Archive for the 'Contracts + Records' Category
Reading the Obituaries = Profit
Heading into the third part of this lesson, our instructor told us about a property which he had wanted to buy, but had failed in his attempts to convince the owner to sell it. In his research on the property, he had found that much of the backyard was actually partitioned off by a narrow sliver of land owned by a large university here in Utah. Assuming that he would eventually succeed in purchasing the home, he decided to contact the University and see if they wouldn’t sell him the sliver of land.
Upon contacting the lands administration department of the School, he was delighted to find that the University had recently decided to liquidate some of its land holdings which it deemed to be of little or no value. This sliver of land was considered to be one such holding.
The man in charge of selling off these excess lands asked our instructor to make a fair offer. He thought for a moment, considered that the going price for 30,000 square feet of land at the time was 4 or 5 thousand, and decided to lowball with $500. “Done” came the quick reply, and our instructor stated that in retrospect he wished he had offered $200.
Some time passed, and he still found himself unable to persuade the home owner to sell the property. He moved on to other investments, until he noticed some months later while reading the obituaries (”I read the obituaries because…well I read them” he confessed) that the owner had passed away.
Excited, he called the home and spoke with the daughter who had inherited the property. He offered $30,000 which she laughed at and refused. Some days passed, and he received a phone call from the daughter’s attorney angrily demanding that the parcel of land which our instructor had bought from the University be turned over to the daughter immediately. He threatened to sue, claiming adverse possession. Our instructor explained that he was greatly amused by this, as they hadn’t paid the taxes on the property for all these years, he had.
After some time, he was again contacted by the attorney who had evidently done some more research, and in a calmer tone asked what the property could be purchased for. Our instructor was quick in his reply that he would sell it for the same as he had offered to buy the other property for. “The price is $30,000″. This evidently did not go over too well, and the attorney finally called and claimed that he would be seizing the land under prescriptive easement. This means, that if a piece of land is used by someone else for 20 years, then it reverts to that person’s ownership.
This claim got our instructor worried and he called his attorney to find out what his legal standing was. The lawyer chuckled, and as they discussed it, they found that the home had been owned by the daughter and her family for 19 years and 2 months. The attorney recommended that to avoid a court battle, he just sell it for a fair price, but if not, to at least do something with the land.
And so the instructor told the story to his real estate class, and got some volunteers to help him set up a rudimentary garden on the property. Before doing so, he decided to try and be diplomatic, and called the daughter’s attorney and offered to sell for $12,000. They accepted, and our instructor netted a healthy profit from his brief purchase.
He went on to warn us again that being a landlord can get dirty, telling us how he once had to call the police to have a woman removed from his offices because of a vicious argument they had over a $25 fee. Many in the class appeared appalled that arguments can occur between the landowner and renter. Again, this may explain why most agents have no intention of ever owning more than one property.
The lesson concluded with the definitions of freehold estates:
Fee simple
absolute: Highest form of ownership, no limitations
defeasible: two limitations (special with revertership [sp?]) and (conditions subsequent to with right to reentry)
And:
These definitions were long, and I’d recommend reading wikipedia to get a feel for what they mean.
The lesson concluded with this final bit of advice:
In a community property state like California, you share everything obtained in marriage, but gifts from relatives can be separate. Utah doesn’t do that. That means you may have no claim if your spouse dies with property in their name. Time for me to make that will…
In the second part of the class our teacher moved on to legal descriptions and their meanings.
In Utah, when you receive your property tax notification at the end of the year, it has some weird numbers. These specifies the page and book of information pertaining to your property. Fences lead to many disputes, this is because when you build the fence, you frequently build based on the telephone marker, or the grass division. In Utah there is case law on fences, it’s necessary that both owners agree to fence line becoming the recognized property line. If they don’t, and the fence was built wrong, you may find yourself having to move it.
There is an exception, a fence must be in place 20+ years and must be recognized as the division line between the two parties for this time. After the passage of such a period of time, it can be petitioned that the property line be recognized as the fence line.
County records and property lines apply to many real estate transactions. For example locally, the State road commission controls some of the larger roads, and restricts the access given to businesses. This means that even if you own a business bordering one such street, you cannot legally have a driveway feeding into or from the road. The prime reason behind this is the state doesn’t want people driving onto the road, particularly ones with 50 mph speed limits.
In Utah in order to maintain the right to control a road privately, one must chain the road for at least one day a year. Many universities do so on Christmas as a means of limiting the inconvenience caused to students by complying with said requirement.
