Ch. 19 - Practice Course Review

Broker-Salesperson Relationships:

A salesperson is licensed to perform transactions on behalf of his or her licensed broker. The broker is ultimately responsible for the actions of his or her affiliated licensees. Therefore, the salespersons must perform all activities in the name of the broker. A salesperson may engage in only those activities assigned by the broker. And the salesperson may receive compensation for performed activities ONLY from the employing broker. Since the salesperson is acting as the agent of the broker, he or she has no authority to make contracts with or accept compensation from any other party - including another broker, the buyer, the seller or a referral agency.

Second Mortgage

A mortgage on a property that has no prior mortgage is known as a first mortgage. If an owner takes out another loan for additional money, the new loan is a second mortgage. The second mortgage is subordinate to the first mortgage and, because second mortgages represent a greater risk to the lender, they are usually given at a higher interest rate. Blanket Mortgage A blanket mortgage loan covers more than one piece of property. Land developers commonly use blanket mortgages when they buy a plot of land and divide it into many separate lots. A blanket loan usually includes a clause called a partial release clause. This clause allows the borrower to obtain a release of any individual lot from the lien by repaying a certain part of the loan. The lender will issue the partial release for the one lot, with the provision that the mortgage will continue to cover the remaining lots. BuyDown A buydown is a financing technique used to reduce the monthly payment for a borrower during the initial years of the loan. A lump sum payment is made to the lender at closing, usually by a builder as an incentive to the buyer or by a family member trying to help out. That payment serves to reduce the interest rate on the loan for the first few years. At the end of that time, the rate rises. The lender assumes the borrower's income will also have risen during these years and he or she will be able to make the increased payments. Construction Loan Lenders give construction loans to finance the construction of improvements to property, such as homes, apartments and office buildings. The lender commits to the full amount of the loan, but disburses payments over the life of the construction project. The payments are made to the general contractor or the owner for the parts of the construction completed since the last payment. But before making a payment, the lender will inspect the completed work and ask the contractor to submit proof that the mechanic has waived the lien rights for the work the payment is covering. Interest rates on construction loans are usually higher than on other loans because the risk is greater. Risks include: Inadequate protection against mechanics' liens. Potential delays in construction completion. Financial failure of contractors or subcontractors. The borrower pays interest on only the money that has been actually disbursed up to the payment date. These loans are short-term. The borrower can get a permanent loan, usually called a takeout loan, which pays off or "takes out" the lender of the construction loan, when the construction is complete. Alternatively, a borrower may be able to convert the construction loan to a permanent fixed mortgage if the lender offers that option. Wraparound Loan A wraparound loan allows a borrower who has an existing loan to get another loan from a second lender without paying off the first loan. The second lender issues a new larger loan to the borrower at a higher interest rate. The new loan is a combination of the first loan and the second loan. The borrower makes the new higher payments to the second lender, and then the second lender pays the first lender out of those funds. A wraparound loan is often used in a refinancing situation or for the purchase of a home when a buyer cannot prepay the existing mortgage. Note: A wraparound mortgage is only possible if the original loan documents allow it. Package Loan A package loan is one that includes all the personal property and appliances that are installed on the property. This type of loan has been used extensively in the sale of furnished condominiums. The loan will include furniture, draperies, carpeting, kitchen appliances, washer and dryer, freezers and other items as part of the purchase price for the residence.

Seller Agreement

If the agent enters into an agency agreement with the seller, the agent becomes the seller's agent. The seller is the principal or client. Any buyers who want to view the property are customers. In this arrangement, the agent is accountable only to the seller.

Other Mandatory Disclosures

Military Ordinance California Code requires that if a seller knows that his or her residential property is located within one mile of a former military training site, the seller must inform the potential buyer in writing that the ordinance site may contain ammunition or explosives. Sex Offender Database California requires that every sales contract or lease contain a notice which states that information about sex offenders registered under Megan's Law is available to the public on an Internet web site maintained by the Department of Justice at www.meganslaw.ca.gov. Depending on the offender's criminal history, the database information will include the offender's current address or the community and zip code in which he or she resides. Disclosures Not Required Some information is not required to be disclosed. Death Sellers or their agents are not required to disclose any death that happened on a property more than three years before the offer to purchase was made. It would be wise to disclose any unnatural deaths that happened within the past three years or to answer truthfully any direct question about a death posed by the prospective buyer regardless of how long ago it occurred. AIDS Sellers or their agents are prohibited from disclosing by federal fair housing law that a former owner or occupant ever had AIDS or died from it. Some other disclosure situations that you may want to become familiar with include: Mello-Roos Bond Disclosure. Subdivision Disclosures. Common Interest Subdivision. The Mello-Roos Community Facilities Act of 1982 authorized the formation of community facilities districts, the issuance of bonds, and the levying of special taxes to finance certain public facilities and services. The bonds are issued for streets, sewers and the like in new developments. The seller of a one-to-four-unit residential property subject to a Mello-Roos bond must make a good faith effort to obtain a disclosure notice from the district concerning the special tax. The seller must give the notice to a prospective buyer. If the seller fails to provide the notice prior to signing a sales contract or lease, the buyer or tenant has the right to cancel the contract within three days after the receipt of the notice. Any person intending to offer subdivided lands for sale or lease must apply for and obtain a public report from the Bureau of Real Estate. The public report discloses to prospective buyers pertinent facts about a subdivision. The report may include information about utilities and water, roads, soil and geologic conditions, title, zoning and use, hazards and any financial arrangements for completion of the subdivision. Purchasers must sign a receipt indicating that they have received and accepted the report before they enter into the purchase transaction. The subdivider must keep the receipt for three years. Click here to read about RESPACalifornia Code defines these rules for providing the agency disclosure: The listing agent must provide the disclosure to the seller prior to securing the listing agreement. The selling agent must provide the disclosure to the seller "as soon as practicable" prior to presenting a purchase offer. If the selling agent does not deal directly with the seller, the listing agent may deliver the form prepared by the selling agent to the seller (or the selling agent can mail it via certified mail). The selling agent must provide the disclosure to the buyer "as soon as practicable" prior to the execution of the buyer's offer to purchase. Any person who is selling a one-to-four-unit property must provide the buyer with a written disclosure statement that describes the condition of the property. This Real Estate Transfer Disclosure Statement is a two-page statement that includes the following sections: Part A - Identifies the items contained in the home and whether or not they are operational. Part B - Describes any significant defects or malfunctions in the home. Part C - Identifies miscellaneous items such as known environmental hazards, easements or encroachments, improvements or alterations to the property, zoning or neighborhood concerns. Click on this link to see and print a copy of this form. Real Estate Transfer Disclosure Statement* * Note: Reprinted with permission, CALIFORNIA ASSOCIATION OF REALTORS®. Endorsement not implied.

Tenant Responsibilities

A tenant also owes these responsibilities to the landlord: Pay rent on time. Follow the rules and regulations set out by the landlord. Give a 30-day notice when terminating a month-to-month lease. Return all door and mailbox keys when leaving the property. Leave the unit in as clean a condition as it was at the start of the lease.

Here is a list of important things to look for when choosing a broker/firm:

Quality training programs are available in-house and locally. The broker encourages and supports training. The broker provides a mentor program and/or office assistance for the licensees. The firm has a large selection of books, audios, videos and CDs on hand for licensee use. The office is dedicated to your desired specialty area. The firm employs a number of successful agents. The agents have a long history with the firm. The firm feels like a "good fit" for you.

It is customary for the listing agent to present the offer to the sellers. However, exceptions do exist: Sometimes the selling agent accompanies the listing agent to provide backup information on the buyers, clarify the terms or provide insight into the buyers' motivations for writing the offer as they did. Note: Some brokers would prefer that the selling agent not attend to avoid the possibility of undue pressure on the sellers. If the sellers do not have a listing agent, it falls to the selling agent to make the presentation. Before you go to the appointment, you may want to prepare additional documentation to support the offer. Complete an Estimated Sellers' Proceeds form. If the offer is less than the asking price, you might want to prepare a new form based on the offering price. (If you remember, in a previous chapter we suggested that you prepare an Estimated Sellers' Proceeds form for the sellers when you obtained the listing, and we showed an example of how to fill out the form.) Preparing a new form shows the owners what they will net from this particular offer and gives you some backup for the recommendations you are planning to make. Do another competitive market analysis. If the property has been listed for several months and the market values have fallen during that time, update the CMA you did at the time of listing. This is especially helpful if one of the comparables you used in the original CMA has since sold.

Sometimes there will be multiple offers on a property at the same time. Keep these rules in mind when this occurs. If you have received more than one offer on the property, you must present all offers together. If you have knowledge of another offer that will be coming in, you must let the sellers know this at the time of your presentation of the current offer. If you have received or know of any verbal offers, you must inform the sellers of this fact, even though verbal offers are not binding and can't be officially accepted. If you must present multiple offers, you might want to suggest that the sellers request loan prequalification on each of the prospective buyers before they make a decision. It would be a shame for the sellers to accept an offer from one buyer who is unable to get financing, and reject an offer from someone who would be easily approved. Note: We already talked about how important it is for buyers to be lender pre-qualified when there is a multiple offer situation. When you arrive for your meeting with the sellers, choose a comfortable place to make your presentation where you can lay out your documents and sit close to your sellers. The kitchen table is usually a good spot. If that's not available, any other room where you can all be seated closely around a table is a good alternative. Organize your presentation to cover: A brief review of what has happened over the life of the listing. Information about the buyers. The offer itself.

Taxes and Real Estate

Taxes play an important role in real estate. Property owners pay taxes annually on their property. Federal and state taxes are due when property is bought, sold or given away. The amount of taxes due and who is responsible for paying them are important factors to consider in real estate transactions. In this chapter we'll be discussing these tax categories: Property taxes. Special assessments. Documentary transfer taxes. Income taxes. A city's or county's operating revenue comes mostly from assessing and collecting taxes on real property. The county assessor determines the amount of real property taxes (also called ad valorem taxes) based on the assessed value of the property. The county collector is responsible for collecting these taxes, which are paid annually or semi-annually. Real property is reassessed every time it is transferred. The property tax is usually set at 1% of the selling price. So it's fair to say that the more valuable a property is and/or the more current its acquisition date, the higher the taxes will be. For example, if an owner purchased a home 5 years ago for $150,000, the property taxes would have started at $1,500. If that same home sells today for $450,000, the new owner will start out with a tax bill of $4,500.

Transaction Broker

A transaction broker is not an agent for either party. These licensees work as facilitators or intermediaries to assist the buyer and seller in the property transfer. Even though they owe no fiduciary responsibilities to their customers, they are obligated to disclose known material defects in the property. Note: Neither of these agency relationships is recognized in California.

Additional Business and Professions Code laws include:

Any ad published, circulated or distributed in a newspaper or periodical or by mail pertaining to an activity which requires a real estate license must have a designation that the person placing the ad is performing acts which require a license. No licensee may advertise, print, display, publish, distribute, televise or broadcast any false or misleading statements regarding rates, terms or conditions for making, purchasing or negotiating loans or real property sales contracts or allow anyone else to do so. No licensee may advertise an offer of a gift to any purchaser, borrower or lender as an inducement for making a loan or purchasing a promissory note secured directly by a lien on real property or a real property sales contract. The California Business and Professions Code law, which addresses mobile home advertising, prohibits a licensee from performing any of the following activities: Advertising a mobile home that is not in an established mobile home park or is being sold without land. Failing to withdraw an advertisement of a mobile home for sale within 48 hours after receiving notice that it has been removed from the market. Advertising or representing a used mobile home as being new. Indicating that a mobile home is capable of traveling on California highways if it does not meet the proper requirements. Advertising that no down payment is required on a mobile home sale when, in fact, a down payment is required. Failing to cause the proper endorsement, dating and delivery of the certificate of ownership or title to the person lawfully entitled to it. The Real Estate Commissioner has also adopted regulations regarding advertising: When advertising or disseminating information on the Internet about real estate services, a licensee must identify the name of his or her broker. If the person disseminating the information is not licensed in California, there must be a legend on the site which states: "These services are not available to persons located within the State of California." Use of the terms broker, agent, REALTOR®, loan correspondent or the abbreviations bro. or agt. in an ad are deemed sufficient identification to be in compliance with the Business and Professions Code.

Balloon Payment Loan

Balloon payment loans are partially amortized loans. This means that the monthly payments are not large enough to fully amortize the loan by the end of the term, leaving the large balloon payment due. For example, a loan for $125,000 at 5% can be computed on a 30-year amortization schedule but be paid over a term of 20 years. That means the payment amount will be figured as if the loan were a 30-year loan, but the loan will mature and the final balloon payment will be due at the end of the 20th year. In this example, the monthly payment (principal plus interest) will be $671.03. At the end of year 20, the balloon payment due will be $63,527.64 (the amount of principal still left on the loan). Reverse Annuity Mortgage (RAM) This type of loan is quite different from the others. With a reverse annuity mortgage, the lender is making payments to the borrower. This system allows older property owners to receive regular monthly payments from the equity in their paid-off property without having to sell. The borrower pays a fixed rate of interest and then repays the loan either when the home sells or from the borrower's estate upon his or her death. Now that we have discussed the types of repayment plans available, let's do a short exercise and then talk about the types of loans that exist.

California Association of REALTORS® (CAR)

CAR is the state division of NAR. This organization describes its purpose as being "to serve its membership in developing and promoting programs and services that will enhance the members' freedom and ability to conduct their individual businesses successfully with integrity and competency, and through collective action, to promote the preservation of real property rights." CAR offers many seminars and educational opportunities to its members. Most successful real estate professionals in California are members of this organization. It would be wise for you to consider becoming a member.

When a borrower is shopping for a mortgage, the most common types of loans available are: Conventional. FHA Insured. VA Guaranteed. Cal Vet Land Contract. (available only in California) Before we discuss each type, we need to define the term loan-to-value ratio. This term means the ratio of debt to the value of the property. When talking about mortgages, the value is the sale price or the appraised value, whichever is less. If the loan-to-value ratio is low, that means the borrower is paying a higher down payment on the property. Lenders like this, since the higher the down payment, the lower the risk for the lender. Conventional Loans The conventional loan is the most common type of loan and is generally viewed as the most secure. Most conventional loans require the borrower to make a down payment of 20% or more, making the loan 80% or less of the property's sale price. Conventional loans are typically uninsured. The mortgage itself provides the only security for the loan. To protect its interests, the lender relies on the appraisal of the property and the borrower's ability to repay the loan, as indicated by the borrower's credit reports. When writing conventional loans, many lenders follow the underwriting standards that are provided by Freddie Mac and Fannie Mae, so that they can sell their loans in the secondary mortgage market. What happens when a borrower can't afford a 20% down payment on a home? Are they out of luck? No. A borrower can get a conventional loan with a lower down payment by insuring the loan through a private mortgage insurance program (PMI). A lower down payment means a higher loan-to-value ratio. Lenders need to minimize their risk; so they require additional security in the form of insurance. The lender purchases the insurance, which typically protects 25% to 35% of the loan, from a private mortgage insurance company. The lender passes the cost to the borrower by charging a fee at closing plus an additional monthly fee while the insurance is in force. Using this process, a borrower may be able to get a loan for up to 97% (or even 100%) of the appraised value of the property. How long must the borrower make PMI payments? The lender will terminate the PMI payments once the loan has been repaid to a certain level. Federal law requires that any loans originated after July 1999 must have the PMI terminated after the borrower: Has accumulated 22% of equity in the property. Is current with all loan payments. However, the law also states that a borrower whose equity equals 20% of the purchase price or appraised value may request that the lender cancel the PMI. Lenders have a duty to inform all borrowers of their right to terminate the PMI. Calvet Loans California provides another alternative in the form of a special assistance program for farm and home purchases. The California Department of Veterans Affairs (CDVA), Division of Farm and Home Loans, administers the program, and the loans are referred to as CalVet loans. These loans are available to California residents who have met the veteran requirements. Eligibility requirements have been expanded to the point that almost any veteran who wants to purchase a home in California would be eligible. Unlike the insured FHA loan or the guaranteed VA loan, the CalVet loan is actually a land contract. When a veteran is approved for a CalVet loan, the state purchases the property and resells it to the veteran using a contract of sale. The state retains the title to the property until the loan is paid off, after which California will issue a grant deed to transfer legal title to the veteran.

