Archive for the 'Lessons' Category
My views on real estate tend to lean towards cynical, particularly when it relates to Real Estate Professionals. This outlook was definitely influenced by my decision to interact with dozens of Brokers and Real Estate Agents by attending Real Estate School and blog about what I saw.
The undercover blogging was fun, surprising, and I did honestly learn a lot about Real Estate.
I was reading over some of my past posts while working to complete the how to be an agent section of this blog and was amazed at some of the things agents believe and teach others. Here are the ten craziest things I was taught at Real Estate School:
10. Lie to your clients by telling them your broker won’t allow anything you’re too lazy to deal with.
9. Appraisers can, and generally do give inflated and groundless estimates on the value of homes.
8. Agents are encouraged to claim it’s illegal for them to talk to you unless you sign a contract employing them first.
7. Brokers provide next to NO protection to their agents. They’ll take your money, but will pass the blame on to you (and sue) whenever possible.
6. FHA loans increase your likelihood of being treated poorly by your lender.
5. Title Insurance is pointless.
4. Agents will do anything to get their commission, ANYTHING.
3. Most agents try to avoid buying and selling property themselves.
2. Title Insurance is also useless (and will get you sued!)
1. Agents generally do not act in your best interest. They act in their own.
The final class today dealt with Utah laws covering property ownership. The instructor shared his experience with partnerships in the past, advising that one always try to have a controlling interest in a partnership, rather than an equal one. A general partnership is the standard shared liability which most people are familiar with. A limited partnership is different, in that it provides limited liability, and is often used to provide extra money.
After discussing the risks and advantages of a partnership, we talked about corporations and their advantages (low liability) and problems (double taxation).
Class then delved into things we’ve already covered regarding Co-ops and condos. Our instructor claimed that many co-ops here used to require that buyers provide a genealogy history before being permitted to buy in.
One thing I found worth noting, that legally, one must provide a list of damages within 30 days of leaving if a landlord plans to keep the security deposit, or any portion thereof. If this is not done, the tenant may sue for their deposit plus $100. This can be done via small claims court, and if the landlord loses, he will be liable for the fees of the other party.
Landlords must give 24 hour notice to enter a home, except when entering for fire or police purposes. One should be sure to specify this in their lease so as to be clear on the landlord’s right to enter a home.
In Utah, a landlord is required to provide tenants with the ability to transfer possession either by assignment (finding a new tenant), subleasing, or by novation (creating a new lease, allowing the old tenant out of their lease)
This brought a story by our instructor who had lost a suit when he tried to refuse other tenants from being assigned the lease on the basis of them not meeting his income requirements. The judge ruled against him stating he could not be as strict given there were only a few months remaining on the lease.
A lease agreement should outline that tenants cannot sublease, but a landlord does have the right to refuse a tenant.
Per Utah law one must permit a tenant to vacate their lease if the landlord enters the home without permission. This brought some interesting stories from classmates, such as one who had a landlord entering while she was away and stealing her clothes.
I myself had a landlord come in with a gun when I was living in Argentina, but I’ll save that story for another day.
Class concluded with a diagram explaining that one must give the tenant opportunity to pay their rent after they miss a payment before seeking court action.
Wrapping up with the Utah state law courses, we had a mortgage broker who had taught a previous course of ours come in. He announced that he would again be giving out a $20 gift certificate to a random member of the class. He attempted to give out two certificates but found the same person won each time.
I must confess that I appreciate when an instructor who is attempting to schmooze the class is open about it. Many of the guest instructors whom we’ve had appear fake or forced when they teach, always reminding us why their services are the best, and that we shouldn’t even bother comparing them to the competition. Open bribery is much easier than listening to silly rhetoric
Class began with the explanation of what a purchase money mortgage is (taking a mortgage in order to purchase a home), which can often be used to supplement the payment on a seller financed/assumed mortgage home.
We then learned about reverse mortgages, which one member of the class assumed was a means of pulling infinite money out of a home. Kind of like when I was young and assumed that adults could get unlimited money from their magical credit cards. Sadly, the member of the class was in her thirties.
He announced that there were 50 year mortgages now, which resulted in a terrified look from the class.
We then went through a few dozen sample test questions together. Here are some terms worth highlighting from the review.
