Selling Your Own Home to Save Real Estate Fee can be Risky

The following is a guest post from Nigerian real estate developer Michael Chudi Ejekam.

Contract

Sellers have to remember that a written contract for the sale of a property is binding. The clauses contained therein can have serious implications. Awareness and knowledge are critical. There are buyers who like to target For Sale by Owners (FSBO) in order to get the best deal possible. These buyers are often more experienced than the seller and can skew the contract to their benefit.

Selling Price

Unless the seller has access to current market information, pricing may be off the mark. If it is too low, there will be a loss and if it is too high there may not be a sale. Nevertheless, the seller selects what he perceives to be a market value price and hopes to make a gain because he doesn’t have to pay out a real estate fee.

Sounds like a good plan. Then a buyer comes along and makes an offer that is lower than the asking price BECAUSE the sale will not incur a real estate fee!

Both parties are trying to save the real estate fee. Often the seller gets short changed.

Advertising

When selling a home, exposure is a must. Advertising is required. This generally consists of a lawn sign, some newspaper ads and, especially, internet exposure. More and more buyers do their initial searches on the internet. Marketing skills and ad writing abilities are a plus. Photos will also be required. All these items have costs attached.

Showings

Availability for calls and appointments are a priority. If employed, showings will be limited to after hours and weekends. People could also knock on the front door without an appointment. This may create a problem if school children get home before the parents.

Pre-Screening & Follow Ups

Pre-screening calls and asking questions about mortgage eligibility is helpful. This could eliminate those who are qualified to buy from those who are not. Similarly, it is ideal if contact information can be obtained for follow-up. This is sometimes difficult for the seller to acquire. Any feedback that is obtained could also be somewhat biased so as not to offend the seller.

Risks

Without pre-screening of any kind, there can be risks in inviting potential buyers to view the home. They are total strangers! Are they serious about buying? Do they have other reasons for wanting to see the home? Should they go through the home without being escorted? If so, are valuables removed for security reasons? Is the medication in a safe place? Or, should the potential buyers be accompanied on their walk through the home? Will they be reluctant to ask questions or make comments because the home is being shown by the owner? Showings are often a dilemma for the seller.

Solution

Hire a real estate agent! In the long run, such a professional can often net the seller the same amount of dollars- and sometimes even more. They know their markets and they have the skills- especially negotiating skills. Peace of mind results from knowing that the real estate agent has the expertise and is looking after the interests of the seller.

Interview two or three experienced agents and select one that is a good fit and in whom there is sufficient confidence.

Why is Renters Property Insurance so Essential?: Renters Contents Insurance is Not the Landlord’s Responsibility

The following is an article by Natural Resources Management president Tracy Suttles, a figurehead in the Houston, Texas real estate development scene.

Renters property insurance is like any other form of coverage, it only seems important when it becomes necessary to make a claim. Whilst paying for a policy cannot be considered an enjoyable activity, it is a lot better than facing the consequences of liability for injury or replacing all personal possessions in the event of theft. For those on a fixed budget, the cost of home renters insurance can be reduced by increasing the deductible so that only the most troublesome financial problems are covered.

Protect Items of Value with Renters Property Insurance

There is a high probability that something bad will eventually happen to someone’s personal property. Renters home insurance typically offers two alternatives: the ‘replacement cost coverage’ or ‘actual cash value’ (ACV). A policy offering the ‘actual cash value’ will only provide a payment equivalent to its current replacement cost. However, ‘replacement cost coverage’ will pay the insured a sum of money that will cover the full cost of it being replaced. Although more expensive, the latter option is more comprehensive.

Renters Home Insurance Provides Liability Protection

If an individual were to sustain any sort of injury whilst in the insured’s apartment, the policy (subject to any limit in-place) would provide a payment equivalent to the cost of damages and medical expenses. Court costs (if applicable) would also be covered. Without this protection in place, a tenant could find himself owing tens of thousands of dollars. It could even bankrupt them. However, insurance for renters can help to manage this risk and provide genuine peace-of-mind for the tenant and his/her guests.