CDVA will purchase only approved single-family residences (including condominiums, units in planned unit developments, and mobile homes) in California which meet the needs of the veteran as a dwelling place for his or her family. The property must be structurally sound and provide safe and sanitary living conditions. The property must also comply with a specific set of standards. If the veteran selects a property that fails to meet one or more of the CDVA standards, the veteran may still be able to obtain a CalVet loan by negotiating with the seller to correct the problem conditions as part of the sales agreement. Here are some other facts about the CalVet loans: CDVA offers below market interest rates. CalVet loans usually have a variable interest rate, which historically has not changed much and is not tied to an index. VA guaranteed loans require no down payment and non-VA loans require only 3% down. There is no prepayment penalty for paying off the loan early. Loan terms are typically 30 years. Loan maximums are very generous and are adjusted annually. Home and loan protection plans are included. CalVet also includes construction and rehabilitation loans.

credit

Credit Unions Credit unions generally provide short-term installment and home improvement loans to their member depositors. However, they have expanded their activity into the mortgage market. Many credit unions provide home purchase loans, construction loans and development loans. Insurance Companies Insurance companies supply loans for very large and expensive properties, such as shopping malls, hotels or industrial properties. Investment Groups Joint ventures, such as syndicates, limited partnerships and real estate investment trusts invest in large real estate projects. Mortgage Bankers Mortgage banking companies originate loans with their own money and money from their investors. The intention is to sell off the loans at a later time and receive service fees. Mortgage bankers are a large source of residential mortgage loans in California. Mortgage Brokers Mortgage brokers locate potential borrowers and submit preliminary loan applications to the lenders for approval. They act as "middlemen." Mortgage brokers do not lend money or service loans.

Disclosures

Disclosure helps to build good relationships between the licensees and their principals and serves to protect the principals. Full disclosure also satisfies California disclosure laws. Certain disclosures in California are mandated - meaning the information is required by law to be passed from one party to another. Some of these disclosures are required for agents; others are required for principals in the transaction. The most recent California Association of REALTORS® forms for purchasing, listing and leasing include the mandatory disclosures. However, if you use outdated forms or forms that are national rather than California-specific, you could miss some important disclosure requirements. Note: You are not exempt from disclosing just because a form you used was outdated or incomplete. Please be sure to use the latest approved forms for California. California Disclosures Some of the more common disclosure forms that you need to be familiar with include: Disclosure Regarding Real Estate Agency Relationships Real Estate Transfer Disclosure Statement Agent's Inspection Disclosure Residential Earthquake Hazards Report Natural Hazard Disclosure Statement Lead-Based Paint Disclosure Agency Disclosure Our earlier discussion about agency relationships revealed that an agent (broker) can enter into a single or dual agency relationship with a client. This relationship must be in writing. Licensees will use California's Disclosure Regarding Real Estate Agency Relationships form with their clients. Click on this link to see and print a copy of the form. Disclosure Regarding Real Estate Agency Relationships* The licensee must clearly and thoroughly explain to his or her prospective client the three types of agent relationships available - seller's agent, buyer's agent or dual agent. Once the client fully understands these terms and the duties associated with each, he or she can decide which relationship will work best to meet his or her needs. The client and licensee will confirm the receipt of the disclosure by signing the form. Note: If the client elects the dual agent option, the agent must have the buyer sign one copy of the form and the seller sign another copy of the form. * Note: Reprinted with permission, CALIFORNIA ASSOCIATION OF REALTORS®. Endorsement not implied.

Leasehold Estates

Estate for Years An estate for years is one that continues for a definite fixed period of time. The lease can be for any specified length of time measured in days, weeks or months. Estate from Period to Period This is more commonly referred to as a periodic tenancy. The lease continues from period to period, which can be from year to year, month to month, or week to week. Month to month is the most common periodic tenancy. Estate at Sufferance This estate is created when a tenant takes legal possession of the property but then remains on the property without the owner's consent after the lease terminates. When this happens the owner can evict the tenant through a court action or can choose to allow the tenant to stay under the terms of the previous lease. Estate at Will This estate has no time limit. The possession is given with permission but there is no agreement about the rent. This estate can be terminated by either party at any time, with proper notice - which in California is a 30-day notice.

Escrow

For purposes of real estate, escrow is defined as the process in which a disinterested third party holds all money and documents relating to a transaction until all of the terms and conditions of the escrow instructions have been satisfied. The parties to the escrow - the buyers and the sellers - are the persons who prepare the escrow instructions. These instructions detail the procedures necessary to close the transaction and direct the escrow agent in how to proceed. In many cases, the purchase contract itself serves as the basis for the escrow instructions. In California, escrow companies must be corporations licensed by the California Commissioner of Corporations. The license law does not permit individuals to be licensed. However, certain entities or individuals can act as escrow agents without having a license. This includes: Attorneys. Banks. Brokers. Insurance companies. Title companies. Trust companies. Savings and loan associations.

independent contractor

If a salesperson is hired as an independent contractor, it is quite a different story. A broker can tell the independent contractor what to do, but not how to do it. In this case, the broker cannot dictate working hours or require the salesperson to have office duty at specific times or attend meetings. A salesperson operating as an independent contractor must pay his or her own income tax, Social Security tax and Medicare tax. In addition, the salesperson cannot receive anything from the broker that would make it look like he or she is an employee, such as health insurance or a pension plan. Most licensees are independent contractors.

Single Agency

In a single agency relationship, the agent can represent only one party in a single transaction. He or she owes fiduciary duties to one principal. All other parties to the transaction receive services as customers, not clients. A broker who offers single agency may choose to represent either buyers or sellers exclusively. If a firm chooses to represent sellers only, then all buyers who come to that firm are considered customers. If a firm chooses to represent buyers only, then the sellers of the homes that firm shows are the customers.

Pricing a Property

It is up to a seller to decide what he or she wants to set as the asking price for his or her property. However, since most sellers don't have all the information they would need to make an informed decision, they usually depend on the expertise of the agent to help them arrive at a reasonable price. The two common methods that can help determine a reasonable asking price for a property are: Competitive market analysis (CMA). -- also referred to as a comparative market analysis Appraisal. In either case, a seller is trying to find out the property's fair market value - which is the most probable price a property should bring in an open and competitive market.

Investing in Real Estate

Investors could be interested in: Supplementing income. Reducing taxes. Enjoying a property for personal reasons. Creating an estate for the family. There are two important considerations for investing: An investor must have the financial ability to handle the costs of the investment and not place him or herself in financial jeopardy. An investor must carefully examine the economic soundness of the investment. This means doing "due diligence" on the property by studying the economic trends of the area, community growth trends, zoning issues and income projections for the property. Benefits of Investing in Real Estate Hedge Against Inflation - Typically, real estate outpaces the inflation rate. Even though home prices may drop some during recessions, real estate prices tend to bounce back relatively quickly. Income - The goal of many investment properties is to provide the investor with a good cash flow. Depending on the size of the investment and the costs associated with maintaining it, an investor could have a significant source of additional income. Interim Use - Some investors purchase properties to generate some small income while waiting for some later, more profitable use. For example, renting an old warehouse for storage while waiting for the planning and zoning commission to rezone it for use in an upscale condominium development. Stability - Some properties have a history of producing a stable income for investors. A popular apartment building in an upscale neighborhood could provide a steady income for many years. Control and Use - Analyzing a property's current use could lead to finding ways to enhance its "highest and best use." For example, rezoning a particular property or leasing to new tenants at higher rates could increase a property's value. Refinancing - An investor could choose to refinance one property to free up funds to purchase another income property. The proceeds from the refinancing would be tax free and the interest on the new loan for the second property will be fully tax deductible. Investment Risks In addition to the benefits, investing in real estate also generates some risks: Capital Outlay - An investor typically needs a large amount of money for a real estate investment. There is the initial down payment for the property coupled with periodic and often large sums for operating expenses or improvements. Because of this, some investments may not turn out to be as profitable as the investor hoped. Liquidity - Investment property is not considered to be a very liquid asset. When an investor decides to sell a property, it could easily take several months or longer to turn the property into cash. Property Management - Most investors are not property managers. They don't have the time, skill or even the desire to manage the property on their own. Most investors will need to hire a property manager who has the skill and expertise to make the investment a profitable one. Financing - Loans and terms available when the investor is ready to make a purchase may not be favorable. Many loans contain acceleration clauses, lock-in provisions and prepayment penalties. Other Negatives - Property restrictions, either those created by government zoning or those created by the deed itself, could have negative effects on the usefulness of a property. Obsolescence and/or poor management could also negatively affect a property.

Property Overview

Most real estate salespersons engage in the business of listing or selling residential property.

Newspapers are a good source of prospective customers and there is a wide variety of papers to choose from. Many newspaper publishers in large cities have smaller "regional" weekly editions of their papers in addition to the regular daily editions. Many communities have "ad sheet" papers full of display and classified advertising, which range in size from a few pages to booklets of 40 pages or more. Newspapers are published for small groups of people like condominium owners or owners of manufactured or mobile homes. Ethnic groups have their own newspapers. All of these publications are sources to help you develop leads. So how can you use the newspapers to generate leads? Look for things like: For Sale by Owner (FSBO) Ads. Rental Ads. Special Announcements. Legal Notices.

Oftentimes single-family homes are advertised for rent when the owner has tried to sell the home - with or without an agent - and the effort was unsuccessful. We all know that most people cannot afford to own more than one residence unless the ownership is for investment purposes. So many owners are forced to rent in order to get income to pay the mortgage on the property. Rental Wanted ads are also a good source of leads. People who are looking to rent can often be shown how easy it would be for them to purchase instead. This is particularly true if the potential renter is a "transferee" from another location who was a former homeowner. Most former owners make unhappy renters. Special announcements in the features section of the newspaper are good places to find leads. Wedding Announcements More and more frequently, young couples just starting out are choosing to buy rather than rent. Also, if either or both of the partners were living at home before the marriage, there might be an opportunity to discover if the parents are ready to "downsize." If the newlywed couple is an older couple who owned separate homes, not only is there an opportunity for a new purchase as a couple, but there may also be an opportunity for the sale of either or both of the "pre-wedding" homes. Birth Announcements Is this the first child of a couple currently living in an apartment? Is it a second or third child of a current homeowner? If so, maybe the family needs a bigger home. Promotions and Job Transfers The kind of promotion that would generate a newspaper notice usually indicates a substantial salary increase and maybe the desire for a newer home that reflects the change in status. A job transfer could signal the need to sell a current property.

Lease Termination

Other than by the normal expiration of the lease, a landlord may terminate a lease by giving a 30-day notice in writing to the tenant. The landlord must give a 60-day notice to a tenant who has lived in the unit for longer than one year. However, it is against the law for the landlord or property manager to: Change locks, intending to lock out the tenant. Remove outside doors or windows. Turn off utilities. Remove a tenant's property or furnishings from the premises without the prior written consent of the tenant. Any landlord who violates this law can be liable to the tenant in a civil action for either actual damages to the tenant or up to $100 per day for each day or part of a day that the landlord remains in violation of the law. Evictions A landlord can evict a tenant and bring what's called an unlawful detainer action against a tenant for failure to pay rent, violation of the lease agreement or failure to leave after receiving the proper written notice. The landlord must follow this procedure: Serve the tenant with a three-day notice to either quit the premises or pay the rent due. If the tenant takes no action, the landlord can file the unlawful detainer action in court. Upon winning the action, the court will award the landlord a judgment and the landlord can authorize the sheriff to evict the tenant. The sheriff serves the eviction notice on the tenant. If the tenant refuses to leave, the sheriff can physically remove him or her from the premises.

Property Management

Property management is that area of real estate that deals with the leasing, managing, marketing, and maintenance of property belonging to others. Managed properties include: Single family homes. Apartments. Condominiums. Duplexes. Industrial complexes. Office complexes. Shopping centers. Property management actually dates back to the late 1800s, but was not "professionalized" until the 1930s. In 1933, a group of property management companies got together and formed the Institute of Real Estate Management (IREM). The group was formed to foster professionalism, and the company members certified that they would: Keep separate accounts for personal funds and client funds and avoid commingling. Carry a bond on all employees who handle client funds. Fully disclose all discounts, commissions, and other fees received due to property activity. This organizational structure worked for several years, but in 1938 the organization realized that they should shift their focus. So IREM reorganized and restricted their membership to individuals. IREM developed the designation of Certified Property Manager© (CPM©) for individuals who meet a certain level of education and experience requirements. IREM has a designation of Accredited Residential Manager© (ARM©) for resident managers who have a lesser degree of training and on-site experience. The designation of Accredited Management Organization© (AMO©) is reserved for companies who meet certain IREM guidelines and employ at least one CPM©.

Fair Employment and Housing Act

The Fair Employment and Housing Act (also known as the Rumford Fair Housing Act) prohibits: Discrimination in the sale, rental, lease, negotiation or financing of housing based on race, color, religion, sex, marital status, familial status, disability, national origin, ancestry, sexual orientation or source of income. Eviction of a person in retaliation for seeking to uphold the rights under this act. Refusal to reasonably accommodate a handicapped or disabled person. Exemptions to this act include owner-occupied housing with no more than one boarder and some non-commercial, religious, fraternal and charitable housing. Remedies for violations could include: Injunctions. Actual or punitive damages. Civil penalties. Note: Before any remedies would be awarded, the aggrieved party would have to waive all rights under the Unruh Act.

Closing and Settlement

The Real Estate Settlement and Procedures Act (RESPA), which we talked about briefly in an earlier financing unit, is of great benefit to consumers during the settlement process. RESPA requires that the parties to certain transactions receive the correct figures pertaining to their closing costs. RESPA applies to purchases: Of residential property - that is, one-to-four family homes, cooperatives and condominiums. Involving first or second mortgages. Financed by a federally-related loan - that is, loans that are insured by a federal agency, those that are insured or guaranteed by VA or FHA, HUD-administered loans, or those that will be sold to Fannie Mae, Freddie Mac or Ginnie Mae. RESPA does not apply to seller-financed loans. It also does not apply to a loan assumption, unless the lender has changed the terms of the assumed loan or charges more than $50 for the assumption. Lenders have very specific requirements under TRID. Lenders must give a copy of the booklet, "Your home loan toolkit" to every person at the time of application for a loan. Lenders must provide a Loan Estimate of settlement costs at the time of loan application or within three business days of application. A Closing Disclosure, a form designed to detail all financial particulars of a transaction, must be delivered to the borrower at least three days before closing. The actual time frame is based on the method of delivery. The settlement agent must also provide the seller with the Closing Disclosure, which may be done at consummation.

Fair Housing Laws

We covered Fair Housing Law in detail in an earlier unit. In that discussion, we briefly mentioned redlining. Redlining is defined as the practice of refusing to make a mortgage loan or restricting the number of loans in an area for reasons other than the economic qualifications of the applicant. Federal Fair Housing laws prohibit discrimination in mortgage lending for lenders in both the primary and secondary mortgage markets. A lender can refuse to extend a loan only on sound economic grounds. The passage of the Home Mortgage Disclosure Act is an effort to offset redlining practices. All mortgage lenders with assets exceeding $10 million who have one or more offices in a certain geographic location must send annual reports to the government, detailing all mortgage loans the institution has given or purchased. The reports must be broken down by census tract, which enables the government to detect any redlining patterns. RESPA The Real Estate Settlement Procedures Act (RESPA) attempts to standardize settlement practices and to ensure that both buyers and sellers understand the costs involved in closing the transaction. RESPA applies to residential real estate purchases that will be financed by first mortgage loans. RESPA prohibits lenders from paying kickbacks and unearned fees to parties who may have referred the borrower to the lender. This includes real estate agents who may have referred the buyer to the lender.