Interestingly, the state puts fences one foot INSIDE their land along the freeway when bordering private property.
Much of Utah has been divided based on a square system composed of 36 square mile blocks called townships, all numbered based on their distance from the SE corner of temple square in Salt Lake.
Each town square is numbered from the top right something we were reminded would be on the test. Town squares are then separated into increasingly smaller squares using some peculiar forms of measurement:
Links: 7.92 inches
Rods: 16 1/2 feet
Chains: 1660 feet
Class closed up with the teacher telling us that computers had greatly simplified the act of handling land records. Metes and bounds, using degrees were once done by hand with primitive compasses.
His closing words of advice to us were to write everything down, and read everything that’s written in real estate transactions, and finally, we were reminded that it would be our job to catch and fix the errors committed by title companies. He ended class, and proceeded to go to work cleaning that board.
I waited until the class had cleared, and asked for a handout. He kindly handed me one…guess I haven’t been discovered yet!
Title Insurance: Insurance that’ll get you sued
Today’s class was given by a 30 year veteran in the title business. Title offices here in Utah are generally used when one closes on a house, with the buyer and seller both paying a smorgasboard of fees for intangible services such as ‘title insurance‘. When I closed on my house, we paid nearly $1,000 to the title company, prices which most buyers refer to as part of their normal closing costs.
The instructor began by complaining that Utah has some of the cheapest title fees in the nation. He then mumbled: “Some people think there is no money in title research, I think they are wrong.”
We were then given the exciting disclaimer: “Believe it or not this might be interesting…but the topic is boring.” He then started out explaining the bundle of rights which real estate encompasses, and explained how such rights are subject to city, county and federal laws.
I should add, that while this school allows students to choose their own schedules for the most part, they do have a select group of required classes which we must attend, this was one of them. I expect that this is done for the purpose of granting these guest speakers a captive audience. They have a vested interest in us using their services, so they come and speak to the new crop of agents upon whose business they rely upon.
We were told that Utah is unique in that all of it’s records are held by the county. He then surprised my by saying that utahcountyonline is the most advanced land records technology system in the nation. Having used it before to try and look up records, I can testify that the website is by far one of the buggiest databases I’ve ever tried searching. It gives frequent database errors, lacks a uniform method of searching, and is just plain confusing to the average user. “That website gives away all the information I have…anyone using that site can see the same thing I do” he glowed.
He then proceeded to outline how this great newfangled web technology has revolutionized the lands records process telling us hundreds of years ago, just like western movies portray, there was a land records office which was far more confusing and likely led to many gun fights…his hypothetical was interrupted by an elderly woman who stammered “how do they…how do they work if there is more than one land office? I’m so excited…so glad that you’re here.”
Clearly she didn’t catch the end of his hypothetical based upon spaghetti westerns, they gunfighted if there was more than one land office. I swear some people just don’t listen.
Moving on, he told us that out of necessity (or perhaps people got tired of gunfighting) legal descriptions and land records emerged and all real estate began to be done in writing. He then gave the class a handout. Everyone but me. I worried. Were they on to me?
We’re then invited to read through our handouts while he washes the white board. Everyone does so, but I find myself too distracted to bother interrupting and asking for a handout. You see, he was working tirelessly to wash the whiteboard, which was already clear. He spent at least five minutes wetting napkins, rubbing the board, throwing them out then repeating the process. I suppose I have a bit of OCD myself, in that I find it fascinating to see people do pointless things repeatedly because they cannot help themselves. After at least 30 cleanings, he finally seems content and continues teaching.
Or at least he tries to, as he is quickly interrupted by his cell phone going off with a female voice soothing “someone would like to speak with you master…someone would like to speak with you master…” Technology is a great thing.
The instructor then explained title transactions by sharing with us a situation in which he recently been involved. A buyer was in the process of purchasing a large amount of land which brought with it certain water rights, along with an option on purchasing additional water rights for a very hefty price.
Due to an error on the part of the title company, they required the buyer to overpay by purchasing those additional (and in this case unnecessary) water rights for roughly $100,000 too much. He exclaimed that the seller was a lion in sheep’s clothing and that despite his best efforts, they had not been able to convince the seller to return the money. The buyer angrily asked “You can actually go home and sleep and night about this deal?” “Ya, the deals done.” responded the seller. Holy $#!@ the instructor commented.
