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Throw Your Realtor Under The Bus!

By Jean-Pierre Crisan

The scene was set for financial disaster. Banking and investment regulations were gutted in the late 1990’s, interest rates were held below the rate of inflation, and capital gains tax rates were slashed. These over-stimulated the economy, and created a perfect recipe for fueling frenetic speculation. We began hearing of a ‘New Economy’ with convoluted investment schemes, and all sorts of ‘innovative’ mortgage instruments that somehow wove the magic of almost no money down and ridiculously low payments. These investment schemes, it turns out, were a house of cards, and the magic mortgages had hidden within their fine-print the traps of interest-only payments, balloon payments, rising payments, high, disguised fees, and acceleration clauses.

Real estate and mortgage sellers knew they were selling homes to people who couldn’t afford them at terms that were not truthfully disclosed, all while collecting their fees up-front with a devil-may-care attitude about ethical or sound business practices. Then, when the market soured, these same mortgage sellers only added to the injury by refusing to lend or refinance at the lower interest rates, and real estate sales industry pushed people into short sales by refusing to list properties at their fair market value. These actions further downgraded the market –with these bad players, the American economy never had a chance…

“They went around with business cards that had gold emblems on them saying that they were in the ‘Million Dollar Club’. -Is that sales, or commissions? -It was all about money, money, money.”

I experienced these dealings for myself, when I had property for sale before and during the crash. I tried to list properties with different Realtors at different companies, but I got the same stonewall from all of them. It’s as if they were all reading from the same script. They all had horribly negative attitudes, they tried to say everything bad they could think of about my properties, then I found myself in a conference room facing sour-faced people who were using every high-pressure sales tactic trying to degrade me as they refused to list my property at a price that we had agreed on at a previous meeting.

I then put my property up for sale myself, and soon sold it for well above the county appraised value. Then I found out about others who were also selling their properties at or above fair value after facing the same barriers and nay-saying that I faced.

I realized that real estate people are only looking out for their own interests, and I have learned that, despite their initial friendly chit-chat, these people are NOT your friends, they are not there to help you, they are hard-boiled salespeople who are there to maximize the amount of money that they make, and to minimize the amount of effort they have to expend getting it. And now, in spite of the economic downturn, I have seen these people continue to go around with their snooty, condescending attitudes and behave as if they are entitled to make loads of money without having to work for it.

“I was disgusted and enraged by what I saw. These guys were stepping on top of each other, pushing their fellow Americans and their mortgages under water as they fought to get into the lifeboats. They bullied homeowners into short sales to get what commissions they could with disregard for the effect their greed and imprudence was having on communities, families, and business.”

You Don’t Need A Realtor

Realtors have had a virtual monopoly in the sales of single family homes by controlling access to listing services and publications. Sellers were required to hire a broker and pay a commission that was a percentage of the sale. The cost was high, about a year’s pay for most people, and it was the same at all real estate companies. The National Association of Realtors has fought to keep individuals, discount brokers, and internet based companies from offering lower fees or a-la-carte services and they have tried to limit access to listings publications. There have been a number of court cases to litigate anti-trust and unfair practices issues such as price fixing, favoritism, and blacklisting of online brokers.

The control that the NAR has over real estate markets is beginning to erode as the last decade has brought fundamental changes in the way all things are bought and sold. Today’s world is living under new marketing paradigm that is the melting together all of information, commerce, entertainment, communication, and social life into that Great Digital Black Hole that we all worship through our bright screens, that we call -The Web.

“While web marketing is the Great Equalizer, it is spread thinly over a vast and complex marketing landscape that is flourishing and ripe with new and ever-changing challenges and opportunities.”

Sell by owner, I have, and so have millions of others

“My home, with its 17 acres, several homes and buildings, gardens, riding trails, a creek, and now surrounded by subdivisions of half-million dollar homes, had the inauspicious and humble beginnings as part of a Christmas tree farm way out in the country, where over 20 years ago, after walking the corners, I wrote the sales contract out by hand through carbon papers along with a check for $1000 earnest money on the warm hood of my truck. The old farmer and I signed the agreement, I then hired the small town attorney to draw up and record the deed.”

I have long been an advocate of sales by owner to save the high cost of commissions, and sales by owner have come into the mainstream with the opening of markets over the past decade. With the economic downturn, depreciated home values, and underwater mortgages, many people are left with no choice but to use their own efforts to sell their property. An increasing array of services, everything from yard signs and advertising packages to flat fee MLS listings are now available online as well as locally. Many people already have a network of contacts through their weblife, where a post on a social network site can reach thousands of people, who, in turn can tell thousands of other people about a home for sale, along with photos and video.

