Steps to Financial Independence Through Investing in Real Estate

I am glad that you are here on my site! wish you the best of luck with your life and let us keep in touch.  I want to share a story with you. 12 years ago when I was in the Army I heard a more experienced soldier talking about how to set aside a portion of his income to be directly deposited into his bank savings account, so that he can save some money. And, that is what I did, when I got out I was able to save a little, but not a lot, just enough for me to purchase a car.  There is another way that is actually better than saving money in the bank, which is to investing in real estates. Here is the steps.

1. keep a good fico credit score
   1. Get a credit card if dont have one. If no credit at all deposit some money in a bank and get a debt or credit card from that bank
   2. don’t owe more than 50% of your credit limit. example: You have a credit card with $1000 credit line (meaning you can charge it to buy $1k worth of things you want). You take this credit card and go buy your farovite things
   3. pay on time and pay more than the minimum; An example: with that same credit card your pay came with the minimum requried payment to be $49. you dont want to pay just that $49, instead you want to either pay more than $49 or pay it off. a good tool for you to monitor all of your online account is Mint.com. I use it to budget and get text message notices.
   4. call periodically to increase credit line; an exmaple: let us say you have had this account for 8 month and you have been charging on the card and pay more than the minimum amount on a monthly basis now call them to ask for credit increase. Your script to the bank rep.: the bank rep: “how may I help you?” you: “yes. Could you increase my credit line because I am getting ready to make some large purchase.” the bank rep: “ok. I would be happy to do that for you. Ms. Smith do you understand that in order to request for credit increase We would have to run your credit would you still like to proceed?” you: “yes. go ahead please.” the bank rep: “ok. Ms. Smith we have increased your credit line to $1,900. Is there anyting else we may help you with?” you: “no. thank you very much. bye bye.”
   5. keep your credit score as high as possible, ideally over 720
2. get VA loan eligibility certificate by contacting your local va loan officer
   1. http://www.homeloans.va.gov/rlcweb.htm
3. start looking for real estates and get a good realtors
   • http://www.realtor.com/
   • www.newhomesource.com
   • http://www.hud.gov/homes/index.cfm
   • http://www.ocwen.com/
4. sites to do research
   • http://www.dqnews.com/ find out real estate sales history and trend data
   • Trulia.com
   • http://www.city-data.com/ find out real estate sales history and trend data
   • http://www.schoolmatters.com/ find out school performance for the area the home is located
5. find a good mortgage broker and get va mortgage (for your primary residence) and
   1. http://www.homeloans.va.gov/index.htm
   2. http://www.ocwencustomers.com/va_vfp.cfm va vandee loan (for investment homes. you dont have to be a veteran or the princple resident to qualify. the interest rate is currenlty at 5.5%. the down payment needed is 0-5%.
   3. http://www.hud.gov/offices/hsg/sfh/reo/goodn/gnndfaq.cfm it is a special program for law enforcement officers, firefighers, EMT, and teachers
6. find a good management company to manage your investment property if it is far from you
   • http://www.marshallreddickseminars.com/mrweb/mrren/Home.aspx
   • you may find some good networking information from the group above. I think they make money by referring you to buy other peoples property. you have to make sure the price of properties that they pitch to you are at or below market value.

hope this quick guide was helpful to you. let me know if you have any questions.

the real estate selling process

Buying Homes in Ca

Searching for a home in Southern California might feel overwhelming. After all, Southern California is larger than the state of Rhode Island! But it’s not as big a job as it seems. I hear stories about people who spent months looking for their house, but it just doesn’t take that long because we all know what we truly need. The first step is to choose a city or an area that fits your goals and then finding a home is usually just a matter of a day or two. This may sound incredible, but I’ve done it many  times now, and I assure you, it just isn’t that hard to find a home in southern California once you’ve narrowed it down.

But first, there’s something you need to understand.

PRICE

LOCATION

HOUSE

Consider the three boxes above. All of your housing requirements fall into one of these three boxes.

PRICE questions include:

How much down payment do I need?
What are the closing costs?
What is the asking price of the house?
What are the homeowner fees?
Is there a Mello-Roos tax?
What would my monthly payment be?

Here are some typical LOCATION questions:

How long of a commute is it to my work?

what is preferred in the neighborhood (college, beach)?

Is this a good neighborhood (Crime Rate)?
How are the schools in the neighborhood ?
What is the climate (inland vs. coastal)?
How much land (city vs. rural)?

Then there are requirements about the HOUSE itself:

How many bedrooms and baths does it have?
How many square feet?
Is it one or two story?
Does it have the amenities I want (air conditioning, pool, etc.)?
When was the house built?

OK, now here’s the point you have to get firmly in your mind:

You can have any two boxes you want,  but you can’t have all three.

Sometimes when I hear what people want and for what price, I have to tell them it’s impossible! Something has to give, either the house or the location or the price.

You see, if money’s no object, you can have whatever house you want, wherever you want it.

But if you have a price limit, then you can say “This is the kind of house I want, and this price, now tell me where I can get it.”

Or, you can say “I want to live in this area because of (fill in the blank), now find me the best house you can for my price.”

When you can say one of those two statements, then you’re ready to go house hunting.

Once you decide whether the house or the location is most important, the search becomes very manageable. With our computers we can select the properties that match what you’re looking for, and most likely see them all in one day.

If you’d like to do some searching on your own, see the Quick Overview of  lalife.com to get an idea for which communities to focus on (or rule out).  Then check out the  dqnews.com to see price change history.  Next, realtor.com will show you all of the homes for sale in Southern California’s Multiple Listing System.  This is a list of every house for sale by every broker. the data is a few days slower than the data in multiple listing database, but it is the most complete data base for general consumers.

How To Prevent Escrow Disasters (repost)

The 21 Most Common Reasons Escrows Fall Apart & What You Can Do To Prevent It!

There’s probably thousands of reasons why real estate transactions fail, and describing them all would take a huge volume. In this small book I will focus on only the most common reasons, drawn from 15 years of experience and hundreds of transactions. I’m writing this so you can understand why things go wrong, and be able to successfully escape the traps.

Why are real estate transactions so complicated?

Why is there no consistency from one experience to the next? Why are so many people involved? These are good questions that address the root of many problems.

The main reason is that each transaction has a different group of people involved. Imagine you’re the coach of a baseball team, and for each game, a whole new set of players shows up on the field! That’s a good picture of how the real estate industry works.

Behind it is the Real Estate Settlement Procedures Act (RESPA), a well-meaning federal statute enacted in 1975. The intention was to separate all aspects of a real estate transaction (agency, lending, title, etc.) so that the consumer would have more choice, and there would be more competition in the marketplace.

A good idea, but the result is that each player is now disconnected from the others. Each player involved is a separate company, with its own way of doing business. The agent is like the symphony conductor trying to make music by bringing all these different instruments together.

But there’s no standards. No one who can say “this is how we do business here” and enforce that method across all the participants in the transaction. Customers today are demanding more convenience, more of a “one-stop-shopping” for the various services needed to complete a real estate transaction. But for now, our hands are tied by RESPA.

Solution: The government is currently examining outdated RESPA laws. In the meantime, if your agent has other vendors that he knows, trusts, and works well with, you should seriously consider using those people. Many times I’ve seen people pick an escrow company because they can save $50, and end up regretting that decision. That amount is peanuts compared to the extra expense and sheer aggravation of a delayed closing due to poor service.

The most important decision you will make is which real estate agent will represent you.

As I mentioned earlier, the agent is like the musical conductor, making sure all the people involved play their parts. The real estate agent, not the company he works for, is the person with whom you have to rely on to provide you the information regarding how all the other parts really work together to have a successful real estate transaction.