At this point the class was quite sympathetic, with one student exclaiming “surely you can sue the seller” to which the instructor replied “Oh yeah, I’ve told him we’re going to sue”
Another classmate interjected “but isn’t the title company liable?”
And received the reply “Oh yeah, it’s all my fault.” He stated that although his underwriter would foot the bill for his mistakes, if they did not pursue legal action they could lose their company’s policy and be out of business.
Understandably, this caused the class some level of confusion. Particularly as the teacher continued telling us about another recent transaction in which his partner misread the date on a tax lien and they ended up having to pay the owed taxes after the transaction. He told the class that they were in the process of trying to collect the tax bill from the seller in the transaction, and were again contemplating suing the seller in order to regain the lost $1100. “Oh yeah, that came out of my pocket.”
“I make the deal good” he continued” but if a mistake is made….I go after you…I have the right..I buy the right” He then added “sebredation (sp?) means we can buy their position and sue the crap out of you”.
We were by this time all a little confused. It would appear that title insurance, at least through this man’s company, offers no actual insurance protection. That any mistake made would cause the title company to become litigant against either the buyer, seller, or both. This man had summed up Title Insurance for us. In effect, you pay the title company a large part of your closings costs in order to grant them the right to sue you.
He did admit on smaller errors that “it’s useless to sue…attorney costs $1000, and so I’ve paid lots of stupid little fees…Salt Lake is ridiculous…garbage and stuff…”
He even shared a anecdote about how when he first started contemplating becoming a title agent sharing his plan with his father, who was a normal insurance agent. “I got a job, you don’t do anything”, my dad said, “take it…it’s a racket.”
One of my classmates then raised his hand and asked: “I got a question, I understand title insurance…and it seems you’re saying that the insurance is worthless?”
Our instructor again restated his position, explaining that yes they will pay out when they make mistakes, but that they will go after the buyer or seller to recoup those losses in most cases. He then stated that it was our duty as agents to prevent his mistakes…to read everything and catch them before they happen. So apparently that’s the purpose for being a Real Estate Agent! To cover the Title company’s rear!
Appraisers are inferior
Taxes. It’s a part of life and something everyone seems to hate. In Utah, people are often surprised/amazed/annoyed at the County’s ability to value their home without sending an appraiser over and doing a formal appraisal. That is because, most of the land in Utah is valued based on it’s initial selling price/appraisal. Using those numbers, the appraised value proceeds to increase by a set percentage each year. This can lead to an occasional error or even a gross over valuation.
Each year, generally in September or November, Utah residents receive a piece of paper stating their property’s appraised value, and the amount of taxes which they will be required to pay the following year based on the new valuation. For me, that meant a $7 increase to roughly $720 on an originally $155,000 home (county valued at $120,000). If one wishes to dispute their appraised value, they can often just head down and request that their valuation be reconsidered. We were advised that the best way to do this is by providing an appraisal, CMA, or some form of documentation to support the value we feel the home should be valued at. One wishing to dispute their home valuation will often benefit from being silent, and just handing over their evidence when disputing their value. Silence when dealing with public officials is a virtue. If you can prove that exceptions have been allowed for others, then you will often find yourself better off requesting that they make one for you.
Given that Utah is appreciating like crazy, I have little motivation in disputing my tax assessment, as my home would likely be valued closer to $180,000. It pays to complain if you’re overvalued. If you’re undervalued however, it’s certainly dangerous to bring attention to yourself in an effort to save a dollar or two. The instructor stressed the importance of understanding what a home is worth in order to value it. He seemed to consider that a CMA prepared by an agent is actually superior than an appraisal prepared by a licensed appraiser because “Agents know the market better”
As an added benefit, Utah state taxes residents (owner occupants) at 55% of their home’s appraised value. Further discounts of 10% or more are given to the disabled, elderly, and veterans. Commercial property, or non-owner occupied homes are taxed at the full 100% however.
The instructor shared a story regarding the Geneva steel plant in Orem, Ut which closed some time ago and was purchased for a third party group of attorneys for a fraction of what the county valued it at. This led to a change in the taxing of inactive industrial plants in the state of Utah after the buyers fought, and settled a heavy legal battle to lower their taxes.
We were then introduce to the Millage rate. This is a formula, which can be defined as follows:
Millage rate = Total budget divided by total county value. Using this rate, the county can determine just how much to tax in order to meet it’s budgetary needs. At well under 1%, Utah property taxes are considerably lower than much of the nation.
