Realty Pupil - Secrets of Real Estate

I guarantee it, or most of your money back

Today brought another required class presented by the school’s mortgage broker partner. Most real estate agents and brokerages work with a specific mortgage loan officer who pays a kickback for referrals received. Often, when you approach a Real Estate agent as a buyer, there are three things they will attempt to accomplish with you as their new client.

1. Establish a relationship of trust by wowing you and proving they know their stuff.

2. Commit you to a contract, which will often lock you into paying them a commission regardless of how you find the home you buy over the next year.

3. Get you preapproved (and locked into using their mortgage broker…which means extra money for the agent, and possibly, a worse deal for you)

If you want to see your agent at his or her worse, tell them once they have finished their presentation, that you do not wish to sign a contract.  If your agent blows up at you, imagine how things would have been had things started to go bad after you signed. Most agents will be kind but firmly insist you sign the contract before they can speak to you.  They may even tell you it’s illegal for them to talk to you without one (have we been breaking the law for the last hour then?)

If you have some interest in using this agent (always remember that you’re welcome to shop around) then negotiate!  Everything in real estate is negotiable. EVERYTHING.  If your agent isn’t willing to be flexible on something so small as an agent agreement, how will act when it comes to negotiating other things such as sales price?  Will they insist you offer more?  If they won’t bend their best interests in order to get you as a client there is a good chance that once you are a client they’ll act the same.

I find it amusing that the agency where this school takes place has a handout addressing their mortgage loans with a “$500 low rate guarantee” which claims, among other things, that since they have the lowest rates you DON’T EVEN HAVE TO BOTHER SHOPPING AROUND. Convenient huh? I’ll give you the best deal, so don’t even bother talking to anyone else…otherwise I might have to pay up the $500. Which by the way they never do. These low rate guarantee programs are generally designed in such a way as to be impossibly hard to get, often requiring that you pay a non-refundable appraisal fee of $500-600 in order to qualify.

Getting back to today’s class, I arrived late just as the instructor was discussing a certificate he had already handed out. Thankfully, I manage to get my hands on a handout and sit down. I’m ready to learn about financing!

Surprisingly, this mortgage broker proved to be the most clear and consistent instructor I’ve seen so far. I’ll share what we learned in part 2 of this lesson.

Pray with them

Contracts are legal agreements between parties who are legally able to voluntarily agree to something. It is binding as long as it does not supersede the law. This means even if your apartment contract says you must give 30 days notice before leaving, the law says 15, and legally, you are only required to give 15 regardless of the contract.

This led to a story about unilateral contracts. These are contracts which allow a buyer the option, but not the obligation to buy. Developers will often do this if they think there is a chance the city will not allow them to buy the land.
Our instructor told us about a group of homeowners who all bought homes with overly large lots. They had gotten together and were looking to sell their back lots. Our instructor came in and bought the options to all of these lots with the intention to develop it as a separate complex.
Soon he found himself with all the lots but the two end lots (which were the only street access ones). These two decided to greedily hold out for more, and he soon found himself fighting the same people who had sold him the lots in the City council. He explained that the property values had skyrocketed, and the option to buy which he had greatly upset many of the land owners who realized they’d sold their yards for a fraction of what they were worth.

Under an option, the sellers are generally unable to change their minds. Our instructor could have done so but he would have lost his option money. Even if the landowners tried to give him his money back, he was able to refuse them legally.
This brought us into the REPC, the real estate purchase contract which we have all seen at one time or another.

We were warned that if you do not like negotiations, this is NOT the business to be in.

Our instructor told us how being an agent for the both the buyer and seller can be useful, because if either one mistakenly lets out a bit of information useful to the other party, you can, no you have a fiduciary obligation to let the other party know that information.
Please consider this if you ever have an agent pressuring both sides to use him as the agent. Your Agent WILL give information to the other side in order to see the transaction go through, often with HIS best interests in mind.

Let me provide a possible situation.
Buyer comes in willing to use your agent. Another buyer with a different agent also wants to buy. Which buyer is likely to get the key information in order to get the best price, and have the most success in getting the home? The agent is going to tell the buyer willing to use him all the necessary information to get him into the home. This information may well compromise many things you thought or assumed your agent would keep secret.
Now obviously, the real estate agents have an obligation to present all offers. Keep this in mind when you find an agent refusing to give an offer because he thinks it to be too small. Agents want the home to sell for more. They are ALWAYS going to suggest you bid higher than you should. Low ball everything, in most cases you’ll get a counter offer that is MUCH lower than what your agent suggested as an initial offer.