These are the major players that have to be coordinated by your agent:

• Seller’s Agent

• Buyer’s Agent

• Seller(s)

• Buyer(s)

• REO Banks/Foreclosures

• FHA, VA and HUD government departments

• Loan Broker

• Real Estate Appraiser

• Termite Inspector

• Home Inspector

• Roof Inspector

• Other Specialty Inspectors such as chimney/Engineering/Foundation/ Geological

• City, State and Federal Departments (i.e., zoning, permits and real estate law issues)

• Title Officer

• Escrow Officer

• Insurance Agents

• Tax Accountant or CPA

• Family, friends, relatives, co-workers and people with whom you talk

Since it’s not very hard to get a real estate license, we frequently see people “jump in” when the market is good. They think all they have to do is put a buyer and seller together and then the escrow company handles the rest! That’s like saying all the coach has to do is get the baseball players onto the field and everything happens automatically from then on. That’s where the real work begins!

I’ve also seen more “professionals” such as mortgage brokers or insurance agents telling consumers that they also have a real estate license so they can “help” you buy or sell a house. Many agents “try” the business for awhile, bungle a few transactions for people they know, then quit. This gives all agents a bad reputation!

You should think seriously before hiring a new agent or someone who only works at it part time, or whose interests are divided. How can they possibly keep up with all the changes in the law? How can they stay on top of the market? Will they spend the money to get the latest tools and technology working in your favor? The bottom line is this… if they haven’t been in the business long, then they haven’t done enough transactions to represent you properly. Let the new guys make their mistakes on someone else… your transaction is too important.

Solution: Hire an agent who is a Certified Residential Specialist (CRS). This professional designation is awarded those agents who have at least 5 years experience, have completed over 75 transactions, and have taken almost a solid month of extra education to serve you better. Only 3% of all agents have this designation.

Your past transactions are no guide to your next one.

Buyer(s) and/or Seller(s) should take the time to educate themselves regarding the entire process. Usually, one or both of the principals in the transaction don’t understand certain parts of the process. Then, when the agent says that something should be done a certain way, the principal (buyer/seller) says, “that’s not the way I heard it should be done” or “when I sold my house in Virginia 20 years ago, I didn’t have to let the buyer inspect the property this way” or “I shouldn’t have to do this or pay for this”. The laws and real estate customary practices ARE CHANGING CONSTANTLY.

In the last 10 to 12 years, real estate practices and laws have changed from “let the buyer beware” to “buyer consumer protection”. More and more, the sellers are having to disclose more and become responsible for more. When you hire a real estate agent, you must learn to trust that the agent knows what he is doing and that the agent will act in your best interests. If you don’t understand the reasons why things are being done, you must either have the agent explain the process to you or take the time to learn about it yourself. Ideally, this should be done before you “dig in your heels” and say something like, “I’m not doing this or that”.

Solution: Read up on how to buy or sell real estate in this current market by getting a copy of our “Preferred Buyer Handbook” or “Home Seller’s Handbook.” These contain the latest information, strategies, and “street-smart” advice, and were written by me personally. No “one size fits all” useless information about basements and other Eastern stuff in these handbooks. Just straight talk about how to make the easiest purchase or sale ever. Give me a call at my office and I’ll be happy to send you a copy.

Buyer has liens against him (known or unknown).

These are “skeletons in the closet” that come out when someone decides to buy a house. Did you know that when a father doesn’t pay his child support, a “Revenue and Recovery” lien is recorded against him? Then when that person goes to buy real estate, out of the closet it jumps! The buyer may not have known about it, or may not have known it would affect his purchase. Other liens include IRS liens, judgments for non-payment of rent, and many more!

Solution: Every buyer should have a search run on himself for recorded liens. This is done by filling out a “Statement of Information” or SI. Most agents will ask you to do this at the last minute, almost as an afterthought, and then the transaction blows up in everyone’s faces. Why not do it up front and avoid a lot of hassle and pain? If you’re serious about buying a home, ask your agent to run your SI as soon as you start looking. If you’re a seller, get that SI from your potential buyer as early as possible in the transaction.

Buyer cannot get financing.

There are a multitude of sins that can show themselves when the buyer asks a bank for HUNDREDS OF THOUSANDS of dollars. People take this lightly sometimes, but let me ask you a question… what kind of documentation would YOU require of someone before you gave them that kind of money?

A lender requires a credit report, proof of down payment, and proof of income sufficient to pay the mortgage. All of this information needs to be verified before a lender will loan the money.

Here’s some of the things that can go wrong:

• Black marks (derogatories) on the credit report, real or mistaken.

• Relatives were going to give the down payment, and changed their minds.

• Buyer’s income can’t be proven, is “under the table”.

• Buyer has money, but can’t prove where it came from (not “seasoned”).

Solution: There’s no reason that these problems have to surface while in escrow. A buyer should be “pre-approved” for his loan BEFORE shopping for a home. This means that all that’s left to do is an appraisal on the house before the lender will loan the money. If you are a seller, you should insist on “pre-approval” from a buyer before you take your home off the market for any length of time.

Keep in mind that “prequalified” is not the same as “pre-approval”. “Prequalified” means that the buyer spent a few minutes on the phone with a lender who asked a few questions. Based on the answers, the lender pronounces the buyer “prequalified” and issues a certificate. Smart sellers are now aware that such certificates are WORTHLESS because none of the information has been verified.

There’s just no reason for a buyer NOT to get pre-approved. In the best case, this can be done in ONE HOUR! Show a W-2, a current pay stub, a bank account where the down payment is, and run a credit report. Done! Some pre-approvals take longer, but in any case it’s better to wait a bit before finding a home you love than to lose it because of financing problems in escrow.

The buyer screws up financing after being approved.

Things can change during the escrow period, usually not for the better, which is why we always shoot for the shortest escrow possible.

Some things can’t be prevented, for example, the buyer loses his job. No amount of professionalism on my part can do anything about that… the transaction is dead.

On the other hand, sometimes mistakes are made out of ignorance, for example, the buyer figures he has his home loan approved, so he runs out and buys a new car! The lender never told him that would screw up his “debt to income” ratio and now he can’t get the loan.

My point here is that things can go wrong even with “pre-approved” buyers. Education can help avoid mistakes made out of ignorance, but sometimes things happen that are outside of anyone’s control.

The buyer demands too many repairs.

Most contracts have a seller warranty/maintenance clause. In most cases, there are some things that the seller is obligated to fix, for example, leaking roofs or broken windows.

But the buyer should realize that there is no perfect house, not even a new house, or a house you build yourself. I’ve had new homes, and I’ve built two homes myself, and I guarantee you this is true. Even people who buy million dollar homes go in and change things.

How much the buyer can demand in repairs is going to be different for each transaction. It depends on whether you’re in a seller’s or a buyer’s market, and the motivation and financial situation of each buyer and seller.

Buyers and sellers should keep an eye on the big picture and try not to focus on the details. It’s ridiculous to lose a half million dollar investment over an oven knob, but it happens. Sometimes a small thing is “the straw that broke the camel’s back” and infuriates the seller to the point that logic flies out the window and emotions take over. Why risk it?

Solution: The buyer needs to be sure he understands what the contract says, what’s part of the seller warranty clause, and what is not.

At the same time, the seller should be aware that at the very least he will have to fix the items included in the seller warranty/maintenance clause. Mentally, a seller should set aside several thousand dollars to repair problems or defects discovered during escrow. A much better way to control these expenses is for the seller to have all the property inspections completed BEFORE the property is placed on the market. That takes the guesswork out of it.

Buyers listen to others and not their agent.