Renters Insurance Coverage and Unlivable Premises

A renters property insurance policy provides assistance when a property can no longer be lived in due to damage, a rebuild or relocation. This means that if the insured has no choice but to move out because it is unlivable, the policy will cover the cost of living in a comparably priced house, condo or apartment. The limit is typically limited to 30-40% the policy value. Thus, someone insured for $150,000 would have an additional living expenses limit of between $45,000 and $60,000. Other providers allow the insured to claim for a maximum of up to 12 months or for a “reasonable length of time.” Each policy document should be checked for the specifics.

The Value of Renters Property Insurance

Life can be very unpredictable, but renters home insurance provides a way of underwriting that risk. Although it isn’t a legal requirement, it is important to appreciate that the landlord is not responsible for a tenant’s possessions or what happens to visitors at that property. Insurance for renters not only covers home contents, it also provides protection should something happen to a visitor. It is essential for anyone who lacks sufficient financial resources to cover such costs or liabilities.

Tracy Suttles can be reached on Twitter at @tracydsuttles.

Rent vs. Buy Analysis: Real Estate Investment Analysis View

Many investors don’t think about the rent vs. buy analysis that a consumer should be focusing on before they consider buying a home. This analysis varies across neighborhoods. In places like New York City, it could cost a consumer 1.5x or even 2.0x as much to buy a home on a monthly basis as it would cost to rent that same home. Conversely, in a city like Detroit, it might be it might cost 2.0x or even 3.0x to rent a home on a monthly basis in comparison to purchasing that same home. So what does that have to do with an investor?

Real Estate Trends

It’s simple: investors need to watch the trends. Regardless of the absolute number, as it gets cheaper to rent a home or buy a home, consumers will move, one way or the other. While most consumers will not sit down and do the actual analysis, media, real estate advertising and other sources of information serve to shape the consumers’ opinion of value. Investors can use this leading indicator to better understand where the price of their investment property will trend.

Consider the real estate market in 2007. In 2007 many housing markets reached historical high prices, while rents grew modestly over that same time period. The gap between rents and mortgage payments grew to an all-time high in many markets. Smart investors watching this gap could only expect reversion of either home prices or rents. If economic growth and prosperity were driving the increase in housing prices, investors would have expected rents to increase as well. If low interest rates and irrational consumption were driving the growth in the housing market, investors could expect housing prices to decline at some point.

Real Estate Prices

Savvy investors were using this data as a warning sign to sell their single family home investments. Assuming low interest rates and irrational consumption would lead to a decline in housing prices, investors should not have assumed that rental rates would increase. To the contrary, the housing market growth drove consumption and the sudden halt put the economy on very shaky footing.

Smart investors should have sold and simply waited. Real estate is one of the few investment classes that simply allow an investor ample time to get in and out of the market. Market movements take months or even years, so investors could have seen the warning signs in 2005, 2006 and 2007. Real estate is cyclical, so investors will get another chance to make the right choice. Watch out for home prices declining to the point where they are on par with their historical relationship to rents. That will be the time to buy.

The Value of a Real Estate Agent: A rebuttal to ‘$60,000 in real estate commissions down the drain’

Recently a letter was published in the Toronto Star that was misleading about many things Realtors do. It also alluded to the fact that the writer did not believe Realtors earned their commissions. The reality is that what a sales representative does is very detail-oriented work that often begins well before your home is listed.

Before most agents walk out the door to go to an initial listing appointment they have already done between 10 to 15 hours of preparation for the appointment. The home’s sales history is brought up. Neighbouring properties are researched to see if comparable homes have been sold, expired or are currently listed. This doesn’t even include the daily tracking of local statistics to stay on top of the ever- evolving real estate marketplace.

Once this preliminary work is completed, the agent meets with the potential client. This takes anywhere from 4 to 15 hours depending on the home and the client. This consultation usually involves measuring the home and itemizing the type of service the client can expect. The service is essentially the blueprint the agent uses to help sell your home. Before leaving, the agent will likely schedule a time to follow up for second appointment, because agents are in competition for listings in most cases.