Landlord Responsibilities

When a tenant signs a residential lease, he or she expects that the property will be habitable. The tenant expects the landlord (via the property manager) at the very least to: Keep the plumbing in good working order. Maintain the condition and safety of the heating and electrical systems. See to it that floors, stairways and railings are clear, safe and in good repair. Maintain pest control. Fix any roof leaks or broken windows promptly. If a landlord fails to correct a problem that is within his or her responsibility, a tenant may take any of the following actions: The tenant may move out and not be liable for back rent or the unexpired portion of the lease. The tenant may refer the problem to mediation, arbitration or small claims court. The tenant can give the owner written notification of an emergency situation. If the owner does not take action, the tenant may call a professional repair person and deduct the cost from the next month's rent check (up to the amount of one month's rent). Note: A tenant may take this action only twice in any 12-month period. In order to perform needed repairs and maintenance on a property, the landlord must retain some right of entry into the premises. The lease may specify under what conditions a landlord may enter the tenant's property. However, when no such conditions are specified, a landlord may enter a premise only when one of the following conditions exists: An emergency requires the landlord to enter. The tenant gives consent to enter. The landlord enters during normal business hours and only after giving 24 hours' notice to either make repairs or to show the property to prospective tenants, purchasers or contractors. The tenant has abandoned or surrendered the property. The landlord has a court order allowing the entry.

Residential property

is defined as land or improved property with buildings designed for humans to live in, such as single-family homes, multi-family homes, apartments, vacation homes or condominiums. However, several other kinds of property exist in the real estate market: Industrial. Commercial. Agricultural. Special-purpose. Recreational. Investment. Let's take a look at each of these types in more detail.

Closing Techniques There are a number of closing techniques that you can use when the time is right. Here are some common ones: Assumptive Close. Alternative Close. Bonus Close. Ownership Close. Standing-Room-Only Close. Assumptive close means acting as if the person has already made the decision to buy. This technique is a natural when a buyer shows one of those buying signals we talked about earlier. For example, if the buyer says, "Could we close by March 1?" your reply would be, "Would you like to close by March 1?" The alternative close works by offering more than one alternative to the prospects and having them choose. For example, you could pose this question: "If the seller is willing to replace the patio door, would you prefer a sliding door or an atrium style?" The bonus close offers an inducement for the sale. For example, "If you buy now, the seller is willing to leave all of the appliances, including the washer and dryer." Note: Use this close carefully and always be sure to have the seller's approval beforehand. The ownership close is similar to the assumptive close, except that you act as if they already own it and you talk about how it will fit into their lives. For example: "So where will you set up all your power tools?" or "Which one of the children gets the basement bedroom with the private entrance?" The standing-room-only close plays on the prospects' fears of losing a property that they may not have an opportunity to buy again. A good example of this is the situation of the last home in a development being for sale. Once this home is sold there may not be any more being built by that developer for that price. Note: Use this technique only if what you say is true. People tend to be distrusting of "scare" tactics, especially if they have been shown to be untrue in the past.

Closing the Sale Regardless of which closing technique you use, you need to ask for the sale. Many buyers will buy if the agent just asks them. As you gain more experience in getting offers, it will become easier for you to know the appropriate time to ask. Not every closing technique will work with every buyer. If you try a particular closing and it doesn't work, take a step back and talk about the benefits of the property again. Try to schedule another showing of the property and then try another closing technique. Sometimes all a buyer needs is a little more time to make the decision; so don't assume that if your first attempt at closing didn't work, you've failed. Regroup and try again! Writing the Offer Once your prospects have agreed to make an offer, it's time to do the paperwork. If you gave the prospects a copy of a blank form at your initial meeting, the process of filling things out should go smoothly. Many California agents use CAR's purchase contract form titled California Residential Purchase Agreement and Joint Escrow Instructions. Because this form is so widely used, we'll take the time to go over each of its sections. Click on this link to print a copy of the form. California Residential Purchase Agreement* * Note: Reprinted with permission, CALIFORNIA ASSOCIATION OF REALTORS®. Endorsement not implied.

Buyer Agreement

If the agent enters into an agency agreement with the buyer, the agent becomes the buyer's agent. The buyer is the principal or client. Any sellers whose property is viewed by the buyer are customers. In this arrangement, the agent is accountable only to the buyer.

Designated Agency

In order to avoid the potential conflict of interest that dual agency can present, some states allow designated agency. Designated agency means that a broker, with the written consent of the principal, may designate one or more licensees to act exclusively as the agent of the seller or landlord, and designate one or more licensees to act exclusively as the agent of the buyer or tenant in the same transaction.

Forms of Advertising Advertising is the promotion to the public of a product or service. Advertising is critical to the real estate industry. For many firms, it's the only way to let potential buyers and sellers know that they exist. Real estate firms engage in two forms of advertising: Institutional. Product. Let's take a look at each type. Institutional advertising (sometimes called corporate advertising) attempts to establish a positive image of the company, its services and its reputation in the minds of the public. This form of advertising aims at increasing sales by informing the public of the company's capabilities. In addition, groups of brokers may engage in this form of advertising (and share the costs) in an attempt to raise the public's overall opinion of the real estate industry. Product advertising is directed toward the particular properties a company has for sale. With this form of advertising, one firm's ads are in direct competition with the ads of other firms.

Knowing When and What to Advertise Real estate offices have far too many listings to advertise all at the same time; so it's important to decide which listing to advertise and when. These decisions can't be made in a vacuum. It's important for each agent to understand the marketing/advertising goals of the firm at any given point and to follow the strategy that will help meet both the firm's and the agent's objectives. To help with this, many firms choose to have a single person in the office in charge of: Watching advertising costs. Controlling volume. Scheduling the advertising that meets the objectives. Compiling advertising data. Evaluating the effectiveness of the ads placed. The individual agents are still responsible for writing the ads; the designated advertising person just manages the advertising effort to eliminate confusion. Forms of Advertising One important thing to remember when choosing an advertising medium is that the purpose is to reach the largest number of probable prospects, NOT necessarily the largest number of people. And you want to do this at the lowest possible cost. A number of media choices for advertising are available: Newspapers. Magazines. Shopping guides. Telephone directories. Signs. Outdoor ads. Direct mail. Direct e-mail. Newsletters. Promotional items. Radio and TV. Internet. In addition to the methods we have just discussed, there are many more ways to advertise. Personal Advertising Name Tag - This is very important. If you are a REALTOR®, make sure your name tag says so. Also include any professional designation, such as GRI. Business Card - Don't take your card for granted. Make it unique so that it will stand out from the rest. Make sure it has your picture. Car Signs - These magnetic signs are inexpensive and get results. Be sure the signs include your name, your firm's name and logo and your phone number. Other forms of advertising you can use include video clips or photo ads that run at movie theaters, a promotional video of yourself and your services that plays on your website, or an electronic message board. Almost any kind of advertising that you can imagine and afford can be done!

Planning and Goals Setting:

Make your goals definite and measurable. It's critical for your goals to be both realistic and attainable. That means deciding that you will get "three new listings a month," rather than that you will get "more listings." Put your goals in writing. It's much easier for you to prioritize your tasks and evaluate your progress if your goals are in writing Realize that goals are not rigid. As you move through your career, your talents and interests may change; so you can adjust your goals to match those changes. Click here to visit the NAR Home Page

Legal Notices

Most newspapers have a section containing notices of legal actions. Some communities even have a separate paper dedicated to legal notices only. So what kinds of legal notices could potentially provide leads? Foreclosures - A quick sale could help ward off the foreclosure. Divorces - Since California is a community property state, many homes in a divorce may have to be sold to divide the assets. Bankruptcies - Often people involved in a bankruptcy want to relocate and start fresh. Other legal notices that could generate leads include: Death Notices - Family members may need to sell a home to settle an estate. Probates - People who inherit property may wish to "cash out." Building Permits - If a person is building a new home, he or she may have one to sell at a future date. Code Violations - If making repairs will be a costly or overwhelming endeavor, the owner may be anxious or willing to sell. Tax Delinquencies - This kind of notice could indicate an owner in financial difficulty. Selling might be a good option.

Rental Ads

Oftentimes single-family homes are advertised for rent when the owner has tried to sell the home - with or without an agent - and the effort was unsuccessful. We all know that most people cannot afford to own more than one residence unless the ownership is for investment purposes. So many owners are forced to rent in order to get income to pay the mortgage on the property. Rental Wanted ads are also a good source of leads. People who are looking to rent can often be shown how easy it would be for them to purchase instead. This is particularly true if the potential renter is a "transferee" from another location who was a former homeowner. Most former owners make unhappy renters. Special announcements in the features section of the newspaper are good places to find leads. Wedding Announcements More and more frequently, young couples just starting out are choosing to buy rather than rent. Also, if either or both of the partners were living at home before the marriage, there might be an opportunity to discover if the parents are ready to "downsize." If the newlywed couple is an older couple who owned separate homes, not only is there an opportunity for a new purchase as a couple, but there may also be an opportunity for the sale of either or both of the "pre-wedding" homes. Birth Announcements Is this the first child of a couple currently living in an apartment? Is it a second or third child of a current homeowner? If so, maybe the family needs a bigger home. Promotions and Job Transfers The kind of promotion that would generate a newspaper notice usually indicates a substantial salary increase and maybe the desire for a newer home that reflects the change in status. A job transfer could signal the need to sell a current property.

Property Managers

A property manager has a dual responsibility - to the owner and to the tenants of a property. He or she must understand that the owner is interested in the highest return from the property, and the tenants want the best value for their money, including space that is properly maintained. In general, a property manager is responsible for: Renting the units promptly at the highest market rent possible. Keeping operational and other costs within budget. Preserving and enhancing the physical value and prestige of the property. In addition to the general responsibilities mentioned on the previous screen, the California Bureau of Real Estate has outlined a list of specific duties: Establish the rental schedule that will bring the highest yield consistent with good economics. Merchandise the space and collect the rent. Create and supervise maintenance schedules and repairs. Set up payroll system for all employees. Develop a tenant/resident relations policy. Supervise employees and develop employee policies. Maintain proper records and make regular reports to the owner. Qualify and investigate a prospective tenant's credit. Prepare and execute leases. Additional duties outlined by the Bureau of Real Estate include the following: Obtain decorating specifications and secure estimates. Hire, instruct and maintain satisfactory personnel to staff the buildings. Audit and pay bills. Advertise and publicize vacancies through selected media and broker lists. Recommend alterations and modernization as the market dictates. Inspect vacant space frequently. Keep abreast of the times and competitive market conditions. Obtain and pay insurance premiums and taxes. Be knowledgeable about and comply with applicable Federal, State and local laws.

Why an Assistant?

Licensees work very hard to become licensed in real estate. Taking difficult courses and sitting for the exam requires diligence and perseverance. So why would someone choose to be an assistant rather than a salesperson? There are several reasons for a licensee to consider this path: Some licensees discover very quickly that they don't have the personality it takes to pursue potential clients and persuade them to list or buy property. Other licensees initially lack the confidence needed in this overwhelming profession, especially if they are working in a high-profile office with many other competitive agents. They might choose to start out assisting until they are knowledgeable enough in the workings of the profession to move into listing and selling on their own. Finances might play an important role in the decision to be an assistant. Because real estate is commission-based, a licensee might not be able to support his or her family without a steady paycheck coming in. Some agents will start the assistant on an hourly wage and then increase to a percentage of the commission on the sales the assistant gets involved in. We talked about independent contractors. An independent contractor: Pays his or her own taxes rather than having the broker deduct them. Is supervised only minimally. Sets his or her own schedule. This arrangement gives an assistant the flexibility to determine how he or she wants to do the job and more control over his or her daily activities.

Assistants

Real estate assistants can be either licensed or unlicensed. Unlicensed assistants function like secretaries. They can be very helpful with those tasks that are purely administrative, such as directing phone calls, filing documents, preparing certain documents, creating newsletters and maintaining a client database. But the law limits the activities an unlicensed assistant can perform; so hiring a licensed assistant might be a better option. Since licensed assistants are technically licensed salespersons, they can perform most any task an agent requests of them. Agents using licensed assistants will not have to be careful about what they discuss with their assistants regarding listings or clients. Assistants have the freedom to perform such activities as conducting open houses independently and discussing properties with prospective buyers. Office Administration All real estate transactions require mountains of paperwork. A real estate assistant's first tasks will entail becoming familiar with the firm's office procedures. Most firms have an organized flow of how paperwork passes through the office - what gets generated when, who gets copies of what, what gets filed where, etc. All of the firm's paperwork must be organized in such a way that it will be readily accessible to anyone who needs to put their hands on it. So having and maintaining a good filing system is critical. Because firms must maintain files on listings, current transactions, buyers, sellers and completed transactions, an assistant may need to develop a cross-referencing system and an indexing system to keep track of all the paperwork.

Purchasing Investment Property

Research into the viability of any purchase should include: Analyzing the particular property. Analyzing the rental market. Studying characteristics of the area. Understanding characteristics of the rental market. Analyzing the Property Since property cannot be moved, it's important to look at the property under consideration in light of its actual physical location. An apartment building that is located in an area with serious traffic congestion, for example, may not be a favorable choice. However, surrounding conditions are constantly changing; so what may be a disadvantage today may actually disappear or become an advantage a few years down the road. For example, a change in the public transportation system could make a building more easily accessible to shopping and other conveniences than was originally the case. For this reason, investors need help in projecting what may lie ahead with regard to issues such as urban growth or future land use. Other characteristics which an investor should study to help in the purchase decision include: Population - Has the population in the area of the property increased or decreased, and will this trend continue? Rental Trends - Are families looking for rental units in this area, and how many apartments are available to satisfy that need? Projected Demands - What is the projected demand for multiple rental units in the proposed area?

Residential Leasing

Since most property managers are involved in residential leasing, the manager has a responsibility to the owner to select tenants carefully. A tenant who does not pay his or her rent is worse than having a vacancy. Managers should properly screen tenants and allow deposit and first-month's rent checks to clear before granting occupancy to a tenant. Most residential lease applications require a significant amount of financial data on a prospect. In addition it would be wise for a manager to: Get a copy of the prospect's last pay stub to verify income. Verify present employment with the current employer. Gather information from current or previous landlords. Make a copy of the prospect's driver's license. A manager should collect the same type of information on ALL prospective tenants to avoid the potential of being in violation of one or more of the fair housing laws. Keep in mind, however, that even though the law prohibits discrimination on the basis of race, sex, age and other protected classes, a manager does have the right to discriminate for other reasons. During the collection of information, if the manager discovers that a prospective tenant has had previous rental-related problems, such as paying rent late, damaging property, or fighting with other tenants, or if the manager discovers the prospect has a poor work history, the manager is well within his or her rights to refuse the rental. Note: in California, a property manager is allowed to charge a non-refundable screening fee of up to $46.67 per applicant.

Laws Affecting Mortgage Lending

The federal government plays an active role in regulating the practices of mortgage lenders. The laws that apply to mortgage lending include: Truth in Lending and Regulation Z Equal Credit Opportunity Act (ECOA) Real Estate Settlement Procedures Act (RESPA) Fair Housing Laws The Truth in Lending Act is implemented by Regulation Z. This law requires lenders to disclose to buyers the true cost of obtaining credit, so that borrowers can compare the costs of various lenders. Regulation Z applies to all loans that are secured by a residence. It does not apply to: Commercial loans Agricultural loans over $25,000 The provisions of Regulation Z cover: Disclosure of costs Right to rescind the transaction Advertising offers Noncompliance penalties The Equal Credit Opportunity Act (ECOA) prohibits lenders from discriminating against applicants on the basis of: Race Color Religion National origin Sex Marital status Age Dependency on public assistance ECOA expects a lender to base lending decisions on an individual's income, net worth, job stability and credit rating. Any applicant who will rely on income from child support for repayment of the loan must reveal that income to the lender. Lenders are also required to inform an applicant who was rejected of the reasons for the denial. This notice must be in writing and given within 30 days. Click here to read NAR's current information on RESPA.

