Archive for the 'Lessons' Category
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.
Don’t get an FHA Loan
In Utah, most people do not have a Mortgage on their home. They actually have a trust deed. In fact, most mortgage companies today don’t even give mortgages. In other states, the mortgagee(the lender) generally holds the title until the home is paid off, which is similar to what happens with car loans. Some states on the other hand use warranty deeds, through a system known as lien theory, which sellers give buyers at closing and the buyer owns the home. A mortgage lien is then recorded, and the lien is the only recourse the lender has against the home owner. Utah is a lien theory state.
In Utah, a deed of reconveyance is recorded upon sale. The advantage held by deeds of trust over mortgages is actually in the lender’s favor. It makes foreclosure faster and easier. A mortgage generally involves more lawyers, and allows 6 months for the owner of the home to redeem AFTER is has been sold at auction, provided the owner can payback all fees, past-due payments, and gives 7% to the winner of the foreclosure auction, which tends to be the bank.
Banks are completely flexible; or rather they vary, when it comes to foreclosing. They may initiate the process after its 90 days past due, some will wait 6 months. If your loan is a government insured one such as FHA or VA, you will likely have less time. Lenders try to avoid foreclosure, as it is generally a loss to them. That said, loans such as FHA are insured by the government with the lender’s losses COVERED by the US government. As such, they really don’t have much to lose by foreclosing on someone with an FHA insured loan. Once foreclosure proceedings have begun, you generally have 90 days to redeem your property by paying off all the interest, fees, and past due payments in full. This is the part of the foreclosure process in which short sales generally take place. Most lenders will be warm to the idea of a short sale and a short sale can prevent the addition of a foreclosure to one’s credit history. Once the lender has decided that foreclosure is inevitable, there is a final 30 day period which is entered into. After that, it’s to the auction block!
Learn why foreclosure auctions are rarely deals in part 2 of this lesson.
If anything goes wrong, blame the agent
Arriving early for class proved to be a mistake today, as our instructor was 20 minutes late. Several students in the class began to get angry, with one remarking that he couldn’t take any more time off of work. As our courses tend to begin and end at the same time regardless of when the instructor shows, I’m not sure why he was stressing out about being late for work, but I soon realized that he wasn’t the brightest on in the group as he continued to remark about how stressful it was to be learning real estate, and how he felt like he was experiencing a 2nd puberty.
My head was starting to ache as I tried to understand what he was blabbering about when our instructor burst in. She apologized and explained that she had scheduled a closing for that morning.
I should add, this class was a required attendance one, and I believe the second one with a title agent. If you recall, our first required class had left us all confused as the agent declared that by buying title insurance, you were giving the title company license to sue you. I hoped that perhaps todays class would be less confusing.
Our instructor began by telling us that she had been in the title business for many years and that when she started in the business she was the only girl…”Girls you know what that means? Boys didn’t let me into the vault.” She complained that work had been hard going in such a sexist environment, but seemed pleased that the industry had changed its ways. Personally, I wouldn’t have stayed with a company that I found sexist and limiting, but I guess I’m unique in that belief.
Her introduction then had her touching upon a theme familiar from our first title agent lesson, that of agent responsibility, essentially Agents are responsible for making sure the Title company doesn’t make a mistake. How convenient for them!
She warned the room that if there were any problems during closing, that the clients are going to be blaming their agents, who meant that, we would lose out on referrals and repeat business.
After this familiar rant she then stated: “Today I’m teaching what I do for a living…so you don’t need to know all of this…you just need to know who to ask (me). “ This seemed to kind of contradict what she had said earlier about agents having to catch all mistakes, but then telling us to just trust in her for any and all closing problems. Thankfully, she then jumped back to familiar ground by concluding her introduction with the stern warning: “If something goes wrong, they’re going after you.”
To learn more about title insurance and how it’ll get you sued, read part 2 of this lesson.
Casper the not so friendly…
Today’s class began with a warning. “You will work with Leases”
Some agents choose to deal with Leasing as their unique specialty. They generally work during normal business hours, as most businesses lease rather than own their property. Real Estate agents are licensed to work with Leases in the state of Utah. At this point in class, I took out my lunch and began to munch on my fluffernutters, while the instructor gave the definition of Leases.