This means more work back at the office. Expect your agent to take your information and compare it to other comparable properties in your area. This takes between 4 and 8 hours to compile what is known as a Current Market Analysis. Through this process your agent will have determined an appropriate price range in which to list your home.

Following this fact-finding mission, the realtor heads out to meet with the client for a second time. This time the agent will discuss the conclusions of the Current Market Analysis of your home. At this point the agent had worked for between 18 to 38 hours without any compensation whatsoever. The average agent lists approximately 1 in 5 listings. A good agent will list 3 in 5 listings, meaning that almost half of the time a realtor does all of this work and never receives any payment.

Once a property has been listed with the agent, a listing file needs to be prepared. This is the information that concerns surveys, current property taxes, statements concerning the condition of the property and compiling listing documentation. In addition to this the property is photographed for the MLS and for any advertising. All this takes between 10 to 15 hours.

Next the agent needs to promote and market the property. The agent will invest a couple hundred dollars to several thousand dollars to promote and market a specific property. The average showing takes 1 hour. An open house takes 2 hours, with 3 to 5 hours of preparation. With all this the agent has put in somewhere around 30 to 35 hours without ever receiving a penny from the vendor, and has likely spent around $500 to $1000 dollars to market the property.

Having said all this it is clear that the agent has made a substantial investment of time as well as money on a property that may or may not sell.

Now, hopefully an offer will come in that will turn into a sale. Your agent will invest the time and energy to explain the offer and help with the negotiation process to get you the most money possible for your home. This process can take only 2 hours or it can stretch out to days in some of the more difficult negotiating scenarios.

When it is all said and done, the vendor and the agent have both taken a risk that has hopefully paid off. Agents depend on listings to generate buyer leads and additional business. Vendors need their home to sell for a variety of reasons and the guidance they receive from their sales agent is invaluable in most cases. The agent has put their own time and money on the line in order to support the vendor and to assist them throughout the sales process.

People Who Should Avoid Real Estate Investing: Bull Market Geniuses, Risk Averse Investors, and Cash Poor People

Buying real estate as an investment is a dream many have. The idea of renting a piece of property to someone else while equity builds and debt reduces can be great. And it is, but these aspects of property ownership do not stand alone.

Owning a rental property has expenses, and they can be unpredictable. While simple wear and tear will happen, more expensive problems can occur like old wiring falling out of code and drainage pipes eroding. For the latter reasons, people who should not invest in property are:

  • Bull market geniuses
  • Risk averse investors
  • Cash poor people

Bull Market Geniuses Should not Invest in Real Estate

A bull market genius is a person who makes money when everyone is making money, and finds it to be a testament of his or her investment savvy. In the late 1990’s the buying market was full of these people. In early 2001, many of them were getting washed away by the fiscal tsunami that came with favored stocks like Enron and WorldCom sinking like stones.

Shortly after that debacle, more of these investors were found to have been caught in the rush of rising homes values. The result of being so house rich and cash poor may have led them to refinance, pulling out a hundred-thousand dollars to invest elsewhere. After all, they made all that money on their home; they must know what they’re doing.

The Risk Averse Investors Should Avoid Real Estate

Risk is relative. While some invest in real estate because they are risk averse, others feel that property is too risky. This could be because they don’t know enough about what they are investing in (making them very smart to avoid what they don’t understand) or from a bad past experience.

Either way, if buying piece of property is going to shorten one’s life due to stress, it is best to avoid it. For those who need the security of knowing their money will be there tomorrow, even if it isn’t going to grow tremendously, there are low risk investments that will still bring a fair return.

Real Estate Requires Cash

The whole point of investing is to make money, not spend it. While this is true, it also takes money to make money, and someone who has no money cannot make money with money unless it is someone else’s.

Now, this is entirely possible with the purchase of a property via mortgage, and the building of equity by way of rent, but the remaining necessary cash is going to have to come from one’s own pockets at times.

For example, let’s say a property owner has a single family home with a renter. Suddenly, holes are forming in the yard. Upon further inspection, it is due to eroding drainage lines, and the problem cannot be ignored, but to the detriment of the property. Unfortunately, getting to the person in one’s local government who can solve this problem can be challenging for such an issue, and in the end, the problem may not be theirs to handle. Such a repair can cost more than $10,000.

