Real Estate Snippets

The Negotiation Dance

Negotiating for the purchase or sale of a home in St. Paul often involves more than just the home seller and the home buyer.  The complex negotiation dance often has other participants on the dance card.

Immediate participants in the negotiation are the real estate agents representing each side.  Usually each agent knows what their client's hot buttons are and works to fulfill their clients' desires.  The hot buttons are as diverse as the home sellers and buyers.  For some the closing date is the most important detail to "win" in the negotiation.  For others it is price.  Still other are concerned that both sides give similar concessions.  Sometimes the breaking point for a client might be whether a single small item is included in the sale or a small thing has to be fixed.  The steps to a fully executed purchase agreement are as unique and various as the steps taken by ballroom dancers.

Because most sales involve financing, another silent participant in the dance is often the lender.  Home buyers and sellers may ask for things that the lender does not allow.  To the buyers and sellers, the request seems simple, but the lender acts as judge and jury for everything written in the purchase agreement.  If the lender says the request is against the rules, it cannot be granted even if both parties agree.  The lender will not give a mortgage if that request is included in the purchase.

An example that is usually not allowed by FHA mortgages is the establishment of an escrow account to pay for work to be done after the closing.  An escrow account is similar to a savings account that is created with money from the closing and is used to pay contractors for work to be completed after the closing date.  The money is usually held by the title company.  If, for instance, the closing was one week away, but the  sellers agreed to paint the house trim, replace concrete, or fix broken windows, the home sellers might suggest they put money from the sale of the house in an escrow account to pay for the work to be done AFTER the closing.  Unless the seasonal St. Paul weather prevents completing the work before closing, FHA will not allow the money to be escrowed.  The work has to be done before they will give funding for the mortgage.

Even though the home seller and the home buyer are in agreement and dancing together on this issue, it matters not.  The lender will not allow the work to be done after the closing with escrowed funds to pay the bill.  The lender participant in the negotiation dance prevents the dancers from dancing their own steps.

Much like a dance contest coach, the real estate agents involved in the negotiation are aware of the dance rules and what their individual clients bring to the floor.  The goal is to help the dancers accomplish their goal of winning (successful sale of the home) while incorporating each clients' unique requests within the framework of the dance rules.  It's a beautiful thing when the dance is done right and the goal is reached!

Wisdom from an Elder Real Estate Agent

Eight hours of continuing education to renew my real estate license seems like a long haul all in one day.  Real estate agents tend to like moving around a lot.  Sitting in one chair for 8 hours without use of a computer or cell phone is a bit overwhelming for many.  For me, it was especially a tough day as a tenant had awakened us the previous night with water  spilling from his ceiling.  The short night made for a difficult struggle with the sleep sheep during class!

The instructor was entertaining.  Thank goodness!  And experienced.  Over 38 years in the business made him an expert.  In addition, he chose real estate as his career right out of graduate school.  He has worked all of his adult career as a real estate agent!  Amazing!

So, I listened.  Not just to the content of the course, but to his wisdom.  Early in his career he realized that he didn't want to work with some clients.  When asked to meet with a prospect, he sees it as a great opportunity to determine whether that client is a fit for HIM!  If he feels the client is unreasonable or unrealistic in pricing, he chooses not to represent them. 

The whole concept is liberating.  In today's market if a client doesn't see that their St. Paul house has to be priced below the value of two years ago, what headaches could be saved for the agent if the agent chose not to work with that client.  Instead of spending nights worrying about how to market a home that is overpriced, don't list it, was the elder's advice.  Don't compromise your professional expertise just to get a commission that will never happen.  If you walk away in the beginning, there will be another to replace that client who IS realistic.  The realistic client is the one wants to devote time worrying about.

This elder REALTOR takes the reins in any interview and clearly tells the prospect that they, too, are being interviewed!  What a novel idea!

Back In the Day

The MLS listing sheet had an interesting comment:  "Largest home in neighborhood of homes that sold for $500,000."  Is this a marketing ploy, or is this listing agent still living "back in the day"?  My buyer client had an interest in the home so we did a search for comparable sales in the last 18 months in that specific St. Paul suburban neighborhood.  The highest sale price in the last 18 months occurred over a year ago and the sale price was $334,000.00 with $10,000 in seller paid closing costs!  That price minus the seller concessions netted the seller a purchase price of $324,000! 

