). And I’m sure we’ve all tried some home improvement project so we can save money over what the contractors were quoting… and then later, hired a pro to fix it and re-do it the right way.

What the DOJ forgets to mention on its website is that with bad or no advice, or poor representation, sellers can cost themselves WAY MORE THAN WHAT THEY MIGHT PAY IN COMMISSIONS in the long run! In fact, I know several sellers who made mistakes in their choice of representation, and their poor choices cost them time and money and resulted in a much, much lower sales price – but that’s a separate topic (“overpricing and underselling” sounds like a good title) for a different day. OK, DOJ, how about the rest of the story here?

I encourage every agent to watch what the DOJ and other folks such as the Federal Trade Commission are saying about our business. Decide for yourself whether you agree… but be knowledgeable and ready to address the points with potential customers if they bring them up.

And please encourage sellers and buyers to choose their agent and broker based on professionalism, level of service, and results, not solely based on cost. The FTC has a decent publication that will likely be helpful to sellers, it addresses many of the points (and clarifies misconceptions) that many of today’s sellers need some education on… don’t be afraid to hand it out to a prospect.

DOJ: “Competition and Real Estate“
FTC: “Competition in the Real Estate Marketplace” and the consumer booklet “Selling Your Home? Tips for Selecting a Real Estate Professional” (pdf)
NAR: “NAR Commentary on DOJ Competition Site“

One way to poison showings for all your future listings is to become known as an agent who can’t keep the facts straight. Agents who’ve taken their buyers to see your so-called 4BR listing, whose buyers complain or, worse, even drop the agent for not showing them what they wanted, are going to be less likely to show your listings in the future.

We’re not dumb. You have a 3BR with a den, code it that way and advertise it that way. Nobody today, except maybe the odd overnight guest, wants to have to put a robe on and trek all the way upstairs for a shower. If the buyer was OK with 3 bedrooms and maybe a den, we’ll show it and maybe we’ll go to contract. But the MLS wasn’t designed to suck agents in to showing properties that don’t really match what they are searching for. And with thousands of listings we can’t afford to spend time looking at even one wrong home.

(and if you think that’s funny, try the “loft could be 4th bedroom” listings… sure, add a few walls and a door. But I’ve seen it enough in our local MLS to make me stop laughing!)

Realistically, the closer you depict the home you’ve got listed, the more likely you’ll attract the right buyer. And since real estate is a business of cooperation – most listings are marketed between brokers – the easier we make other agents’ jobs, the more they will reciprocate.

Predators are out there committing mortgage fraud and even if it doesn’t happen to our deals, now it could cause our sellers grief if we’re not careful.

I’m talking about not being cautious when preparing a Comparative Market Analysis, and overestimating market value because a few of the recent closed sales were fraudulently inflated.

I recently discovered two neighborhoods that may have been affected this way, by suspicious cash back deals that were way too good to be true. I found sales comparatives that were listed for months without selling, then suddenly the list price jumps up and the property sells for well above the price of similar homes. And the buyer takes out 100% financing (usually an 80/20 combo) as owner occupant but uses a different address than the property.

Something fishy, you think? Yes, especially in one neighborhood where I found one buyer bought two homes for $550,000 each… the same month nearly identical (or better) comps closed at $450,000 and $420,000. The two homes in question had both been listed at around $480,000 for months before they went under contract.

Still don’t care? Doesn’t affect you? Perhaps you’re one of the listing agents representing the nearly 30 current sellers of very close comparable listings in that neighborhood. Is your seller’s property listed in the low $400k’s or in the low $500k’s? Were they counting on you to help them set the right price? Are they wondering why they are getting no showings at $500,000, while they continue to pay carrying costs on a home they want to sell? Are you wondering when you’ll have your next closing so you can pay your own mortgage?

First, those deals are likely mortgage fraud… where the buyer (and/or third parties, such as appraiser, mortgage broker, real estate agent, title company, and intermediaries) received a hidden cash payment after closing which the lender was not aware of. Nobody wanted the property at the list price, let alone the sales price.

So we shouldn’t count them in a CMA… however, we probably need to explain to our customers why the sales carry no weight, since they may be aware of the neighborhood sales and are expecting to get similar results. That may be a difficult conversation, but it will also be very difficult to sell an overpriced listing unless we find another buyer just like the fraud artists… and why would anyone want to be involved in that?

The unfortunate thing is that the poor market has actually made these schemes easier for the crooked buyers. They simply need to find a motivated, desperate seller who’s been on the market a while, who is willing to look the other way or may even think such a deal is totally OK, as long as they can sell the place. Heck, the buyers may even find listing agents anxious for a sale who think it’s OK. (But it’s not OK, right?)

