Andrew Wetzel's Musings

October 14, 2017

Property Tax Reduction: The Illusion

Filed under: Uncategorized — awetzel @ 12:50 PM

I think I can safely say the no one likes paying property taxes.  You save to buy a house. typically dependent on some “down payment” (your savings!), go through an often tedious and frustrating process, make 180 to 360 monthly payments, pay property insurance, incur maintenance costs and, hopefully, improve your “castle” to better fit your wants and needs to make it a home.  At some point your monthly payments end and you OWN your very own piece of planet Earth.  Then the tax bill comes.  There are several taxes but let’s focus on the largest one which pays for public education.  Those bills keep coming year after year and they go up and up regardless of whether your house is worth more or not.  Your assessed value may stay the same but the millage goes up to yield the revenue our elected officials say they need to meet their budget.  For years there seemed to be no control over how much they could raise YOUR tax bill but that has changed.  For better or not, we still are TOLD what THEY WANT!

Public education is a right, not a privilege so money has to be raised to pay for everything related to schools and education.  I will not debate specifics regarding salaries, the union or other topics often debated but I will express several underlying concerns.  They include:

  • some municipalities have tax levies that make the monthly tax payment look like a “principle and interest” payment.  This excludes some buyers!  In fact, many buyers are diverted from areas solely because they do not qualify when the school taxes are factored in.  I guess this kind of “steering” is acceptable;
  • properties are “assessed” relative to their local surroundings within their municipality.  There may be vast differences in assessed values for a variety of reasons such as between houses sitting on different sides of a municipal boundary, enhancing a home’s living space  (getting permits to do this may result in a higher assessed value), tax appeals and, frankly, inaccurate assessments (two similar houses may be reported differently in the tax records).  New construction is an anomaly as assessed values are based on a percentage of the selling price while other houses generally carry a stale assessed value.  County-wide reassessments make the system fairer and are generally intended to shuffle the deck without resulting in a tax windfall (if they want a windfall they have to raise the millage);
  • seniors and people on fixed incomes often have difficulty paying property taxes. Many feel that these taxes should be waived at some point;
  • while much has been made of switching some taxes to a “consumption” model, the school tax is not and that seems odd to me in terms of “fairness’.  Take three similarly assessed houses and all will pay the same tax regardless of whether the owners have no children, few children, many children or send their children to private school.  This does not seem fair, does it?

Over the years a number of suggestions have been made regarding how to address this topic since these taxes are the highest.  Some involve shifting how the revenues are distributed so that lower-performing schools can take measures to raise outcomes. Frankly, many do NOT want to see their tax dollars go out of their local communities. Some have suggested that regular reassessments will keep the system more equitable but the practice is expensive.  Another suggestion under consideration lately is eliminating property taxes altogether.  Sound good? The devil is in the details:  the revenue is still needed so another way needs to be employed to offset the lost revenue.  People being people want to know how a new system will affect them.  Will seniors and low-income folks need to be subsidized by younger, more affluent people regardless of who lives in the nicer home?  The devil is always in the details so when you hear about ANY proposal, you need to READ THE DETAILS!  I bet most people will not take the time and that those who do will not fully understand the details.  Have you ever read these resolutions?

Here is a novel idea:  ANY conversation about taxes MUST include some discussion about where the tax dollars are going and how they will be used.  We cannot keep “throwing money at problems” expecting that money solves everything.  It feels good in the short term but resolves little in the long term  At best it is addicting meaning that those receiving it become dependent on others; at worst it is debilitating to those who work hard only to see their income wasted.  Some of the worst performing school districts spend the most per student while many good ones operate more efficiently.  Frankly, perhaps we need to realize that some parents and their children are less devoted to meeting the standards that equate with taking responsibility for their own lives if and when they leave your parent’s home.  Perhaps emphasizing vocational training instead of pushing everyone to think college and expensive student loans a viable option.  There are some social issues that need more than money to be solved and taking more of our money will not serve the problem but will impact the lives of many who could better used THEIR hard-earned tax dollars.

I do not mean to make this an “us against them” argument but we need to stop wasting money that does not solve problems and we need to stop subsidizing bad/ inferior behavior.  As mentioned at the outset, I am ignoring a few topics that need to be better managed if we are to succeed.  Perhaps if property taxes were managed more effectively, some buyers could buy in “better” neighborhoods and that would help neutralize or cure some of our “hamster-wheel” social ills that seem to keep repeating themselves regardless of how much money we spend to make ourselves feel better.

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September 12, 2017

Want to Buy a house? Think baseball!

Filed under: Uncategorized — awetzel @ 2:07 PM

Analogies are a great way to make complex topics seem simple. Buying (and selling) Real Estate are NOT “rocket science” but, unfortunately, too many underestimate what they think they know when making what is typically the largest financial decision of their life.

Why baseball? There is no time limit and it has four specific reference points. Let me explain. Home plate is where you start and, if you are successful, you will round the bases and return home as an owner. Home plate is the goal and you can get there two ways:  you can successfully navigate each base (one at a time!) or you can hit one out of the park. In this analogy the fielders are obstructions that can stop you in your tracks or delay your progress. The pitcher represents “life”, tossing you the ball which is the opportunity to buy. In order to succeed, you need to reach EACH base and satisfy some requirement to move forward. By the way, a HOME RUN means someone has given you a house so you do not need to do anything else.