We were then told: “YOU NEVER WANT A BUYER TO REJECT ANYTHING” Always counteroffer. This makes sense, as a counteroffer is in essence a rejection of the initial offer, doesn’t come off as a rejection, and keeps a potential buyer around.
We were told that there are some sellers who demand that you do not present any offers lower than asking. This is illegal, and we were told to refer them to an agent you don’t like. Don’t take the listing we were told.

This brought a story about a home listed for $200,000 that received an offer of $148,000. The seller raged, and demanded that they reject the offer outright. After much urging, they countered at full price and were later told that if the buyer’s other offer hadn’t been accepted, they would have actually gone with the counteroffer.

The listing sat a while, and then a female attorney (we were warned that female attorneys are meaner than males) made an offer of $147,000 requiring all the property flaws she had noticed. The seller again countered with full price, but offering to fix all the problems listed. “It sold!” our instructor beamed!

Many buyers are just testing the waters we were told. Make things work and you’ll be a hero to both sides. Know when your buyers are close to making an offer. They will tell you either in action or by words. Most buyers get cold feet. Write the offer there and then. Don’t take them back to the office.

They’ll be angry if the home gets sold before the offer gets in. Go fast.
If they want to pray about it, offer to pray with them our instructor encouraged. He laughed and said he was kidding, apologizing if he had been sacreligous, though he claimed he had seen agents actually praying with them, and saying again: “Do whatever it takes to get them to make the offer at that moment. Respect their religious preferences, but get them to write the offer. If they sleep on it, you won’t get the buy”.

This brought a story about a Mormon here in Utah which didn’t want to use an agent that was a Catholic, so the broker had a Mormon agent write the offer for 10% of the commission, with the rest of the commission going to the Catholic agent without the buyer ever knowing.

Always get things in writing, no matter how dumb it seems so that you avoid problems in the end.

We were warned about working with elderly, who can be incompetent either by age or mind. Use a family member or case worker, or better yet, an attorney to make sure the person is competent or the closing will NOT be valid.

Non-signed rental contracts are considered month-month contracts. Underage renters cannot be held to a contract.

Make sure you write time is of the essence on all home contracts. Not doing so can destroy your chances for closing.

Most defaults mean that the earnest money is forfeited. You cannot sue without returning the earnest money.

Usually, if a seller is trying to backout, you just have to threaten action. It will rarely come to that. People generally agree to mutually let each other out in contracts here in Utah. People can be nice.

Utah law requires using a certain real estate contract form. This can be altered if the buyer and seller so desire however. Only licensed agents are required to use the REPC form.

We were warned to never give advice as an attorney or tax advisor.
We then were told to make sure that there was a huge earnest money deposit. Agents want to see the home close, and this keeps clients from backing out. If earnest item is other than money, it is given to the seller. State law states a broker has 3 working days once the offer has been accepted to put the money into their trust account. The buyer’s brokers trust account generally receives it.

If you plan to sell a home we were reminded. Remove items before you list it. You don’t want buyers coming in and falling in love with a chandelier or stove that you plan to take with you.

We were reminded to have a calendar out while filling out a contract. No one in Utah will close on a Sunday.

We were also told that you should check a home prior to buying, to ensure the home is insurable via Home Owners insurance. Too many claims can render a home blacklisted.

And that was class.

We were handed a sample Real Estate Contract which I will upload shortly along with a bunch of other goodies.

Licensed Agents Must Be Honest Criminals

The third part of this lesson is mostly just random notes which I found interesting. I apologize that this post was a bit jumbled.

Using land, or rather developing it is always a tricky task. While large amounts of money can be made, one must be careful to follow the city zoning regulations to the T.

In order to develop land, you must prepare it, approve it, and record it. It can be scary spending money to prepare just to be told no by the city, and the city is used to saying no, they do it all day long. As a result, if you want to get anything by the city, you’re going to have to work hard to get a response other than the automatic “We can’t do that”.
Development and lot sales are restricted by the Uniform land sales act here in Utah. There are certain federal guidelines for every state, but Utah is stricter in their enforcement. These guidelines are meant to prohibit developers and partitioners of land from starting projects which they cannot afford to finish, and leaving their buyers holding the bag. Our instructor told us about how he had a friend that would develop land for cabins, and then sell them in various states of completion. From time to time he didn’t deliver on his promises, and he actually served time because of strict development laws.

Our Instructor was actually an investor, and as such he kept complaining about high taxes, saying he likes low ones…and he went on to state that while he feels some of his taxes are silly (they’re much higher than nicer properties), he hasn’t complained out of fear that the city will leave his taxes as they are, and raise the taxes on the nicer ones.