Buyers will always have some “well meaning” friend, relative or associate who will create doubt in the buyers’ minds. Sometimes they will “buckle” under the pressure and try to back out of a transaction. Such “advice” is usually wrong, and does not take into account the current realities of the marketplace.

Another source of misleading information is the newspaper. Real estate articles in the newspaper are used as “filler” to make up for lack of advertising. I’ve seen articles geared to a buyer’s market appear when we’re in the middle of a seller’s market! I think somebody at the paper reaches into a drawer marked “real estate articles” and just prints any old one. Believing what you read in the paper can be hazardous to your financial health!

The seller has no equity.

A transaction can fail if the seller cannot financially hold up their end of the bargain. If equity is tight, and the agent didn’t calculate the seller’s expenses accurately, the seller can be short on closing costs or money for necessary repairs.

Solution: This situation could have been avoided if the seller had done his homework before putting the house on the market, such as termite, physical, hazards inspections, and a title search. Oddly enough, most agents don’t recommend these inspections ahead of time. They’re thrilled to get the listing, so why do anything to jeopardize it? So they do nothing and just hope everything will work out later.

The seller’s job transfer didn’t go through.

This is one of those “out of the blue” events that you can’t guard against. Most people have heard of transactions failing because the BUYER lost his job, but the same kinds of tragedies can happen to the SELLER. Other examples are death, bankruptcies or other lawsuits (“liz pendens”) tying up the property so that it cannot be sold.

The other agent does not do their job.

The other real estate agent in the transaction might be a part-time agent, out-of-town agent or a “full-time” agent who does very little business and they ACT LIKE THEY KNOW WHAT THEY ARE DOING, WHEN THEY DON’T KNOW! Generally, I’m forced to “stroke these agents egos” so that they don’t mess up the transaction and protect my clients rights at the same time. It is a difficult balance to maintain because there are usually tough points in the transaction where I have to try to figure out the best way to keep the transaction together accounting for the fact that the agent is either ignorant or incompetent.

Usually, this problem is compounded by the fact that everyone is becoming emotionally frustrated. The best advice I can give when this occurs is to remember the primary objective is to move on with your life and get this transaction closed. Therefore, keep calm and just understand that we can’t change an incompetent agent. Let’s just be flexible and deal with the problems as they come up.

If the other agent in the transaction is either lazy or disorganized, this means that I will have to pick up the slack. I will have to force the process to become as organized as possible without letting the other agent know that I’m compensating for his or her lack of professionalism or laziness. No one likes to be told that he is disorganized or lazy.

I may have to “dance around” these fragile egos so that the transaction can keep moving forward with as few problems as possible. But don’t worry, I’ve done it many times before.

Seller discovers title problems.

There are so many things that “pop up” during the preliminary title search that create a “cloud” on the title. Many times things show up such as mechanics liens, unrecorded easements, faulty trust documents, and judgments that can prevent the property from being transferred. Even if you didn’t have a problem when you purchased the property, I’ve seen problems surface because of new technology that was not available in previous years.

The only way to solve these issues is to open up escrow when the home is put on the market and obtain a preliminary title report. The seller must also fill out a “Statement of Information” (SI) to check for recorded judgments against them. Then, do all the things necessary to be able to clear these things up before a buyer makes an offer.

If a seller does obtain a preliminary title report and the buyer does not use the title company that the seller used to obtain the preliminary title report, the seller may be required to pay a $300 to $350 cancellation fee. Most of the time the buyers will accommodate the seller by using the same title company. Therefore, it makes sense to start doing all the preliminary title work as soon as the house is put on the market.

Buyer is unable to get fire insurance.

Thanks to the earthquakes and fires in California, insurance companies are taking steps to limit their exposure in any one area. This means that when they’ve sold a certain amount of fire policies in any geographical area, they stop writing them. There’s nothing wrong or risky about the area, just that they don’t want to have too many policies in one place.

Years ago, we would get the fire insurance a couple of days before closing escrow, no big deal. Nowadays the buyer should start looking for insurance as soon as he opens escrow. It may take a bit of shopping to find an acceptable price for fire insurance.

Termite report is unacceptable to buyer or seller.

A termite report is really a “Wood Destroying Pests & Organisms Report” and includes wood damage by termites and a fungus called dry rot. In order for the buyer to get a home loan, the house must be free of termites and dry rot.

Here’s what usually happens – the seller has found a buyer and has negotiated an acceptable bottom line figure. Then he opens escrow and must do a termite inspection. The bid comes in and he has a fit! It’s way more than expected, and his bottom line is out the window!

Then the seller decides to get a second opinion, because that bid can’t possibly be right. The second termite inspector finds things the first one missed, and the bid is even higher! However, the buyer will see BOTH reports, because they are on file with the Structural Pest Control Board in Sacramento. The seller is worse off than before, and if there’s no money left to do the repairs, the whole transaction could unravel.

Solution: The seller should do a termite inspection as soon as he decides to sell, and BEFORE an offer comes in. This avoids unwanted surprises after negotiating a price, because all the expenses are known.

In fact, he should have the work done that’s recommended in the inspection. If it’s done before the house sells, the seller can possibly save some money. For example, I’ve seen the case where the house had a wood deck down the whole side of the house that was completely rotten. The seller was able to replace it with gravel and stepping stones for minimal cost, before putting the house on the market. Had a buyer seen the wood deck, he would have bought the house expecting the wood deck. When the termite report came in, the seller would have had to replace the entire deck with new wood at considerable expense.

Another benefit of having the work done before selling is that the place will look better. When I’m working with buyers, especially first time buyers, I have to explain to them that the rotten wood they see will be replaced before they move in. But how many other agents didn’t explain this? How many possible buyers didn’t make an offer on the house because they thought “I don’t want to buy a house with rotten wood and do all that work”?

If you’re a seller, you’re going to have to do the termite repairs anyway, so why not do it sooner rather than later? You’ll avoid surprises, and probably see more dollars in your pocket.

The home inspection company is too picky

or the seller refuses to make reasonable repairs. After escrow has been opened, the buyer will hire someone to do a “physical inspection” to check out the house. Think about that for a minute… it’s like negotiating a price for a used car, and THEN having it checked out by a auto mechanic. What do you think will happen after it’s checked out? You’re right – it’s back to the negotiating table, because there are things wrong with the car that you didn’t know when you decided on a price. That’s doing it backwards you say? But this is normal in real estate transactions.

Anyway, the buyer hires someone to do a physical inspection. I’ve seen the wrong inspector destroy a transaction by scaring the buyer out of their wits. A first time buyer is making a big step and is already nervous, we don’t need an overzealous inspector terrifying him. Of course the inspector must call it as he sees it, and I would never advocate anything less than full disclosure of all facts. Never should anything be hidden from the buyer.

But no house is perfect, and the building codes 10 years ago were different than today’s. When you buy a house, it must be in good condition FOR IT’S AGE. The smoke detectors, GFIs, spaces between railings, etc., must be to code AT THE TIME THE HOUSE WAS BUILT. It is unreasonable to expect a 10 year old home to be like a new one. If serious problems are discovered, these are definitely a cause for concern. But I’ve seen transactions fail over normal wear cycles in the appliances, just because things were communicated poorly.

The home seller must also be prepared mentally for there to be some repairs, and to not unreasonably refuse to fix anything. I know that the seller thinks nothing is wrong with his “castle”, but most people don’t use everything in their homes. Some people never use the dishwasher, and then we discover that all the rubber is rotten from lack of use. Or many people with two ovens only use one of them, and then find out the other doesn’t work. This can happen to you, so be prepared to do some repairs!