I also see sales by owner in the context of the increasing responsibility placed on all of us in today’s and tomorrow’s world, to have a more informed, active, proactive, responsive, activist, and socially responsible role in our communities, to act as a self empowered society that is the ultimate democracy of collective government, a high definition society composed of each and every informed and empowered individual, a society that can manage itself and prevent a single organization, like the NAR, or a single industry, like the mortgage and real estate sales industries from having enough influence to threaten the stability of the markets on which our economy depends.

While I have dealt with some fantastic Realtors who really went out of their way to help me, I have also had them lie to me and threaten me, and in my business, I was asked for estimates and advice for work that they never intended to do. I have suffered one insult too many, one too many self-interested, smug and condescending Realtor, and after seeing how mortgage and real estate sellers contributed to the housing crash, and how they continue, arrogant and unrepentant, I’m here to do something about it.

How a Real Estate Transaction Works

Every real estate deal is unique with its own set of physical circumstances, challenges, potentials, and personalities. There are instant and intuitive decisions, papers with numbers and contract lingo, and an eager intensity that borrows a pinch from the gambler’s table.

A deal is on when there are two sets of signatures on a sales agreement, earnest money on the table, and a closing attorney or title company hired. In some states title companies act as a neutral party to handle closings, otherwise, the buyer hires the closing attorney, and the seller may or may not hire an attorney to represent himself at closing. The closing process begins with the seller signing a disclosure agreement that warrants the property as free of liens, pending or potential lawsuits, boundary infringements, termites, buried waste, and usually a clause that includes anything that the seller would have known about that could devalue the property or pose a hazard.

“Sometimes it’s wham-bam-bang and done, and sometimes there are contingencies such as the sale of other property, financing, surveys, soil tests, radon tests, zoning or planning commission approval, and a host of other things no one would have thought of.”

When the expectations of both parties are satisfied, the process moves to the settlement statement, which is a balance sheet with two columns where each party’s expenses and proceeds are itemized including credit for the earnest money paid and property tax prorations. The seller then signs off the deed and financial contracts if there is seller financing. The buyer presents his cheque for what he owes, and the proceeds are paid out to the seller from the closing company’s escrow account. The buyer pays all closing costs except the small recording fee charged by the county’s clerk of courts to record the deed.


Marketing Your Property

Pricing

Price is the most important part of the sale. Buyers are highly sensitive and aware of money issues, and you can expect the buyer to be getting advice and opinions from friends, family, co-workers, realty agents, or attorneys. You may be dealing with a buyer’s agent. The first few weeks are critical, especially with MLS listings or when implementing a high intensity advertising campaign. You have to be rock-solid on why you’re asking your price while being attentive to any questions or contentions the buyer might have. Be at-the-ready with printouts of facts, comparables, plats, aerial photos, press articles, and county data to clearly justify your price and to establish the negotiating framework and to define its boundaries.

Appraisal

The price tag that a certified appraiser puts on your property is one of the most credible measures of its value. An appraiser analyzes the land, home, improvements, and income potential using sales records in your area as well as data on everything from mortgage and employment data, economic projections and zoning, to soils, aquifers, and crop or timber yields on rural property. An appraiser may measure and inspect structures, evaluate the property for potential uses, such as additional building sites or the feasibility of the property for home office, business, or agricultural use, or its potential value under a higher zoning designation.

The value that your county places on your home to determine the amount of taxes you pay is supposed to reflect the fair market value. County appraisals are generally considered a conservative, ‘lowball’ estimate. County appraisals are less complex, and may not reflect special features, such as a good view, or the $50,000 custom cabinets in the kitchen. The county appraisal is the absolute rock-bottom price that any seller should take. Repeat that sentence three times out loud. The county appraisal is the absolute rock-bottom price that any seller should take! Any buyer who scores a deal below county value has made off with a property that he probably could profit from tomorrow, or at least very quickly.

The information used to appraise your property is publicly available, and nowadays, usually available online, so any person can do a pajama appraisal, from their computer, and do the math, calculate the averages, measure the rooms, and add things up to come up with a range of prices that can be factually justified during negotiations.

Advertising

Classified ads in the local newspaper are still the number one place to advertise. People still love to read newspapers, and newspapers have moved onto the web, reaching larger and more diverse audiences with ads that are published online as well as in the print editions with expanded features like search, maps, links, and photos.

