As we see the mortgage and real estate industries go through tough times (with thousands of homes falling into foreclosure) we can only hope that any money made from this disaster will at least stay in this country. Many investors are pouring millions into buying these foreclosures, often at fifty cents on the dollar. One would like to think those billions in future profits will remain here in the U.S., but unfortunately that’s often not the case.

According to a new study by the National Association of Realtors, about one in five American real estate agents sold a second home in the year ending April 2007 to a foreign buyer (defined as someone who has legally entered the United States to buy a home). A quarter of the agents surveyed said their business with overseas buyers had increased over the past five years. The study also showed that international buyers are spending more freely on houses than Americans are. The median price they paid was $299,500, compared to $221,900 for native-born buyers.

Many homes in foreclosure have gotten the attention of foreign investors, and many cities have major surpluses of foreclosures to offer them. Detroit is one such city that appears to be in a real crises; roughly 4.9 percent of the households in the Detroit metro area were in some stage of foreclosure in 2007, which is 4.8 times the national average; according to the study released by mortgage research company RealtyTrac Inc.

Stockton, Calif., ranked second with about 4.8 percent of its households in some stage of foreclosure, while the Las Vegas metro area was third with a 4.2 percent rate. In all, 72,616 filings on 41,273 properties were reported in the Detroit metro area, which includes Livonia and Dearborn. The foreclosure rate represents a 68 percent jump from 2006.

In Stockton, 22,184 foreclosure filings were reported on 10,608 properties last year, up 271 percent from 2006, RealtyTrac said.. The Riverside-San Bernardino metro area east of Los Angeles was ranked fourth, with 102,506 filings on 51,739 homes, a rate of 3.8 percent. Sacramento was ranked fifth, with 3.1 percent of its households reporting late payments.

The other California metropolitan areas in the top 20 were Bakersfield, ranked seventh; Fresno, ranked 14th; and Oakland at 16th. The Las Vegas metro area, which also includes Paradise, Nev., reported a total of 59,983 foreclosure filings on 30,375 properties in 2007.

Ohio, which has also been racked by high unemployment, had four metro areas among the top 20, including Akron at 12th, Dayton at 15th and Toledo at 19^th. The metro area comprising Cleveland, Lorain, Elyria and Mentor was ranked sixth, with some 2.9 percent of all households in some stage of foreclosure. Miami ranked eighth with a 2.7 percent rate, the highest among all metro areas in Florida. Fort Lauderdale was 10th and Orlando was 20th. The other areas in the top 20 were Denver-Aurora, Colo., at No. 9; Atlanta-Sandy Springs-Marietta, Ga., at No. 11; Memphis, Tenn., at No. 13; and Indianapolis at No. 18.

Buying up U.S. Companies

Last year, foreign investors poured a record $414 billion into securing stakes in American companies, factories and other properties through private deals and purchases of publicly traded stock, according to Thomson Financial, a research firm. That was up 90 percent from the previous year and more than double the average for the last decade. It amounted to more than one-fourth of all announced deals for the year.

During the first two weeks of this year, foreign businesses agreed to invest another $22.6 billion for stakes in American companies - more than half the value of all announced deals. If a recession now unfolds and the dollar drops further, the pace could accelerate.

So I would urge our U.S investors (small and large) to get out and take advantage of the incredible real estate and business opportunities currently available, before our overseas neighbors take full advantage of our misfortune, and send all those billions in profit home.

America is the greatest country in the world, and if we don’t have the courage to invest in it ourselves, then it will slowly be sold out from under us. Invest in America, and the American dream will stay alive.

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Tags: buyers representative, foreclosure, foreign investors, Investing in america, investor, real estate, real estate agent

I recently came across an article that put something so well and so clearly that I really don’t think I could improve upon it. Everyone interested in real estate investing would do well to check it out.

In “Why Do You Still Need an Agent to Sell Your Home?” author Douglas Gantenbein makes an excellent case for the thing I am most passionate about: homeowners getting the power back in their real estate transactions (i.e., selling their own homes).

Written all the way back in 2004, this article cited the then-statistic that “Americans will spend about $1.14 trillion buying 6 million homes this year-both [setting] records.” And of that $1.14 trillion, Gantenbein writes, an enormous chunk would go to realtors. Is this fair?

Here are some highlights from the article:

1. Realtor work doesn’t equate with realtor commission.

   “And what do Americans receive in exchange for that commission, which can total up to $24,000 on a $400,000 home? In many cases, not much. A realtor’s license can be had after as little as 50 or 60 hours of training (the person who cuts your hair probably has 1,000 hours or more).”