There are of course exceptions granted, particularly to non-profit groups and churches. Farmers are also offered a considerable tax relief assuming they own and develop a minimum number of acres for agricultural purposes. They must be careful to preserve the land in this role however, as reverting land use can result in a hefty tax bill…for this reason, farmers generally require that developers buying their farmland pay the taxes incurred by the change in land use.
If one simply ignores their taxes, then their land can be seized by the state. This is never done unless one had been delinquent for at least three years in their tax payments. Such delinquency results in the county auctioning the tax bill to the highest bidder. Such sales are performed at county tax sales auctions, in which bidders offer to pay the taxes due in return for a lien on a portion of the property offered. If there is only one bidder, then he or she can feasibly purchase the entire property for the cost of the taxes and their interest. If there is an additional bidder however, he or she must bid for a smaller portion of the property in return for paying the back taxes. This can be highly lucrative for someone who takes the time to research all the properties being offered.
The instructor shared the story of a man who was interested in building an apartment complex over two lots, so he purchased a home, then approached the neighbor and purchased the adjacent lot as well. Much to this investors displeasure, he found that there actually existed a meter-wide piece of land in between the the two lots which was in fact owned by another party. Apparently, one of the homes had been delinquent in paying their taxes some years ago, and as a result, this small sliver was auctioned off. This unlucky (or at least poorly researched) investor ended up spending as much as he had for one of the entire lots in order to acquire this tiny parcel of land, and complete his complex.
We continued by discussing land use, which I cover in Part 3 of this lesson.
Contract them no matter what
Moving on, we began to learn about listing homes. This is the second entry on lesson 2.
This discussion begins with the instructor chanting at us “No listings for under 6%!” That about sums up the average flexibility of an agent on a listing. They want 6%, and will do what it takes to get it.
The instructor tells us that we should always get a contract before talking to someone. If they want to see home, make them sign a contract. If they want to list, contract em. If they walk into your office, contract them. This brought to my mind a memory of walking into an agency here in Utah when I was first considering buying a home. The agency advertised themselves as providing a huge list of foreclosures and other listings free of charge, so I walked in and was quickly shuffled into the agent who was on floor time for the moment. My wife was in the car, so I was in a bit of a hurry. I explained that I was just here for the listings of properties and was asked to sit down. The lady then presented me with a contract guaranteeing her 6% on any home I buy over the course of the next 18 months. I explained that I perhaps hadn’t made myself clear, and that I just wanted a list of foreclosures. She told me that she could only provide a tailored list and asked for my Name, income, and social. I balked. Look, I explained, I don’t want to get prequalified for your mortgage, I simply want the free list of homes. We argued further as she pushed the contract, and I responded with “I’m still living in California, I’m just here in Utah for a weekend, and I really have no interest in having an real estate agent right now. I believe I walked out with a few useless MLS printouts, and a wife that had sat alone in the car for almost 40 minutes before she came in and rescued me.
Some time later when I was actually looking for a home I used a Realtor who advertised himself as being a no-contract buyer’s agent. He showed us some homes, and was kind. Best of all, we weren’t locked into a contract of just buying a home through him, which proved a wise decision.
Our instructor begins with a story describing a young couple he knew that were overseas in Japan. They had contacted him wanting to look at some homes, and he sent them a few MLS listings. When they arrived in Utah he showed them a couple of properties. As he knew them rather well, he hadn’t presented a contract yet. He then turned solemn, and told the class that unbeknown to him, the father of the young man in the couple had been taking the couple out each evening to look at Fizzbos. Fizzbo is the derogatory remark that the instructor and several of the students spit out when describing a F.S.B.O (For Sale By Owner) property.
Real estate agents almost never show FSBO properties to their clients, as they rarely offer commissions, and if they do, the commission is almost always lower than what a normal home on the MLS would go for. Many brokerages do not allow their agents to even mention a property that doesn’t carry a 6% commission. Apparently, the young couple had found their dream home, and bought it without giving our instructor a commission. He explained that being young they were naive and thought that just because they had located, bought, and completed the transaction themselves, that they didn’t owe a commission to their agent. I was tempted to point out that as he wasn’t showing them FSBO homes, that really he didn’t have much right to complain. I thought better of it, as the instructor was very bitter, and continued to outline how he had wasted HIS fuel, and HIS time showing them a house, and because he hadn’t gotten a contract, he had gotten screwed.