Residential Purchase Agreement and Joint Escrow Instructions.

The purchase contract is often the basis for the escrow instructions and, in California, the document most often used is CAR's Residential Purchase Agreement and Joint Escrow Instructions. Here are the typical steps to the escrow process: Select the escrow company. Fax the purchase contract to the escrow holder. Open the escrow. Complete all items outlined in the escrow instructions. Close the escrow. Select the Escrow Company The buyer and seller select the escrow company through negotiation at the time the purchase agreement is drawn up and signed. Either party may choose the escrow holder. Fax the Purchase Contract The last page of the Residential Purchase Agreement and Joint Escrow Instructions has an acknowledgement for receipt of the signed agreement to be signed by the escrow company. Open the Escrow The escrow holder will open an escrow in the names of the parties involved. Along with the purchase agreement, the escrow holder will need information about such items as: The length of escrow. Terms of loans. Commissions. Instructions about inspections, such as termite reports. Personal property included in the sale. Legal description of the property. Earnest money deposit. The escrow holder will use the purchase agreement and all the supporting documentation to compile the escrow instructions. Then the escrow holder will send the instructions to the buyer's and seller's agents with copies for the clients to sign. Note: Once the escrow instructions have been signed by the buyer and seller, neither party may make any changes without the written agreement of the other.

Seller Disclosure

The sellers are responsible for filling out several disclosures that will be passed on to prospective buyers. We explained these disclosures: Real Estate Transfer Disclosure Statement - Ask your sellers to fill out this form as soon as possible. If the form exposes problems that you believe would be best fixed before a sale takes place, explain your position to the sellers and ask them to address those issues. Seller's Affidavit of Non-foreign Status and/or California Withholding Exemption. Water Heater Statement of Compliance. Smoke Detector Statement of Compliance. Lead-based Paint and Lead-Based Hazards Disclosure Acknowledgement and Addendum. Get these completed disclosures from the sellers within the first week after obtaining the listing.

Competitive Market Analysis

When doing a competitive market analysis, an agent does a comparison of properties that are similar to the seller's property in location, size, style, age and amenities. The agent looks at: Prices of properties currently on the market. Prices of recently sold properties. Properties that were listed and did not sell. Most of the data needed to do a thorough analysis can be downloaded from a multiple listing service very quickly. Some services even include pictures of the subject properties in the download. You can obtain additional information from company records, other brokers, county records, and appraisers and title companies -- although compiling the data from those sources will take more time than an MLS download.

Land Installment Sales Contract

With an installment land sales contract, also called a contract for deed, the buyer does not receive legal title until the final payment is made. The seller keeps legal title until the debt is paid in full. The buyer receives equitable title until the debt is fully paid. The buyer agrees to give the seller a down payment and to make regular payments of principal and interest for some agreed-upon number of years. The buyer also agrees to pay real estate taxes and insurance premiums and to maintain the repairs and upkeep of the property. Many installment contracts contain a provision that allows the seller to cancel the contract, keep all payments and evict the buyer if the buyer defaults. But many states require the seller to refund at least a part of the buyer's payments in that situation.

Inquiries

A number of advertising methods are available to attract buyers. Most buyer contacts that result from your newspaper advertising, signs and website listings are typically telephone calls. Many offices have what is called "floor time," which consists of periods of time when agents can take inquiries, usually on a rotational basis. When a licensee is on floor duty, any new caller who does not ask for a specific agent by name becomes that licensee's prospect. Floor time is particularly important for licensees who are trying to build a client base. So when you have floor time, you need to be well prepared for handling those calls. These first buyer contacts are critical. Poorly handled calls result in wasted advertising dollars. So you want to be sure that you can turn the call into an appointment that will position you for a future sale. Being prepared for handling calls includes: Knowing your inventory - Keep copies of your own ads and your office ads from the previous week on your desk for easy reference. Know which properties in your company's inventory and the MLS are comparable enough to each of those ads to be good alternate suggestions for the caller. Comparable properties would be those with similar characteristics that are priced at a maximum of 15-20% higher or lower than the advertised property. The list of comparable properties is often called a "switch sheet." Knowing your community - Have a map of the community within easy reach, either on your desk or posted on your office wall. When someone is calling in from a For Sale sign, you can be pretty certain the caller likes that particular style of home and is interested in that particular area. Understanding the responses generated by your different advertising media - Callers who inquire from classified ads and For Sale signs typically buy other properties than the one they initially inquired about. Callers inquiring about properties on the Internet are more targeted on the particular property they're calling about, given the more detailed descriptions and gallery of photos available in that medium. Using an incoming call register, log all phone calls you take, including the date and time of the call. Follow these guidelines when handling each call from a prospective buyer: Get the caller's name and telephone number. Find out which property the caller is interested in and why. Try to give as little additional information about the property as you can. Repeat what's in the ad, plus just a bit more. The less information you give, the less chance the caller will find a reason to eliminate the property and the better chance you'll have of getting an appointment to show it.

Income Tax

A real estate salesperson cannot and should not be expected to be an expert on the taxes involved in real estate transactions. Just as a licensee should never give legal advice to a client, he or she should never give tax advice to a client. That being said, licensees should have a basic understanding of the tax aspects of real estate transactions, since many clients will have questions regarding these issues. You should have some idea of when to recommend that a client seek the advice of a CPA to discuss the tax implications of a potential sale. Personal Residence - Capital Gains In addition to the deductions mentioned on the previous screen, a client selling a home has a great tax advantage available. A seller can exclude up to $250,000 of any capital gain on the sale. If the sellers are a married couple who file jointly, they can exclude up to $500,000 in gain. This exclusion can be used once every two years. Even though federal law allows this exclusion every two years, the law states that the seller must have lived in the home for two out of the last five years to qualify for the exclusion. For example, if a client lived in a home for two years, rented it for two more, then sold it, the client would qualify for the $250,000 exclusion. However if the client lived in the home for only one year and then rented it for two more, the client would not qualify for the exclusion unless he or she moved back into the home for another year before selling it. Personal Residence What happens if a person loses money on the sale of a residence? Can the loss be deducted from income taxes? A loss on a personal residence cannot be deducted from income taxes. However, there is one way to change that circumstance. If the client turns the property into income-producing property by renting it, then any loss resulting from that sale would be deductible.

Title Insurance

A seller is required to deliver a marketable title at closing. A marketable title is one that is so free of defects that the buyer is certain he or she will not have to defend the title. In order to deliver a marketable title, the seller must have proof of ownership of the property, also known as evidence of title. Before a lender will agree to lend money on a property, the lender will order a title search to be sure there are no liens on the property. When the search is completed, a title insurance company issues a policy against any losses that may result from imperfections in the title. Title insurance is paid for one time, when the property passes from one owner to another. It stays in effect until the property sells again. In California, title insurance insures the lender (and the property owner for an additional fee). The title insurance company: Examines all records pertaining to the property's recorded history. Reviews risks that might not appear in the public record. Interprets the legality of the records. Helps the property owner correct any defects. Insures the property against economic loss. Both the buyer and the lender should have title insurance. Insurance for the buyer ensures a clear title and protects his or her investment. Insurance for the lender protects the lender's interest in the property. Preliminary Title Report The escrow officer orders a preliminary title report to start the title search. This report shows the condition of the title before the loan or sale transaction. Buyers must acknowledge receipt of the preliminary report which contains: The owner's name and property description. A list of any outstanding assessments, such as taxes or bonds. Any covenants, conditions or restrictions. Recorded liens or encumbrances that must be removed before a loan can go through. California Land Title Association (CLTA) The standard policy in California is the CTLA policy. It may be issued to a lender only, a buyer only or jointly to lender and buyer (called a joint-protection standard coverage policy). Payment for title insurance is negotiable between the Buyer and Seller. The standard policy covers items of record as well as some risks that are not of record, such as: Forgeries. Acts of minors and incompetents. Failure of delivery of a prior deed. Federal estate tax liens. Acts of an agent whose authority has terminated.

Special Assessments

A special assessment is not technically a property tax. This tax is actually levied by a city council or a county board of supervisors and requires voter approval. A special assessment tax is usually levied only once and is done so to offset the costs of specific local improvements, such as streets, sewers, irrigation, drainage, or flood control. According to state law, cities or counties may establish a special assessment district board to levy a special assessment. The district usually issues its own bonds to finance the improvements and then assesses all the properties in the district to repay the funds. Documentary Transfer Tax The California tax laws allow a county or city to adopt a documentary transfer tax to apply to the transfer of properties located in the county. The tax is computed on the total price paid for the property, less any assumed loans. The tax is computed at the rate of 55 cents for each $500 of consideration or fraction thereof. For example, if a home sold for $175,000 the transfer tax would be $192.50. $175,000 ÷ $500 = 350 x $.55 = $192.50 If a home sold for $280,000 and the buyer assumed the seller's $30,000 loan, the transfer tax would be $275. $280,000 - $30,000 = $250,000 $250,000 ÷ $500 = 500 x $.55 = $275 A city within a county that has adopted a transfer tax can adopt its own transfer tax ordinance. The city's tax amount must be fixed at one-half the rate charged by the county. The county will collect the total tax and then turn over half of the amount collected to the city.

agency relationship

An agency relationship is created when a person (buyer or seller), also called the principal, delegates to another person, called the agent, the right to act on his or her behalf in business transactions with third parties. Several principles govern that relationship: Both parties must consent to the relationship. Both parties must agree to form the relationship. The relationship is fiduciary - meaning the agent owes certain duties to the principal. If the principal in the relationship is the seller, then the broker (or the associate licensee representing the broker) is the seller's agent. Conversely, if the principal in the relationship is the buyer, the broker (or the associate licensee representing the broker) is the buyer's agent. Other agent terms that are frequently used include: Listing agent - This is the licensee who lists the seller's property. Selling agent - This is the licensee who brings the buyer to complete the transaction. An agency relationship is based on authorization and mutual consent. It is not based on compensation. Compensation can be negotiated - as in a listing agreement. An agency relationship can exist that defines no compensation - as in the case of a buyer's agency agreement, where the agent gets compensation from the seller, not his buyer client. The agency relationship is not determined by who pays the commission. In the past, in most residential transactions, the seller was responsible for paying the commission to the broker. But since the advent of the buyer agency agreement, other arrangements are becoming more common. The seller and buyer could agree to share the responsibility of paying his or her own agent. The state licensing law imposes statutory requirements on licensees acting as agents, which obligate them to perform in ways that protect their clients' interests in real estate transactions. In other words, entering into an agency agreement is a legal action, which could make an agent legally liable if he or she violates the duties owed to the client. An agent has a responsibility to inform the client of any facts or information that could affect the client's position in a transaction.

Americans with Disabilities Act

Another important piece of legislation that licensees should become familiar with is the Americans with Disabilities Act (ADA), which became effective in 1992. ADA mandates that persons with disabilities have equal access to jobs, public accommodations, government services, public transportation and telecommunications. It prohibits discrimination in the "full and equal enjoyment of goods and services" provided by public places, including hotels, shopping centers and offices, and it applies to the lease and operation of commercial facilities. Brokers should evaluate how this applies to physical changes they might need to make to their office space to accommodate both employees and clients. In addition, licensees should alert their commercial and investor clients to the existence of the law and the need to have their leases professionally evaluated and their offices inspected for compliance.

Showing Property

Before you show any properties, you must be well prepared. First, determine your approach. After selecting the properties you will show, visit each one (if you have not already done so). Map out the best route from one property to another, keeping in mind the location of schools, parks, shopping malls and other neighborhood features that may interest your buyers. Make notes about what specific features of each property you want to emphasize when you show it. Some agents like to drive the prospects into the home's driveway to create the sense of "coming home." Other agents like to park across the street from the home to demonstrate the "curb appeal." Note: If after seeing the exterior of the home the prospects decide that they would rather not view it, drive off and call the owners immediately to let them know you will not be doing the showing. Many agents prefer to show no more than 3 or 4 properties at a time. This cuts down on confusion for the buyers and allows the agent to get specific feedback on the buyers' likes and dislikes of each of the viewed homes. However, there may be circumstances that dictate the need to show more than just 3 or 4 properties. For example, if the prospects have flown in from out of town to view property, you'll need to show as many homes as possible in the time you have. You can minimize confusion by giving the buyers fliers with photos of each property you show. Also it helps to schedule breaks between the showings of every 3 to 4 properties. Use this time to have a cup of coffee and get the buyers' feedback on the homes they just viewed while it's still fresh in their minds Plan the route you take from one showing to another. It's just as important to sell the neighborhood as it is to sell the home. If feasible, drive by those neighborhood features that you know will interest the buyers. Make positive comments about the neighborhood, attempting to educate the buyers about its unique characteristics. Ask the buyers questions to help sell the neighborhood's features. For example, if the parents told you that their son Johnny is avid in sports, ask Johnny what sports he plays as you drive by the new sports complex. Sometimes it's helpful to point out recent sales of similarly-priced properties in the neighborhood. It will increase the buyers' view of you as a successful agent and help solidify their price range.

Natural Hazard Disclosure

California Civil Code requires that a seller and his or her agent disclose information about the property with regard to the issue of natural hazards. The Natural Hazard Disclosure Statement lists the items that the seller must disclose. The seller must indicate if the property is in one or more of these areas. Special flood hazard area. (designated by Federal Emergency Management Area) Area of potential flooding. Very high fire hazard zone. State fire responsibility area. (Wild-land area that may contain substantial forest fire risks and hazards) Earthquake fault zone. Seismic hazard zone. Environment Hazards Disclosure California mandates that prospective homeowners be informed about environmental hazards that are located on or affect residential property. The Real Estate Transfer Disclosure Statement that we talked about on an earlier screen addresses the issue of environmental hazards in Part C. The California Civil Code states that if the buyer receives a copy of the Residential Environmental Hazards Guide, the seller and seller's agent are not required to furnish any additional information, unless they have actual knowledge of environmental hazards on the property. The information in the booklet will be considered adequate information for the buyer. Lead-Based Paint Disclosure The federal government requires that owners of homes built prior to 1978 provide to a prospective buyer a booklet entitled Protect Your Family from Lead in Your Home. The California publication Combined Hazards Book contains this booklet and therefore meets the federal requirement. Sellers or landlords of residences built prior to 1978 must fill out, sign and provide to the prospective buyer or tenant the Lead-Based Paint and Lead-Based Paint Hazards Disclosure form regardless of whether or not the owner knows if lead-based paint was ever used on the property. Click here to view or download the CSSC's "Homeowners Guide to Earthquake Safety."

mortgage loan brokers

California law allows real estate licensees to act as mortgage loan brokers and receive compensation for soliciting and negotiating loans for buyers. Mortgage loan brokers arrange for a variety of loans. Like other mortgage brokers, they act as "middlemen" and generally do not service the loans they arrange. As part of a real estate transaction, if you help your buyer fill out an application for a loan or arrange financing, there are some requirements and restrictions that you must follow. Requirements When negotiating a loan for a prospect, within three business days of receiving a completed loan application or prior to the signing of any loan documents, you must make certain that the borrower receives a completed loan disclosure statement. CAR has a form for this called the Mortgage Loan Disclosure Statement. Click below to see and print a copy of this form. Mortgage Loan Disclosure Statement* This disclosure states clearly and completely all the information and charges associated with a particular loan. In addition to providing the borrower with a copy of this disclosure, you must also keep a copy on file for the Commissioner's inspection for three (3) years. * Note: Reprinted with permission, CALIFORNIA ASSOCIATION OF REALTORS®. Endorsement not implied. Restrictions Mortgage loan brokers are limited in what they can charge for commissions and expenses associated with securing a loan. These limits apply only to first trust deeds of under $30,000 or second trust deeds of under $20,000. (Loans above the stated amounts are not subject to these limits.) The maximum commission amounts allowed for the loan amounts indicated above are: First mortgages - 5% of the principal for loans of less than 3 years; 10% for loans of 3 years or more. Second mortgages - 5% of the principal for loans of less than 2 years; 10% for loans of more than 2 years but less than 3; 15% for loans of 3 years or more. Fees for making the loan (such as appraisals, title charges, recording fees, etc.) cannot exceed 5% of the principal or $390, whichever is greater. Regardless of the size of the loan, the broker may charge the borrower only the actual costs and expenses paid, not to exceed $700.

