Real Estate Snippets

What's a Girl To Do? Part I

"What's a girl to do?" asks my colleague.  That's how all ethical questions start, but this question was fraught with frustration.  My respected colleague who dots every "i" and crosses every "t" (and who had recently been dubbed as one of many unprofessionals by Chris Galler because she didn't meet his guidelines for number of annual transactions required to make one a professional) was seriously asking this question.  She was totally frustrated. 

She represented the buyers on the purchase of a St. Paul home.  At the closing table the listing agent produced the earnest money check written by her buyers 6 weeks earlier and pushed it across the table saying, "Take care of this."  What's the big deal her buyers and most consumers might ask.  Just take the check and give it to the sellers as part of the purchase price for their home.  Sorry, but it's not that easy.

Page one of the Minnesota Association of REALTORS® purchase agreement states "earnest money to be deposited upon acceptance of Purchase Agreement by all parties, on or before the third business day after acceptance, in the trust account of the listing broker . . ."   This is based on law, not common practice.  The listing agent had not only violated the law, but had also broken the terms of the purchase agreement thereby nullifying the purchase (However, according to Chris Galler, this agent was a professional because he was a top producer in a big company.  An opinion still based only on numbers, not level of competence!).

As the check crossed the table, and my colleague realized what it was, alarm bells clanged in her head!  Her eyes widened!  Panic set in.  This transaction might not close today because the listing agent hadn't done what he was required to do.  The mortgage company had verified funds to close based on the assumption that check was cashed.  That meant the buyers could be seen as that much money short of the required reserves they needed in their account.  The whole file might have to be rewritten and submitted to underwriting for a new approval!  "Ohhhhhh, nooooo!" screamed sirens in her head.

A call to the lender yielded a temporary fix.  Changes were made to the purchase agreement and both buyers and sellers initialed.  A new closing settlement statement was generated.  The loan officer said this was the solution, but had the underwriters been consulted?  Although the problem appeared solved, the St. Paul real estate agent was left at the table wondering, "What's a girl to do?"

More thoughts on this scenario will appear in Sunday's post.

The Dominos of Real Estate

My childhood play with dominoes was to line the pieces upright on their short end so that a tiny push to the end domino produced a cascade of falling dominoes until all were flat.  The more dominoes one could line up, the better.  Patterns could be made.  The cascade could have tributaries causing two rows to fall simultaneously.  Hours were spent carefully setting the dominoes on end, experimenting on twists and turns, and finally watching the whole row collapse.

Real estate is like dominoes, not the game, but the falling line.  In all markets (buyer, seller, or balanced) the domino effect is discussed.  The first domino might be Mr. Wanna  Buy who has an offer on 234 My Street that is contingent on selling his house at 123 His Way.  Ms. Canit Bee  makes an offer on 123 His Way contingent on selling her house at 890 Next Line.  Mr.  and Mrs. Sublime make a non-contingent offer on 890 Next Line.  The end of the domino line has been found.  When Mr. and Mrs. Sublime close on their purchase the domino falls to Ms.Canit Bee to close on hers which allows Mr. Wanna Buy to close on the St. Paul house he wants to buy and on down the line.  Sometimes the line is only two or three closings and sometimes it's more.  It's actually a logistical nightmare in scheduling because most sellers want to close on their new house the same day they close on their old house.

In like manner when St. Paul buyers are skittish as they have been the last year, the dominoes fail to fall.  Without that first purchase to start the line falling, they all remain standing!

The dominoes of real estate also affect other industries.  If St. Paul home buyers don't buy, but choose to wait until the market gets better, the impact is felt in other industries as well.  The title companies, mortgage companies, insurance agents,  home improvement centers, handymen, lawn care specialists, factory workers, car dealers, car washes, painters, plumbers, etc. are all impacted by the domino effect of money not being spent.  When title, mortgage, and insurance company employees are laid off, they no longer purchase goods and services from other industries.  Without real estate sales, people working in St. Paul housing related fields (which are a massive number of industries) are impacted.  Eventually those industries impact other goods and services and a full fledged recession is born . . . just because real estate buyers refused to push the first domino!

Queen of Short Sales

To become the queen of short sales is not my aspiration in life.  It's not even my aspiration in real estate.  However, anyone in real estate today is bound to encounter a short sale.  Short sales are a transaction in which the lender allows the house to be sold for less than is owed on the property. 

The process of short sales is lengthy.  Initially the seller has to be delinquent on their mortgage payments.  Reasons for this delinquency vary and are not always something the seller has any control over.  Once the warning notices come from the bank, the seller knows they are in trouble.  Sometimes circumstances right themselves and the seller can work out a payment plan and get back on track.  If not, the home owner has the right to list the house for sale.

