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.

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

I was reading a post by one of my favorite real estate bloggers, Pat Kitano, about how bloggers seem to be ignoring the foreclosure business, and I was a bit surprised. It seems that many of the other blogs out there have decided to play down the problem or feel that there isn’t a problem at all.

As a site that is foremost focused on investors, we see this from both sides. While it is very unfortunate that people are losing their homes in record numbers, the investment community is chomping at the bit, waiting for the record number of foreclosures to continue. This reality, where people can’t keep up with rising payments is taking a bite out of not only the US Economy, but also the global economy as well. As Russ Amy put it, we all need to “write about it” (the problem), because it isn’t going to just go away!

Homeowners & Investors
- Want to find out how foreclosures work? Read about The Foreclosure Process

Homeowners
- We set up a Foreclosure Help Forum for people to get advice when they find themselves behind payments or in other mortgage trouble. Some of the tips given to the folks who have already begun to participate on this forum have been fantastic and quite helpful!

Investors
- Here are some advantages of buying bank owned properties aka. REOs
- Looking for pre-foreclosures? Here’s a great article detailing your 3 shots at getting them, and here’s another that talks about where to find foreclosures.

Think Foreclosures aren’t a Major Problem?

Lets look at some recent news to see if you’re right . . .

- According to Marketwatch, “Home prices are falling everywhere.”
For the national Case-Shiller home price index, prices fell 1.7% in the third quarter compared with the second quarter, and were down a record 4.5% in the past year. It was the largest quarter-to-quarter price decline in the 20 years covered by the index.
This can directly be attributed to the sub-prime blowout and resulting foreclosure massacre that has been taking place around the country. While real estate is a local issue, primarily, this and other signs prove that we are facing a national real estate situation here as well.

- Yahoo Finance has a piece that details how “Even average homeowners feel rising mortgage floodwaters”:
With property values dropping in many areas of the country, a growing number of homeowners — particularly those who bought their house in the last five years — are looking at the prospect of being “underwater” on the mortgage. That’s when the value of the home is less than the amount remaining on the loan used to buy it. So while the nation has been focused on a record-high rate of foreclosures, the tide has been rising on a lot of people who simply had bad timing.
Clearly, not just those who are being foreclosed on are feeling the heat. With lenders practically giving away loans to anyone with or without the ability to pay them off each month, we’ve slowly built our own grave. The government watched as this happened and encouraged it so the White House could tout a strong and growing economy - not so strong now, eh?

- Even the always positive National Association of Realtors (NAR) seems to finally be facing reality after releasing a new report that details how home sales declined in 46 states in the 3rd quarter.

Is there any good news in the Housing Market?

It looks like Mortgage rates have dropped to a 6 month low, and whispers of another drop in interest rates have boosted the stock market over 300 points today (pre-close).

Tags: bank-REO, default, Economy, foreclosure, Foreclosures, housing, NAR, realtor, REO

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

The following was a comment posted by Linda Parker as a response to our contributor, Jim Watkins’ post, Down Sales Market? Think Outside the Box. As the comment carries weight on its own, we’ve decided to publish it as its own posting:

OMG! Higher commissions do get agent’s attention.
When most companies are trying to kills us with commissions right now lowering them to 2.75%, 2.25%, 1.5% that we have to split with the boss, increasing that commission will most certainly get our attention….believe me! We will add a house we have NO interest in to get a client in the door of a big commission….especially in a down market! Jim, you’re right….keep it up.

Here are some more ideas on how to get it sold:
(a few of my secrets…not going to give them all away).
As one of the top agents off and on at William Davis Realty over the years (over 400 agents now?), on listings, you need to go a little further if the competition is being stupid! And, this certainly sounds like your situation with all the reductions!

• I suggest you hire a niece or nephew to do a lemonade stand out front on weekends. Do an open house behind their set up at the same time. Neighbors happen to know people/relatives who want to live in the neighborhood!
• This one gets a ton of calls….put a sign (attached your sign - usually only allowed one sign in Dallas/Fort Worth in the yard for sales) offering a “free cruise” (get a free 3-day/2-night certificate from one of those time share companies) for the buyer if they buy your house.
• Go to the local supermarkets and WalMart and fill out those courtesy bulletin board cards…..
• Fax it to HR departments of local employers for relocation purposes…that’s what I do.

Again, these are some secrets from my full service listings, but you can do this stuff yourself…..it’s easy!