A NAR Survey Shows that 90 percent of home buyers get information about the homes they buy on the internet. Internet advertising is available through web portals like Google and Yahoo, and on social networking sites. A recently, I heard about a guy who got a job by advertising himself on Facebook. He targeted other users who listed their profession the same as his. I have seen home for sale ads on Facebook. Internet ads are sold by number of views or number of clicks, or whether they are text ads or banner ads and can be targeted to specific geographic areas and demographics.

The Great Caveat of internet advertising is the fact that there is a low response rate, which forces advertisers to place a lot of ads in many places, and to be involved personally by promoting themselves in social networks, posting on bulletin boards, and emailing friends and associates.

Internet advertising is fraught with spam and fraud, and as a sign of the competitiveness of internet marketing, some unscrupulous operators will use contact information from your ads to try to sell you a range of often questionable goods and services. For these reasons, you should advertise only with recognized and trusted outlets that filter out spammers and verify the identity of respondents before they relay inquiries to you.

Flat Fee MLS

With the rapid growth of online discount brokers and other real estate services, sellers can list their property in one or more Multiple Listing Service publications for a few hundred dollars. Terms and packages vary, read the details and select companies that are members in good standing with the Better Business Bureau, and that have good reviews. MLS listings can only be sold by a real estate broker, who can display the Realtor trademark. The listings typically run from one to six months, and almost always include listings on a number of real estate sites like realtor.com.

With a flat-fee listing, the broker charges a fee instead of a percentage of the sale price, and waives his traditional responsibilities as broker such as writing contracts and negotiating with the buyer or the buyer’s agent. The seller offers 2 to 3 percent to a buyer’s agent, and pays no commission if he sells to a buyer directly. An agent who brings a buyer gets to keep all of the commission without having to split it, often four ways, with their and the listing broker, so the seemingly small 2 to 3 percent is a strong incentive. Some flat fee listers elect to offer no commission, which signals that they only want to deal with buyers directly, and pass the savings on to the buyer as a discount. This is a risky strategy that excludes an army of buyer’s agents that could bring buyers.

Yard Signs

..And lead-in signs can be made at your local print and copy shop with their design templates, or you can create a snappy design on your computer. Use big, bold typefaces, and along with your phone number, include basic information like number of bedrooms, land size, a unique feature, and a web address or email. Place the sign in your yard on your property and not on the county’s right of way. Often, a tube or box attached to the sign is used to hold information sheets, but weather gets into these holders and damages the printed sheets. You will want to keep the materials fresh-looking. Lead in signs are smaller, and usually say Home For Sale!!, or Open House!, and are placed at the intersections nearest your home. Leave them there for a week or less, and plant them (in the legally grey area) at the outer edge of the county’s right of way, just outside the drainage swale.

Website or Social Network Page

Almost no computer knowhow is needed to create an attractive web presentation on one of the many free services, such as Google Sites or Wordpress. Even your own service provider almost always provides a web address with your internet account. If you want your own domain, such as www.yourname.com, the cost is only about $10 a year. I created a website for a lake lot that I sold a few years ago. The front page had a photo montage, a video, and my sales pitch, and through the menu, I provided a plat, an aerial view, a map, the subdivision bylaws, the deed and covenants, the results of the septic tank survey, a copy of the Corps of Engineers regulations for the lake, a copy of the EPA regulations that affected lands bordering the lake, and a brief history and list of attractions and resources in the area. I also wrote a beautiful poem about the tranquility and majesty of the lake as I kayaked over its still waters in rosy dawn’s light. I believe that the website was a big factor in attracting the out of town buyer that eventually bought the property.

Photography

Take good photos of the property by shooting in good light. Use the flash, even in bright days, to pick up detail in shadows. Hold the camera still and level. Capture impressive views, such as by using a low or dramatic angle, or with blue skies or sunset colors. Fill the frame with the subject, and try to exclude things that don’t contribute to what the image is about. Try not to crush any peaks in the histogram. Have everything on the property looking as neat, trim, and as good looking as you can. For the web, size the photos down to from 600 to 1200 pixels, and add a little punch with small adjustments to contrast and color.

Open House or Home Staging

Have a party! Saturday or Sunday are good days, when the weather is nice, to show off your home. Have snacks and information, and be prepared to answer questions about everything from how much the taxes are to how high the crawl space is. With home stagings, the owner rents or borrows expensive furniture, appliances, art, even luxury cars to make their properties look more attractive.

Open houses are more effective as part of a marketing blitz, where ads are placed, for that week, in all publications that reach a 50 mile radius. Postings are put on social network pages, and flyers are left at local businesses. For a few weeks beforehand, you talk it up to everyone you know, inviting them to your house for sale party.

Negotiating

“The opening negotiations should be an act of leadership blended with humility to instill confidence in the buyer that you are sincere, informed, and that the buyer is important to you.”