In St. Paul's real estate market, the house may not be worth the amount of the mortgage.  The home owner must inquire of the lender whether they will accept a short sale and if possible, find out how much of a discount the lender will accept.  Usually the lender will not give a figure at this stage of the transaction.

The home owner lists the house for sale with a disclosure that any offer will be contingent upon bank/lender approval.  When an offer comes in, the real estate agent must submit the offer and a preliminary settlement statement to the lender.  The seller has to submit proof of financial distress, a hardship letter of explanation, and various financial documents supporting their inability to pay.  The purchase agreement and the seller documents are packaged and sent to the "committee" for approval. 

The time it takes to get approval varies by lender.  Some companies complete approval in a short time while others take more than a month.  Many times the potential buyers get tired of waiting and withdraw their offer.

When a purchase agreement is accepted by the "committee", it will be accompanied by instructions for the short sale.  Usually these instructions include a deadline date for the short sale to close; the settlement statement which has to agree with the settlement statement at the closing OR someone has to come up with money out of their pocket; emphasis that NO funds are to be given to the seller; and a letter which must be signed by the seller for releasing the lien on the property.  The closing agent  must follow the specific directions from the lender or the short sale is nullified.

Acceptance of the purchase agreement by the lender is when the rest of the transaction appears to return to normal.  The inspection can be scheduled.  The appraisal can be ordered.  Closing documents will be prepared.  All parties will attend the closing and clear title will be conveyed to the buyers.  The difference in the process is that the payment to the lender is short of the amount owed and the seller has one extra document to sign acknowledging how that shortage will be handled.

 

Escrow Funds

Escrow funds are an important part of many St. Paul home owners monthly mortgage payment.  Escrow is similar to a savings plan in which the home owner sends 1/12 of their real estate taxes and 1/12 of their homeowner's insurance for the next year to the lender.  The lender then puts those funds into an escrow account until the taxes or insurance bill comes due.  The owner is putting money in the bank in preparation for the next year's bills.

Escrow accounts can be set up with lenders, with people who sell using a contract for deed, or with a designated party like a trustee.  When my funds went into escrow with a lender, it never occurred to me that the lender could abscond with MY money and NOT pay my real estate taxes and insurance!

The troublesome real estate market is changing my expectations of lender escrow accounts.  Inman News reported today that American Home Mortgage Investment Corp. which has filed bankruptcy, is accused of collecting the money for taxes and insurance, but NOT paying the tax and insurance bills when they come due.  If this allegation is true, thousands of home owners who have been faithfully pre-paying their taxes and insurance are going to be bilked out of their funds.

Some might consider this to be "no big deal".  However, unpaid insurance which has lapsed has to be replaced.  Many times the mortgage company  places insurance on the property which has high premiums without consulting with the owner.  In American Home's case, they wouldn't bother placing new coverage.  Their tune might be "just let it go.  Nothing will happen." 

If the real estate taxes remain unpaid, the home owner can lose their home to foreclosure.  THAT is a BIG deal!  Let's hope not too many big companies follow American Home Mortgages' example because many, many homeowners would be in dire straights when the lack of escrow pay-outs is discovered.

Real Estate Agent Marketing

Have you ever looked at those bus benches, paper ads, brochures, and other paraphernalia real estate agents use to market themselves?  Pencils, pens, mugs, tape measures, screen cleaners, who's its and what's its.  Whole catalogs have been published to help real estate agents get their name before the St. Paul real estate consumer.  REALTOR® marketing is big business as demonstrated by the National Association of REALTORS® television ad campaigns. 

Real estate agents' ads are all about the agents, however.  They are not focused on the consumer.  The marketing consultant charged with creating the agent image will ask what the agent considers unique about themselves.  What follows are some examples of what can set a real estate agent apart from others.

The Business Woman Always business like. Never human.	The Angel Agent The agent who rescues the client from disaster.	The Techie Agent The techno-agent is computer savvy.
Agent Guide A teacher at heart.	Money Saver Agent This agent will get you the best deal in town!	Common Interest Agent If you like music, this is your agent.
In A Hurry Agent This agent will get it done tonight!

Frankly, I haven't yet figured out why some of these agents are successful in their marketing plans.  Who wants the stuffy business agent?  Why does an agent have to rescue the client from disaster if they are doing their job to begin with?  Every agent today needs technology!  The agent guide?  I wish they'd stop meddling because that's where my focus is.  The money saver . . . well, everyone wants a deal, but how can an agent  guarantee savings when there are so many variables in every  real estate transaction and so many market changes?  And, pray tell, what on earth does being a musician, skiier, or other common interest have to do with real estate savvy and skill?  The lightening agent?  Well, time is of the essence for every agent!