As you say………….think outside the box…..it will sell and be the ONLY ONE to sell on your street if you use your head!!!

Again, special thanks to Linda for her insight and advice!

Tags: property for sale, real estate, realtor, sales, sell real estate, selling homes

Looking Ahead . . .

Home Sales May Fall, Durable Orders Rise: U.S. Economy Preview - The real-estate recession will worsen as stricter lending rules and higher mortgage rates make it more difficult for potential buyers to get financing. The economy will avoid recession as businesses, led by growing demand from overseas, continue to invest and hire.

“The credit tightening is having a significant impact on home sales,” said Dean Maki, chief U.S. economist at Barclays Capital in New York. “The rest of the economy continues to grow at a solid pace.” ^Bloomberg

News for Renters

Default crisis is evicting renters; Tenants forced out by foreclosures - Hundreds of tenants in foreclosed buildings have been evicted or are facing eviction by mortgage companies that do not want to be landlords . . . Tomorrow, US Representative Barney Frank said he plans to introduce federal legislation on foreclosures that includes a provision that tenant leases remain in effect after foreclosure, and that tenants without leases must receive 90 days notice before eviction. ^Boston.com

National Association of Realtor (NAR) Tidbits: Opinion

DOJ sues the corrupt and monkey-run National Association of realtors for antitrust. Goodbye realtors, and good riddance. - I guess the NAR can’t buy off everyone. Just Congress, your local goverments, and the Bush Administration. Here’s the anti-trust complaint (pdf). I’m truly amazed to see the DOJ go after the NAR. Government doing its job? Amazing. Someone deserves a raise. And here’s the DOJ’s new anti-NAR website. Enjoy! ^HousingPanic

Tags: foreclosure, Foreclosures, housing, NAR, realtor, renters

The days of the “Fogamir” mortgages are gone. Surely you remember the Fogamir?

“Yes Sir! We can give you a mortgage. If you would just take this application and rather than fill it out, could you breathe heavy onto that reflective square at the bottom?” If it fogged up, you got the mortgage.

It was nuts. The lenders were granting mortgages to borrowers who had no business merely applying for a loan. It was beyond nuts. Remember the late 90’s? Lenders held firm at only lending up to 80% and buyers had to secure a second mortgage for 15% and just about everyone buying needed to bring 5% down to the table.
During this recent boom, the lenders were loaning 100% of value and some would even roll closing costs into the loan.

My specialty is pre-foreclosures. Most people not in real estate keep telling me that I must be on Cloud-9, considering the record number of foreclosures.

Let me tell you something . . . Just because the number of foreclosures have gone way up does not mean the number of deals has gone up as well. When you have an abundance of 1, 2 and 3 year old mortgages at 100% of value in default… No investor wants any of those houses. Why would they when they can buy a new construction home at 20% off market? No one is going to bid on a house like that at the auction. All those houses are making their way to the lenders’ REO departments.

The lenders messed up. In fact, they messed up REAL bad. Bad enough for smaller lenders to go belly-up. Bad enough for Countrywide to lay off 12,000 people and on and on and on.

The lenders are taking back properties like the Titanic took on water after hitting the iceberg.

So the lenders finally take notice of this problem and decide they need to fix the problem fast. So what do they do? They tighten up their criteria to get a mortgage. No, wait… That isn’t really a fair explanation. What they really did was over-compensate to the point to where the sub prime market has slowed to a trickle.

How nice. The lenders mess up by approving nearly everyone and their REO inventories continue to grow.

They messed up so bad that all of the public attention is aimed right at them.
Even I have said recently, “these banks are hurting themselves again but, it won’t be too long before the government has to step in and slap the lenders’ hands before buying out all their inventories and having an early 90’s-like HUD fire sale.

And the public eye will still be on all the lenders because they are the ones that took the hit for their mistakes. It is at this point that I disagree. Yes, all the lenders are either starting to or have drowned. What the media isn’t paying any attention to is all the other real estate professionals that the lenders have pushed into the water along with them.

When a lender denies a new mortgage to someone, it means an inspector will not get hired to submit a report. An inspector is only the start.
How about appraisers? How about contractors losing out on repairs that would have been needed? How about title companies? Escrow agents, abstracters… it keeps on going. No loans, no buyers, no listing agent or buyers agent commissions. Loan officers lose out. Mortgage brokers go hungry. Sellers like me, feel the pain because our houses stay on the market longer.