First base:  to get here successfully, you need to get “pre-qualified” by a reputable lender to make sure that you know how to start your search. What a lender is willing to do may exceed your “comfort level” and that is fine. It does not work in reverse unless you find a real bargain. Unfortunately, some consumers will need to do some work to get to first base while others will be forced to sit on the bench, unable to buy at the moment. Knowing your situation will help you avoid wasting time. Ideally you will have hired or be in the process of selecting an agent. No matter how much sense this analogy makes, most buyers will need a trained professional to negotiate the process/ bases.

Second base:  the search is on! This is the fun part and, for many, the most time consuming and possibly the most frustrating. This is where hiring an agent really starts to pay off:  they should help you decide what you want to buy by asking questions and compelling you to make decisions. We cannot tell you where to live but we can help you narrow the choices so that you can get to see the best properties for your needs before they are off the market, sold to someone else. While looking at houses is fun for many, it can become a project in and of itself and many consumers find it difficult to make decisions. Where to live, what to buy, how much to offer and other questions must be answered! To reach third base you need to have a fully executed agreement of sale in place.

Third base:  now that you and a seller have agreed to “terms” (price, financing, contingencies and time frames), the two major aspects of getting to settlement/ closing loom large. They are the various property inspections and finalizing the mortgage approval. If you are not using mortgage financing you will probably find this phase easier. While the financing aspect depends on others, the inspection negotiation is where the principals, meaning the buyer and the seller, get to determine how serious they are about getting the deal done. I generally do not recommend waiving inspections!!! How do the results (what did the inspector(s) tell you that you did not know or expect?) compare with your expectations at the time you first saw the house, decided to make an offer and then negotiated and executed/ signed the offer? Do BOTH parties want to move forward? The inspection phase typically occurs before the mortgage is finalized so getting past this step does not automatically mean that a sale is going to close. Assuming that all of the details that need to be concluded are addressed, you move to HOME! Congratulations! Hopefully both parties are satisfied and can move on to the next phase of their lives without hesitation. That is not always the case as issues do arise after settlement.

The process leading up to and whatever happens after settlement often involve opportunities for disagreement and doubt, even in the smoothest sales. How they are managed depends on preparation and effort. You will get to re-evaluate the process from time to time so it is important to …

HIRE WISELY!

Please read my other posts at WhyAndrewWetzel.com and visit my web site AndrewWetzel.com

August 26, 2017

One Price; Three Opinions

Filed under: Uncategorized — awetzel @ 2:43 PM

Ideally all sellers will select an asking price that attracts “ready, willing and able” buyers and meets appraisal standards. If selling Real Estate were that easy, Realtors would be fleeing to easier avocations! Even when the “ideal” happens, buying Real Estate is NOT a retail transaction so there are a number of potholes along the way as part of many transactions. Fortunately, an experienced Realtor knows where many lay and how to avoid them as well as how to navigate the surprises. That being said, why are there often three opinions (perhaps more!) when it comes to discussing the price?

Sellers will arrive at any asking price in a variety of ways. Do they want a quick sale, perhaps being willing to offer the lowest-priced property in their market? Are they only willing to sell and move if they achieve the highest price? Do they need a down payment on their next home? Are they inflating the price so that reasonable negotiating will get them what they think “fair”? Have they over-improved OR, alternatively, done nothing to their home? The rationale that sellers will use, if they are willing to provide it, is usually interesting, sometimes hard to comprehend but too often centered on their needs without fully embracing the other opinions likely to intrude. Frankly, that is fine:  we are here to educate our clients and there are times when their logic proves correct!

Buyers look at pricing from their own point of view. Some absolutely refuse to pay full price. Many want a bargain. To what extent they can and will compare houses to arrive at a price to offer and to what extent they accept documented history depends on the buyer, their financial ability and, ultimately, how much they really like a house. One house can attract multiple offers and those offers can vary as widely as the ice cream selections available at your favorite store. Whether we reach an agreement depends on how the seller’s asking price and expectations can be negotiated with a buyer’s financials and their expectations. Then comes reality!

Most sales involve lender financing. While lenders make money by loaning money, they need to protect their investment and their investment is placed partially in the ability and diligence of the borrower and partially in the property being purchased, the latter securing the debt in the event of non-payment. A lender may think you are the nicest person they have ever met but they still need to be sure that, if something happens to you, the house can be sold to someone else to recover their initial investment. The process seems to involve some loss of their investment despite their best efforts. They protect their interests by hiring an appraiser to look at the “subject” property and to evaluate it compared to similar, local properties recently settled. Their analysis results in a “best guess” as far as what the “subject property” is most likely worth to the general public.

The appraisal process is detailed and complicated with many rules and guidelines. Many find it amazing that they can actually boil the process down to a single dollar amount that is either higher (this is GOOD) or lower (this is BAD) than what a buyer and seller agreed. While I highly respect the analysis process and the arrival at a finite number, I have always felt that the “number” was sanitized, devoid of emotion. How can any piece of real property be worth an exact number that a human being arrives at? Regardless, it is the ONE external factor in the process meaning that someone other than the buyer or seller gets to decide whether the selling price works or not. Even then, if the appraised value is less than the selling price, the “principals” have recourse as long as the seller or buyer is willing to adjust their positions. The seller can agree to a lower selling price and/ or the buyer can use more of their own money.