Obviously, the value the listing agent was referring to was from "back in the day" when sellers and builders could ask any price they wanted for their home and the buyers were willing to pay.  That real estate market is long gone and it doesn't help to market this St. Paul listing by mentioning ancient history.  Yesterday's half a million dollar home is listed today at $350,000.  That's quite a hit for the seller and lender and quite a deal for the buyer . . . if they can afford to heat this beautiful mansion.

Short Sale Stalls

The most frustrating part about short sales is that the time isn't short!  For some reason, the lenders stall and stall and stall until the buyer gets tired of waiting OR the value of the home decreases that much more.  One excuse is the quantity of short sales.  It seems there are so many that the lenders don't yet have a system for dealing with the load.  Linda Davis, a REALTOR in Ledyard, Connecticut has a great description of the problem from the real estate agent's perspective.  We're all hoping . . . praying . . . pleading . . . screaming . . . pestering for a decision, but for some reason the answers don't come.  Read Linda's letter to the lender.

Legal Descriptions

Most of us navigate the world using street addresses as markers.  When a friend moves, they don't send out address change cards that read Lot 1, Block 3, Harrison's Addition to St. Paul!  Instead we use street addresses to find our way. 

In the real estate world, however, legal descriptions are the "addresses" used to identify which property is being bought and sold.  Maps of all the land in the county are on file at the county seat with their respective legal descriptions.  The maps are called plat maps.  The county seat also has records of every transaction that has occurred on every piece of property in the county.  These records are organized in books by addition name and then by block and lot number. 

One of my abstracts (Abstracts record the history of every transaction, bankruptcy, divorce, etc., for owners and the property.) has the first entry dated October 31, 1849, even before Minnesota became a state.  The dated entry is on the original paper and someone from that era actually handled the papers in my abstract.  That boggles my mind.

The parcel was first described this way:  "The West 1/2 of the NW 1/4 Sec 31, T 29, R 22.  Sec means section, T means township, and R means range" and was conveyed from the United States of America to Richard Freeborn.  By the 1920's, the legal description had changed from the metes and bounds measure above to a plat system.  Someone lost the property during the big depression due to non-payment of their contract for deed.  Now the property is described as Lots 5 and 6 Block 13 Brewster's Addition to St. Paul.  Mr. Brewster must have been the developer or maybe it was named after a brewery!  The property was lost for not paying nine $20 payments.  Imagine a $20 mortgage payment today.

If a purchase agreement is written using a street address and there is a mix-up on the legal description, the buyer could end up owning the neighbor's property.  Not a pleasant thought.  Twice this has happened in transactions for my buyers.  The first was a new town home complex which had been improperly filed  at the county by the developer.  Every one of the 300 town homes had a tax ID number and street address assigned to the legal description of the neighbor's property.  The association had to hire a lawyer to get the mess straightened out.

The second conflict between legal and street address was a surprise to the seller.  He did not know he was using the wrong street address for his property.  It was a rural location where the postman knew the individuals and didn't worry about wrong street addresses.  When title work was done, the street address had to be changed on the purchase agreement to fit the legal description of what was being sold.

It's possible errors like these that are the reason for a title search on a property.  Title searches are required in order to finance a property because the bank wants to make sure the buyer is buying the right place!

Day of Celebration

Friday was a day of celebration.  Only 4 long months had passed since my sellers received the initial offer to purchase their home.  That's only one third of a year, but it seemed like forever.  The market was weak for listings, but the sellers were smart enough to reduce their price and procured a sale.  The house just two doors away is still on the market after two long years.  It only took one year for my sellers.  The listing started May 16, 2007, and closed on May 2, 2008.  Twelve long arduous months had passed from listing to close. 

My seller clients were models.  They kept me informed when brochures were needed.  They cooperated for all showings.  They always had a neat and clean home.  They were willing to reduce the price when no showings occurred.  Open houses produced some traffic, but most often the prospects were just curious.

The property was unique.  It was on the lake, but not.  The channel frontage afforded protection from the ice breakage in the spring so the dock could remain in the water year round.  However, the channel would never become a swimming place for kids.  Wildlife visited and birds trilled.  Because of the channel, the havoc of jet skis and speed boats was eliminated providing a true cabin retreat in the city.  There was a view, but slightly broken by an isthmus of cattails in the water.  Just beyond the cattails was the best fishing hole on the lake . . . visible from the sellers' cabin.