More than just affecting the lenders, these illegal deals will fool sellers into listing too high, and potentially cost them thousands of dollars as real prices decline even further. Would you rather have a seller who lists and sells for $400,000 today, or $350,000 in six months because you used bad comparable sales and initially list their home at $500,000?

If the comparables don’t make sense, take a closer look. Check the price history leading up to the sale if your MLS system displays it. Check similar neighborhoods to see if pricing is in line. Wide spreads in closed prices for similar homes or sales above original list price should be red flags. If you can, call the listing agent and ask if there were any concessions or cash back, or if there was a reason for the disparity (but don’t expect to hear the truth every time).

This type of fraud is happening everywhere… we can’t stop it all, but we need to minimize its impact on our sellers by being aware of it and more careful in our pricing analyses.

Here’s my take on defining:

Approval: actual loan commitment, with purchase contract and appraisal and a complete file reviewed by underwriting. Usually a list of conditions are attached, which can matter… especially those that relate to the buyer and not the property.

Pre-Approval: actual loan commitment issued by a bona fide lender, after underwriting a fairly complete file, lacking just a property address, purchase contract, and appraisal. Usually some other pre-closing conditions exist but a serious pre-approval will mean taking care of buyer related conditions such as copies of rent checks, for example.

Pre-Qualification: an opinion letter from the loan originator or lender, identifying what has been reviewed (hopefully a complete credit report, loan application, etc) and the loan program (ie LTV and max purchase price), and stating that the buyer qualifies for the lender’s loan program.

Now, why should we as buyers agents or listing agents care much about the type of letter we get? Because I’ve seen pre-qual letters titled “Loan Approval” from mortgage brokers who had just one conversation with the borrower while they were driving and distracted… what are the chances of that conversation having covered everything and no surprises popping up after we’re under contract with this buyer? And the other reason, because if problems pop up often the originator is reluctant to tell anyone until the situation is hopeless and several weeks have passed.

A good originator will, if using Fannie Mae’s Desktop Underwriter for example, write a decent pre-qual letter that identified the loan program and the amount of documentation DU requests, if DU’s decision was “approved – eligible”. This type of letter can be golden, because as long as the application was correct and complete, and the documents requested are submitted, a typical underwriting review of this type of file is routine.

A manually underwritten loan can be a bit more involved… and poor processing may result in a conditional loan approval with some conditions that the buyer can’t possibly meet. That’s not approval… in my book, it’s a good step but what are the conditions, when will the buyer satisfy them, and let’s hurry up and get them all and get the file back to underwriting. The underwriters hate this “piecemeal” processing, it happens when originators and processors are not doing their job and making sure the buyer’s needs and abilities are compatible with the designated loan program guidelines.

Getting a lender letter with the offer is great, but listing agents (and buyer’s agents!) should look at it closely, and ask questions if needed. There’s no reason to simply accept anything on paper, even if it’s a buyer’s market… since the next buyer is unlikely to make an offer once the home is contingent. Find out whether it’s a true approval (unlikely), and what the originator has done so far to verify that the buyer qualifies for the lender’s program.

It’s pretty darn simple. What did you and the buyer think of the house? Was it clean? Were there any repairs that your buyer felt should be made? Did it show well? Did it stink of cigarette smoke? Anything else bother your buyer?

I try to reach everyone who shows one of my listings, and aside from the agents who do provide useful feedback I occasionally get the following responses, which are quite unhelpful:

• We saw 30 properties, I can’t remember them all
• My buyer hasn’t made a decision yet
• It was OK. (then I ask if there were any issues or anything that stood out and you say “no it was fine”)

Really, we’re not chasing down your buyer… “feedback” means some information that might help us adjust the marketing plan or correct any property issues.

Here’s an example of the most useful feedback I have received on listings: “price is right but it will take some time.” “needs paint and carpet to be move in ready” “did not like the size of the yard – buyer has a dog/child” “other homes we looked at were priced better, in the following neighborhoods:” “owner followed us around, very disconcerting to my buyer” “we’re looking for a home with at least one ground floor bedroom”

Relax when you get a call after a showing, we’re just looking for “showing feedback” – how did the showing go? Naturally, if your customer wants to buy the house you’ll write an offer, but what is more important right now is why your buyer is NOT writing an offer to purchase, what most interests your customer, and what may have disappointed your buyer when you walked through the property. This information can help us adjust our plan, justify a price change, or make a case for some repairs or painting. The more you can help the listing agent, the more we are going to be willing to help direct you to a property compatible with your buyer or adjust our marketing to make the home more attractive to your buyer. “Liked it” and “didn’t like it” are much too general, and unhelpful… specific feedback is highly welcomed, and appreciated!

I’ll explore a variety of topics, stuff you may not find in books, and tell you which books and advice helped me.  Got a hot topic or anecdote? Please share!

Roger