Unless a buyer or their agent solicit the owner of an unlisted property, the typical process starts with a seller putting their property on the market at some price, seeing how the market responds, making or not making adjustments (there are times when sellers raise their asking price), eventually getting one or more offers which may result in a transaction that continues until finalized at closing or that gets derailed by some disagreement (such as can happen after a property inspection) or financing issue or an appraisal issue.

As stated in the subject line, there are three opinions concerning price! Serious sellers and buyers need to understand the whole picture and …

HIRE WISELY!

Please read my other posts at WhyAndrewWetzel.com and visit my web site AndrewWetzel.com

August 11, 2017

Your property has settled. Is that the end?

Filed under: Uncategorized — awetzel @ 5:34 PM

Technically speaking, settlement (or “close of escrow” as some areas call it) concludes the process of transferring ownership of real property from one owner (“the seller”) to a new owner (“the buyer”).  Does that really end the seller’s responsibility?  I am not a lawyer but I will quote what many have said in response to such a direct question:  it depends!

In most cases, a new chapter has begun and both parties move along their new paths.  However, I have seen situations that linger like gastric distress from a past meal.  I have asked the following question several times:  when does THIS buyer accept responsibility for their house?  Some act like tenants expecting someone else to handle whatever pops up.

As a Buyer’s agent I have not had any problems with any of my buyer-clients thinking that the person who sold them their house still bears responsibility for what happened after settlement.  However, as a Listing/ Seller’s agent, I have received several calls over the years, some well past settlement, from Buyers’ agents saying that their client had an issue and believed that my seller was responsible.  Please note that I am NOT referring to situations where a seller may have shall I say “overlooked” something on their property disclosure statement.  Whether the result of a mistake or outright fraud, that type of issue certainly merits attention.

On a related note, I feel that a seller is not responsible when a property inspector does not do their job or an agent/ buyer fail to do their “due diligence” such as when an inspector states that something merits further investigation and none takes place.  Our property disclosure law in PA is much better than in many states (some have none!) and most sellers are honest but simply do not know what lurks behind walls, floor and ceilings.  While many do “preventive” maintenance, too many only react and respond when there is a problem.

Let me offer a couple of my experiences.

I once received a call from a buyer’s agent more than 2 years after settlement.  They told me that a house I sold to his client had developed a roof leak.  He was upfront, acknowledging that he knew a long time had passed, telling me that he was calling me because his past client wanted him to.  The buyer/ now owner wanted to verify that my sellers had done the roof repairs they agreed to do.  I called my past clients and was told that they had done what was asked and provided receipts at the time.  In reviewing the sales file I was reminded that this had been an FHA sale which required a two-year roof certification which involved a minor repair.  After talking to the sellers, I called the buyer agent and reminded him about the details and stated that it was several months past the 2-year point.  While I felt badly that there was a roof leak, it was not related to anything my clients did.  Stuff happens when you own a home which is why some prefer to rent despite the never-ending rent payments.

Once I received a call several months after closing.  I sold a house in late spring and it was now mid-fall and the temperature had fallen so the new owner tried to turn on the heat in their house.  It did not come on.  They went into the basement to check the heater and found the side panel off and leaning against the wall.  Their agent called me to see what I could tell them so I called my past client.  The house had been an investment property which the sellers never lived in and they had no idea why the heater did not work.  I reviewed the file and found what had apparently taken place.

The sale included a typical settlement time-frame.  The inspections had been completed, a repair list agreed to and the buyer’s financing was in place.  For whatever reason, the buyer agent called to see if we could settle sooner than planned.  My clients agreed but mentioned that they had not yet completed all of the repairs.  The buyer agent said that that was fine, that the buyers would take a credit for whatever remained.  Both sides agreed to a credit amount and we settled early.  In reviewing the file I found THE now-obvious problem.  When their inspector was at the property they could not get the heater to turn on so they suggested that the buyer ask the seller to have the heating system cleaned and CERTIFIED to be operational.  The sellers got proposals for the work requested and they gave the buyers the amount on the proposal, including the cost of the cleaning/ certification.  Neither the buyer nor their agent realized that there was no protection in the event that the heater needed a repair or replacement.  Frankly, neither did my sellers or me but that was not our job to point out.  I told the agent that they should talk to their broker and explain the situation.  I told them that the buyer found the heater in the same condition their inspector had left it.  I had to assume that the buyers did not use the credit to address the repairs they had asked for and, presumably, never looked at the heater during the several months between their property inspection and that cold fall night.

There are other stories I could tell but they essentially involve similar circumstances.  Ideally there is a euphoria when buyers are shopping for their first or next home.  Sellers probably feel the same emotion.  I often like to remind my clients that selling or buying a home is a business transaction.  Despite all of the “human” aspects, it is probably the largest purchase someone will ever make and one that can get costlier if the process is not respected for what it is.  Sure, stuff happens but much of what I have seen or heard is avoidable.  The inspection process must be looked at for what it is:  a major opportunity for BOTH sides to re-evaluate their agreement.  I think that a buyer agent MUST attend the property inspection to best protect the interests of their client and no stone should be left unturned to ensure that there is nothing or very little missed.  The reports must be reviewed in detail and questioned.  While lender appraisals and pre-settlement walk-throughs will support the process, the property inspection, especially if it includes wood infestation, radon and other specifics, is the major point of analysis and typically the last chance for a buyer to express any concerns.