In Utah, there is an appeals pyramid of 3 stages. First, one would deal with the city, second, the county, and third the state.

I believe I’ve already mentioned that there are certain green laws meant to keep property taxes low for farmers. Due to abuse, Utah has been cracking down on exemptions, and requiring that the land actually be farmed. Many land owners have still managed to overcome these requirements by allowing farmers to lease/rent their land for brief periods of time.

Among all this discussion of laws, our teacher took the time to remind the class that you must disclose any past crimes before taking your test. He told a story about a man who had committed a misdemeanor as an adolescent and ‘forgot’ to list it, as it had occurred 30 years earlier, and was summarily denied his license as a result. This is not to say that all real estate agents in Utah have clean criminal records as some have claimed*. It just means that agents must disclose their crimes before being considered for a license.

The lesson concluded with our instructor advising that when you list your property, where at all possible, you should remove all fixtures that you do not intend to sell. Removing an item after a sale, particularly something the buyer thought came with the property (like an attached shed) is a way to land yourself in serious trouble.

*Editor’s Note* A special thanks goes out to Nigel from http://slcrealestate.blogspot.com/ for setting me straight in regard to one of his article posts in which I mistakenly inferred that he had stated that agent’s are not criminals. Rather he seems to have been stating that harsher rules restricting brokers licensing and requiring background checks has led to a stronger real estate market. I don’t disagree with this, but I think there should be more restrictions in order to weed out the incompetent.

I wondered who I would meet before I enrolled in the school. There tend to be 20 or so students at the school, the majority of which are female. Age wise, there seems to be an even split between those like me in their early twenties, and those in their late forties. I have caught a few of the older class members giving me glares, which I can only imagine stem from the great age difference.

Many in the class seem to have some experience relating to real estate, often working as assistants in brokerages, or as loan officers. An assistant is severely limited here in Utah to being able to perform secretarial duties, handout leaflets provided they stay silent, acting as a courier, placing signs, making keys, and securing public records.

Under Utah law, a personal assistant cannot receive a commission, and must be compensated at a predetermined rate, non contingent upon sales. They may not solicit over the phone, and cannot make statements on properties. Pretty strict rules, considering the long list of exemptions to licensing requirements. Such exemptions allow anyone to be exempt from licensing requirements in Utah provided they convince the property owner to sign them powers of attorney, make them trustee, or live on-site as a property manager.

I learn agents don’t need math!

This was another lesson on the basics of real estate. Perhaps the most surprising part was the inordinate amount of time discussing timeshares. I have always held a rather negative view on Timeshares, given that:
1. They are NOT investments
2. They don’t just depreciate, they have next to NO resale value.
3. They use high pressure and often immoral sales practices to trick, con and pressure others into buying them.
The discussion of Timeshares was quite positive, and the instructor glowed about how as agents, we can work through his brokerage and offer our clients 3 nights free at many timeshare holdings throughout the United States, by merely paying $20. What a wonderful gift to a client! Require them to attend a timeshare sales meeting under the guise of a vacation!

It amazes me that these are even discussed, let alone the amount of class time wasted on them.

We were then introduced further to the requirements of the course. We were again cautioned against hiding, or failing to disclose any past felonies or misdemeanors. We are subject to a complete background check before we can receive our licenses, and it would appear that I will have to officially obtain Utah residency in order to qualify for a license here. So long California.

The tests sound rather simple, we’re allowed to take them as often as we can afford, providing at least 3 days notice to the State before we can take it the first time. The national test is supposedly pretty simple, and we were reassured that we would have less than ten questions requiring any math. The instructor glowed that we will be blessed in this, and that since the state only requires 70% on the test, if we know the rest, we can just skip the math problems. The instructor asked the class what a 70% would mean at a local university, and I was amazed at the serious responses the class gave which ranged from “B+” to “An F!”. Again with those confusing numbers. It’s a good thing that real estate agents won’t be required to do anything with math in the real world! Otherwise all the agents who just skip the math section will be in trouble when it comes to tasks like making a good offer, or calculating a home’s true value.

So basically, I can take the licensing test as much as I like, and only need a 70% to get my license. Surprisingly, the instructor even told us that the majority of the answers are either C or D. He laughed and asked the class “How many of you are D students? You’re in luck! That’s your secret letter. I don’t know what to say to you A students, except, maybe try to be D students!”

So the class concluded with the instructor confessing to us that it would be impossible to cheat on the test, as the state takes rather strict precautions against allowing us to play dirty. Too bad for us, that means we’re left with only our guessing abilities to get that stellar 70% score. Thank goodness we can take it as many times as it takes!