The problem with real estate websites, cards, and other publications is most focus on the real estate agent.  Me-me-me-me-me-me-me-me!  Can you hear the tune? The real estate consumer on the other hand wants desperately to know "What's In It For Me?"  Maybe concentrating on what we can do for the customer would be a more productive approach.

The Roaming Gnome Real Estate Agent

There are some interesting websites where the agent actually walks on to their website and starts conversing with the person who has opened the page.  It seemed like a pretty neat idea before further research.  Some feedback from consumers was more than hesitant. 

Like sites that have music and other noise, the web surfer who is using company time doesn't appreciate their search being announced to colleagues through music, conversation or other bells and whistles.  Noise is a quick trigger to exit the site for some.

Others have proclaimed that they don't care two hoots about the agent.  What on earth does that agent have his mug all over the website for?  The goal for these surfers is searching for homes, not finding an agent.  Once a website with ease of home searching is found, THEN the surfer might check out the agent's "Who Am I" page, or even their blog.  Those who think agents are ego-centric and only concerned about themselves, aren't impressed by the roaming gnome agent walking across the web page!

The people most impressed by this feature have been other agents.  "Wow!  Look at that!"; "How do they do that?"; and "I bet that cost a pretty penny!"  were common responses.  The pretty penny comment lent fuel to my urge to check it out.  Only $899 for the basic shoot with a green background!  That doesn't include updates for the future (forms are changed every year) or hair color changes (imagine going from gray to brown overnight) or fashion revisions in a couple years (that white jacket with pink shirt hanging out below is going to look awfully dumb in a few years) or . . .  Click here to see what you think of the roaming gnome agent!

Delivery

Dirt.  Dirt is the basis of real estate.  It's not the house on the dirt, the garage, or the outbuildings.  They are improvements.  Dirt is the name of the game.

Maybe the pictured hands are of a farmer who has scooped the dirt into his hands to bring it close enough to smell as part of the joy of owning a rich plot of land.  Maybe it's a gardener who has mixed nutrients into the soil in an effort to grow healthier and more beautiful plants.  Maybe it's someone who just enjoys the feel of clumps of dirt.

In feudal England this person might be transferring title to the land from himself to another.  This symbolic act called "livery of season" predated the handshake.  The delivery of a clump of dirt to seal the deal was done in public with witnesses.  Many people did not read or write during these times and the public ceremony was their bond.

Today, delivery is just as important to the transaction as it was in former days.  A clause in the Minnesota Association of REALTORS® 2007 purchase agreement states:  "ACCEPTANCE:  To be binding, this Purchase Agreement must be fully executed by both parties and a copy must be delivered."

The temptation at 11:00 PM when all signatures have been "fully executed" is to wait until tomorrow to deliver the purchase agreement.  Everyone is tired.  The other agent may have gone to bed!  Postponing delivery can be risky.  Tomorrow might come and a better offer was signed and delivered prior to delivery of yours.  Lack of delivery would be the key to rejecting the offer.  In the kind of real estate market we are experiencing in St. Paul currently, delay usually does not mean loss of the purchase  but in other times, delay in delivery could jeopardize the purchase.

Real Estate Continuing Education

Teresa, Teri Eckholm (why do they spell Theresa with an "h" and the nickname Teri without?), and I joined a few hundred other St. Paul real estate agents in continuing education classes for four hours this afternoon.  Teresa thought she'd be funny and get a picture of me sleeping!  It didn't work out so well as the photo looks like I'm seriously studying my class material!  We laughed about putting it on the "Weenie" but she said even she wouldn't be that cruel to me!  So, I'll beat her to it and publish it myself!

What can I say?  Four hours of chair time.  I cat-napped for 15 or so minutes.  Teresa paced like a caged lion in the back of the classroom for equal time.  We listened as PowerPoint slide after slide of new forms info was conveyed.  It droned on and on.  The content was important, but long in its presentation.

What did I learn when I wasn't napping?  (Real estate is local so this applies to Minnesota!)