The lot was perfect.  It was one of the bigger lots on the lake, but was at lake level.   The structure was the original "home" cabin for the owner of the fishing resort from years ago.  The small cabin had been expanded three times before this sale.  The next door neighbor's parents had owned the property originally.  In addition to the main house of some eleven hundred feet was another of the original cabins which could act as a guest house or party room without water.   It would take a unique buyer to see the potential of this loved home.

A bit of history for the area will soon be demolished this summer and replaced with a much larger home over the next year.  Fill will be brought in to make a true basement as the basement cannot be below grade on this lot.  More than two stories will be built above the basement. 

My sellers realized this might be the scenario a potential buyer would choose.  They did not grieve the razing of their little cabin in the city.  While they owned it, they had enjoyed the peace and serenity of simple cabin living.  They had emotionally moved to their new home, however, and realized that a buyer can do whatever they wanted with the home once it was theirs!

Friday was the day of celebration.  After many contingencies were met including city approval of the buyers' new house plans, money and keys were exchanged at the closing.  A bit of Eagle Lake history will be demolished this summer and the progress of modernization will move on.  My clients are happy.  The buyers are happy.  And for the moment, I have photos that the Maple Grove historical society will wish they had in 50 years!

CONGRATULATIONS KEITH AND CINDY!

Short Sale Woes

The St. Paul listing agent moaned and groaned about the misery of listing short sales.  The unresponsiveness of lenders was the primary complaint.  For an agent to submit an offer and wait months, not weeks, for a response was beyond his comprehension.  What were the lenders thinking?  Why would they stall in this market?  Do they want to own property?  About the time I was going to offer him some cheese to go with his "whine", he finished the tirade with, "I'm just not going to list any more short sale properties.  They aren't worth it!"

I pulled my eye brows from the roof of my car and wondered about that last statement.  My latest experience has been that more than 3/4 of the listings today are short sales with a few foreclosed homes tossed in for seasoning.  To refuse to list a short sale would take the headache out of negotiating a difficult transaction, but wouldn't refusing all short sales be a kiss of death to one's business?

Short sales are frustrating to everyone in the business.  The brunt of work lies in the listing agent's lap.  Compiling the mass of documentation required for the sale is the listing agent's duty.  Submission of the same packet of paperwork is also the agent's job.  Negotiating with the lender's mediator is the listing agent's job.  Pressing the lender for a decision is the listing agent's job.  A whole pile of responsibility lands in the listing agent's lap.  It's no wonder an agent might complain.

The frustration of short sales for the buyer's agent is not having control of the transaction.  The buyer's agent must rely solely on the listing agent's communication, or lack thereof, with the lender and the buyer's agent.  There is no first hand contact with the lender.  Advising their buyer client regarding whether to continue to patiently await the lender's decision is a terrible dilemma.  Yes, short sales take a long time to complete but some don't happen.  What if the buyer's agent advises to wait patiently, other opportunities are lost in the interim, and then the bank ends up rejecting the offer?  If we could read the future . . .

The listing agent had good basis for whining.  I still questioned whether an agent in the St. Paul market can avoid dealing with short sales.  From the buyer's agent perspective, there are far too many short sales on the market to avoid showing them to buyers.  Most are also a good deal financially.  How can a St. Paul real estate agent narrow their business to less than 25% of the homes going on the market without some dire consequences?

How Many Houses Does It Take

We've all heard the jokes, "How many (insert people group name) does it take to change a light bulb?".  A similar question is asked by buyers.  "How many houses does it take before we choose one?"  Like everything else in real estate, the answer is that it depends.  Some of the criteria it depends on include:

• How clearly the buyers communicate what they want in their house to their real estate agent.
• How well the real estate agent listens to the buyers.
• Whether all buyers agree on what they want in a house.
• Whether buyers who disagree are capable of compromising and coming to an agreement!
• The number of houses on the market and how that number is perceived by the buyer.
• The buyer's motivation to buy.
• The buyer's price range.
• The buyer's time line.
• The buyer's fear.
• The buyer's pickiness.
• Support of family and friends.
• Undermining of the process by family and friends.
• How closely the buyers' desires in a house match what is offered in their price range.
• Recognition by the buyers when their criteria changes in the shopping process.
• Whether buyers can recognize when their criteria gets overwhelmed by how they "feel" about the house.
• How intimidated buyers are by repairs or cosmetic changes.
• How many family members get a "vote".
• Whether buyers avoid limiting their search on less significant criteria like a fenced yard.