The best way for a seller not to be surprised by these repairs is to do the inspection himself, before selling the house. That’s being proactive rather than reactive. When the report is done up front, the seller can benefit in the following ways:

A. Price the property based on “actual knowledge” of the true condition of the house. You are less likely to be surprised by the fact that the furnace is cracked, the fireplace box needs to be re-built, or an electrical box has been improperly wired.

B. Get repairs done more economically because you have the option to downgrade the materials used from the most expensive grade to an acceptable standard grade of materials. Also, you will have time to get competitive bids on the work, and not be “under the gun” and have to hire the contractors who can get the work done quickly even though they cost more.

C. Obtain cost estimates of the major items indicated in the report that the seller will not be able to or is unwilling to repair. Buyers usually have no idea what things cost, and will inflate the expenses in their minds. Having a written estimate of the work goes a long way in bringing the numbers back down to earth.

D. Strengthen your negotiating position by providing the reports to the buyer before the buyer writes the offer. Therefore, a buyer is less likely to ask you to repair any items if you indicate that you are pricing the property based on estimated repairs that are indicated in the inspection reports.

E. From a legal standpoint, protect yourself when selling your home because you are disclosing everything that you know about the property. With your own real estate transfer disclosure plus the other inspection reports, you are less likely to be found liable for hiding facts which could material effect the desirability or value of the property from a buyer’s standpoint.

So why would a seller NOT do the inspection before selling? Easy – because they don’t want to spend the money. But for a few hundred dollars, you can save thousands and protect yourself and family at the same time.

The appraisal takes too long or comes in too low.

This happens more often in a seller’s market where prices are going up. If you think about it, each house sells for more than the one before it… and yet the ones before it are the houses that appraisers use to determine value. They are looking at what happened in the past to decide today’s value, and that’s the problem. Most appraisers know this, and “build in” appreciation when deciding on a current value. But how much appreciation is a judgment call, and sometimes an appraiser will estimate on the low side.

When the appraisal comes in low, the seller can reduce the price, the buyer can put a larger down payment, or both parties can split the difference. If there’s plenty of time, perhaps the buyer can try a different lender and get a different appraiser.

Another problem surfaces in a hot market when appraisers are swamped with business. The problem is that it takes forever to get an appraisal! What used to take a day now takes a week. So where it used to take 3 days to get an appraiser out to the property, now it takes three weeks. This could be a serious problem if escrow needs to close at a certain time, for example to keep a locked-in interest rate on a loan. The only solution here is to order the appraisal IMMEDIATELY after opening escrow. I’ve seen lenders wait two weeks before ordering the appraisal because “the buyer didn’t send in the check.” Make sure this gets taken care of right away or expensive delays could result.

Buyer rejects the association documents.

Many properties are part of a homeowner’s association, or maybe more than one association. The buyer of the property will need to be given a copy of the association documents and approve them. The documents include:

Covenants, Codes, & Restrictions (“CC&Rs”) – the rules and regulations homeowners must abide by

Minutes – what was talked about at the most recent association meetings

Financials – the association budget, money set aside for future repairs (“reserves”), etc.

Since the buyer can kill the transaction by disapproving the association documents, it makes sense to get them into his hands as soon as possible, doesn’t it? It’s the seller’s job to give the MOST RECENT documents to the buyer. This means that the seller cannot simply dig them out of the attic and give the buyer the documents from when he bought the house. He has to buy a new set from the association.

Now the association, depending on its size, may or may not get to this as quickly as we would like. We’ve seen associations take 3 or 4 weeks to get the documents out. That means that at the last minute, the escrow can fail if the buyer is spooked by the association documents.

Solution: sellers should get the latest documents from their association BEFORE opening escrow. The documents can be handed to the buyer as soon a purchase agreement is reached, eliminating that contingency. Why don’t sellers do this? Because it costs money to pay for the documents. If the seller didn’t get the documents ahead of time, the buyer should make sure they’re ordered immediately after opening escrow.

Escrow officer doesn’t follow through.

We’ve already talked about some of the documents that are critical to a transaction, such as the SIs, the CC&Rs, title report, termite report, association documents, etc. The escrow officer is responsible for making sure these are taken care of, but sometimes it doesn’t get done in a timely manner. For example, the SI might be sent in for a judgment check, but the escrow officer “assumes” that since nobody said anything, it must be OK. These kinds of assumptions can really come back to haunt you.

Everything must be followed up on to see that it gets done, and every disclosure, approval, report, and document must be in our file before the escrow can close. So the bottom line is that your agent is the one who is ultimately responsible for everything, and if the escrow officer is slow, incompetent, or too busy, your agent must pick up the slack so that your interests are protected.

We’ve just had a situation where escrow said the title company didn’t do what they were supposed to, and the title company blamed the escrow company. No one wants to accept the blame when something goes wrong because people want to save face and not be held liable for their mistakes. So we’ll never really know what happened there. But we have learned over the years not to depend on anyone, but to check everything ourselves.

The potential for mistakes is greater when escrow companies are very busy, such as in a hot market. There’s no time to handle everything, and no time to train people to help. What happens then is that “crises” are handled first, and your file ends up on the bottom. After all, you’re not closing for a couple of weeks yet, right? But since you’ve read this far, you understand that handling things ahead of time is exactly how you prevent a crisis later. So by putting things off to the last minute, you’re almost GUARANTEED to have a crisis of your very own. It’s your agent’s job to stay on top of all the players in the transaction and to make sure your important transaction doesn’t end up at the bottom of someone’s pile.

Lender does the old “bait and switch”.

There are many ways things can go wrong with the loan. Interest rates can go up, the mortgage insurance premium (PMI) can be more than the buyer expected, or the loan program can disappear. The fact is, unless the buyer “locks” his loan rate, anything can happen. Why don’t buyers lock in their rates? Again, because it usually costs money to do it. And there are some unscrupulous lenders out there who will tell you one thing when you first meet and then change it at the last minute, knowing that you’re too far along to change lenders.

By the way, since interest rates will change from the time you talk to a lender until the time you actually close, how in the world can you pick a lender based on rates? You should choose a lender based on whether you trust him and believe he has your best interests in mind.

Lender is not a mortgage banker.

What’s the difference between a mortgage banker and a mortgage broker? A mortgage broker takes your application, and then brings it to the wholesale department of any lender he chooses. In this way, you don’t have to make applications at several lending institutions. You just apply once, and then your lender takes it to whatever bank has the best deal at the time.

A mortgage banker lends their own money. You fill out the application, the loan officer walks down the hall to the underwriter, and you can actually have loan approval in about an hour!

The advantage of using a mortgage banker is control. Everything is done in house, so the loan officer can “pull strings” or do whatever it takes to get your loan through. If there’s a problem with your loan, he walks down the hall and talks to the underwriter and straightens it out. In contrast, the mortgage broker who takes your loan to a bank is out of control. The bank puts those loans at the bottom of the pile. The loan officer can do nothing but wait. I’ve seen this happen more times that I care to remember. It’s no fun at all waiting for weeks past when you thought you were going to move into your new home because the bank hasn’t gotten to your file yet! All you can do is wait while the bank takes care of all their “in-house” loans first.

When the market is busy, like it is now, this can be a critical issue. Having your closing delayed can cost you much more than you thought you were going to save. And what about the “bait and switch”? If the bank pulls this trick, the loan officer is powerless to do anything – he’s not part of that organization, and can’t go to the boss and plead your case. You’re out of control, and that’s a terrible situation to be in.

Paperwork is not handled in a timely manner.

There can be delays and hang-ups by any of the parties in the transaction. Usually we’re dealing with a low-paid person who can care less that your transaction is critical. For example, the termite inspector does his inspection quickly, but then drops it off on this clerical person’s desk to type it up and mail it out. And there it sits. Then she goes on vacation, and we’re still waiting.