When all of those real estate professionals start complaining that the lenders are killing their business… That is when I predict the government will step in and bail the banks out again and hope all the lenders learned their lesson.

Why would they learn this time? They made a mess of things again less than 15 years after they made the last mess.

I for one am ready for the government to come in and slap their hands, bail them out and start the fire sale. Just don’t go overboard and drown yourself because history shows that it won’t be long until the lenders are back doing what they do best… Making a mess of things for the rest of us to clean up.

Tags: appraiser, Housing, inspector, loans, mortgage crisis, Mortgages, real estate, real estate professional, realtor

I read a blog posting recently on another site where someone commented that to sell an investment property faster, they should lower the asking price. That isn’t how the investor’s motto goes.

“Buy low, sell below market?” I thought it was, “Buy low, sell high?”

A simple comment from an investor suggesting that another investor should consider listing a property below market value, should not have gained my attention like it has.

But it did. In fact, it got me all riled up. It got me thinking so much that I decided to write an article about it. Let’s take a look at why…

I recently completed a rehab on a house I bought in February of this year. I bought it for $75,000 and had an ARV of $128,000. I am not going to break down the details of the deal but I want to look at the selling aspect of it.

Earlier in the year, the sub-prime mortgage market all but went away. I checked the comps in the area once a week during the rehab and as of late July, houses were still selling. I wanted to have the house on the market a month before school started and figured since I now had the nicest house in the subdivision, it would sell fast.

It is still on the market. Not only is it still for sale but in the six weeks it has been listed, I have had ONE showing. ONE!

To make matters worse, a neighbor four houses down with more square footage than my house, listed theirs the same day for $20,000 under market value! I went nuts!
I printed off all the comps and showed them to the owner. I suggested to her that she should raise her price based on the recent sales (I didn’t mention to her that her listing was killing mine). She seemed oblivious and later I saw she didn’t raise it. In fact, after four weeks, she lowered it $10,000!
The funny thing is, she hasn’t had any showings either. Why?

Should I take the advice from that investor and lower my price?
NO!

If the neighbor down the street has already dropped their price as much as they have and their result has been no one looking at the house… Well it tells me the problem is not price. So how am I going to sell my house if I don’t lower the price? In this market, it’s not price that is keeping the buyers away. No one is looking because the media has the public convinced that buyers can’t get a mortgage. If they think they can’t get a mortgage, they won’t go looking at houses.

Wait a minute! Other parts of DFW are doing alright with area sales. Why? Price range is why. The areas where prices are $200,000 and over are slow but they are still selling.

I would think most of those buyers are stronger credit & income-wise.
So if dropping the price won’t get more buyers to look, what else can I do to sell it?
My answer is… Let’s give “greed” a try and see if it helps get some interest.

I am going to print off some color flyers and take them to the Realtor offices in the immediate area to get extra attention. How is that greed? It’s not. Right now my house is just one in a big pool of houses in MLS. I need to get the house exposed and I will do that by getting to the Realtors. Once I have their attention, I will make it worth their while. Unlike most real estate investors who get Realtors to hate them because they want services for free and they want them yesterday… I will give Realtors what motivates them…Money. In other words, I am going to appeal to their greed (my apologies for using such a strong word).

The flyers will act as an invitation to attend a Realtor-only, open house. They can tour the house and see first hand all the work that went into it, while they enjoy a free, catered lunch. That tactic is nothing new to Realtors though. It’s not done a lot but it is done. Appeal to their greed by feeding them? Well not exactly.

The standard buyers’ agent commission in Texas is 3%. So I am going to offer 4.5% to the agent that brings a buyer. How about throwing in a bonus of $500 to $1,000 if the agent gets it under contract in the next 30 days? Not bad. I am betting my incentives will get several agents attention and my showings will see a dramatic increase.

If I don’t have any buyers looking at the house, I have no chance to sell it. I could offer all sorts of buyer incentives like paying some of their closing costs or buying their rate down but, that doesn’t matter if buyers don’t look at the house!
Who brings buyers? Realtors bring buyers. So my approach to selling a house in a “down” market is not to lower the price (which won’t help the market go up). My approach to finding a buyer is to “take care” of the people that bring the buyers…Realtors. The good investors know how valuable they really are.

Tags: house for sale, MLS, real estate, real estate investor, realtor, sell property, selling tips