Sale of a Business

California law defines a "business opportunity" as the "sale or lease of the business and goodwill of an existing business enterprise or opportunity." In other words, any type of business that is for sale is considered a business opportunity. Examples of business opportunities include establishments such as: Beauty shops. Clothing stores. Gas stations. Grocery stores. Liquor stores. Restaurants. When selling a business, three components come into play: Sale or lease of the real property. In most cases, the existing lease is transferred to the purchaser rather than the real property itself. Personal property. Tangible assets transferred in the sale include inventory, fixtures, and equipment. Goodwill. Goodwill is an intangible asset that results from the reputation of the business. It is defined as the expectation that the public will continue to do business at the establishment. Other important components of a business opportunity sale include: Bill of Sale - This is the document that gives title to the personal property involved in the sale. Balance Sheet - This document shows the financial status of the business, including its assets, liabilities and net worth (assets minus liabilities). Profit and Loss Statement - This document shows the profit and loss amounts of the business during a specific period of time. The Uniform Commercial Code (UCC) is a body of law that standardizes a number of business practices. The UCC requires the buyer to do the following: Demand that the seller provide a schedule of all the tangible property involved in the sale. Demand the list of all creditors from the seller. Give notice to the creditors of the impending sale. Compliance with these requirements ensures that the new buyer is not liable for debts owed to the creditors prior to the sale. The creditors' recourse would be against the seller only, not against the buyer or the business. If real property is an asset of the business that is for sale, a broker's license is required to sell the business. There are some unique problems involved in selling a business; so a broker would be wise to seek the counsel of an attorney or other experienced business counselor.

Direct mai

Direct mail is an important tool in obtaining leads. But direct mail campaigns must be carefully planned, since there is no face or voice contact with the recipients prior to their receiving the piece. Here are some tips for a successful mail campaign: Plan very carefully what you want your piece to say. It must grab the person's attention enough to result in some action. Your introductory sentence is critical. If it has the right "hook," the reader will likely read the whole thing. Offer something valuable to the reader, such as a free estimate of the home's value. More tips: Tell the reader that you plan to call at a later date. That will get the reader thinking of how he or she will respond when you call. Put your mailing in an envelope. Don't use a self-folding mailer, which tends to look like "junk" mail and will be quickly tossed. Address the envelope by hand instead of using a label. It looks more personal. Use an attractive first-class stamp. Don't "meter" the mail. Keep track of your responses so that you will know what to change in the future to make your mailings more successful.

Why Buyers Buy

Everything you do with your prospects is in preparation for getting them to make an offer. So it's important to understand why people buy property. There are a number of reasons: A home provides shelter and satisfies the need for survival. A home provides security and offers the owner a place to invite and entertain family and friends. Owners want to provide desirable opportunities for their families in the form of good schools, recreation and convenient shopping. Buyers want their homes to be in safe areas that are environmentally "healthy." Many buyers see a home as an investment that will appreciate over time and give them some future financial rewards. Home ownership provides certain tax advantages that appeal to buyers. Your buyers will look at all of the factual information about a property - number of rooms, size of lot, special amenities, etc. - and even though a property may appear to meet all of their stated needs, the decision to buy will most likely be based on their emotional needs. Facts will make buyers think that a property is a good fit for them, but emotion is what will motivate them to buy. Emotional reasons buyers purchase property include such things as safety, security, pride, comfort, status and trust in the agent representing them. If you watch carefully and ask probing questions when showing homes to your buyers, you can observe what emotional needs the buyers have and be able to choose properties that will fit those emotional needs. Picking Up on Buying Signals As you get more familiar with your buyers and their emotional needs, you'll start to pick up on signals the buyers send that indicate they may be ready to buy. These signals, along with some examples, include: Actions - Buyers request a second showing on a home or want to take pictures or measurements before they leave. Words - A buyer asks about a closing date or wants details on closing costs. Or the buyers start talking about how their furniture will fit into the rooms. Body language - Buyers signals each other with a smile or become wide-eyed when seeing a special feature. Or they move closer to you so they can get a better view. When you notice a signal, take advantage of it and ask for the sale. We'll talk about asking for the sale a bit later in this chapter.

Fair Housing:

Fair Housing law first began with the Civil Rights Act of 1866, which prohibited discrimination in housing based on race. Title VIII of the Civil Rights Act of 1968 prohibited discrimination in housing based on race, color, religion or national origin. In 1968, the Supreme Court in Jones v. Mayer ruled that discrimination on the basis of race is strictly prohibited. This means there can be NO EXEMPTIONS OR EXCEPTIONS with regard to race. In 1974, the Housing and Community Development Act added sex to the list. In 1987, a Supreme Court decision expanded the definition of race to include ancestry. And in 1988, the Fair Housing Amendments Act added handicap and familial status. Click here to view the government's official page of the ADA

Traditional Tools

For Sale Sign Always carry at least one sign with you and put up the sign as soon as you leave the house after obtaining the listing. If you are putting up a temporary lawn sign, let the sellers know when you will bring the larger, more permanent sign. Rider Strips These strips attach to the For Sale sign. Attach a strip with your cell phone number to the stake below the main portion of the sign. If you have rider strips that note the home's special features, attach it to the stake above the sign. Lockbox Before you leave the house at the end of the listing meeting, install a lockbox. The lockbox holds the key to the home. Agents can access the lockbox either by using a special lockbox key or with an electronic keycard. Install the lockbox on the doorknob, a metal railing or some other stationary object. Photos You'll need several good photos of the home, both inside and outside. Using a good digital camera, take the photos as soon as possible after you get the listing so you can start using them in flyers, ads and mailings. You'll also want them for your Internet site. Talking House Although not yet considered "traditional," some signs contain a radio transmitter that broadcasts a message about the home using an AM or FM radio frequency. Potential buyers can pull up in front of the home and listen to the message on their car radio. If you plan to use this tool, record a thoughtful and careful message and install the sign within a couple of days of taking the listing. Classified Ads Prepare several good classified ads so you can avoid repetition when you're on a tight deadline. Also prepare an open house ad and an ad that can be used in a home buyer's guide, if your firm uses that as an advertising venue. We'll talk more about what constitutes a good ad in the chapter on Advertising. Flyers Also called property briefs, these print pieces describe the home's features. They contain at least one photo, sometimes several. They should also include an Internet address where potential buyers can get more information about the property. Leave a large supply of flyers at the home so that each visitor can pick one up. You can use the flyers in several other ways: Place in information boxes or tubes attached to the For Sale sign. Distribute at open houses. Deliver to agents from other offices. Distribute to your own firm's agents. Mail out in response to telephone or e-mail inquiries.

Dual agency means representing both parties in the same transaction - the seller and the buyer.

For example, if John signs a buyer's agency agreement with salesperson Tim and then John becomes interested in a home that is listed by Tim's broker, the broker becomes a dual agent. Being a dual agent is extremely difficult, if not impossible. Since an agent owes fiduciary duties to the principal, a dual agency situation puts the agent in the middle of a situation where he or she has to balance the interests of two principals. The interests of each client could be vastly different, if not completely opposite. The confidential information of one client may be vital to the bargaining position of the other. What if the seller tells the agent that he is willing to take $5,000 less than the asking price? This is key information for the buyer, but can the agent share it? Even the fairest and most careful of agents would have extreme difficulty representing the interests of both parties fully and equally. However, California law allows dual agency if the buyer and seller are informed of the situation and give their written consent. Before signing written disclosure forms giving permission for dual agency, both the buyer and the seller must get enough information to make an informed choice as to whether or not they really want to enter into this arrangement. For example, Sally enters into a buyer's agency agreement with Walt. At some point during the relationship, Sally becomes interested in one of Walt's listings. Walt must then disclose to both parties that he has agency relationships with both of them. If both parties agree to move forward, they sign an agreement to that effect and a dual agency is created.

Establishing a Rapport

Get to know your prospects. Buying a home is a very emotional process; so it's critical for you to understand the buyers' motivations. The best way to learn about your buyers is to ask open-ended questions, rather than closed-ended (yes or no) questions. An open-ended question gets buyers talking about their needs, wants, and desires and gives you the opportunity to collect critical information. For example, ask, "What features are you looking for in your next kitchen?" rather than "Do you want an eat-in kitchen?" Listen carefully to everything your prospects say and repeat some specifics back at appropriate times so that they know you have heard what they said. There are several things that can be helpful in establishing rapport with your buyers. Here are some tips to follow: Be open. Address the buyers by name. Look buyers in the eye when speaking to them. Don't be judgmental. Stay upbeat and use humor occasionally. Be patient and allow the buyers time to think and respond to questions. Always be respectful. Be sensitive to the buyers' mood. Know when to be quiet and listen. Don't project your likes and dislikes onto the buyers. Relax and be yourself.

Multiple Listing Service (MLS)

Groups of brokers often join together to form a cooperative listing service, usually called a multiple listing service. Any member who belongs to this service sends the information on each of his or her listings to a central location for the MLS. An MLS employee then compiles the information and distributes it to everyone who is a member of the MLS. The information is usually made available on the Internet, but sometimes it's distributed on computer disk. Participation in the MLS increases the sales inventory available to licensees. Any member of the MLS can sell any property listed in the MLS. With MLS sales, the listing broker and the selling broker share the commission, based on a predetermined percentage split. Send the information on your new listings to the MLS as soon as possible so that other agents will have the information quickly. Once the listing is uploaded to the MLS, print a copy and send it to your sellers as part of your weekly activity report. Your Internet Site Place your new listing on your own or your company's Internet site as soon as possible after getting the listing. As with the MLS, as soon as the information on the property has been uploaded to your site, print off a copy and send it to the sellers with the weekly activity report. Note: We discussed some of the things Internet sites contain in the chapter on Prospecting. We'll cover more about the Internet in the chapter on Advertising. Other Internet Sites A popular Internet site is http://www.realtor.com, which belongs to the National Association of REALTORS®. NAR maintains this site as a place for buyers all across the country to find suitable properties. Brokers can post at least one picture and a detailed description of each of their properties on this site. There are limitations however; so you need to contact NAR for specifics on how to upload information to their site. Also, local real estate boards may have sites you can use to post information on your listings.

Web Sites

Having your own Internet site has almost become a necessity in the real estate world. You should have your web address printed on all your business cards, and you can use it in your advertising and any direct mail marketing you do. Be sure to have your site professionally designed. This is not the place to cut corners. Websites are becoming more sophisticated every day. You need to browse several sites to see what other real estate companies are offering and to get a feel for how to make your site better than the competition. Using your site to "sell yourself" can help generate new leads for you. It's important to have pages on your site that contain information that will interest both buyers and sellers. Sections that would interest potential sellers include things like: Lists of successfully sold properties. List of services you offer specifically for sellers, such as a free competitive market analysis. Staging a home for sale. Curb appeal list. Getting the highest price. Inspection tips. Improvements that pay off.

Counteroffers

If you can't persuade the sellers to accept the offer you've presented or if you feel that the offer is not in the sellers' best interest, then a counteroffer is in order. Some common items considered for counteroffer include: Increase in the offering price or earnest money deposit. Change in terms or conditions of a loan to be carried. Placement of limits on liability for certain repairs. Change in possession date. Clarification of a seller's right to accept other offers until the counteroffer is accepted. Note: Even in a situation where the offer was unreasonable, it's a better approach to write a counteroffer rather than reject it out-of-hand. If you can structure the counteroffer in a way that is inviting, you will maintain the opportunity for the sale. If you're going to write a counteroffer, it's recommended that you use a separate form rather than make changes to the original purchase contract. Should you get involved in a multiple counteroffer situation, any changes made to the original purchase contract will be difficult to follow. CAR has a special form that has a place to number each counteroffer, allows space to clearly write the new or changed terms, and is dated and signed by the appropriate parties to provide a clear record of what was agreed to and when Here are some important tips to follow when drafting a counteroffer: Amend the acceptance clause of the original purchase offer (paragraph 33) to refer to the counteroffer. Don't exert pressure on your clients to include something the other party wants. When changing important terms, rewrite the whole paragraph so that it will be clear. Refer to the paragraph number of the original purchase offer when appropriate. Don't make changes just for the sake of change. Be sure to date and properly attach any supplements. Make sure the document is signed properly. Often sellers are tempted to counter the offering price with the original asking price. This is not a good idea. Many buyers would rather walk away from a sale than pay full price; so you need to counsel your sellers to allow the buyers to see some advantage to the negotiation. One approach that works well is to suggest that the sellers "split the difference" between the offering and asking prices. Delivering the Counteroffer Once the counteroffer is delivered to the buyers, they can then choose to accept the counteroffer as is or reject it totally. Alternatively, the buyers can choose to continue the negotiation process by making another counteroffer. Any change to the last offer made creates another counteroffer. This process will continue until one of two things happens: The buyer and seller reach an agreement. Either the buyer or the seller walks away from the negotiation. Note: An offer or a counteroffer may be withdrawn at any time before it has been accepted, even if the person making the offer or counteroffer has agreed to keep it open for a set time period.

Obtaining Acceptance

If you have a good relationship with your sellers and they trust your judgment and advice, chances are increased that they will follow your recommendation to accept the offer. However, bear in mind that selling as well as purchasing is an emotional decision (as we have stressed in previous units); so the job of persuading your sellers may not be an easy one. Most sellers object to offers based on the offering price. This is understandable, since they were probably counting on a specific amount for the sale and may feel "cheated" at having to accept something less. A good approach is to show them the difference as a percentage rather than as a dollar amount. For example, if the list price was $400,000 and the offer is $388,000, show the sellers that this offer represents 97% of their asking price instead of a $12,000 "loss." As we said on an earlier screen, price is only one aspect of the total picture. So be sure you go over the offer carefully with your sellers, addressing the positive aspects of the other terms. Other things to look at include: Earnest money amount - Does the deposit amount show that the buyers are very serious? Type of financing - Does the buyer have a large down payment or, even better, is it a cash sale? Contingencies - Is the contract contingent on the sale of another home or an appraisal amount, or is it free of those potential stumbling blocks? Closing/possession date - Do the dates give the sellers the flexibility they need to find their next home? If the offer has a number of other positive terms for the sellers, you can put the issue of price into a more favorable light.

Lease Purchase

In a lease purchase arrangement, a tenant enters into two agreements simultaneously - an agreement to purchase and a lease. The tenant agrees to purchase the property, but operates under the lease until the terms of the purchase agreement are fully satisfied. Often a part of the lease payment is applied to the purchase price until one of the following happens: The price is reduced enough for the tenant to obtain financing to complete the purchase. Over time, the total of all payments has met the prearranged purchase price. Lease Option A lease option is a clause in a lease that gives the tenant the right to purchase the property under specific conditions - usually at a predetermined price and within a set period of time. The owner can choose to give the tenant credit toward the purchase price for some of the rent paid, but this is not a requirement.

Mortgages

In a sense, a mortgage can be considered a "partnership" between the lender and the person getting the loan. On the borrower end, it's obvious that the advantage lies in obtaining the funds to complete the home purchase. On the lender end, the advantage lies in obtaining income in the form of the interest and finance charges on the loan. So, in the eyes of the lender, the loan is an investment. In order to increase their investment, lenders often charge other fees when the borrower gets the loan. The borrower could pay all or some of these changes: Loan origination fees. Points. Discount Points. Loan Origination Fee This fee is typically 1 percent of the loan amount, although it could be higher. It covers the lender's cost for generating the loan. Points This is a one-time service charge to the borrower for making the loan. Points represent prepaid interest and the lender charges them to get additional income on the loan. Points are paid at closing and are usually equal to 1 percent of the loan amount. Two (2) points on a $75,000 loan would be $1,500. ($75,000 x .01 x 2 points).