While I am sure that some buyers will refer to the property disclosure statement when a problem arises, the form is not perfect and a buyer has the “burden of proof” if they think something is amiss.  It is certainly not an expert opinion.  Hopefully a buyer does not try to save a few hundred dollars by waiving the option of having a property inspection, thinking themselves capable of assessing the true condition of a house.  That can prove BOTH co$tly and foolish!

Sadly, no matter how euphoric a purchase or sale may have been at the time, no Realtor likes to receive a post-settlement call about a problem.  Our service does not end at closing and hopefully we have not contributed to or caused the issue.  Regardless, those conversations are not the way to remember a sale.  As I said before, much of what I have seen is avoidable.  This is why I end every post with ….

HIRE WISELY!

Thank you for reading.  See my others articles at WhyAndrewWetzel.com!

 

 

August 4, 2017

Personal Property: Included or NOT?

Filed under: Uncategorized — awetzel @ 1:06 PM

Buying and selling Real Estate (often referred to as real property) can be complicated enough even when the process goes smoothly.  Too often, seemingly minor or avoidable distractions threaten to derail the process.  The topic of personal property is a perfect example.

Properties are either marketed when occupied or vacant and they may or may not have “personal property” in them when viewed.  What is being sold?  What is being purchased?  Generally speaking, the physical building and its fixtures are the product being offered to the public.  What the buyer is seeking may be a different but complicating matter.

In the PA Standard Agreement For The Sale Of Real Estate, in Paragraph 25 (“REPRESENTATIONS (1-10)“), it is assumed that the “Buyer has inspected the Property (including fixtures and any personal property specifically listed herein (meaning listed in the Agreement) before signing this Agreement or has waived the right to do so, and agrees to purchase the Property IN ITS PRESENT CONDITION….”.  In Paragraph 7 (“FIXTURES AND PERSONAL PROPERTY (9-16)“, a Buyer’s Agent should specifically list any personal property that the Buyer was requesting to be included or excluded from the Agreement.  Regardless of what was advertised as being “included” or “excluded” elsewhere, this paragraph IS the basis for both parties agreeing to whatever is noted.

The Buyer can request/ include something(s) the Seller did not intend to provide and/ or exclude something(s) the Seller intended to provide.  The Agreement/ purchase offer starts the negotiating process.  Admittedly, it may start off on strong footing or derail at the outset so an agent and their client have to discuss “the plan” which should factor into the equation the Buyer’s urgency, the type of “market”, whether there is likely to be competition and what it might take to compel the Seller to accept the offer or, at the very least, feel comfortable going back and forth.  Inclusions and exclusions can be an issue!

One of the distractions, frankly, is the “Sellers Property Disclosure Statement”.  The usage of the form itself offers a somewhat mixed message.  On the surface, Buyers expect that the Seller has completed the form as honestly and accurately as possible.  While inspections may determine that there are undisclosed or understated issues, it is generally hoped that the Seller reported what they knew so that the Buyer could rely on it.  On the other hand, Paragraph 16 (“OTHER EQUIPMENT AND APPLIANCES“) deviates from this general understanding.  There is specific language preceding a series of check boxes (“This section must be completed for each item that will, or may, be sold with the property”)  followed by language stating that the list is not conclusive and that the Agreement itself determines what is included in the selling price.  The paragraph concludes by asking the Seller to identify and explain any problems or repairs needed for the items in the check boxes.  Hmmm.

While I see the merit of listing some items that people may miss during a sale (such as items related to garage door openers), I respectfully wonder why the “fixtures” would not be included in their relevant sections in order to avoid having Sellers list things they have no intention of leaving?  I ask my Sellers to specifically circle the words “will, or may,” or, even better, do NOT list anything that is not meant to be included!

There always seems to be some confusion about the word “fixture” (read the paragraph to see what I mean).  We complicate this by what we list in the MLS, in property “highlight sheets” and on the disclosure form.  Sometimes those “sources” conflict, making us stop to ask questions which could put a Buyer at a disadvantage by delaying the preparation and presentation of their offer.

The “best practice” is to confirm the Seller’s intention if possible prior to writing an offer.  Either way, unless something is written into an Agreement and  executed by both parties, you have nothing.  Perhaps a Seller will ask their agent to contact the Buyer’s agent to see if they want one of more items to be left for them.  That too must be put into writing and fully executed.  Some Sellers will leave things they think the Buyer will want, only to find that the Buyer does not need or want them which may cause an issue at closing.

I have seen and heard of a number of situations where an otherwise uneventful property sale got complicated by miscommunication, poor communication and/ or assumptions being made by one party without the agreement of the other.  It is best that a listing agent discuss this with a Seller at the outset and then make the Seller’s wishes known.  If something changes, make sure that it is promptly communicated (people do change their minds!  Sellers may find that they need or do not need a particular appliance).  Buyer’s agents must discuss this with their clients as well to make sure that the Buyer’s wishes and the Agreement are in agreement.  Imagine doing a pre-settlement walk-through and finding that something you expected to see was not there?  Finding something you did not expect to see may also be an issue.

There is so much more to buying or selling Real Estate than simply identifying properties to see.  OUR job really starts after a buyer becomes interested!

HIRE WISELY!

July 28, 2017

I Showed Your House: To Give FEEDBACK or Not?