Much of our job is following up with these people to make sure things get done when they’re supposed to. We can’t assume anything, because we’re talking about hundreds of thousands of your dollars here. So we keep calling until we get what we need. Sometimes people have even gotten angry with us for insisting that they do their jobs. “I’ll get around to it” isn’t good enough. That’s how things get screwed up.

Even the buyer and seller can be slow on returning their paperwork. They’ll get a package from escrow and drop it on the dining room table. “I’ll get around to it” they think to themselves. If it wasn’t important, then escrow wouldn’t have sent it to you! Many times critical issues and deadlines are passed because the paperwork is sitting on the table.

Contrary to popular opinion, escrow is not opened when two parties come to an agreement. Escrow is officially opened when escrow has signed instructions from both parties. The seller needs to know that the buyer’s deposit money is not held in escrow until there is an escrow to hold it in! So they go for weeks into a transaction without sending in the escrow instructions, not knowing that there isn’t a dime of the buyer’s deposit holding the transaction together. The buyer can walk away at any time, for no reason at all, and escrow can’t do a thing about it.

In a real estate transaction, “time is of the essence”. This means that all paperwork, reports, and disclosures need to be done as soon as possible. Nothing good can happen by waiting. As time goes on, people become more and more committed to the move. The pain is much less if the transaction falls apart sooner rather than later. So we put a lot of effort into getting things done sooner.

Critical Facts To Know Before You Buy REO, Bank Owned Property (repost)

Buying a house from a bank doesn’t work like buying a house from a private party. But if you know the differences, a bank owned property can be an excellent opportunity. Here’s what I’ve learned from representing many buyers in purchasing bank owned properties.

Short Sales vs. REO

REO – stands for Real Estate Owned, and is another way to refer to a bank owned property. This is property that the bank has taken back through foreclosure. Sometimes a seller who is behind in his payments will attempt to sell his house before it goes into foreclosure. To do this, you must negotiate with the bank to accept less than what is owed on the property, and this is known as a short sale. This report describes purchasing REO properties, not a short sale which is altogether different.

Exempt From Transfer Disclosure

Whenever anyone sells a house in California, he must by law give the buyer a Transfer Disclosure Statement (TDS). This document describes what is included in the house, what is broken, and other legal and environmental disclosures. The seller has to tell you about any defects he knows about, especially if they are hidden and you might not see them. The seller can be held liable for defects that appear later that were not disclosed when you bought the house.

The exception to this law is an REO. Banks are exempt from giving you a TDS. For this reason it is absolutely imperative that you do a thorough inspection with a licensed and bonded contractor before purchasing any REO. You must be extra diligent in all your inspections, because you have no recourse after you buy it.

Verbal Counters

After the initial offer is made in writing, counter offers are made verbally until agreement is reached. This is a slow process because the bank may be in a different time zone, or the responsible people are tied up in meetings. It may be many days of verbal countering before a final agreement is signed by all parties. During that time, there is a danger that another offer will come in better than yours and the bank may accept it. This is especially likely to happen if negotiations go over a weekend. So my advice is: try to reach agreement with the minimum amount of counters.

Higher Deposits

A bank will require a higher good faith deposit than a private party would. Expect to write a check for 3% to 5% of the purchase price when making an offer on an REO.

Double Loan Applications

The bank will probably require that you get prequalified with their institution within a few days of accepting your offer. They naturally want to cut their losses on the property by making a new loan on it. You will need to go through the loan application process with them, even if you get the loan somewhere else. While they can ask you to apply with them, no one can tell you where to get a loan. That is your choice entirely.

Bank Chooses Services

The bank will insist on an escrow and title company that they choose. They have previously negotiated fees with these companies, so they know what their expenses will be. You would think that to get the business of these giant banks, these escrow companies must be really good. But you would be wrong! They get the business by charging less, and the service is often substandard. Many times the agents do the job of the escrow officer. For this reason, it’s most important to choose a REALTOR who is willing to work harder than normal to make sure you get the house you want.

Not The Usual Contract

The bank will use their contract, not the standard California Association of Realtors form. It’s critical that your agent read every word of this contract to make sure your interests are protected. Remember the bank’s attorneys who wrote the contract are representing the bank, not you.

Double Check Everything

I’ve found that listing agents and escrows for the banks are overloaded with work. Repairs may get ordered, but there is seldom a follow up to see that the work was done. Your agent must take it upon himself to double check everything and assume nothing. When you buy an REO, make sure you select an agent that represents you and not the bank. Select an agent that has experience working with banks and is not afraid of some extra work so you’re protected.

Good luck and may you find an excellent bargain that’s just right for you!

How To Beat Out Other Buyers In A Hot Market (repost)

Insider Secrets To Winning The Home Buying Race

Markets are always changing, and my strategies cannot be used at all times and in all markets. That’s why there is no substitute for having a one-on-one meeting with a good agent. Then you can get true real-time advice for your specific situation.

The following article was written during a hot seller’s market, but even if you’re in a buyer’s market, certain properties seem to generate a lot of interest and so it’s really a “seller’s market” for that house. And that might be the one you have your eye on! So these tips will help you in any market.

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The past couple of months have been frustrating to many hopeful home buyers. There’s too few homes available, and the good ones are snapped up in a hurry!

A couple of months ago I was in a situation where we made an offer on a home my clients wanted to buy, but someone else got it! I was disappointed and frustrated, and so were they! And after this happened to me several times I was getting downright angry!

So I decided to do something about it. I figured out what it would take to get offers accepted in this crazy seller’s market, and put my strategies to the test. The result was that my next 4 offers were accepted, beating out all the other buyers that were bidding on the same homes! Yes!

Here’s what I’ve learned about how to succeed in this kind of market. I call these rules “The Seven Seller’s Market Strategies!”

RULE #1 – PRE-APPROVAL

Do you want to get the best house you can for the least amount of money? Then make sure you are in the strongest negotiating position possible. You see, price is only one bargaining chip in the negotiations, and not necessarily the most important one. Often other terms, such as the strength of the buyer or the length of escrow, are critical to a seller.

In years past, I always recommended that buyers get “prequalified” by a lender. This means that you spend a few minutes on the phone with a lender who asks you a few questions. Based on the answers, the lender pronounces you “prequalified” and issues a certificate that you can show to a seller.

Sellers are now aware that such certificates are WORTHLESS, and here’s why! None of the information has been verified! Oftentimes unknown problems surface! Some of the problems I’ve seen include recorded judgments, child support payments due, glitches on the credit report due to any number of reasons both accurately and inaccurately, down payments that have not been in the clients’ bank account long enough, etc.

So the way to make a strong offer today is to get “pre-approved”. This happens AFTER all information has been checked and verified. You are actually APPROVED for the loan, the only loose end is the appraisal on the property you want to buy. This process takes anywhere from a few days to a few weeks depending on your situation. Now it’s like having cash to take to the seller! In a situation where the sellers have several offers to choose from, they will choose the offer from a buyer that’s PRE-APPROVED.

RULE #2 – BETTER THAN DAILY SEARCH

When you first start looking, it’s possible that there will be nothing available that you like. So then what? Your agent should then begin hunting for you and watching for new listings that match what you’re looking for. How often should your agent check? At the bare minimum once and day, and preferably more.

I once saw a new listing first thing in the morning, and called my clients to meet me at the house at 9:00AM. When we got there, we found out an offer was coming in at 9:30! If your agent only checks listings at the end of the day, this one would have been sold already.

That’s why we offer our exclusive Preferred Buyer Search program. This is a computer program that alerts me whenever there is a new house on the market that meets your requirements. I’ll fax, email, or call you immediately with the information. You’ll be there before other buyers even know about it!