2. Realtors seldom work in your best interest.

I was flipping through Freakonomics recently and remembered this little anecdote from one of the authors’ real experience:

“K. wanted to buy a house that was listed at $469,000. He was prepared to offer $450,000 but he first called the seller’s agent and asked her to name the lowest price that she thought the homeowner might accept. The agent promptly scolded K. ‘You ought to be ashamed of yourself,’ she said. ‘That is clearly a violation of real-estate ethics.’

K. apologized. The conversation turned to other, more mundane things. After ten minutes, as the conversation was ending, the agent told K., ‘Let me say one last thing. My client is willing to sell the house for a lot less than you think.’

Based on this conversation, K. then offered $425,000 for the house instead of the $450,000 he had planned to offer. In the end, the seller accepted $430,000. Thanks to his own agent’s intervention, the seller lost at least $20,000. The agent, meanwhile, only lost $300-a small price to pay to ensure that she would quickly and easily lock up the sale, which netted her a commission of $6,450.

So a big part of the real-estate agent’s job, it would seem, is to persuade the homeowner to sell for less than he would like while at the same time letting the homeowner know that a house can be bought for less than its listing price.”

3. The NAR is an exclusive group that doesn’t want to give up dominance.

“Overall, the NAR has ensured that nearly all residential real-estate transactions still are conducted between two agents in cahoots. And they’re largely responsible for keeping commissions close to that 6 percent level when any normal law of competition would suggest they’d be lower.”

4. Therefore, FSBO has a lot to offer, in my opinion.

Using a quality FSBO company like Buy Owner puts the power back in the hands of the investor. It’s definitely a smart decision for savvy investors.

Tags: by owner, for sale by owner, FSBO, home, house, real estate, real estate agent, realtor, sell real estate

If you are averse to paper work, formal agreements and legalese, get over it. You can’t avoid it and it’s vitally important. Think of your contract as a big safe to protect your huge amount of valuables. The subject here will be the contract – I’ll circle back in later posts to cover the specific actions of due diligence leading up to the contract.

I’ll assume you’ve started your due diligence pre-contract. You’ve estimated the value of the property you’ve chosen, you’ve done the groundwork for financing, schmoozing with a lender after the way was cleared through recommendations from connected friends and associates, you’ve settled on an area you’re comfortable with and an investment you can handle, you’ve sent the Letter of Intent to the owner and broad strokes are agreed to, and now you’re ready to put it all in a contract.

Don’t do this alone, especially not your first time. Use a real estate broker or an attorney. Contracts are fairly simple at first glance, but they can get complicated. You want to make sure you have everything covered and two minds are better than one, more so when one of the minds is experienced at this sort of thing.

The attorney or title company will ensure there are no title problems; however there may be hidden liens, so it’s always wise to speak with your attorney about insurance to cover the title. Most of the language will be built into a standard contract. You will have to decide things like time of closing, length of due diligence period, who pays for surveys, what type of financing, and such, and then there are special stipulations. Special stipulations are agreements between the parties not written into the body of the contract or language added to strengthen and clarify what’s in the contract or what’s been verbally agreed upon, such as what is excluded or included with the property. You might have met with the owner and talked about, say, certain equipment remaining with a building that will be used as a restaurant. Don’t rely on verbal agreements, make sure it’s written down and part of the contract.

When deciding on the due diligence period to be established in the contract, try to add time to your estimate to take delays into account, make sure you specify the days of the period are workdays and place a special stipulation that extensions are allowed if you can’t schedule all inspections within the period or if one inspection uncovers something that calls for a special inspection, such as signs of structural damage that would require a structural engineer to inspect an write a structural report.

Read the whole contract and understand it. Too many times people assume something is in the contract that upon further close inspection is not outlined clearly. Make sure if something important to you is not clearly stated in the contract that it’s spelled out clearly in special stipulations.

While most deals run smoothly, there are so many variables that it’s easy to find yourself in a misunderstanding that can kill a deal, waste your money or, worse, wind up in court. Take it from someone who knows, a tight, comprehensive contract is your best investment partner and guardian angel. You may have to amend the contract, so make sure you understand what the contract says about amendments and notices. They need to be in writing but how are they are delivered? By email? By phone? Fax? Hand delivered? By hoseback? Make sure you know what the contract says because you are agreeing to abide by it.

It’s also important to establish in the contract any representation. If you are being represented by an agent, make sure you have a representation agreement between you and the agent and that it’s clear in the contract. A listing agent you may have been dealing with represents the seller, even if they have been helpful to you and are really, really nice – unless you’ve signed a separate agreement where the agent is working as a dual agent (I don’t recommend this). This can get confusing if you’re not familiar with real estate agency representation, so I will explain this further in another post, but remember that the agent involved in the deal, if an agent is involved, is representing the interests of the seller if you have no agreement with the agent. If you are going to go through an agent it is best to have your own agent who is representing your interests.