Filed under: Uncategorized — awetzel @ 5:03 PM

Real Estate is a unique profession in one specific way:  we alternate between cooperating and competing. We work together on committees, share ideas and attend classes in large groups and then we compete for clients! Knowing where and when to draw the line is what gets some of us into trouble. Let’s examine the underlying dilemma.

Before 1995 or so, at least in PA, EVERY agent worked for sellers either as an “agent” or a “subagent”. There was no such thing as legal “buyer representation”. As such, the profession was focused on working in the sellers’ best interests even if you showed a house to a potential buyer and wrote their purchase offer. The mere fact that many buyers thought the agent they relied upon was working for them as opposed to with them presented a problem which led to our Consumer Notice. This is a form, not a contract, that spells out the different relationships a buyer or seller can have with an agent. If they want to “hire” an agent they need to sign a representation contract.

It was both normal and expected that a subagent showing a house would tell the listing agent everything they knew as far as how the buyer felt about the house and why they either decided to make an offer or decided not to. This is called “feedback“. In its present form it is typically requested by email. There was no fiduciary duty of confidentiality so, essentially, BOTH agents and the seller(s) were a team with the buyer acting on their own. The subagent could not legally advise them on anything that might hurt the seller. I specifiy “legally” because I am sure that many agents felt naturally inclined to offer advice or suggestions especially if the buyer was their friend or relative.

Once “buyer agency” came into the marketplace, the focus shifted from protecting and promoting the interest of the seller to doing so for your own client. I use the analogy that buying and selling Real Estate is like playing poker in that, generally speaking, one side has no idea about the other:  are multiple buyers interested in a house or not, what is the level of urgency for either party, will the buyer offer more or the seller accept less, etc.

While client representation seems to be the natural inclination, there are still some vestiges of the past. One of these is “feedback” and there is an ongoing debate about whether a buyer agent should offer any since it may negatively affect their present or even a future client’s negotiating position. Some buyer agents refuse to offer any feedback at all; some will do so after getting their client’s permission (the latter is acceptable as long as the client truly understands any potential ramifications such as their later deciding to pursue a house). As alluded to earlier, an agent has to consider whether present “feedback” could hurt a future prospect for the same house.

Feedback, whether requested in a formal email or a phone call, generally includes several questions regarding the buyer and/ or agent’s perception of the asking price, the property itself and whether there is “further interest”. Frankly, a listing agent dependent on such feedback may need to re-evaluate their ability to provide client service:  shouldn’t they know if a property is over-priced or shows poorly? I agree that having a third party “report” this adds weight but most feedback seems to have negative comments which are difficult to judge as sincere. I have had a number of agents report that a house was priced too high and showed poorly and yet, miraculously, their client HAS INTEREST! My assumption is that they are laying the ground work for a low offer!

Aside from how a buyer agent handles feedback and how much stock a listing agent or seller attribute to it, the ONE primary benefit I see is that the showing agent may have insight or knowledge that I do not and I appreciate when they share that since there may be no other way for me to know what they know or saw. Such information will not likely impact a present or future negotiation but goes to the spirit of cooperation that exists among us as far as our desire to advance the concept of home ownership. It has been under assault since the market fell apart a decade ago.

So, what can you tell me that I may not know? Perhaps the seller was home during your visit (this happens especially when the weather is bad or when sellers are used to agents not showing up as scheduled), maybe the seller followed you around or were overly friendly or chatty (some sellers intrude on the privacy expected during a showing or make buyers uncomfortable which can undermine any interest), were there pet issues/ odors (cats!!!), how did the house look (exterior maintenance and general housekeeping may be a problem) and, most importantly, were there any MAJOR issues to report? I showed a house last that reeked of gas so I promptly called the listing agent. Years ago I showed a house that had such a pungent cat odor that it was evident from the street and caused my clients to promptly depart after about a minute in a house. I have been called about water leaking on a basement floor and other things that only a showing agent gets to see. Regardless of how an agent handles formal feedback, I think it professional to promptly report urgent issues. On a slightly different note, the feedback process is NOT where you should tell me that you did not show a house. Running late or canceling an appointment should be handled just as the original scheduling occurred so that owners/ tenants are not inconvenienced.

Feedback is a subset of “cooperation” and, while I understand that we may compete and we may have clients whose interests are in opposition, Real Estate is a vocation that demands professionalism. There are many things we can do to advance home ownership that do NOT conflict with our fiduciary duties owed our clients. Failing to do them reflects poorly on all of us as we are too often judged in the aggregate. While each little inconsiderate act may be like a pebble in the ocean, too often the minor ripples appear as one, unified reflection. We need to “raise the bar” and cooperate so that our profession will continue to grow in the eyes of the public rather than having a few bad acts or actors taint the many who are setting a good example. After all, a home is someone’s castle and, regardless of the expectation as to whether you will or won’t get an offer or feedback, allowing someone to enter your home is a BIG deal. I think we take that for granted. It is a necessary inconvenience but let’s handle it as best we can.

HIRE WISELY!

 

July 26, 2017

Municipal Inspections: Be Prepared!

Filed under: Uncategorized — awetzel @ 5:28 PM

Buying or selling Real Estate offers a great deal of flexibility depending on the principals.  There may or may not be a mortgage (just because there is no mortgage contingency does NOT mean there will not be a mortgage!), inspections (perhaps there was a pre-listing inspection or the buyer did their “due diligence” prior to submitting an offer) or any other potential hiccup prior to swapping a deed and keys for money.  No matter how straight-forward an agreement might be between a buyer and a seller, most municipalities insert themselves into the process as if they were the center of the universe.