RULE #3 – SUPER SPEED

As soon as a listing hits the market, it becomes a race. Who can get there the fastest? In this market, you need to be prepared to drop everything, leave work, or do whatever it takes to go see a property. It sounds extreme, but I’m very serious about this. Time is of the essence. Don’t think that you’ll take a look at it this weekend. It could be sold by tonight.

And be prepared to make an offer on the spot. That means bring your checkbook and be mentally ready to make a decision. I have a FAX machine in my car to communicate the offer immediately.  Many times I’ve sewn up an offer for my clients, and then another offer comes in ten minutes later. The race belongs to the swift.

RULE #4 – NO COUNTER OFFER

When we make an offer, we’ll make it with the intention that the seller will accept it. We don’t want to get a counter if at all possible. If the seller counters us, then there’s a very good chance another offer will come in before we can accept the counter.

For this reason, we try to make the offer as palatable as possible so the seller can accept it right away. This means we give the sellers their choice of services, avoid all contingencies, and steer clear of any terms or conditions out of the ordinary. I used to think that by trying to get “a little extra” out of the sellers for my clients, I was doing a good job for them. And in the past, that idea worked. But try that now and you lose the house altogether.

At first I struggled with this, and I felt that by giving the seller everything they were asking for, I wasn’t being a very good negotiator for my buyers. But I got over it. Doing a great negotiation and losing the house isn’t good service. Telling the truth about what it takes to win in this market is the kind of service you want.

RULE #5 – THE PRICE

Better sit down for this one. The asking price used to be the price the seller hoped to get, and the one that offered closest to that price bought the house. That’s no longer true. Now the asking price is the MINIMUM price, the base price to begin making offers. It’s the minimum bid if you will, the starting price at the auction. Make no mistake, for a hot property in a hot location, there will be multiple offers, and they will be more than the asking price.

RULE #6 – BEST OFFER

I lost a property for a buyer client of mine by offering less than the asking price. We were the only offer, so why not? As it turned out, by the time we submitted the offer and were able to present it to the seller another offer came in. The seller countered both of us with the same price. We accepted, and so did the other buyer. The sellers accepted the other buyer’s offer over ours, even though they were both for the same price. Why, you ask? Because the other buyer’s offer was higher than ours originally.

So the next time I was in a multiple offer situation, we made a very strong offer right off the bat. The other offer was lower than ours, but the seller countered us both, and we both accepted. In other words, the other buyer came up to our price. So now the seller was looking at two identical offers. They chose ours. Why? Because our offer was better to begin with.

Now I know that this makes no sense. The bottom line is the same, so why does it matter whose offer was better originally? I have no idea why this works, but it does. So we don’t fight it, we use it to our advantage.

RULE #7 – THE BIG PICTURE

Now I know that all this sounds like we’re rolling over and playing dead for the seller. We’re giving them everything they want, and then more. But we’ll have the last laugh. We’ll be laughing because we bought a great house in a rising market, beating out the other buyers! Is it really a big deal to pay a couple thousand more when the house will be worth 20 or 30 thousand more next year?

Our market is appreciating around 10% a year right now. That means that if you don’t buy the house and it takes you a month to find another one, the price will be a few thousand higher anyway. So are you really paying too much? It’s all in how you frame it in your mind. Don’t think you’re losing when you pay over the asking price, you’re actually winning. Next year you’ll look back and say what a genius you were for making such a smart move.

The 5 Buying Strategies I Always Recommend To My Clients (repost)

Don’t Get “Pre-Qualified!”

Do you want to get the best house you can for the least amount of money? Then make sure you are in the strongest negotiating position possible. You see, price is only one bargaining chip in the negotiations, and not necessarily the most important one. Often other terms, such as the strength of the buyer or the length of escrow, are critical to a seller.

In years past, I always recommended that buyers get “prequalified” by a lender. This means that you spend a few minutes on the phone with a lender who asks you a few questions. Based on the answers, the lender pronounces you “prequalified” and issues a certificate that you can show to a seller.

Sellers are aware that such certificates are WORTHLESS, and here’s why! None of the information has been verified! Oftentimes unknown problems surface! Some of the problems I’ve seen include recorded judgments, child support payments due, glitches on the credit report due to any number of reasons both accurately and inaccurately, down payments that have not been in the clients’ bank account long enough, etc.

So the way to make a strong offer today is to get “pre-approved”. This happens AFTER all information has been checked and verified. You are actually APPROVED for the loan, the only loose end is the appraisal on the property you want to buy. This process takes anywhere from a few days to a few weeks depending on your situation. It’s VERY POWERFUL and a weapon I recommend all my clients have in their negotiating arsenal.

Sell First, Then Buy

If you have a house to sell, sell it before selecting a house to buy! I haven’t seen a contingent sale work in the last 5 years, unless it’s with a new home builder who has other houses to sell and can afford to put one on a contingency.

Let’s pretend that we go out looking for the perfect house for you. We find it and you love it! Now you have to go make an offer to the seller. You want the seller to reduce the price and wait until you sell your house. The seller figures that’s a risky deal, since he might pass up a buyer who DOESN’T have to sell a house while he’s waiting for you. So he says OK, he’ll do the contingency but it has to be a full price offer! So you see, you paid more for the house than you could have because of the contingency.

Now you have to sell your existing house, and in a hurry! Otherwise you lose the dream house! So to sell quickly you might take an offer that’s lower than if you had more time. The bottom line is that buying before selling might cost you TENS OF THOUSANDS of dollars. I always recommend that you sell first, then buy.

If you’re concerned that there’s not a house out there for you, then go on a window shopping trip. You can identify possible houses and locations without falling in love with a specific house. If you feel confident after that, then put your house on the market.

Another tactic is to make the sale “subject to seller finding suitable housing”. Adding this phrase to the listing means that WHEN YOU DO FIND A BUYER, you will have some time to find the new place. If you don’t find anything to your liking, you don’t have to sell your present home.

Play the Game of Nines

Before house hunting, make a list of nine things you want in the new place. Then make a list of the nine things you don’t want. I call this “NINE OF THIS AND NONE OF THAT”. You can use this list as a scorecard to rate each property that you see. The one with the biggest score wins! This helps avoid confusion and keeps things in perspective when you’re comparing dozens of homes.

When house hunting, keep in mind the difference between “SKIN AND BONES”. The BONES are things that cannot be changed such as the location, view, size of lot, noise in the area, school district, and floor plan. The SKIN represents easily changed surface finishes like carpet, wallpaper, color, and window coverings. Buy the house with good BONES, because the SKIN can always be changed to match your tastes. I always recommend that you imagine each house as if it were vacant. Consider each house on its underlying merits, not the seller’s decorating skills.

Don’t Be Pushed Into Any House

Your real estate agent should show you everything available that meets your requirements. Don’t make a decision on a house until you feel that you’ve seen enough to pick the best one. Go to the Multiple Listing computer with your agent to make sure that you are getting a COMPLETE list.

Don’t forget to check into the SCHOOL DISTRICTS of the area you’re considering. Information is available on every school, such as class sizes, % of students that go on to college, SAT scores, etc. You can get this information from your agent or directly from the school.

Stop Calling Ads!

A word of caution – real estate agents create ads solely to make the phone ring! Many of the homes have some drawback that’s not mentioned in the ad, such as traffic noise, power lines, or litigation in the community. What’s not mentioned in the ad is usually more important than what is.

For this reason, I want you to be very careful when reading ads. Remember that the person writing the ad is representing the seller and not you! The most important thing you can do is have someone on your side looking out for your best interests. Your own agent will critique the property with an eye towards how well it meets your needs and will point out any drawbacks you should know about.