The list could go on and on.  Each list item could be a blog post in itself.  My current home buyer records range between 1 house and 120 houses.  Both record holders have purchased more than one house using my services.  The one that made me the most nervous was the home buyer who only saw one St. Paul house.  It was too fast for even me!  The clients on the other end of the spectrum ended up buying the first house to meet her criteria and the second to meet his!  Theirs was a demonstration that compromise comes in many forms to home buyers!

Agency Disclosure

Corralling some of today's buyers long enough to go through the agency disclosure isn't always the easiest task.  Many times I've been told, "Just show me where to sign."  Early in my career it became apparent that agency had to be explained in less than 5 minutes or the task would become troublesome.  Some buyers tune out; some politely listen; some pretend to understand and show they don't later in the transaction. 

Why do real estate agents bother to explain agency then?  If it's such a boring topic and no one seems to be listening, why do it?   The easy answer:  because it's the law.  The first words on the Minnesota agency disclosure that is used in St. Paul are "MINNESOTA LAW REQUIRES".  The capital letters, underlining, and bold are in the form used to disclose agency. 

The next few words in the Minnesota agency disclosure define when to go over agency with a prospective client:  "early in any relationship".  Debates are conducted over what "early in any relationship" means.  Is it before you hold hands and kiss?  Oh, I forgot!  That's not the relationship we're discussing here.  When the agent is conducting an open house, does the agent have to explain agency to every looky-lou that comes through the door?  What about when someone calls on the agent's own listing.  Do they have to explain agency when they show their St. Paul listing to a prospective buyer?  When a relocation customer comes into town, should the agent have sent the agency disclosure to the prospective client ahead of time?  When IS "early in any relationship"?

For me, early is the first time I meet a prospective client.  If it's in my own listing, I explain to the prospective buyer that I represent the seller and any information they share with me will be shared with the seller.  My agency disclosure in that situation is a warning to keep anything that they want private to themselves.  Some home sellers have asked why other agents they interviewed did not go through the agency disclosure with them like I did.   That question has to be asked of the other agents.  Maybe their definition of "early" is different from mine.

The best definition of "early" was shared with me by a colleague.  Her definition of "early" is any time when either home price, motivation, or terms are discussed with the prospective client.  In meeting with a prospective home buyer, one of the first questions asked is usually, "Have you been pre-qualified for a mortgage and how much do you want to spend for your house?"  Ooops, there's that price question.  When meeting with a prospective home seller the first time, the seller always wants to discuss how much their home is worth.  There's that price question again.  Motivation is often discussed at a first meeting.  Terms are often the topic of conversation as well. 

Because so much information that impacts the transaction is shared in the first meeting with a home seller or home buyer, it's been my policy to go over the agency disclosure at that first meeting.  Once the prospective  clients understand their choices in agency representation, their housing needs can be discussed openly.

More information about agency is available here.

Differences Between Buyers and Sellers

A colleague coined the phrase, "Today's seller was not yesterday's picky buyer."  The intent behind her statement rang true.  Many home sellers in today's real estate market purchased in the feeding frenzy years.  They weren't given the option of choosing between many houses.  If they breathed one time too many, the house was sold out from under them.  As a result, many purchased homes without having the leisure to shop, without the privilege of asking the seller to make repairs, and sometimes without even having a buyers' inspection.  Today's seller had to beg and plead and coax yesterday's seller into choosing them to buy their house.  Today's seller didn't dare be a picky home buyer because yesterday's seller would have told them to take a hike.

Today's St. Paul seller (yesterday's "unpicky" buyer) doesn't want to hear, "Fix this and this and this and this.  Don't forget that little hole in the front screen door.  And, oh, by the way, I also want you to pay closing costs and to close on June 30 (a month later than the seller wanted)."  Had today's seller asked these things when they were a buyer of yesterday, yesterday's seller would have responded with, "Next".  They would have lost the house.  Today's seller was the buyer of yesterday that had to give concessions.

Today's seller proclaims, "It's unfair.  I gave concessions when I bought and now I have to give concessions when I sell!  There's something wrong with this picture!"  Having a pity party is okay.  Whine a little, but don't kick any holes in your walls or doors, or your house won't sell.  When the pity party is done, remember the goal:  to sell the house without losing your shirt!  Complain as much as desired, but fix the screen door.  It's not fair to give concessions on both the buying and the selling of a house, but life is not fair.  Those of us old enough to purchase a home have already learned this lesson.  Fix the screen.  Pay the closing costs.  Give the washer and dryer with the sale.  Move on and become one of today's home buyers . . . one of the picky ones and ask for your own concessions!