Listing agents MUST familiarize themselves with local requirements so that they can prepare their often uninformed sellers.  The cost of addressing some municipal inspection-related defects is high, at times exceeding the results of a property inspection!  The difference is that the list of repairs required by local municipalities cannot be negotiated with the exception of whether the buyer or seller will do them and when.  Repairs can generally be completed after settlement which is a way of saving the seller some aggravation should a buyer not be able to perform.  The seller theoretically has to “escrow” funds to cover the expense of the repairs and the buyer either has to be willing to put up with any aggravation related to the repairs being made while living in the property OR be willing to delay moving in should that be mandated due to the type of defects.

Buyer agents need to be aware of the local requirements for two reasons.  One is to make sure that they do not get “cute” and ignore items found during a property inspection thinking the municipality will require their correction.  The other is to make sure the appropriate items are requested and completed in a workmanlike manner with receipts provided should there be issues after settlement.

In PA the purchase agreement spells out language regarding the ordering of the municipal inspection and the alternatives related to it, a key one being the time frame for requesting the inspection so that there is sufficient time to schedule the inspection, address any requirements and then to have the codes officer reinspect to make sure the deficient items have been corrected.

So, who controls the codes officers or outside companies employed to handle these inspections?  What do you do when these inspectors are late for appointments or fail to to show up without calling?  What about any requirements that seem unreasonable to the point of intruding and possibly killing a sale (such as enforcing current building codes on old houses)?  What happens when inspectors move so slowly with scheduling their inspections or providing the list of deficiencies that it has an impact on the agreed-upon settlement day (which may involve one of more other properties settling)?

Different municipalities have different “lists” as far as what they look for.  Some simply want to ensure that there are no health violations against a property while others are quite literally more intrusive than a typical property inspection almost to the point of being punitiveWho is in charge?  I wish more home owners were aware of this process and exercised their vote and their voice prior to their being forced to confront the too-often harsh reality of these inspections.

In my experience, too many of these inspectors presume too much about their “value” and seem to think the process all about them.  True, they can make or break many sales but what inspires these folks to think that Real Estate revolves around them?  Did they sell or buy a house?  Respectfully, they are employees tasked with comparing property conditions to a list, informing sellers about what they found and then ensuring that the deficiencies were properly corrected.  While many inspectors are a pleasure to work with (it is a happy time, isn’t it?), I am sure that many of these positions are filled with “friends” of important people (“patronage“) which may or may not be fair but my only concern, other than their being “qualified” and having the “temperament” to handle a difficult time for many, is that they FAIRLY and UNIFORMLY enforce the established standards.

Generally speaking, it has been my experience that the most challenging inspections, meaning the ones which tend to look most closely at property conditions, tend to occur in less affluent areas where houses tend to sell to less affluent people.  These houses tend, on average, to often be less well maintained than other areas which means they may have fallen below the threshold of meeting existing standards.  Many of the buyers who buy these homes are likely to not be able to upgrade them and more likely to suffer greatly should something serious happen.  The local codes in many of these areas seem geared toward bringing the conditions of sold properties up to par.  I guess that has some merit.

My concern is that these inspections only focus on properties being sold, ignoring declining properties owned for decades by folks unable or unwilling to maintain or upgrade health and safety conditions.  How many die in fires each and every year where there were smoke detectors with missing or drained batteries?  It would be great if ALL houses in a municipality were held to some standard but I am not sure how to do that and I am not suggesting the owners be forced to sell for failing to meet municipal code.  That being said, this process seems opportunistic.

What happens when a sale falls through?  In the past I have encountered municipalities that REQUIRED that defects be corrected regardless.  That seems to make sense but it means that home owners may take on repairs without the ability to pay for them.  Is that fair for them or the contractors they hired?  What happens if the municipality allows the defects to go uncorrected even though they involve health and safety concerns?

Part of me thinks that the government should allow a buyer and seller to decide what is in THEIR “best interests” and keep their noses out of other people’s business.  Check for unresolved violations, make sure taxes and utility expenses are up to date and make sure that the exterior, especially walkways, is safe for the public.  Collect a small fee/ tax to cover the time and labor.  However, if you are going to walk inside and through and around someone’s home, be fair and be consistent and explain to me why the “list” should differ just because of the zip code.  If the purpose of these inspections is health and safety, why assume some are better equipped to protect themselves and others not?

Is there anything worse than a “partial nanny state”?

HIRE WISELY! 

 

July 22, 2017

Escalation Clauses: Let the debate begin!

Filed under: Uncategorized — awetzel @ 2:31 PM

Over ten years ago when the Real Estate market erupted, creative agents sought ways to promote and protect the interests of their clients. Listing agents advertised properties before exposing them to the MLS hoping to generate a quick sale and perhaps to increase the odds of their getting “both sides”. Many showings started at an “open house”. While much of what they did was in fact creative, some of it really ticked off buyers and their agents. Some listing agents actually over-stepped, assuming they had a “hot listing” on their hands. Many property listings EXPIRED with catchy comments like “Won’t Last!” or, even more humorous, the public remarks section specifying a long passed date and time when offers would be presented to the seller (many agents fail to remove such dated announcements). If the strategy worked the result was multiple offers. I personally know of one listing agent who got almost 30 offers on a house after starting showings at an open house. He told me that most of the offers were so similar that the seller got to the point where they said stop opening them!!! How do you truly evaluate more than a few offers? Doing so requires more than just looking at paperwork! I like to talk to lenders and buyer’s agents so that I can professionally inform my seller clients.