It is a fact that many sales fail in negotiations. Have goals and strategies, have at the ready information and counter-arguments. Know facts about your area. Do not negotiate out of emotion, use the facts to show that the price you are asking is fair. Remember that ultimately, any Realtor you hire to sell your home is working for the buyer, because it is the buyer who has the money. In the end, whether you hire a Realtor or not, you will have to be assertive and look out for your own interests, as the ultimate responsibility rests with you as administrator of the process.

In every real estate deal, two parties who don’t know each other come together and work closely, sometimes contentiously on something that is very important to both of them. Every deal is completely different, and the experience remains in one’s mind, for better or worse, as a major life event. In the end, the deal often winds down to personal or emotional decisions such as the wife who loves the kitchen, or the husband who is drawn to the big oaks, the creek, and the meadow.

Title Search

I once sold a lake lot to a fellow from out of town, there were no realtors involved, and we had never met before. To gain his confidence that I and my property were legitimate, I invited him to go with me to the records room in the courthouse where we did a title search. The title search is one of the things the closing lawyers do to follow the chain of deed possession and verify that there are no liens or legal challenges to the property.

The small room, behind its armored steel doors, in the basement of the county courthouse, was full of lawyers and paralegals. We looked through the long shelves of thick, ancient, well worn deed books and cabinets with their wide, shallow drawers full of plats, following one reference number to the next, going back, back in time, where each deed and plat, in its plastic protector, older and yellower and more worn, the dates, the typefaces, the fountain pen signatures, led a path steeped in lore further back in history. There were deals with Indian tribes, signatures of a jagged X by the illiterate, there is the story of the last man, a guy with a shotgun, whose land was the last property taken by the government in eminent domain to build the lake a hundred years ago, and the tense standoff with an army of federal marshals.

Today, title searches are rapidly becoming pajama jobs as deeds and plats are scanned and put online. Anyone can easily access county records and examine the records of a property of interest, as well as surrounding properties. Records are integrated with records of building and septic tank permits, financing, and demographic data. County aerial photos are of a higher resolution than Google Earth, and include boundary lines and parcel numbers.

Financing

Financing is the biggest obstacle to completing a transaction. There is never too much money, and most people reach and dream at the edges of their means. The very process of selling, buying, and moving is costly, so every deal has built-in overhead for both parties.

Local banks and credit unions are able to offer more flexible terms than large banks, which must follow standardized guidelines in approving loans. Look for HUD or other government-backed loan programs.

We have all heard of ‘innovative financing’ which refers to a wide range of financing options from community banks, internet banks, investment or microfinancing organizations, and even private individuals. The most common forms of alternative financing are loan assumptions and second mortgages. With both, the seller remains responsible in case of default. Other examples include short term roll-over notes, balloon mortgages, interest only payments, loans secured by savings or investment accounts or by alternate collateral. Borrowers should be well informed when exploring alternative financing, as the interest rates are higher and terms less favorable than traditional loans.

“When I sold my home in 1985, I seller-financed the equity, and most of the down payment. The second mortgage that I made to the buyer had interest-only payments of eleven percent with a ten year balloon payment, and, of course, there was an acceleration clause that would make the full principle due in the event of a missed payment. I told the borrower a number of times that these were not very favorable terms, and should be seen as temporary till they could re-finance. I felt bad, I felt like a loan shark. By the time they did get another loan, about eight years later, I had made more money off the interest than the equity from that old farmhouse on five acres.”

1031 Like-Kind Exchange

Here’s an old trick right out of the one-percenter’s playbook that commercial property investors and landlords have used for years. This tax provision -um loophole allows any person or company to swap ‘like-kind’ properties with another person or company without paying capital gains taxes on equity gains from appreciation or capital investment. Not only can you roll over equity gains tax free, but you also get to reset the clock on the depreciation tax write-offs available for rental or commercial property. These tax breaks are available to anyone, at any level of income, at every property value. Also remember that capital gains realized in the sale of real estate, just as with stock investments, are taxed at a lower rate than most income.

For the Buyer

The most important professional in a real estate transaction, especially for the buyer, is the closing attorney. The sales contract, disclosure statement, title insurance, escrow services, and deed transfer are the essentials of a transaction.

Other services, such as boundary and soil perc surveys, and pest, structural, and electrical inspections are important protections a buyer can seek to insure the integrity of the transaction.

Whether represented by a buyer’s agent or not, it is the buyer’s responsibility to be informed and play an active role in the process, as he is the administrator of his side of the deal and it is he who will live with the results, and enjoy the benefits, or suffer the consequences of the transaction.


 
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