Types of property

Industrial property is land used for industrial purposes, such as warehouses, factories and power plants. Commercial property refers to income-producing property, such as office buildings, restaurants, shopping centers, hotels and motels, parking lots and stores. Some industrial properties may also fall into this category. Agricultural property is defined as land used primarily for growing crops or raising livestock, such as farms, pastureland, orchards and timberland. Special purpose property is property that has a unique use to the persons who own and use it, such as churches, hospitals, schools and government buildings. Recreational property is land used for leisure activities, such as parks, forests, time-shares and campgrounds. Investment property is defined as any property that is being held as an investment to generate income or profit. Any residential, commercial or industrial property may be considered an investment property. However, typically, most single-family residences are not considered investment properties, unless they are non-owner occupied.

Communication

It might seem logical that the major dissatisfaction sellers have with real estate agents is failing to sell the property during the listing period. However, the truth is that the primary criticism sellers have about their agents is lack of communication. Sellers often complain that once the listing agreement is signed, the agent "puts a sign on the lawn" and then "disappears." Their home becomes one of dozens of properties on the market that may be shown occasionally. A business card gets left on a table to show that someone came through, but the owners often don't get feedback on how the showing went. Owners can feel cheated or resentful when the person who so eloquently presented the reasons why he or she should get their listing seems to be so unavailable once the papers have been signed. One of the reasons that owners may start having these negative feelings is because the agent did not adequately prepare them for what would be happening during the first days of the listing period and beyond. During the first few days, you are doing multiple property marketing tasks - preparing flyers and ads, getting the property information into the MLS, etc. - which your sellers may not be fully aware of. While you are "busy being busy," your sellers are home waiting for the onslaught of prospective buyers, which usually doesn't happen in the first days. With a little planning and forethought, you can make your sellers feel like partners in the selling process, while keeping the lines of communication open and flowing. Once you have secured the listing, let your sellers know what to expect in the first few days. Tell the sellers they will be receiving a letter from your broker. Most brokers send a "thank you for listing with our firm" letter to new clients to introduce themselves and to invite the sellers to call the broker directly if any problems arise. Meet with the sellers a day or two after the listing appointment to go over your specific marketing plan with them. At this meeting, go through the home again to re-familiarize yourself with its features and make note of any particular suggestions you might have. Give the sellers some tips, ideas or suggestions on what they can do to help market the property. Let them know that selling their home is a team effort.

Evaluating your Advertising

It's very important to evaluate the effectiveness of the advertising methods you have put in place. You must be able to tell which advertising methods are producing sales for you and your company. It does little good to put money into advertising if you can't tell how well each method is working. You need to implement a method to track each of your ad types and determine if the cost is justified by the amount of business the ads are bringing in. Many firms assign a code to be printed at the bottom of a newspaper ad or print piece. Another technique is to use a specific telephone number for a type of ad, so all calls that come in on that number are tied to those ads. Many firms use a telephone log that is maintained by the receptionist or the person on floor duty. When a call comes in, the person taking the call gathers information about where the caller saw the ad and enters the information into the log. These figures will help you ascertain the impact of the current advertising campaign so that you can make appropriate adjustments. California has a number of laws that govern real estate advertising. Several of these laws are outlined in the Business and Professions Code. Let's look at each of these laws. Any person who advertises as if he or she is a broker and is not licensed is subject a fine and/or imprisonment in the county jail for a term not to exceed six months. If the violator is a corporation, the fine can be more substantial. Any officer or employee who knowingly advertises a false statement concerning any land or subdivision is subject to a fine of up to $1,000 and/or imprisonment in the county jail for up to one year. If the person is a licensee, he or she could also be subject to license suspension or revocation. Any advertisement published by a licensee that offers assistance in filing an application for the purchase or lease of government land must indicate the name of the broker and the state in which he or she is licensed.

Making Recommendations

Keep in mind that once you present an offer, the seller can take one of three actions: Accept the offer exactly as it is written. Reject the offer totally. Reject the offer and submit a counteroffer to the buyer for his or her consideration. If you believe that the offer you are presenting is a reasonable and fair offer, your goal should be to seek the sellers' acceptance rather than a counteroffer. However, if you believe for whatever reason that the offer is not in the sellers' best interests, you should not recommend its acceptance. You must tell the sellers how you feel and what you think about the offer. This is even more critical when you are dealing with sellers who don't have much experience in the real estate market and are relying on you to be their expert advisor. Remember: You owe your sellers a fiduciary responsibility here. The sellers' best interests take precedence over your commission. There are not too many instances when you would recommend an absolute offer rejection; however, they do exist. If you feel that the offer is ridiculously low or the buyers are seeking to take advantage of the sellers in some way, you might recommend rejection. But do make it clear to the sellers that once an offer is rejected, it's "dead in the water." The sellers have lost their right to enter into a contract with those buyers. As we discussed previously, if an offer is reasonable and fair you should be working toward acceptance rather than a counteroffer. Unfortunately, many agents are quick to recommend that the sellers make a counteroffer, especially if the offer was less than the list price. This may be the "easy way out" to avoid a difficult discussion with your sellers, but it may not be the best route to take. It's important for you to make it clear to the sellers that a counteroffer is in effect a rejection of the original offer and submitting a counteroffer gives the buyers a way out. Most people are very familiar with the concept of having "second thoughts" about a purchase. If the buyers are having second thoughts, submitting a counteroffer might just give them the "push" they need to get out altogether. Even when buyers are considering a counteroffer, they rarely stop looking at other properties. Conceivably, they could find something else they like better and reject the counteroffer.

In the chapter on disclosures, we discussed the Truth in Lending Act and Regulation Z. We outlined the disclosures creditors are required to furnish to consumers before entering into a loan contract. Truth in Lending also prohibits what's called bait-and-switch advertising. Bait-and-switch is advertising property or credit terms for a property that an agent doesn't intend to sell or that is actually not available just to attract buyers for other properties the agent has for sale. This type of advertising is a federal offense. As you might remember, we covered a great deal about Fair Housing Law in a previous unit. We saw that the Civil Rights Act of 1968 prohibits housing discrimination. In addition, it prohibits discriminatory advertising. Discriminatory advertising is advertising that indicates a preference, limitation or discrimination based on race, color, religion, handicap, sex, familial status or national origin. It can be a challenge to create advertising that does not use some discriminatory words or phrases. Words that are not generally recognized as being discriminatory can be; so it's important to become familiar with those phrases that you should avoid. In 1995, the Department of Housing and Urban Development (HUD), which enforces fair housing laws, sent some guidelines to its staff to help them when investigating allegations of discrimination. The memo addressed some words and phrases which are not acceptable to use and others which, if used, would not constitute a violation or be considered discriminatory. The HUD memo addressed only a small set of possibilities, but it seems to indicate that the staff should not move complaints forward if the ads appeared reasonable and did not favor or disfavor a protected group. Organizations have published lists of words to help write ads that will not be discriminatory. One particularly good list was compiled by the Miami Valley Fair Housing Center, Inc., in Dayton, Ohio. Click on the link below to see the list. You can print a PDF copy of the list from a link on the site. Fair Housing Advertising Word and Phrase List

Once inside the home, point out those features that are important to the buyers and de-emphasize those that are not important. Remember, very few homes have all the features a buyer wants. If the buyers have brought their children along, involve them in the showing by asking questions like, "Which bedroom would be yours, Sally?" If the buyers have brought friends or extended family members along, treat them as allies in the sales process. Don't "state the obvious" with comments like, "This is the kitchen." Instead, make comments and ask questions that will sell the features of the kitchen. For example, point out that the kitchen has 27 spacious cabinets and a large pantry or ask a question like, "Would you use these slide-out drawers for spices or kitchen utensils?" Selling the home by asking who, what, where or how questions for each room and feature helps the buyers see themselves in the home. A helpful technique when showing property is to invite comparisons from one property to another. For example, ask questions such as: "Did you like the workshop in the garage of the last home or does this home's basement workshop suit you better?" "Did you like the double vanity in the last home's master bath or would you prefer having the whirlpool this home offers?" These kinds of questions help surface what is really important to the buyers and get them prepared for making that big decision. Other things to keep in mind when showing property include: Remember that the features you like about a property may not be the same as what the buyers like. Buyers usually follow the agent through the home; so plan how you will proceed through the rooms. Try to address any objections at the time the buyers raise them. Stand on the side of small rooms to help them look bigger. Emphasize important features, but don't oversell them or you could be minimizing the attraction of alternative properties. Don't rush your buyers; let them take their time. Generally, the longer buyers stay at a home, the more interest they have in it. Begin and end your tour in the room with the most desirable feature for your buyers. This is a good place to close the sale. (We'll be talking about closing the sale in the next chapter.)

Other Types of Financing

Other less common types of financing are available to prospective buyers in the marketplace. Among these are: Open-End Loan. Sale and Leaseback. Bridge Loan. Home Equity Loan. Grant Programs. An open-end loan is an expandable loan which gives a borrower a limit up to which he or she may borrow. Each incremental advance must be secured by the same mortgage, and any advances may not exceed the original borrowing limit. The sale and leaseback arrangement is typically used by commercial enterprises to free up money that has been tied up in the real estate to use as working capital in the business. A bridge loan is a short-term loan that covers the period between the end of one loan and the beginning of another. Bridge loans are typically used in two situations: To cover the time period between the end of a construction loan and the issue of a permanent loan on a property. When a person needs to borrow money on his or her unsold home (a second mortgage of sorts) to fund the acquisition of a new home. This is useful when a seller will not accept a property sale contingency. Owners have the ability to borrow against the equity they have built up in their home. Homeowners can use a home equity loan for: Purchasing high dollar items. Taking a vacation. Consolidating other loans or credit card debt. Paying medical expenses. Paying college tuition. Making home improvements. Not technically a loan, grant programs provide buyers with a "gift" of money to use toward their down payment or closing costs which never has to be paid back. Some popular programs include AmeriDream, Nehemiah, Housing Action Resource Trust (HART) and Partners in Charity. Some lenders also accept "gift letters," which acknowledge that the down payment money was a gift from a relative and does not need to be repaid. Grant programs are also known as down payment assistance.

Paragraph 8 - Broker's and Seller's Duties In this section, the broker agrees to use due diligence to achieve the purpose of the listing agreement. The seller agrees to consider all good faith offers on the property, to make the property available for showings, to take responsibility for all information the seller provides to the broker and to hold the broker harmless for any claims resulting from the information given to or withheld from the broker. Paragraph 9 - Deposit This section authorizes the listing agent to accept and hold any deposits on the seller's behalf which will be applied to the purchase price. Paragraph 10 - Agency Relationships This section explains that the broker represents the seller. The broker will not represent the buyer; however, if the listing agent finds a buyer, it may be necessary for the broker to act in the capacity of a dual agent. This section also informs the seller that the broker represents other sellers. Agency relationship must be confirmed prior to or concurrent with the execution of a purchase agreement. Paragraph 11 - Security and Insurance This section states that the broker is not responsible for loss or damage to the property, even with a lockbox present. The seller must take steps to safeguard any valuables and obtain insurance to cover the risks. Paragraph 12 - Keysafe/Lockbox This section defines a lockbox and states that persons using the lockbox are not insured against theft, damage, vandalism, etc. that could be attributed to lockbox use. There is a box for the seller to check if he or she does not want a lockbox used. Paragraph 13 - Sign In this section the seller checks a box if he or she does not want a sign on the property. Paragraph 14 - Equal Housing Opportunity This section states that the property is offered in compliance with all anti-discrimination laws. Paragraph 15 - Attorney Fees This section states that the loser of a suit or arbitration of any disagreement must pay the associated costs.

Paragraph 16 - Additional Terms This section provides space for any agreement or terms not covered by any other section, such as a seller paying for a termite report. Paragraph 17 - Management Approval This section states that if an associate licensee entered into this agreement, the broker has a right to cancel within 5 days. Paragraph 18 - Successors and Assigns This section states that the agreement is binding on the seller and the seller's successors and assigns. Paragraph 19 - Dispute Resolution Subparagraph A says that the broker and the seller agree to mediate any disputes that arise from this agreement before taking any other action. Subparagraph B explains arbitration, but arbitration will not be executed unless both the broker and seller have initialed the appropriate spaces at the end of the paragraph. Do not try to explain this paragraph to the sellers. If they do not understand it or don't know how to proceed, advise them to consult an attorney. This paragraph also describes those types of matters that would be excluded from arbitration. Paragraph 20 - Entire Contract This section states that this agreement supersedes all previous discussions, negotiations and agreements between the seller and the broker. Therefore, anything that is not written into this agreement is not part of the agreement. Signature Section All the sellers must sign and date the agreement and provide their addresses, and other available information. You must then fill in your firm's name, sign your name directly below and then provide other information about the firm. California law requires that the sellers receive a copy of the listing agreement at the time the signatures are obtained. Note: If the owner is married, both spouses should sign the agreement, even if the property is held in the name of only one of the spouses. Because of California's community property laws, a buyer might have difficulty suing for specific performance if both seller signatures are not on the listing agreement.

The California Association of REALTORS® listing agreement is probably the one that you will use most frequently. Since it is a legal, binding contract, it's important that you understand it and can fill it out correctly. Depending on the details of a particular transaction, the wording you use on the form may vary. However, the listing contract contains several basic components. Click on this link to the Residential Listing Agreement*. Print off a copy to look at as we go over the listing form by paragraphs. * Note: Reprinted with permission, CALIFORNIA ASSOCIATION OF REALTORS®. Endorsement not implied. Paragraph 1 - Exclusive Right to Sell This section is where you put the name of the owner, the name of the real estate office that is obtaining the listing, the beginning and ending dates of the listing period and the physical address of the property, including city and county. In some situations, you may need to attach a signed copy of a legal description. If you are a salesperson, you should write your broker's name in this section. You will sign the form at the bottom of page 3. Paragraph 2 - Items Included and Excluded This is the section to list any personal property that may be included as part of the sale or any real or personal property that is being excluded from the sale. This will avoid later misunderstandings. Paragraph 3 - Listing Price and Terms This is the section to indicate the asking price for the property. There is also space to indicate any financing terms, such as loan assumption, down payment amount, all cash, etc. Note that unless the terms are specified, a seller is not required to pay a commission when refusing a full price offer unless the offer is all cash. Paragraph 4 - Compensation to Broker This paragraph has several subparagraphs. Subparagraph A is the place to fill in the mutually agreed upon commission the seller will pay the broker. It can be a percentage or a specific amount, although percentage is preferred because it will adjust according to the actual sales price.

Paragraph 4 - Compensation to Broker Subparagraph A-2 is known as the safety clause. Here the broker and sellers agree to a specific number of days after the listing expiration during which the broker may still receive a commission. This clause is enforceable if the owner, or his or her new agent, sells the property to a buyer whose name appears on a list of persons to whom the original broker showed the property during the listing period. This list must be given to the owner within three calendar days after the listing expiration. Subparagraph A-3 states that the broker is still entitled to a commission if the seller makes the property unmarketable by any voluntary act during the listing period. Subparagraph B states that if a party other than the seller prevents the completion of the sale, the commission due will be the lesser of the commission due under paragraph 4A or one-half of the damages recovered by the seller, after the seller has deducted all expenses. Paragraph 4 - Compensation to Broker Subparagraph C provides for any additional compensation to the broker, such as advertising fees or MLS fees. Note: Some brokers charge a document preparation or transaction fee. If that's the case, those charges should be clearly indicated here. Subparagraph D indicates that the broker has informed the seller of the firm's policy of dealing with cooperating brokers and how the commissions are divided. Subparagraph E indicates that the seller will have escrow pay the broker's commission directly from the sale proceeds. Subparagraph F is the owner's warranty that he or she is not obligated to pay a commission to any other broker if the property sells within the listing period, except if the property is sold to any of the listed prospective buyers. If one of the listed buyers makes the purchase, the current broker will not receive compensation and is then not obligated to represent the seller in the transaction. Paragraph 5 - Ownership, Title and Authority This section warrants that the owners are the only title-holders of the property and therefore have authorization to sell it. Paragraph 6 - Multiple Listing Service This section states that the broker will provide the transaction terms to the Multiple Listing Service, unless the seller signs a form to withhold the listing. Paragraph 7 - Seller Representations This section indicates that the seller is unaware of any legal, financial or physical reasons that would affect the seller's ability to sell the property. If the seller becomes aware of any such reasons, the seller must notify the broker immediately.