Buyer agents got creative as well. I received purchase offers with mid-day expirations. Typically a buyer will give a seller 2 or 3 days to respond to their offer. After the allotted  time passed the offer was no longer valid so a seller had to decide whether to accept an offer as presented or “counter” it, knowing that they could not just assume that the buyer would stand by their original offer if they refused to go higher or modify any of the terms. However, in the “feeding frenzy”, many buyers did not want to be tied up too long waiting for a seller to respond so they would have their agent present an offer that would expire at some point during the same day. I would see a 1pm or a 5pm expiration and wonder how they would really know what time I returned the hard copies (back then many offers were hand-delivered. Today most are emailed so there is a time-stamp). A typical buyer’s primary concern was getting in first and negating competition. Many negotiations started at the asking price rather than working their way up to it. From this “escalation clause” was born.

It essentially consisted of three aspects:  an initial offer, a stipulation that the buyer would beat any other offer by a specified amount not to exceed a specified total AND a requirement that, in order to exercise the escalation provision, a listing agent had to show any offers that the seller was asking the buyer to beat. Most people, agents and consumers, do NOT know that, absent a “confidentiality agreement”, no offer is inherently confidential. I can tell you what I have “in hand” and ask if you can and will “beat it”.

Aside from how anyone feels about using or receiving an offer with an “escalation clause” and ignoring any legal issues about how the contract and addenda may be written, it has been my experience that, as a listing agent and buyer agent as well as one who has been involved in numerous conversations about many Real Estate practices, there are those who swear by these, there are those who deplore the very idea (they may be uncomfortable “shopping offers” or dislike this form of negotiating) and perhaps many who are not sure what to do with them. They seemed to disappear for awhile but they are back!

Having multiple offers with escalation clauses can get interesting. Having only ONE OFFER in hand and having it include an escalation clause is also interesting since the buyer and their agent have no idea if there is really competition! PA rules say that a buyer agent may ask if there are other offers but it is the seller who decides whether to allow their listing agent to answer the question. The choices are to answer honestly (why would anyone say they have no other offers? On the other hand, saying that you do may scare away buyers who do not wish to compete) OR to say that you are not authorized to answer the question. Lying is NOT an option!

Unless the offer as written is acceptable to the seller, many agents will suggest that their seller client simply “counter” the offer by asking the buyer for a new specific price or asking for their “highest and best”. While the seller may forfeit the amount suggested by the escalation clause (the number is meaningless when there is no other offer to disclose), the buyer is under no obligation to modify their initial offer. I have heard agents make ridiculous statements like “the seller has to show me the other offer(s)“. REALLY??? A buyer has no leverage to compel a seller to do any such thing. In fact, the ONLY thing a seller is REQUIRED to do is provide a complete property disclosure statement. Of course, however a seller or buyer responds to anything will determine whether there is an executed contract.

I like the “highest and best” approach especially when there are multiple offers. If you “counter” with a specific price or terms, the buyer may accept which is fine unless you have done that with more than one buyer! In any Real Estate negotiation both sides MUST recognize that there are some basic risks. The buyer’s include not knowing whether there is competition, not knowing what the seller expects/ needs to achieve financially (which includes what they will actually accept), not knowing what aspects of an offer may be important other than just the financial, not knowing if a seller will even respond to/ consider their offer, etc. The seller does not know how high a buyer may go (they may see financial information but that might be based on what a buyer wants to do rather than what they are capable of really doing), whether the buyer is also interested in other houses (in PA we generally suggest that buyers do NOT bid on multiple houses at the same time but that does happen elsewhere), whether the buyer will remain interested after making their initial offer, etc. There is a lot in motion just getting to the point of actually signing an agreement.  After that is done, the REAL work begins and there are multiple opportunities for both parties to re-evaluate their interest in moving forward.

How the rest of the process plays out is largely dependent on the groundwork established getting to an executed contract. I firmly believe that at the time the agreement is fully executed one side or the other is “happier”:  did the seller get more than they expected or did they accept less?; does the buyer feel they got a bargain or that they overpaid? Typically the next major step is the inspection contingency and this may be the only phase where a buyer and seller may get to address their feelings about the selling price. Let the fun begin!

HIRE WISELY!

July 14, 2017

Buying a “dated” listing? What should you do?

Filed under: Uncategorized — awetzel @ 1:48 PM

You have a buyer-client interested in making an offer on a house that is dated. Hmmm. Does it need updating or does it need repair? Some buyers may think they are the same thing! I want to focus on houses that need updating. I will say that there are some parallels between both “conditions” but that houses needing repairs probably have a smaller potential audience and their condition may impact how a lender and/ or municipality views them. Hopefully, a buyer knows what they can handle!

Some houses seem to sell over and over again while others stay off the market for many years. I wonder why some seem to keep coming on the market. Perhaps there is something that needs to be looked at? On the other hand, houses that change hands frequently tend to be more updated as each seller wants to attract interest and, generally speaking, most sales involve a property inspection and a municipal inspection so there are repeated processes to check how a house is doing.