Owning property can be a great endeavor. There are incredible tax benefits and the opportunity for great growth, but for any of the above people, it should be avoided.

Invest in Real Estate Today: Risks and Rewards to Buying Now

Right now good real estate investors have a competitive advantage. For the most part, the real estate market has been in a tailspin, investors have either been on the sidelines or actively fighting with lenders to rescue some of their fallen capital. Owners that have a choice about buying or selling are choosing to stay put and those that have to sell face serious sharks in the water that smell blood.

Why Not Invest in Real Estate Today?

So what is the down to being a shark in the water? First, investors really need to do their homework. Just because something seems like a great deal does not mean that it is. Understanding the risks of the deal is important, particularly with new construction. With the high number of homebuilders shutting their doors or facing foreclosure, buying a new home might leave you holding a very bad bag. In this market, every property should be inspected thoroughly. The incentive to cut corners when building and running out of cash is extremely high. Before considering any purchase, be extremely thorough in your due diligence.

No one wants to catch a falling knife. Maybe if you buy something today, real estate prices decline another 10%, 20% or even 50%? Lets think about what would have to happen in the economy to see real estate prices fall 30% over the next 3-5 years. First, there would have to be no inflation. Inflation would be a sign of economy recovery. Rapid deflation might do it, but the likelihood of that is minimal. Second, we would have to see an increase in the current levels of inventory. Again, though some will disagree, this is also not likely. There is already a tremendous amount of unsold property on the market, builders stopped at least a year ago, some by choice and some by way of court ordered bankruptcy liquidation. So where is the additional 10-20% inventory increase going to come from? An economic recover means higher real estate prices.

Real Estate will Recover

What if interest rates go down? Again, this would imply a significant economic set back, which does not seem to be in the cards. The government has done everything within its power to keep the economy from disaster and for the most part it worked. It’s a safe bet that they will not let their work be undone. Expect the recovery to continue at a slow to moderate pace and real estate values to begin a slow climb to normalcy.

NYC Real Estate Co-op vs. Condo: Differences between Cooperatives and Condominiums

The vast majority of apartments available for purchase in New York City are either cooperatives or condominiums. The major difference is that purchasers of cooperative apartments or co-ops own shares in the entire building corporation. Condominium ownership is more like owning a single-family home in that purchasers own their physical unit.

Pricing Differences New York City Co-op vs. Condo

In general, in New York City, cooperative apartments tend to have lower asking prices than comparable condominium apartments. But there are other factors to consider. Since co-op owners are shareholders in the entire building, the costs associated with the building such as the underlying building mortgage and the real estate taxes are the pro-rata responsibility of each of the shareholders. The number of shares allocated to each apartment is typically determined based on apartment size and location within the building.

Board Approval for Co-op Purchases

Each co-op building has a Board of Directors and its own set of requirements for prospective purchasers. Typically a would-be buyer must submit a full financial package listing all of their assets and liabilities and include copies of recent tax returns. The package is usually reviewed by the Board members or an admissions committee and then an interview is scheduled with the prospective purchaser. Boards can dictate the percentage of the purchase price that the buyer can finance. Boards can also require maintenance escrows or other forms of financial assurances. Condos generally do not require board approval.

Maintenance Fees in Co-ops and Condos

Since shareholders in a co-op own a stake in the underlying building, their maintenance fees sometimes referred to as common area charges, are generally higher than in a condo. However, since a co-op maintenance fee includes a portion of the underlying mortgage payment and local real estate taxes, a portion of the maintenance is tax deductible. Other costs covered by the maintenance charges in both co-ops and condos include staff salaries and electricity in the building common areas such as hallways and stairwells.