Tags: agreement, contract, deal, due-diligence, escrow, real estate agent, real estate contract, real estate investing, realtor, title

Your favorite farmer’s market. The blanket you bought at the craft show. The discount you found by going through the company directly. What do these things have in common? No middle men.

Today, middle men are everywhere. Some are good: the grocery store, the post office, the restaurant. But some are purely optional; in fact, I’d say they’re largely unnecessary. Consider these two examples of industries that make their money on connecting:

Middle Man #1: Travel Agent
I don’t know about you, but I have the ability to research online, call hotels, ask around for discounts, etc. Last month, I visited a friend on the East Coast and booked my plane ticket and accommodations through an online provider—I think it was Travelocity or Expedia. This allowed me to save the most money, at the most benefit to myself. Imagine if I’d used a travel agent: less control, more money lost.

Middle Man #2: Staffing Agency
How did you find your current job? Did you go through a head-hunting firm? You might’ve, and that’s fine. But you also might’ve been like thousands of other job-hunters who didn’t want to get paid less than the company could afford by inserting a middle man. You might’ve looked online at places like Careerbuilder and Monster and Craigslist and applied, interviewed and landed your position.

What each of these agencies has in common with a real estate agent is this: they are middle men. They find hotels, and they find travelers; they find jobs, and they find job-seekers. Or, in real estate, they find sellers, and they find buyers (imagine if the travel agency or the staffing firm similarly took a solid 6% of the sale, too!!). In return, they take a BIG chunk of the deal home with them. No tangible product provided—just their “connections.”

For a long time, real estate companies have been telling us that we need them, that we have to have a real estate agent in order to find the home or to sell the home. In reality though, all you need is a buyer and a seller. An agent is ONE way to find a buyer, not the only way and, in my opinion, certainly not the best. Using an agent means less money for you, and that’s never a good alternative.

If I take the analogy one step further, it’s a perfect illustration of why companies like Buy Owner are so helpful. They’re the Travelocity or the Careerbuilder of real estate. Much less cost and much more control for you.

Before hiring a realtor to list your home, consider trying your hand at finding buyers on your own, eliminating the middle man. You are fully qualified.

Tags: FSBO, real estate agent, realtor

Caveat emptor is Latin for “Let the buyer beware”.

A recent class-action lawsuit filed in the state of Minnesota is bringing to light a long-standing issue that affects buyers of residential real estate throughout the country—alleged steering of home buyers to affiliated title, settlement and mortgage companies by large realty brokers. This widely utilized practice often leads to consumers incurring a considerable amount of extra fees and costs when compared with fees and services offered by non-affiliated competitors.

Many real estate brokerages rely on the income generated by clients using mortgage and title companies that are affiliated with them. Brokerages often attempt to maximize their “capture rates” - the percentage of all home-sale transactions that use the affiliates’ services. A consumer typically ends up paying more fees than if he/she selected a non-affiliated competitor. The brokerages justify the additional expense to consumers by claiming that even if the affiliates’ fees or mortgage rates are not the lowest available, the quality and dependability of the affiliates’ services more than compensate for any price differences.

Over the past several years, many cases involving financial relationships between brokerages and their affiliates have withstood legal challenges. So long as the financial arrangement was properly structured to comply with federal anti-steering and anti-kickback rules, the Courts have been reluctant to intervene in these arrangements.

In the Minnesota lawsuit, two buyers filed claims against Coldwell Banker Burnet Realty Inc., one of the largest realty firms in the state. The Plaintiffs in the litigation charged that Coldwell Banker breached its fiduciary duties under state law when it steered the buyers to its own title and settlement affiliate, Burnet Title, despite knowing that the affiliate’s fees were significantly higher than those available from non-affiliated firms. In the case of a broker-client relationship, fiduciary duty means that a real estate broker is bound to put a client’s best interests ahead of the broker’s, and must not profit from the fiduciary relationship unless the client consents. A fiduciary is also supposed to disclose material facts that may affect the client’s best interests.

The claims asserted in the Minnesota litigation could be duplicated in other states: When real estate brokers or sales associates knowingly steer clients to higher-cost services that benefit the broker financially, they may violate the fiduciary responsibilities owed to those consumers. The Plaintiffs also alleged that Burnet Realty failed to disclose that its affiliated title company “retains at least 75 percent of each insurance premium,” or that the title affiliate’s fees “are among the highest, if not the highest, in Minnesota.” On a typical $250,000 home purchase, according to the suit, the title affiliate’s fees “can be several hundred dollars more” than those of non-affiliated competitors.