Home Ownership

People buy property for a variety of reasons. Some reasons are based on finances; others are psychological. Some people purchase a home to live in; others purchase property for investment purposes; others do both. But whatever the motivation, the housing market offers a wide variety of property types from which to choose. Some common types of housing accommodations include: Single family residence. Apartment building or complex. Condominium. Cooperative. Mobile or manufactured home. Modular home. When a person makes a home purchase, he or she becomes eligible for several potential advantages: The value of the property can increase over time, allowing the owner to realize a profit when he or she sells the property. The amount of that profit will depend on a number of factors including the type of property, its location and the economic conditions that prevail in the marketplace when the property is actually sold. As the owner pays down the mortgage, the equity increases. Equity is defined as the paid-off share in the property that the owner actually owns. The owner can take advantage of several income tax deductions. On the other hand, some potential disadvantages of home ownership also exist: Over time, a home could lose value through functional, economic or social obsolescence. The upkeep and maintenance costs could be substantial. A home is not a "liquid" asset. If the homeowner needed to sell and was fortunate enough to get a quick contract, the transfer of title could take some time. Thirty days is usually the shortest escrow period a homeowner could hope for. Foreclosure due to nonpayment of taxes or inability to make the mortgage payments happens all too frequently these days.

What do we mean by prospecting?

Prospecting is actively looking for and finding prospects - those owners who may be interested in selling their property or potential buyers who are interested in purchasing property. Prospecting is critical to your success in the real estate business; so it's an ongoing task. Therefore, it's important to develop strategies that will work for you in your efforts to find and interest potential customers and clients. A number of prospecting techniques exist. Some will feel comfortable to you from the start; others will take some "getting used to"; still others you may try out and eventually decide to drop from your repertoire. Whatever the case, realize that you will need a positive attitude and a variety of techniques at your disposal to keep a steady stream of prospects available.

Developing a Prospecting Plan

Since prospecting is so critical to your success, it's not something that should be a "hit or miss" proposition. While prospecting cannot guarantee sales, it can help you to identify the needs in the marketplace and provide you with a steady stream of potential clients. When we discussed setting goals in an earlier chapter, we talked about how important it is to write down what you plan to accomplish so that you can monitor your progress and make changes as needed. The same is true for prospecting. Just as you set career goals for yourself, set prospecting goals to help keep you on track. A good prospecting plan will list all the activities you plan to do to develop and maintain leads. Here are some examples of tasks you can put in your prospecting plan: Conduct one open house each week. Check the Sunday paper each week for FSBO ads and make contact on Monday. Check the rental ads in the Wednesday supplement each week and make contact on Thursday. Have lunch once a week with someone who can provide or has provided a lead. This is just a short list of examples. Your list could and should be much longer. As you work your plan, you can evaluate the effectiveness of your activities. Drop the ones that don't work and expand the ones that do. The important thing is to keep track of your results so that you can become more effective at attracting both sellers and buyers.

The California Association of Realtors® has many standardized forms that will make the compilation of a listing packet much easier. Here is a list of forms that you should include, with a brief explanation of each. Completed Residential Listing Agreement (RLA) This is the listing agreement form we explained in detail on the previous screens of this unit. A buyer has no need to ever see this agreement. Seller's Advisory (SA) This form talks about some things regarding disclosures that sellers need to think about and do as they market their property. Disclosure Regarding Real Estate Agency Relationships (AD) This disclosure describes the agency relationships available in California - Seller's agent, Buyer's agent and Dual agent. We covered this form in the earlier chapter on mandatory disclosures. Seller's Affidavit of Non-foreign Status and/or California Withholding Exemption (AS) This form deals with an IRS requirement that a buyer may need to withhold income tax if the seller is a "foreign person." A seller may need to consult a tax advisor for help filling out the form. The buyer should also get a copy of this form.

Smoke Detector Statement of Compliance (SDS-11) California law requires at least one operable smoke detector in every single-family dwelling. Many local requirements are stricter. This form, signed by the seller, states that the home is in compliance with CA law. Water Heater Statement of Compliance (WHS-11) This mandatory seller disclosure deals with the law requiring water heaters to be strapped, braced or anchored to resist earthquake motion. It's important to check local ordinances for stricter requirements. Lead Based Paint and Lead-Based Paint Hazards Disclosure, Acknowledgment and Addendum (FLD-11) This disclosure deals only with properties built prior to 1978. We covered this disclosure in a previous unit. Natural Hazards Disclosure Statement (NHD) and Combined Hazards Book California requires the disclosure of several natural hazards. As we explained in the earlier chapter on mandatory disclosures, providing this booklet fulfills many of these disclosure requirements. Estimated Seller's Proceeds (ESP-11) This form estimates what the seller can expect to walk away with after the sale. We discussed this form in the chapter on listing presentations. Notice to Buyers and Sellers - Defective Furnaces in California This is not a standard form, but one that the broker should create to give to sellers. It explains that the Consumer Product Safety Commission has issued a warning for a certain type of horizontal gas-fired attic furnace, manufactured by Consolidated Industries, which has been known to cause fires. The form should have a place for signatures of both the sellers and the buyers, acknowledging receipt of the form and their understanding of the warning and what it implies. Having clients sign this form may help to relieve brokers of any responsibility if a problem arises in the future.

Many brokers and salespersons choose to specialize in different areas of real estate.

Some of these specialization areas include: Type of property - An agent can specialize in residential, commercial, industrial or land (lots, acreage or farms) transactions. Clients - Rather than deal with all types of clients, some agents decide to represent sellers and landlords exclusively or buyers and tenants exclusively. Geography - In a large market area, it can be difficult to keep track of the specifics on all the properties for sale. Some agents may choose to define a "region" that includes certain streets, subdivisions or collections of neighborhoods. Business type - A broker or agent could choose to focus exclusively on one type of business client, for example, hospital clients or fast food restaurants. Other areas of specialization include: Transactions - Documents for many types of transactions are unique to that particular transaction. Within an agency, one agent could become a specialist in leases and subleases, another in exchanges, another in options, and yet another in commercial sales. Auction sales - More and more, properties are being sold at auction. A broker could choose to deal only in auctions. Mortgage loans - Some licensees act as lenders or agents to make or arrange loans. We'll talk more about these licensees later in this chapter. As you can see from the descriptions on these last two screens, the possibilities for specialization in the real estate field are many. An agent first needs to become proficient in the basic knowledge and skills of the real estate industry, including prices, financing and closings, as well as working with and meeting the needs of clients. Once you master these general skills, you will be equipped to move into whatever area of specialization most suits your talents.

Homeowner Tips

Some tips for the exterior include: Keep grass and shrubs trimmed. Repair fencing and repaint if needed. Place blooming flowers on the patio or near the front door. Check condition of the finish on the front door and trim. Redo if peeling or worn. Place lawn furniture attractively. Make any roof repairs that may be necessary. If there are outdoor pets, make sure pet area is clean and neat. Some tips for the home interior include: Keep the home neat and "picked up." Be sure floors, bathrooms, kitchen and appliances sparkle. Be careful about cooking "aromas" - avoid vinegar and fried food smells; but blueberry muffins, home-baked bread or chocolate chip cookies can create the right atmosphere. Repair leaky kitchen or bathroom faucets. Clean carpets. Make sure rooms are well lit - either through natural lighting or higher watt light bulbs. De-clutter closets. Remove excess furniture to make rooms look bigger. Straighten and de-clutter the garage and basement. Move items to storage if necessary. Some companies specialize in producing forms and materials that you can copy or print for use in presentations or share with clients. One such company is Realty Tools, Inc. You can visit their website at http://www.realtytools.com.

TILA/RESPA Integrated Disclosure Rule (TRID)

TRID requires that borrowers receive various disclosures regarding the proposed loan transaction. For federally-related loans, the lender or mortgage broker must furnish a Loan Estimate of closing costs within three days of the loan application and provide a booklet published by the Department of Housing and Urban Development (HUD). The lender or mortgage broker must provide a written Servicing Disclosure Statement which indicates whether he/she expects that someone else will be servicing the loan. This disclosure must be given at the time of the loan application or within three business days. At least three business days before the settlement or the anticipated close of the loan escrow, the borrower must receive a copy of the Closing Disclosure. RESPA also requires that borrowers receive disclosures about business relationships that may exist among lenders/creditors and settlement service providers. Truth in Lending Act and Regulation Z The Truth in Lending Act requires a creditor to furnish certain disclosures to the consumer before making a contract for a loan. Regulation Z requires that creditors make certain disclosures for real property secured loans. The disclosures include: Amount financed Finance charge Annual percentage rate Total of payments Payment schedule Truth in Lending allows the consumer the right to rescind the contract until midnight of the third business day following the completion of the loan. Notice of Transfer of Loan Servicing If a loan is secured by a one-to-four-unit property, the lender must notify the borrower when the loan collection is transferred to another entity. Notice of Adverse Action - (Equal Credit Opportunity Act) A lender or creditor who denies an application for credit must provide the applicant with a statement of reasons or a written notification of the applicant's right to obtain such a statement, within 30 days after receiving the completed loan application. Housing Financial Discrimination Act (Holden Act) At the time of the loan application, lenders must notify all prospective borrowers of their rights under the Holden Act and its prohibitions against discriminatory practices by lenders.

Reviewing the Listing

Take a few minutes to review what has happened over the life of the listing, including such things as: Advertising efforts. Open houses. Showings. Responses to showings. Previous offers that may have been received on the property. Make sure this part of the presentation is brief, because the sellers will be anxious to hear the offer. However, this review is important because it helps set the stage for the sellers' reaction to the offer you're about to present. For example, if the property has been on the market for a long time and this is the first offer, reminding the sellers about the level of effort expended over the listing period may pave the way for an acceptance. After you review the listing activity, it's time to talk about the buyers. This is the time to raise the sellers' comfort level that they will be selling their home to people who will really appreciate it. This is particularly important since selling property is so emotional. Even though the sellers may be anxious to sell, they may still harbor some degree of reluctance. In addition to portraying the buyers as nice people, you want to let your sellers know that their offer is a reasonable one. If you know that these particular buyers are interested in other properties, you may want to share that with the sellers. It's important for sellers to realize that if they reject an offer, the buyers may simply move on to their next choice, especially during a "buyer's market." Presenting the Offer Once you've reviewed the listing period activity and given the sellers an accurate picture of the buyers, it's time to actually present the offer. You should go through the offer paragraph by paragraph, answering any questions they have. Once you have explained every paragraph, ask the sellers to initial those sections that need initials and ask them to approve the agreement by signing it. If it's a full price offer, it should be easy to process through the rest of the purchase offer form and obtain the signatures. If the offering price is less than the listing price, but you believe it is a fair and reasonable offer, you'll need to defend it to the sellers. Try to explain the buyers' reasoning in offering the price they did. If the sellers understand the motivation behind the offer, they may be more willing to accept it. And promoting mutual respect between the buyers and sellers will increase the likelihood that the sale will move through escrow and closing successfully.

California Code of Conduct

The California Code has expanded on the list of activities that are considered discriminatory conduct, and we will list them on the next several screens. The discriminatory practices based on race, color, sex, religion, ancestry, handicap, marital status or national origin that California prohibits include the following activities, some of which we discussed earlier under the federal law: Refusing to negotiate for the sale, rental or financing. Refusing or failing to show, rent, sell or finance. Discriminating against any person in the sale or purchase, collection or payments or performance of services in connection with contracts or loans. Discriminating in the terms, conditions or privileges of sale, rental or financing. Discriminating in processing applications or referring prospects to other licensees because they belong to a protected class. More prohibited activities include the following: Representing real property as not available for inspection, sale or rental. Processing an application more slowly or otherwise delaying a transaction. Making an effort to encourage discrimination in the showing, sale, lease or financing of property. Refusing to assist another licensee in negotiating a sale, rental or financing. Making an effort to obstruct, retard or discourage a purchase, lease or financing in a certain neighborhood. Performing acts or making statements which express or imply a limitation, preference or discrimination. Coercing, intimidating, threatening or interfering with a person's enjoyment of a property or retaliating against someone who filed a fair housing complaint. Soliciting sales, rentals or listings restrictively. More prohibited activities include the following: Maintaining restrictive waiting lists. Seeking to discourage or prevent transactions because of the presence or absence of members of a protected class. Making an effort to discourage or prevent a sale or rental through the representation of actual or alleged community opposition. Representing desirability of particular properties. Refusing to accept listings. Agreeing not to show property. Advertising or causing advertising to be done in a manner that indicates discrimination. Using wording that indicates preferential treatment Selectively advertising in a way that will cause discrimination. More prohibited activities include the following: Maintaining different pricing, rent, cleaning or security deposit structures for different groups. Financing in a discriminatory manner. Discriminating in prices. Discriminating when providing management services. Discriminating against owners, occupants, visitors or guests. Making an effort to encourage discrimination among other licensees or their employees. Establishing or implementing discriminatory rules in multiple listing and other services. Assisting anyone who intends to discriminate.

Preparing for the Presentation

The California Residential Purchase Agreement and Joint Escrow Instructions, is the form most agents use with their buyers when writing offers. Once the form is filled out and signed by the buyers, we typically refer to it as an offer to purchase or purchase offer. Signing the purchase offer is just the first step in the negotiation process. Once signed by the buyers, the offer must be presented to the sellers and discussed, with the hopeful result of being accepted and signed by the sellers. Offer acceptance is not a "given," so it's wise to prepare carefully for how you will present the offer to the sellers. As the listing agent, once you receive a purchase offer, you should make an appointment to meet with your sellers to present it. If the offer was prepared by the selling agent, go over the offer diligently to be sure you understand all of the terms. If you have any questions, call the selling agent and get clarification before you have your seller meeting. Sometimes when calling to set the appointment, the sellers get anxious and want to hear the offer price over the phone. This is not a good idea. Price is only one aspect of the total picture. Often the other terms, along with the offering price, make the offer much more acceptable than price alone would indicate. Or alternatively, the offer viewed as a whole could be the jumping off point for a good counteroffer. If the sellers still insist on hearing the offer, tell them that they deserve to hear a thorough explanation of all the terms and ask them if they are available to meet with you immediately. Sellers cannot accept an offer over the phone, but they can certainly reject one. Do whatever it takes to avoid a telephone presentation.

Listing Agreements

The listing agreement is a legally-binding contract that creates an agency relationship authorizing a broker to serve as the agent for a principal in a real estate transaction. Most listing agreements are bilateral employment contracts - meaning that a buyer or seller promises to pay a commission in exchange for the broker's promise to locate a "ready, willing and able" buyer for the seller or a suitable property for the buyer. Listing agreements must be in writing to be enforceable. Oral listings do not afford a broker any legal protection. If the listing agreement is not in writing, a broker could not collect his or her commission if the seller refused to pay. The most common types of listings are: Open Listing (Buyer or Seller). Exclusive-Authorization-and-Right-To-Sell (Seller). Exclusive Agency (Seller). Net Listing (Seller). Exclusive-Authorization-To-Acquire Property (Buyer). An open listing is a non-exclusive contract, authorizing a broker to serve as the agent for either the sale or the purchase of property. With this type of listing, a broker is not under the same obligation to perform as with other listing agreements; so an open listing is often considered to be a unilateral contact. This type of listing gives the seller or buyer the right to engage any number of brokers as agents. With an open listing, all contracted brokers can market the property or search for property at the same time. But only the one broker who brings the ready, willing and able buyer to the seller or who finds the right property for a buyer will receive the commission. In addition, with an open listing, a seller could sell the property himself or herself and a buyer could make a purchase himself or herself without having to pay any commission to any broker. Open listings are rare, since they offer the least assurance that the broker will receive compensation for his or her efforts.