Other Considerations for Purchasing a Co-op or Condo

When considering the purchase of an apartment is a co-op or condo, it is important to look at the following items:

  • House Rules – In addition to containing standard language regarding noise policies and rules about floor coverings, the House Rules also set forth the building policies on pets, washer/dryers, restrictions related to apartment terraces and balconies and any flip tax requirements. Flip taxes are fees paid to the co-op or condo at the time of sale of the apartment usually by the seller but sometimes passed on to the buyer purchase.
  • Maintenance History – Find out how often the maintenance has increased in the last several years and ask why. Also find out if the building has imposed any assessments on apartment owners. Assessments are usually used to cover major building expenses such as an unexpected repair or a renovation of common areas.
  • Reserve Fund – The reserve fund is the amount of money a building has set aside for capital improvements. A prospective buyer should feel comfortable that the reserve fund is large enough to pay for foreseeable capital expenses such as building repairs and mandatory façade inspections required by New York City.

Narrowing Down Choices in NYC – Co-op vs. Condo

In the end, whether to buy a co-op or condo might well be determined by personal preferences about the actual building and unit. The majority of NYC apartment buildings are cooperatives especially the pre-War buildings. New construction tends to be built as condominiums.

Real Estate Investment Clubs Fully Explained: First Time Investors Benefit From Joining a Money Group

The news of foreclosures looming and sellers desperate to walk away brings on news of despair and sadness for many. This news also brings out many first time real estate investors. These new buyers are interested in dabbling in the art of investing and do not know where to begin. The Real Estate Investment Club is exactly the right place for these brand new buyers.

Many would be investors have lost thousands of dollars investing in properties that were presumed to be a good ideal. Up front they seem to be a wonderful chance at making money, but then the reality sets in. Too many times Realtors, anxious to have a sale, will leave out many of the details concerning a rental property. After the deal closes the Realtor is no where to be found.

The Real Estate Investment Club not only invests the money to buy new properties, they also have lectures presented by knowledgeable mentors. They teach all the members when to buy and how to buy and keep a profit.

Pros and Cons of The Real Estate Investment Clubs

As sure as there are benefits, there are also disadvantages too. According to Business Week, the investor should be aware of the pitfalls of such a club. Buying properties in today’s market can be a detriment to the new investor if he is not prepared to hang on for many years to come.

The goal of the investment club is to buy rentals and keep them and not resell. Their money is made strictly from the money received monthly. A good investment club that is run properly can provide income for the new investor for years to come.

The initial investment in a Real Estate Investment Club is very minimal. The association dues are between $200-350 normally. This money is used to pay the secretary and the rent on the building provided for the meetings. The goal is to have no out of pocket money for the association or Real Estate Investment Club.

What to Look for in a Real Estate Investment Club

When looking to choose a Real Estate Investment Club, the new investor should look for certain qualities of a club. These are some of the questions that should be asked:

  • How many members are in the club?
  • How often does the mentor or guru give lectures?
  • How much is the yearly dues?
  • Do the members have to participate in each sale?
  • Who manages the properties?
  • Do the members have to participate in management, maintenance or bookkeeping?
  • How does each member get paid?

Normally a club will hire a management team to handle all the properties and each member is paid monthly after all debts are paid, but it is best to check thoroughly all the details. In most clubs, each member is given a territory to work. This territory could amount to an entire county or in the case of a large county; the county would be split up into sections.

The member therefore can submit properties for purchase that they have located. The club will vote on the purchase or not agree to the purchase. Each club will decide on the compensation paid to the member bringing in the best weekly deal.

First Time Investors Benefit From Joining a Money Group

In a normal million dollar deal, the buyer would have to pay at least 20% down. This would amount to $200,000. In an investment club with 200 members, this amount would equal only $1000. So each member has a minimal down payment and low risk involved in the property. Each member benefits from joining the money group with the profits they acquire.

The first time investors have low down payments, minimal closing cost and low risk involved in being part of a large money group. With multiple purchases, the chances of losing out big time are minimal. Keep in mind that a low down payment also means a low monthly allowance from the property. The rents are also divided by 200 members.

There are thousands of Real Estate Investment Clubs located all over the world. Each club has its benefits and disadvantages. It is always good to interview several clubs in your area before joining one particular club. The normal investor will join for a few years and then branch out on their own.