• There are no initial lines on the bottom of purchase agreement pages for a reason.  If some initials are left out the agents have increased liability.  Don't put initials where they are not requested.
• Number all the pages . . . duh!
• Personal property addenda can be considered side agreements.  Sale of personal property can be done, but the items should sell for market price and not be included in the sale of the house.
• The presenters thought it necessary to define the difference between cash and financing?
• Disclosures should not be included in the numbered pages of the purchase agreement . . . even the lead paint and arbitration disclosures.
• An offer is not accepted until it has been delivered to all parties.  Another light bulb moment for some?
• An addendum is part of the purchase agreement.  An amendment changes the terms of a formerly accepted purchase agreement.  Wasn't this part of Real Estate 101?
• An "As Is" addendum means the buyer accepts the property in the condition it was in at the time of writing the offer.  If the mechanicals fail prior to close, that's the buyer's problem.  If the mechanicals cease to work because they have been tampered with prior to close, the seller has to correct the condition. I.e., if the copper is stolen or windows are broken, the seller has to replace them prior to close.
• Contingencies (for sale of buyers' house) can now only be removed with proof of a valid non-contingent purchase agreement for the buyers' house.  Proof of being able to afford both houses no longer removes a contingency.  This one was new!
• When counting days for contingencies, exclude the first day and include the last.
• Minnesota uses counter offer addenda instead of crossing out and initialing changes.  When more than one counter offer is made, the counter offers are numbered 1,2,3,4, etc.  ONLY the final accepted counter-offer gets added to the purchase agreement.  The accepted counter-offer addendum is then given the next consecutive number in the purchase agreement sequence.  Change the total number of pages in the purchase agreement on page 1!  Duh!
• There is a reason for every change made to the forms.  Many of those reasons are based on litigation!
• The PowerPoint presentation spelled cancelled differently than the purchase agreement forms (canceled).
• Some changes have not yet been litigated so they don't know how they will hold up under fire!
• Four hours is a long time to sit in a chair.
• If one doesn't get cookies and coffee before the first 5 minute break, one is out of luck.  Without caffeine and sugar, the body takes over and cat-naps ensue.
• Seventy-five women cannot use one four stall bathroom in five minutes.  It's logistically impossible.

Risk of Loss Clause

Let's play pretend like we did in kindergarten.  Let's pretend the house in the picture is the house you wrote a purchase agreement on 3 weeks ago.  The sellers accepted your offer to buy; you've done your buyer's home inspection; the mortgage has cleared and you're anxiously  awaiting closing day at the end of the month.

Every time you leave the house, you drive by.  Sometimes you drive by more than once a day.  Today, however, you get the shock of your life.  You had heard about last night's storm but didn't realize it was all that bad.  A tree fell on your porch and ripped part of it off of the house.  You are really worried because this is your dream house and you don't know what to do.  You don't want to lose the sale, but you also can't afford to have the porch fixed!

Like all pretend stories, someone comes along to tell you, "Don't worry!  Be happy!"  That "someone" is your St. Paul real estate agent.  S/he calls you to let you know about the damage to your future home.  Your agent tells you not to worry.  There is a clause in the purchase agreement titled "Risk of Loss" (page 4, 2006 approved forms).  It says in part, "If there is any loss or damage to the property between the date [of the purchase agreement] and the date of closing for any reason . . . the risk of loss shall be on Seller.  If the property is destroyed or substantially damaged before the closing date, this Purchase Agreement is canceled, at Buyer's option, by written notice to Seller or licensee representing or assisting Seller.  . . . If Buyer cancels . . . all earnest money paid hereunder to be refunded to Buyer."

Your agent goes on to ask if you want to continue to buy the house if the seller has the porch repaired or if you'd like to cancel the purchase agreement.  You decide you still want the house IF the porch is fixed and sign an addendum to change the closing date to the following month to give the seller enough time to make the repairs.  The seller's insurance should pay for the repairs and you'll have a new porch!

OR you might decide to cancel the purchase agreement.  The seller is required to sign the cancellation and you will get your earnest money back.

In both scenarios, the seller has to make the repairs or clear the debris.  The presence of a purchase agreement clearly tells the buyer what will happen when something happens to their house.  It's all there on page 4 of the 2006 edition of REALTOR® approved purchase agreement.  If the house burns down, blows away, or has a tree on its porch, the home buyer is not responsible.  The home seller, however, has a problem!

Trust

My grandpa used to say one could tell a lot about a person from the handshake.  I used to think that meant if the handshake was strong, the person was honest;  wimpy meant the person had no backbone.  With a few years of wisdom written on my lined face, I now wonder if Grandpa was even wiser than I realized.  For Grandpa, his handshake was his word.  If he shook on it, it would happen even if the family had to sacrifice.  I'm wondering if Grandpa was referring to a person's commitment to his/her word when he talked about a person's handshake.

The closing table this week brought the issue of trust to mind.   My client wrote a check for personal property without knowing if the personal property was still in the home.  That action was based on trust.

The thought of how many times throughout a transaction trust is demonstrated brought a smile.  From the beginning the sellers trust that St. Paul real estate agents will keep their listed homes safe from burglars and damage.  The sellers trust in the lock box system.   Clients trust their agent does not share their personal information.   Buyers trust their real estate agent is doing the best to negotiate in their behalf.  Buyers trust the integrity and professionalism of the inspector, title company representative, mortgage officer, etc., referred to them.  The real estate agents trust their clients won't assault them when showing houses or listing homes.

Without trust, the entire real estate transaction would fall apart.  The real estate contracts outline in writing what is expected, but trust is the underpinning for successful completion of the house sale.  I think Grandpa had it right.  You can judge a person by their handshake!