Consumers should be aware of the fact that often times a brokerage will pressure its sales associates to direct their clients’ closing and title insurance business to the affiliate. The company may also offer financial incentives to sales associates who cooperate, including a “quick check” program that pays agents’ commissions at closings, rather than at a later date, if the closing occurs at the affiliated title company.

So, how can home buyers protect themselves in these situations?

First, it is imperative that you read the fine print. Brokerages are required to disclose their relationships with affiliates, but often times the language is buried in small print somewhere in the agreement that the buyer or seller signs with his/her agent. Most importantly, consumers must remember that they have a choice. There is no legal requirement that a consumer utilize a mortgage company, title company or settlement company that is affiliated with the consumer’s broker. Make sure to check out the competition and shop around for the lowest cost title, best mortgage rates and other services.

Tags: mortgage, real estate agent, real estate broker, Real Estate Law, residential, steering, title

I was recently reading a discussion on our forums, where someone asked “How can you know for sure if someone is really making another offer? What if this happens…is there anything you can do?” There were some good responses on the forums, but I wanted to share a little story about a situation I recently went through that I thought people would find interesting.

According to one of our members:

2. Never believe anything a Realtor tells you about “other offers”. A place that’s been on the market for a year, with ZERO interest will “magically” receive multiple offers about the time you show an interest. When this happens just tell the agent what my dear wife told one; “I guess we’re not meant to get this house then-but our offer stands AS IS.”

I agree with this advice, but I have to comment here. I was house shopping for my permanent residence back in January here in Denver, when there was over a foot of snow on the ground and I was the only person making tracks anywhere. My wife and I found a great house that we were excited about and placed an offer on it. Now, mind you, I had looked at 30 houses and had not seen one other set of tracks in the snow by these houses, including this one. Our offer was a lowball one (as it should be), and the next day I was told by the agent representing us that it was rejected. I was surprised, asking why the seller hadn’t countered us. The house had been on the market for a while, and it just seemed strange that we’d be flat out rejected.

As it turns out, there was another person interested in the house. Apparently, their agent had a deal with the selling agent that she’d be told if anyone came to see the house. When we made an appointment twice, the selling agent let the other agent and their client know, and they went out and made an offer. I guess they dropped the real estate agent’s feverish pitch that we were making a serious offer and their client’s offer, out of nowhere, was well over asking; this certainly locked in the property. for them.

I think it brings up two interesting thoughts:

• First, never assume that no one else is interested. We had to be the only people to see this place for at least a few weeks due to weather and holidays, yet a magical offer arrived the same day as ours.
• Second, the agent representing the woman who bought the home really must have been pretty good, convincing their buyer to offer so much. In this case, a place with zero interest, suddenly DID have other offers. I’m glad I didn’t win that game!

The house was not worth close to what the buyer paid, and the fear/excitement generated by their agent put them in a bad position, especially in the current real estate marketplace. I’m actually surprised that the loan could have gone through, but then again, we all know that many apraisers will tell you a property is worth whatever you want it to be . . . but that’s another story.

Low and behold, I went on to find a place I liked even more the next day (good thing!) and ended up getting even a better deal then I would have gotten had my offer the day before been accepted!

Tags: agent, buying-home, home, house, making-offers, real estate, real estate agent, Real Estate Deals, real estate investing, realtor

Last week we talked about the emergence of the selfless real estate agent. Today, we’re going to look at a piece of dirt who makes the rest of the agents out there look bad.

A real estate broker in Shakopee, Minnesota was charged with with 15 felony counts of identity theft; in addition, she filed $3 million in fake loans.

According to Freeman, “in one case, she promised to buy a piece of investment property for someone, said ‘Don’t worry. I’ll pay the mortgage and pay the rents and give you your share.’ She collected the rents, didn’t pay the mortgage and didn’t give the person any money.”

This is yet another warning to everyone to be careful out there. There are so many dubious people out there just looking to scam you, that you really need to protect yourselves. With that in mind, anyone considering investing in real estate has got to be sure that they have a real estate attorney handy.

While your lawyer can’t do too much to stop someone from stealing your identity, they can be sure that the deal you’re considering is legit, and serve to protect you by reviewing all of your paperwork. They are your first line of defense!

The part of this whole story that is most astonishing is, because this is what some call a “white collar crime,” she has not been taken into custody. She also still has her real estate license and won’t lose it unless she is convicted.

Looks like another failure of government to step up and do something. Here’s an idea . . . lets temporarily suspend her license . . . no, that would just take too much paperwork . . . we’ll just let her keep serving in a position where she can steal more money and identities.

I’m not sure who I’m more appalled at, the thief, or the authorities who fail to stop her from doing it again.

Tags: fraud, mortgage-fraud, real estate, real estate agent, real-estate-scam