So whether you decide to work with me or not, pick an agent you feel comfortable with and enlist the services of that agent as a buyer’s broker. Then you become a client with all the rights, benefits, and privileges created by this agency relationship, and you’re no longer just a shopper.

Did you know that many homes are sold WITHOUT A SIGN ever going up or an AD EVER BEING PUT IN THE PAPER? These “great deals” go to those people who are committed to working with one agent. When an agent hears of a great buy, who do you think he’s going to call? His client, who he has a legal obligation to work hard for, or someone who just called on the phone and said “keep your eyes open”? So to get the best buy on a property, I always recommend that you hire your own agent and stick with him.

Typical Closing Cost (repost)

Real property in most jurisdictions is conveyed from the seller to the buyer through a real estate contract. The point in time at which the contract is actually executed and the title to the property is conveyed to the buyer is known as the “closing”. It is common for a variety of costs associated with the transaction (above and beyond the price of the property itself) to be incurred by either the buyer or the seller. These costs are typically paid at the closing, and are known asclosing costs.

Examples of typical closing costs might include:

• Title service cost(s), paid by either party according to the contract but by default seller may pay the majority, for title search, title insurance, and possibly other title services. In some cases the attorney may do the title search or the title service and attorney fees may be combined. Required by institutional/commercial lenders and often by the real estate contract.
• Recording fees, paid by either party, charged by a governmental entity for entering an official record of the change of ownership of the property. Required by the governmentfor recording the deed.
• Document or Transaction Stamps or Taxes, paid by either or both parties depending on location (area of jurisdiction), charged by a governmental entity as anexcise tax upon the transaction. Required by law.
• Survey fee for a survey of the lot or land and all structures on it, paid by either party, to confirm lot size and dimensions and check for encroachments. Required by institutional/commercial lenders.
• Brokerage Commission, paid by the seller to a Real Estate Broker, to compensate the Broker(s) involved in the sale for their services in marketing the property, finding a buyer, and assisting in the negotiations. Brokerage commissions are usually computed as a percentage of the sale price, and are established in a listing agreementbetween the seller and the listing broker. The listing broker may offer Buyer Agents a portion of their commission as an incentive to find buyers for the property. Payment is required if real estate brokerage service was used. This is often one of the largest closing costs.
• Mortgage Application Fees, paid by the buyer to the lender, to cover the costs of processing their loan application. In some cases, the buyer would pay the lender the application directly and prior to closing, while in other cases the fee is part of the buyer’s closing costs payable at closing.
• Points, paid by the buyer to the lender. Points are a form of pre-paid interest, charged by the lender as an alternative to charging a higher rate of interest on the mortgage loan. One point equals one percent of the loan principal.
• Appraisal Fees, usually paid by the buyer (although occasionally by the seller through negotiation), charged by a licensed professional Appraiser. Many lenders will require that an appraisal be performed as a condition of the mortgage loan. The purpose of this appraisal is to verify that the sale price of the property (upon which the underwriting of the loan is based) is equal to or less than the fair market value of the property.
• Inspection Fees, usually paid by the buyer (although occasionally by the seller), charged by licensed home, pest, or other inspectors. Some lenders require inspections (such as termite inspection) to verify that the property is in good condition, which is necessary to assure that the property will retain the necessary collateral value to secure the mortgage loan.
• Home Warranties, paid by either the buyer or the seller. Warranties are available on resale homes insuring major household systems against repair or replacement for the buyer’s initial year of ownership. Sellers will sometimes offer these warranties as a marketing strategy, or buyers can elect to purchase them at closing.
• Pre-paid Property Insurance, paid by the buyer but may be reimbursed by the seller. Lenders will typically require that a mortgaged property be insured at all times throughout the life of the mortgage, and will usually require that the first full year’s property insurance premium be paid in advance by the buyer. If the buyer has not already paid the insurance company directly, this would become another closing cost payable at closing.
• Pro-rata property taxes, paid by the seller, the buyer, or both. Most (but not all) jurisdictions assess taxes on real property, which are usually payable at a specified date annually. Since all but a tiny fraction of real estate transactions close on a date other than this one specified annual date, most transactions must include an adjustment to assure that both the seller and the buyer end up paying their share of the annual property tax, proportionate to the percentage of the year that each has ownership of the property. Usually required by institutional/commercial lenders and by the real estate contract.
• Pro-rata Homeowner Association Dues, paid by the seller, buyer, or both. If the property is covered by a Homeowner Association (HOA), the HOA will normally be funded by dues assessed against each property owner. Again, since the ownership of the seller and buyer are each fractional in the year of the transaction, there must be an adjustment made so that each owner pays their proportional share. Often required by institutional/commercial lenders and by the real estate contract.
• Pro-rata Interest, paid by the buyer but may be reimbursed by the seller. The monthly mortgage payment is calculated and payable on a specified day each month. If the closing does not actually fall on that specified date (which is usually the case), then an adjustment must be made to calculate the interest on the loan for the number of extra days until the first payment is due.

Other items in addition to the above may be common in some jurisdictions, and some transactions may include unusual or unique items as closing costs. In the United States, Federal law requires that all residential transactions financed by a mortgage have all closing costs documented in detail upon the standard HUD-1 form. This information must be provided to the principals but does not have to be sent to the government. Instead a Declaration or Statement by Buyer and/or Seller is often required to be provided to the government office recording the deed. Form 1099-S may be required to be sent to the United States Internal Revenue Service, but Federal law does not allow a charge for this.

Q and A for getting into the real estate brokering

Starting out from brokering real estate can be a good way to learn the real estate business. it is a great way for you to serve others and learn the details in real estate transactions which can be very beneficial for your own real estate investment down the road. the real estate brokering business has a very low barrier of entry. on the plus side is that you don’t need much to get started, on the flip side is that when it is too easy to get into you have too many competitions. So if you want to stand out of the crowd you would have to separate yourself from the crowd one way or the other. Maybe it is your marketing exposure, or your excellent service, or it maybe your connections, or it maybe all of the above, but no matter what you have to be apart from the crowd. it is like the show business. you are either the top 5 percent that makes shipload of money or you are the 95% that is starving. A cautionary note, it is also abusiness that requires a lot of your time since it is a people oriented business.

As far as getting into real estate brokering.  you can do commercial or residential brokering.

on the brokering side there is residential or commercial brokering. For residential brokering you get smaller commission for each deal and you make more money by having more listings, unless you do luxury properties. you can find the top ranked residential brokers in your area, just email or call the mangers or owners of the office and set up an appointment. They don’t pay you salary so they would welcome any upbeat newcomers such as you.

how to pick a brokerage firm?

the difference between each firms is that you tend to get higher split from smaller local brokerages, maybe 80% to 90% and you don’t have to pay much fees such as insurance fee and desk fee. for national brokerages such as Re/Max, you will get less commission splits especially if you are starting out new. they will offer your split according to earnings of your previous year in the industry. however if you are starting out new an excellent training program will benefit you in the long run. On top of the smaller commission split you may have to pay other fees. But the larger firms provide more supports such as helping you to advertise in the local paper and the like then then fees you paid maybe justified, but do look out for and avoid the national brokerage firms that offers you small split and don’t offer much training. you can find out all these by interviewing with a few local and national franchised brokerage firms.

does training make a difference?