Secondary Mortgage Market

The major participants in the secondary mortgage market include: Federal National Mortgage Association (FNMA or Fannie Mae). Government National Mortgage Association (GNMA or Ginnie Mae). Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). The Federal National Mortgage Association (FNMA), or Fannie Mae, is a government-sponsored agency that is organized as a private corporation. Fannie Mae: Buys conventional, FHA and VA loans. Buys a pool or block of mortgages from a lender in exchange for mortgage-backed securities. Sells mortgage-backed securities. Guarantees payment of all interest and principal on mortgage-backed securities. Government National Mortgage Association (GNMA), or Ginnie Mae, is a division of the Department of Housing and Urban Development (HUD). Ginnie Mae: Administers special assistance programs. Helps Fannie Mae in its activities. Guarantees payment on Fannie Mae's high-risk, low-yield loans, absorbing the difference between the low yield and the current market rates. Guarantees securities issued by private entities (banks, mortgage companies, etc.) that are backed by a pool of VA and FHA loans. Federal Home Loan Mortgage Corporation (FHLMC), or Freddie Mac, is a federal agency. Freddie Mac: Buys and pool mortgages. Sells bonds in the open market, using the mortgages as security. Does not guarantee payment of Freddie Mac mortgages.

Primary Lenders

The primary mortgage market is made up of lenders who originate loans. They make the money available directly to borrowers. The primary mortgage market is made of many different types of lenders: Savings associations. Commercial banks. Credit unions. Insurance companies. Investment groups. Mortgage bankers. Mortgage brokers. Savings Associations A savings association's primary function is to promote thrift and home ownership. The depositors earn interest on their deposits that is often higher than what commercial banks offer. The savings association invests some of its deposits in residential mortgage loans, enabling more people to purchase or make repairs to their homes. Commercial Banks Commercial banks act as a safe depository and lender of mostly short-term loans. They rely heavily on checking account deposits for their supply of funds to make loans. Note: Both savings associations and commercial banks are also known as fiduciary lenders because they have a fiduciary responsibility to protect the funds of the depositors, which they invest in loans.

Qualify the Buyer

The process of correlating the buyer's needs and wants with his or her actual financial capacity to buy is called qualifying the buyer. You need to determine what your prospect can afford and then find those properties that fit into that range. The best way to qualify your buyers is to have them go through a lender's prequalification process. It will save time and energy and potentially save the buyers from embarrassment and disappointment if they can't afford a property they really like. In addition, it's important for buyers to understand that sellers tend to choose a qualified buyer over an "unknown," especially when they receive multiple offers in a "hot" market. If your buyers agree to be pre-qualified by a lender, the process can be completed relatively quickly. You can fax a completed prequalification form to the lender, give the pertinent information over the phone or send it via Internet. If you send the information off before you go to a showing, you will have the response back by the time you return (or in some cases immediately). Once you take this step, the prospects will view themselves more as "buyers" and not just "lookers." Also, when buyers have placed their trust in you to help them complete this step, it's less likely they will seek out the help of another agent. Some first-time buyers may balk at the idea of dealing with a lender so soon in the process. They may feel it's too much pressure or more commitment than they are ready to make. Rather than alienate them if they refuse the prequalification suggestion, give them some idea of what salary it generally takes to purchase a home in the price range in which they're looking. As a REALTOR®, you can ask some probing questions to help you determine a buyer's capacity to make a purchase. For example, you could ask: How soon does the buyer want to buy? How much savings have been earmarked for a down payment? Where does the prospect work (if talking with a couple, do they both work and where)? Does the prospect currently rent or own? If a renter, how much is the monthly rent payment? Will the buyer need the equity from a currently-owned home to purchase a new one?

The Loan Process

The process of obtaining a loan first begins when the borrower fills out an application and gives it to the lender to evaluate. Because so many lenders are interested in selling off their loans to the secondary market, many lenders use the standardized Fannie Mae and Freddie Mac forms. These forms are referred to as uniform procedures and include: Borrower information Age Education Employment history Monthly income and expenses Assets Debts Property information Age and year built Year acquired Original cost Current loan balance Supporting documents Appraisal Credit report Verification of income and employment Contract for purchase Once the application form is completely filled in, the applicant must sign and date it and bring it to the lender, usually along with an application fee. At that point the application process begins. Federal law requires that lenders accept all applications and then notify the applicants of the results of the application review. If an applicant falsifies any information on the application and the lender denies the loan because of the bad information, the applicant cannot get the application fee refunded.

Loan Sources

The three major components of financing in real estate are the: Federal Reserve System. Primary mortgage market. Secondary mortgage market. It's important to understand how these entities work together. To simplify matters, we can say that the Federal Reserve sets monetary policies for the economy, and the primary mortgage market originates the loans that are bought, sold and traded in the secondary mortgage market. The Federal Reserve System, also known as "the Fed," is the nation's central bank. It was created by the Federal Reserve Act of 1913 with the purpose of helping to stabilize the economy through the judicious handling of the money supply and credit available in the US. The Fed uses four tools to influence and stabilize the economy: Determines the rate of growth in the money supply and attempts to match the increase with the growth in the economy. Regulates reserve requirements for all institutions offering checking accounts. These institutions must keep a certain percentage of their deposits on "reserve." Sets a discount rate of interest - the rate it charges for loans to member institutions. Engages in open market operations - the movement of cash in and out of commercial banks through buying or selling government bonds.

The Real Estate Industry

The real estate industry is considered to be the largest industry in the United States. We can say this industry is made up of individuals and companies that acquire, develop, operate, manage, lease, dispose of, sell and market real property. Real estate professionals perform a wide variety of real estate-related tasks that fall into one of several categories: Acquisition and development. Investment. Management. Regulation. Removal. Sale or transfer. Real estate salespersons spend the bulk of their time and effort in the last of these categories - sale or transfer. If salespersons cannot effectively market properties, the process of moving products through our economy would slow significantly. This slowdown would have a negative effect on the US economy. What changes have we seen in the real estate profession in the last several years? There are many and they include the following. Salespersons are generally better trained than in the past. Buyers and sellers have indicated that they want professionals who are both educated and experienced in real estate. Having professional designations, such as GRI (Graduate, REALTORS® Institute) or CRS (Certified Residential Specialist) can be important to clients. Smaller offices have merged with larger ones, giving consumers the benefits of economy of scale. Groups of salespersons within a firm have formed teams to work more efficiently with clients. Prospective homeowners are using the Internet to locate properties. Real estate salespersons are also using the internet to their advantage in marketing properties. Many real estate firms are offering affiliated services to clients. The number and variety of loan products have expanded. The real estate market can vary significantly from one location to another. One area could have an overabundance of lower-priced homes with many more buyers than homes available, making it a sellers' market in that location. Yet another location could have a number of higher-priced homes for sale and only a few buyers for that price range, making it a buyers' market in that location. One thing that helps both buyers and sellers with these differences is the availability of Multiple Listing Services (MLS).

Types of Leases

The types of leases a property manager may work with include: Net lease. Gross lease. Percentage lease. Graduated lease. Net Lease In a net lease, the tenant pays not only the rent for occupancy, but also pays maintenance and operating expenses such as taxes, insurance, utilities and repairs. Depending on how much additional responsibility the tenant assumes, the lease can be a: Net lease - The tenant pays maintenance and taxes only. Net-net lease - The tenant pays some, but not all, of the maintenance, insurance and taxes. Net-net-net lease - The tenant agrees to pay all taxes, insurance, maintenance, and repairs. Commercial or industrial leases and long-term leases are typically net leases. Gross Lease Under this lease, the tenant pays a fixed rent and the owner pays the taxes, insurance, and other normal ownership expenses. Percentage Lease A percentage lease is a lease whose rental is based on a percentage of the monthly or annual gross sales made on the site. There is usually a minimum rent required and then to the percentage of the gross comes into play. A percentage lease may also include a recapture clause, which indicates that if the tenant does not obtain the desired gross sales, the owner has the right to terminate the lease. This type of lease is common with large retail stores, particularly in shopping centers. Graduated Lease In a graduated lease, the rent payments start at a fixed amount but increase as the lease term matures. The increase could be based on the increased value of the property as determined by periodic appraisals.

Selling Strategies

There is a wealth of information about sales techniques in the marketplace - books, audiotapes and CDs, seminars and courses. Most resources describe in great detail a set of selling steps. Each author puts a little different spin on the basics to try to make it his or her own. Regardless of what method you use, there are some important aspects of selling that are embedded in every approach. Selling always involves and depends on: Knowing your product. Communicating information effectively. Establishing rapport with the buyer. Identifying and handling objections. Asking for the sale. It can't be stressed enough just how important it is to know everything you can about the available inventory. This inventory includes not only your listings and your firm's listings, but also comparable properties in the Multiple Listing Service. Not only must you know the features of the properties that may be of interest to a particular buyer, but you also need to know information about: The neighborhood. Recreational opportunities. Schools. Community activities. In most situations we communicate best with those persons who share our interests and with whom we have similar backgrounds and goals. That's why we get along so well with our friends! But agents deal with a wide variety of prospects, and making an instant connection with a prospect happens only occasionally. When dealing with prospects, it's important to: Make sure you understand clearly what message you want to get across. Get your facts straight and provide clear information to the prospects. Avoid using confusing jargon and terms. Use visual aids - graphs, charts, photos - to help communicate the message.

Discount Points (Discount Charges)

These charges are designed to offset any losses the lender might suffer when selling the loan to the secondary mortgage market. Discount points are a means of raising the effective interest rate of the loan. The rule of thumb is 1/8 percent for each discount point. So a charge of 4 points would increase a 7 ¼ percent mortgage to a 7 ¾ percent yield. 4 points x 1/8 percent = 4/8 = ½ percent 7 ¼ + ½ = 7 ¾ When obtaining a loan, a critical decision for both the borrower and the lender is determining a payment plan that will suit the borrower's financial circumstances while remaining a good investment for the lender. Several types of repayment plans exist. The most common are: Straight (Interest-only) Amortized Adjustable-rate Balloon payment Straight Loan Also known as an interest-only loan, the monthly payments are allocated only to interest. No principal is paid off. At the end of the term, the borrower must be able to pay off the entire principal amount or get another loan. These loans have become very popular in recent years. The attraction is due to the fact that the payments are typically lower than with other loan types. An interest-only loan could be a wise choice for someone who plans to own the property for a short time and believes the property will appreciate during that time. Conversely, it could be very risky. If the property does not appreciate in value, the borrower could end up with less in proceeds on the sale than what he needs to pay off the loan.

Trust Funds

When a client gives a broker a deposit for the purchase of a property, the broker must do one of these things: Give the funds to the broker's principal. Deposit the funds directly into escrow. Deposit the funds into his or her trust account. All funds deposited into a trust account must be maintained in that account until the broker disburses those funds according to the instructions of the person who is entitled to receive the funds. If a broker deposits the funds of others in a business or personal account or holds the funds without authorization, he or she would be guilty of commingling -- a license law violation -- and could be subject to disciplinary action. However, a broker is permitted to hold an uncashed check at the buyer's request before an offer is accepted or at the seller's request after the offer is accepted.

Underwriting the Loan

When evaluating a loan application, the lender is assessing the risk of granting the loan to the buyer. This evaluation process is called underwriting. The lender must evaluate the borrower's ability to repay the loan. This is called qualifying the buyer. Qualifying the buyer involves assessing the buyer's: Income - Are both income and employment stable? Net worth - What are his assets versus his liabilities? Creditworthiness - What do the credit reports say? The lender must also qualify the property the buyer wants to purchase. When qualifying a property, the lender will consider: Type of property. (residential, commercial, agricultural) Location. Area zoning. Value range. Neighborhood. Actual age/Effective age/Remaining economic life. Condition. (repairs and predications) Special clearances. (code compliance, well and septic certifications, etc.) Overall marketability.

Handling Objections

When working with your buyers, be ready to handle any objections they may raise about properties. View objections as the buyers' attempt to gain more information about the property or a specific feature. Objections can help you determine what the buyers are thinking. Don't discount or dismiss the objection. Give it the consideration it needs before formulating an answer. Delve deeper into the objection by asking more questions. For example, if a buyer says the price of a property is too high, ask why and then ask what the buyer thinks would be a fair price. If you determine it's reasonable, you could suggest that the buyer make an offer at that price. Use the "yes-but" technique to turn a negative into a positive. For example, if a buyer objects to a property being too close to a major highway, you could say, "Yes, but just think how much more quickly you can get to work." Asking for the Sale Asking for the sale is another term for closing the sale. Closing the sale means getting the buyers to make an offer. If you have worked with your buyers consistently and effectively, closing the sale should take place smoothly and naturally. Don't ever try to pressure your prospects into signing an offer before they are ready or it will mean problems down the road. Once you have identified a property that your buyers seem excited about and you have addressed any objections they may have had, you can attempt to close the sale. Focus your attention on talking about the things the buyers like or that they feel are important.

Expired listings are a good source of potential listings.

When you contact owners of expired listings, ask first if they have re-listed the property. If they have not, then you can provide them with information about yourself and your company and explain how you believe you can successfully sell the property. There are several reasons why properties do not sell. Agents do not market correctly. The price is not right. The property doesn't present well - needs repairs or "cleaning up." You can assess why you think a property did not sell, decide on the approach you would take and present that approach to the owners. If your approach sounds good, the owners will be more likely to give you the listing.

Home Ownership Affordability

With all the housing options available, it would seem that everyone should own or be able to own property. But the desire to own is only one small part of the picture. The most important factor for a prospective property owner is the answer to the following question: "Can I afford to own property?" First-time homebuyers must have access to or be eligible for: Down payment money. Money for closing costs. A mortgage loan. Note: In determining if a prospective home buyer can afford to purchase a property, many lenders use a formula. A typical formula says that the monthly mortgage payment plus a prorated amount for taxes and insurance should not be more than 28%* of a person's gross (before tax) monthly income. * This is a common percentage rate for the formula calculation. However, some lenders use other rate guidelines for determining affordability. In addition to the cost of the actual purchase of the property, a homeowner is responsible for a number of additional expenses associated with that ownership. Some of these expenses include: Utilities. Trash services. Sewer service. Maintenance. Repairs. Real estate taxes. Property insurance. With the issue of affordability in mind, it's important that your buyers are qualified so that you can avoid showing them property that is beyond their means. A qualified buyer is one who is serious about wanting to make a purchase and has shown some evidence that he or she is financially able to buy a home within a specified price range.

Amortized Loan

With this loan payment plan, a borrower makes a periodic (usually monthly) payment of principal plus interest. These payments result in the loan being paid off gradually over time. Amortized loans are usually fixed-interest, long-term loans of 15 or 30 years. At the end of the loan term, the full amount of the principal and all of the interest are totally paid off and the balance is zero. With a fully amortized loan, the borrower has the same payment amount every month. The payment goes first to the interest and then to the principal. Over the life of the loan, the amount going toward interest decreases, while the amount going to principal increases. With a straight amortized loan, the borrower pays a different amount with each payment. A fixed amount goes to the principal with each payment. The interest amount changes as the principal balance declines. Adjustable-Rate Mortgage Interest rate caps limit the amount of interest the borrower can be charged. There are two types of caps: Periodic caps limit the amount the rate can change at any one time. Overall (or aggregate) caps limit the amount the interest can increase over the life of the loan. A payment cap limits how much the monthly payment can increase. While this appears to be a good thing, it could be a problem if the payment cap prevents the payment from covering the interest. When that happens, the unpaid interest is added back to the loan, generating even more interest and debt. If this trend continues, the borrower will make many payments but end up owing more than he or she did at the beginning of the loan. This is called negative amortization. Balloon Payment Loan A balloon payment loan is a long-term loan that has one large final payment due when the loan matures. A balloon loan often has the advantage of very low interest payments. Since most of the repayment is deferred until the end of the loan term, the borrower has considerable flexibility to use the available capital during the life of the loan.