The entire class was quite sympathetic, and many began declaring their intentions to never even speak to a potential client, let alone show a home without a contract. The instructor attempted to calm everyone down by saying that while a contract is important, one must use some tact. Invite them into your office, talk about the family, then politely give them a contract. Try to avoid rudely throwing it at them first thing, work them into it.
He then began to make me scratch my head by advocating that you tell your client to be that it is ILLEGAL for an agent to work without a contract. Now this is an outright lie as far as I can tell, but he claimed it had done very well for him. That whenever he was asked to show a home to a potential buyer he would ask if they had an agent, if not he’d tell them that it is illegal in Utah for him to show them the home unless they sign a contract to him. Most buyer are uninformed on Utah state law, and are thus inclined to believe whatever the licensed agent is telling them about law.
The class loved this, and several students began to greedily outline plans of theirs on how to convince both a buyer and a seller to pay the commission to them, known as a dual agency. Dual agency is when a buyer is represented by the same agent as the seller, an obvious conflict of interests, but legal in Utah as long as disclosed. Agents always want the dual agency, as it provides them with the full 6% commission. Many in the class were visibly deflated when the teacher cautioned that they would HAVE to contract with the seller to be allowed dual agency before they could legally represent both sides. Sellers can legally forbid their agent to represent the buyer, and honestly, that is probably a wise thing to do. If an agent is representing you as the seller, the last thing you want him or her to do is disclose your financial situation or how desperate you are to sell, or your lowest acceptable price point to the buyer. While disclosing such is often illegal, I have seen several agents all too eager to disclose such in return for a quick sale. As a buyer, it’s also unwise, as legally the agent is obligated to the seller BEFORE the buyer’s interests. That means that legally the agent is interested in the seller getting the better end of the stick.
The instructor then shared the most popular story of the day, the tale of his biggest commission ever. As the home already had an incredibly high selling price, he was forbidden to represent a buyer. As such, he legally could not represent the buyer. That said, he had a friend who wished to buy the property, and through a creative contract, he had this friend sign stating that he was representing himself. The instructor was thus able to net a 6% commission, while still being on the good side of the law.
The class exploded with excitement. Several students appeared like they wanted to clap. One asked where they could obtain such a contract, while another student declared that she would always do what the instructor had done, and gain a 6% commission in all her sales!
If you’re looking to sell your home and hope to avoid having an agent do the same, I would recommend clearly contracting that your listing agent is not to receive a commission above 3% no matter what the circumstance. This will keep them from loopholing your desire, and being able to represent both the buyer and seller legally, and prevent them from double dipping on the commission. Your agent will NOT like you limiting them, and one should always keep in mind that your listing agent is often the one providing the contract tailored in THEIR BEST INTEREST. Always have an attorney look over ANYTHING your agent tries to contract you to sign. If nothing else, at least read it carefully and sleep on the contract. A home is the largest investment most people will ever make. Rushing into it is stupid.
The instructor continued pushing contracts by describing a home which he contracted to sell for 7 years! He managed to keep the seller under contract during this time by submitting addendum to extend his time representing the property.
He then told a story which seemed rather ironic given his earlier tale of woe in losing his commission to a hated FSBO. He had been contacted by an interested buyer in a home he was listing, and he had of course gotten them to sign a contract before showing them the house. They bought it, and he happily earned his 6%, only to get a call from another young Realtor furious at him, declaring that he had shown the buyer that same home just a week earlier. Procuring cause used to be law in Utah, stating that the agent shown to be the one causing the eventual sale of a property is the one entitled to the commission. In this case the other agent didn’t have a contract, and so our instructor told him to have his broker talk to his broker and see what could be done…which in this case, with no contract, and procuring cause no longer being the law of the land, amounted to nothing. He was proud of how through a contract, he got the other agent’s commission.
Class concluded at that point. We were handed a practice test, which was for the most part rather easy, however it did contain one question that I found amusing:
Which of the following would be considered lawful practice in real estate brokerage?
a. Deceitful or dishonest practices (do we have to think about this one?)
b. Exaggerated statements about the property (To me, exaggerated translates to “it’s around 1000 square feet, when it’s really 600)
c. Omitted statements of material fact. (I read this as meaning forgetting to mention in the listing that there is an extra workshop in the back.)
d. Misstatements about the property. (Like Puffing perhaps?)
I answered C, as the rest seemed questionable. I was told I was wrong however, apparently answer (b) is the only lawful option. Think about that the next time you’re dealing with an agent.