It does. some firms does it better than others. I think Re/Max and Keller Williams does a good job in this aspect.

on the commercial side:

It takes longer for you to earn commission but the amount of the commission will be much more substantial than what you earn on a typical residential transaction. You may get $100,000 in commission on a single commercial transaction but take one year to earn that where as you may get just $10,000 in commission on a residential transaction in just 60 days.

the difference between commercial and residential brokering:

In residential brokering. most people purchase home to live in. it is a home, so there mostly based on personal taste and emotion, unless it is residential real estate investing. Whereas in commercial almost all transactions are based on numbers. so in actual practice you will be dealing with investors and business people in commercial real estate whereas in residential you will be most likely dealing with mom and dad looking for a house for their sons and daughters that needs to enroll in the local school before the fall semester school year begins.

opening your own brokerage firm:

Once you have been in the real estate brokering business for a few years you may want to open a brokerage firm yourself. some good franchises you may consider are Keller Williams and help-u-sell.

How to Beat Out Other Competitive Real Estate Buyers

Although many consider it a down market, I still ran into a lot of competitors whenever I tried to get a good deal. I am surprised at how many investors are out there hunting for good deals. Every time I make an offer on a below market home the answer I get from the agent is that we already have 3 offers on the property. If you want to get the house you better offer higher than the listing price. So here I have some things to share with you about how to make your offer appear more appealing to the seller.

Have a cover letter highlighting positive aspects of your offer in bold big letters, so that the agent/seller will see your pluses the second it prints out of their fax machine.

Examples of some of the positive things that sellers love to see are:

All Cash Offer

Excellent Fico/credit score (700+)

3% or more deposit

30% or more Down payment

Bank statement showing proof of down payment

Stable Employment History

W2 and Financial Statement showing proof of Income

To make sure that the seller counter you back make sure to provide as much proof document as possible (copy of 3% check for deposit, online bank statement print out proving source of down payment, copy of w2 or financial statement for proof of income.

Save the Most $ Buying Real Estates

After having a correct valuation of the home you want to buy now you can work on saving more money. the sources where you can save the most money when buying a home are:

1.  The seller. the higher the sense of urgency a seller has the more of a bargain you will get. to negotiate with a seller it is best to chop down the price little by little. For example if the comparable value of the home is $500k and the seller wanted $520k for his/her house if you just offer $400k straight out it is very likely you won’t get a counter offer. so the best way to do it is to chop off the price little by little. you can first make a $460k offer and have a comparable data showing value of the home to the seller. the seller may counter back $460 (you have just saved $40k off of the value of the home). To make sure that your offer is competitive please read my other blog on this page, “How to Beat Out Other Competitive Buyers.” In the initial offer make sure to include all of the items you wanted in the house and items needing repaired.

2. Intangible items in the home you wanted to buy. After agree upon on the price you can request for some of the items in the house such as refrigerator, washer and drivers, televisions and etc. you can save another $10,000 or more here. Some times it is an either or situation. you may get the bargain price but not the items, but it all depends on how motivated the seller is.

3. Repair Expenses. Upon acceptance of offer you can save more money by bargaining with the seller about the repairs. the seller may either help you to repair, give you the credit to repair, or not to repair anything. From the time of offer acceptance you have 14 days contingency period (in California) to perform your due diligence. this is the time to hire a inspector to find out everything that is wrong with the home. take that inspection report back to the seller and request for the repair (ask your agent to send a document called request to repair to the seller/seller agent). At this time the seller is more inclined to negotiate with you since he/she already spent substantial time working with you and that you two already have a contract. However you have the right to back out before the 14 days contingency period so the seller will likely to agree to your repair request.

4. Agent Commission. Save money on the agents commission. Many agents may beat on me for putting this up here, but it is just one of the options and when you use this option please be reasonable. the agents needs to feel they are adequately compensated for their work too. In a situation where one agent represent both the seller and you he/she maybe getting 5 or 6%  commission, in this case you may ask the agent to come down a 1 pint or 2 on the commission. It is a balance act you want to save some commission but your priority is still that the agent is happy enough with his/she commission and that stay loyal to you.

5. Mortgage Broker Commission. An inside fact that most consumer do not know is that the higher the interest point the mortgage broker gets you to pay the more commission he/she gets paid. Mortgage brokers are basically mortgage retailers. they get the wholesale rate from banks and resell the mortgage package to you. For example, if they get you to pay 7.5% interest they may get 3% of the money you borrow in commission whereas if you pay 6% interest they may get 1.5% in commission. There are other fees in a mortgage transactions too. Again you want to be reasonable. Maybe you can get the best interest rate but pay some fees. if you ask for both that would leave the mortgage brokers no profit. If you have great credit profile you may get a better deal by going straight to the bank. otherwise you may have to go through a mortgage broker to package the deal for you so that you can get the loan that is why the mortgage broker gets to make some profit. the rate of mortgage also differs greatly depending on whether it is a primary home that you are buying or investment home.

5.  Transaction Fees. the many transaction fees usually amounts to 2% of the purchase price. this is where most buyers overlook. you can go to this neat site to check out the approximate market cost of each items in your transaction  http://www.feedisclosure.com then ask your agent to see the HUD 1 settlement report to compare with the prices stated on feedislcosure.com to see whether the cost in this report is reasonable.

Correctly Valuing a Real Estate

Correctly Valuing a Real Estate

Ways to valuate home price:

1. Using Trulia.com to valuate the home price;

a. Type in the full address in the window (Example:12345 Any street, City, State) & select property type;

b.  Scroll down and click on view all comparable;

c. scroll down to uncheck the box next to homes for sale under the map, make sure the box next to recently sold homes is checked;

d. click on the Recently sold homes large button make sure it becomes blue

e. Sort the sold data by clicking on the sold date column and look at the first 10 or 20 sold homes;

f. Hand pick homes to be compared by eliminating sold homes that are sold 4 or more month earlier, further than 1 mile away, with a sqft difference of more than 50 sqft, also eliminate the highest and the lowest price sold homes;

g. add up the price of all of the remaining homes and divide by the number of homes will get you a very accurate valuation of the home you intent to purchase or sell. This is how banks evaluate value of the homes too.

2. Quick Rough Estimation by per square foot method:

a. go to http://www.altosresearch.com/researchand select the state and city;

b.  scroll down to find out the Price Per Square Foot;

c. Multiply this price per square foot with the sq ft of the house you intend to purchase.

Pitfalls in Rental Apartment Purchases

1. Find out the remaining life span of the roof. Roof is one of the largest expenses for apartment owners. make sure it is still in good quality when purchasing a rental property. If it is not use it as a bargaining tool to low the price or ask the seller for credit to repair.

2. Make sure the laundry machine rental contract pay out is reasonable. If not make sure the contract is terminating soon. Otherwise using it as a bargaining too as well.

3. Have the property inspected by an experienced physical inspector. You may also want to order an appraisal to get a fair market value.

4. Visit the property, talk to current tenants and inspect as many units as possible to find out all that is wrong with the property. Most importantly find out the condition of major items such as stove, dishwashers, air conditioning, water heaters, and roof. The repair of these items can bankrupt you very quickly, unless it is a fixer upper sold at significant bargaining price.

5. Choose property where people want to live, close to shops, parks and decent schools, and in a well-kept neighborhood. There’s nothing worse than owning a rental property without any renters. Make sure tenants from the area have plenty of employment opportunities. rental properties belong to the district of great schools (make sure it really belong to that district because in many cases people living in the same zip codes maybe asked to attend two very different schools) and nearby beaches are the best.

6. Search past records for vacancy rates over the last five to ten years as well as at present. the best way to get these data is by insisting to ask the seller for financial statements. If not at least get the rent roll.  Through the rent roll you can find out what lease terms current tenants are on, whether month to month or yearly lease. If yearly lease how much longer the lease term has remaining and the current rent rate.

7. bargaining points: anything physically wrong with the property, low pay out and long term contract for the laundry lease, short term tenant lease contract or long term tenant lease contract with low rental rate can all be used as bargaining chips while negotiating for the price of the rental property.