A balloon mortgage is one which has a variable sized final payment, unlike an Arm which is generally amortized normally.
A blanket loan is one which covers multiple properties, and is paid off as parts of the property are sold. Builders often use these when building multiple properties.
Class concluded with the instructor explaining how the handouts he had given us would be so valuable to our dealing with clients in need of a mortgage. Conveniently the pages were covered with business cards, and included a ‘survey’ of the school which is obviously a silly attempt to get our contact information by pretending to care how we feel about the real estate school. Smart way to hook some agents I’d imagine. At least he offered us all a free lunch if we come to his office.
Brokers won’t sue clients, they’ll sue you
As I have already found out firsthand, the Utah state test is more difficult than the national test.
In Utah you cannot start off as an agent without having worked under a broker for three years. Brokers provide such invaluable services as instructing agents to go door to door to find clients (whoops let that secret out!)
If your broker is a Realtor, then an agent must also become one. This means Feeeeees! Hooray for monopolies.
Now in theory, a broker can get in trouble for the actions of his agents. I can see how that could be dicey, but after getting a feel for how this industry likes to pass down the blame, I can’t imagine Brokers actually getting in trouble that much.
Our instructor (the broker where this school takes place) warned us against going with 100% commission brokers, claiming that having to pay for your own training and advertising will eat nearly 25% of the commission alone.
Personally, I’d rather decide how my money was spent than have the broker do so, but to each their own I guess. Now uniquely, agents receive their commissions ONLY from their own principal broker. This means that you as an agent can never sue your clients for not paying their commission because, among other things, they are not your clients-they are the brokers. And Brokers will rarely sue clients because of the bad publicity which doing so could bring.
If one’s broker dies, you lose all your listings, and must renew them. This is apparently a bad thing because many agents rely on their listing agreement to keep clients, as they often upset or annoy their clients after getting the agreement signed.
It’s worth noting that all records on real estate transactions must be held for three years AFTER the year in which they occur. Closing documents are the same. Our instructor mentioned at this time that Title companies will routinely attempt to transfer the liability for closings to the agent, by sometimes even insisting the agent do the closing!
Trust funds such as earnest money MUST be placed in a trust account within three business days of receiving it. Interestingly, if you’re managing more than 6 units, you are required to have access to a trust account.
We were warned against commingling (using the trust account money for any purpose). This can get you in serious trouble, and according to our instructor, is not an uncommon thing here.
Trust account money that for whatever reason never gets settled, gets sent to the state unclaimed funds pool after five years. One can NEVER touch trust funds.
It was at this point that the instructor encouraged that we NOT return earnest money without a fight. We were also warned against creating forms.
We were told several times that we are just form filler outters.
I like that. It seems to describe perfectly just what most real estate agents seem to do to earn their commissions:
They fill out forms.
At the time of signing an offer or a purchase contract, one must present copies of the documents to both sides at the TIME of the signing.
Class concluded with the instructor explaining that we must have written permission BEFORE entering into any contracts if we plan on representing both the buyer and the seller. I’d like to take the time to point out that doing this is a TERRIBLE idea. While the agent will certainly make out well, the clients will not have their best interests protected.
Today’s class started off slow with the instructor promising to teach us how the money supply in the country works. Our instructor lamented the painful 8+% interest rates of the late 70s and 80s that made buying a home difficult. Seeing how rates fell so drastically a few years ago, it would appear to be a no brainer to buy a home NO MATTER WHAT THE INTEREST RATE IS as long as you can afford the payments, because you will more than likely be able to refinance at some point.
It is intriguing to imagine what the home market would be like today with a 20%+ interest rate, yummy…
Many of my readers are probably already familiar with adjustable rate mortgages. These often allow you to pay a reduced payment for the first few years (often with the mortgage amount actually growing) then with a hefty rate adjustment once the original low payments ended. This can really hurt those who don’t fully understand how these work. I have personally found some mortgage companies try to trick me into using an ARM over a 30 year fixed.
After some time listening to the instructor reminisce on past rates, he suggested that we get 15 year loans, and that we use his brokerage’s mortgage company for getting our clients loans. Apparently, we’re just not going to do any better than to go through them. That’s pretty convenient if you ask me!