Conversely, houses that are sold less frequently have fewer opportunities for third-party evaluation and may not be updated with the latest equipment, features or decorating ideas. For example, in my local area you will find many houses with wall-to-wall carpet (even shag carpet!), aluminum siding, paneling and dropped ceilings! Salesman flooded the area in the 1970’s and sold a ton of these “ready fixes” that became “staples”. The presence of any (or ALL!) of these “dates” a house and can send some buyers running away. Frankly, unless you like what you see, these old-time “upgrades” may be unappealing, difficult to change and/ or even hide issues that should have been addressed but were covered up. Given the current low interest rates, unless a buyer specifically wants to decorate a home to their own tastes or buy a house to “flip”, they may be more inclined to spend more (it typically costs about $5 per month for every $1000 borrowed) to get a house that needs little improving or has nothing to do before moving in. How much does that extra bedroom or bathroom really cost? If you are planning for down the road, what is the potential impact on resale?

Ideally, houses should be priced for features and condition (the location cannot be changed so I am ignoring it here but it is obviously important). Buyers should evaluate houses in terms of the competition, its features/ condition and how it fits their needs/ wants. I firmly believe that a house is something a person/ family should “grow into” rather than “outgrowing it” as ‘closing costs” are very expensive! Aside from their perception about how a seller priced it, buyers need to consider how much to offer and whether to ask for specific repairs up front. It is always risky if not disingenuous to make an offer on a house already priced for its features and condition and then to ask for financial consideration arising from a property inspection that points out the obvious. Inspections should focus on what is not obvious during a showing as well as pointing out what a buyer and their agent did not know at the time. Of course this will depend on whether the market favors buyers or sellers and the level of urgency the seller has.

I trust my ability to represent the interests of a buyer-client when they have interest in a house that needs work. I need to know what they are thinking so that I can properly advise them. Then, I like to have an honest conversation with the listing agent before my client commits to making an offer and spending money on inspections only to find that their perceptions and expectations differ from the seller’s. Wasting time making an offer that will go nowhere may allow better options to sell to other buyers; spending money on inspections that reveal repairs a seller will not address costs money. Of course, every situation is not ideal and time and money may get wasted.

HIRE WISELY!

Selling a “dated” listing? What should you do?

Filed under: Uncategorized — awetzel @ 1:25 PM

You have been “hired” to sell a house that is dated. Hmmm. Does it need updating or does it need repair? Some buyers may think they are the same thing! I want to focus on houses that need updating. I will say that there are some parallels between both “conditions” but that houses needing repairs probably have a smaller potential audience and their condition may impact how a lender and/ or municipality views them.

Some houses seem to sell over and over again while others stay off the market for many years. I wonder why some seem to keep coming on the market. Perhaps there is something that needs to be looked at? On the other hand, houses that change hands frequently tend to be more updated as each seller wants to attract interest and, generally speaking, most sales involve a property inspection and a municipal inspection so there are repeated processes to check how a house is doing.

Conversely, houses that are sold less frequently have fewer opportunities for third-party evaluation and may not be updated with the latest equipment, features or decorating ideas. For example, in my local area you will find many houses with wall-to-wall carpet (even shag carpet!), aluminum siding, paneling and dropped ceilings! Salesman flooded the area in the 1970’s and sold a ton of these “ready fixes” that became “staples”. The presence of any (or ALL!) of these “dates” a house and can send some buyers running away. Frankly, unless you like what you see, these old-time “upgrades” may be unappealing, difficult to change and/ or even hide issues that should have been addressed but were covered up. Given the current low interest rates, unless a buyer specifically wants to decorate a home to their own tastes or buy a house to “flip”, they may be more inclined to spend more (it typically costs about $5 per month for every $1000 borrowed) to get a house that needs little improving or has nothing to do before moving in.

On the seller side, what should they do? Some listing agents WILL come in with a list of suggestions to make a house more saleable. I have heard of agents asking sellers to upgrade kitchens and baths or even to add a powder room to get a house sold. I do agree that a house may have something that really needs to be addressed just to make it able to be sold and that requires an honest conversation. However, many have “things” that I suggest leaving alone unless and until feedback or actual interest elevates them to priority status worthy of discussion. The fact is that many sellers do what they think will help their house quicker and for more money without actually knowing what their eventual buyer really wants. Many over-estimate the “return” on their investment. If the goal is to make a profit on the “project”, you need to do it properly and look at realistic numbers to see if doing something is really worth the time and effort. Look at how “new construction” works:  they offer a base model and then discuss upgrades.

Ideally, houses should be priced for features and condition (the location cannot be changed so I am ignoring it here but it is obviously important). Buyers should evaluate houses in terms of the competition, its features/ condition and how it fits their needs/ wants. I firmly believe that a house is something a person/ family should “grow into” rather than “outgrowing it” as ‘closing costs” are very expensive! Aside from their perception about how a seller priced it, they need to consider how much to offer and whether to ask for specific repairs up front. It is always risky if not disingenuous to make an offer on a house already priced for its features and condition and then to ask for financial consideration arising from a property inspection that points out the obvious. Inspections should focus on what is not obvious during a showing as well as pointing out what a buyer and their agent did not know at the time.

The bottom line is that there is risk either way. I would rather trust my ability to talk with an agent who has an interested buyer to close a sale than have a seller spend money that may hurt a sale and cost them money they will not recover, possibly affecting their plans after selling.

HIRE WISELY!

 

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