Be sure to get a lease in writing the instructor warned, as people in Utah seem to have a “selective memory” when it comes to things promised outside of a written contract. This brought about a story regarding an unsavory tenant whom our instructor had suffered with, “a black guy” our instructor shared, ironically named Casper who had tried unsuccessfully to “use the minority card” when he was denied his lease renewal.
We were warned that as Landlords, there is a solemn duty to get rid of tenants who deal drugs, as property can be seized by the government if you are found to be negligent. We then learned some interesting information regarding renting in Utah.
The slowest months (and thus the best ones for tenants) are April, May and June. For this reason, most landlords try to lease their properties out through those months, with most leases here lasting a year, and being initiated either August or September 1st. Our instructor recommended advising tenants from previous years two months ahead of time if you plan to give them another year lease, particularly at a higher rent.
We were told that it was a renter’s market a year and a half ago when home prices were still very low in Utah, and there was a strong housing boom in the rest of the nation. As a result, many young-would-be tenants bought homes instead. Home prices have since skyrocketed almost 25% since then which has caused rents to recover. Utah certainly appears backwards in this regard, rents freefalled during the bubble, now that the bubble has burst rents are rising.
Want to learn how to make money by being foreclosed upon?
Read part two of this lesson.
No one ever gets this right
This was by far the worst class I have had so far at Real Estate School. I have become accustomed by now to all manner of ridiculous, and often humorous classroom situations. I’ve even been able to handle some the boring material rather well. Everything else paled in badness compared to today.
Class started normal enough, with the usual groans as the instructor warned that today would be another math course. I smiled to see the slide projector and tape player out like in Lesson 16. Our instructor began by warning us all: “Do not let anyone move into the home you have sold until closing. Settlement is when papers are signed, but it is NOT the same thing. Until funds close, you never know what could happen”
Surprisingly, after only a minute or two of slides and this brief warning about closing, our instructor eagerly announced that he would be leaving the classroom, and that we were to remain inside and work on a closing statement, which he beamed at us, “No one has EVER gotten right”
This was cleverly intended as a means of motivating the class into trying to be the first ones to fill out a closing statement correctly. As the instructor left the classroom, he mentioned softly that some of the required information was actually missing from the closing statement assignment.
I’ll try to scan the assignment so that everyone can see how ridiculous this thing was. It was essentially a blank table, with a confusing paragraph describing some of the information which we would need in order to fill out the closing statement, and leaving the rest to our imagination I suppose.
In case I haven’t mentioned it yet, a closing statement is a summary of all the closing costs involved with the final real estate transaction, and dividing the amounts spent between the buyer and the seller. They are detailed, long, and confusing. If you’ve bought a home before, you probably scanned it briefly and didn’t pay it more than 30 seconds attention.
It should be noted that it is incredibly easy for the title company preparing this statement to make a mistake or a typo which could easily have cost you several thousand dollars. For this reason, you may want to give it another look with a calculator.
Having taken an accounting course, there wasn’t much confusing about how a Closing statement is written. They are just a collection of items, which are either credited or debited. A credit is the thing given in exchange for a debit. An example of this would be a Credit Card Company crediting you $50, in exchange for a debit placed on your account stating you owe them $50. Simple stuff. I hoped to just ignore the problem, but sadly our instructor had assigned everyone a group, and mine had decided that we were going to finish the whole thing, and get it right. It was High School all over again :-p
One of my fellow group members asked another to borrow her calculator. She stared at it for a few minutes, then red with embarrassment, whispered “How do you turn these on?” We helped her press the on button, and she was ready to do math!
I’ll spare my readers the boring details of that next hour and a half. Suffice it to say, everyone gave up from frustration, and several picked up their copies of “Millionaire agent”, a get rich through real estate book.
This initiated a classroom discussion about whether the book could really make someone a millionaire, which soon led to some classmembers asking others if they had heard of the $1000 programs which teach a person how to pay off their mortgage early, or if anyone was going to attend that free real estate seminar that was coming to town. Several of the classmembers who had heard I was writing a book on Investment in real estate asked me to attend the free seminar with them to help them know if it was a scam or not. I told them it probably was, and to save themselves the time. In retrospect, I probably should have taken down their information, not to scam them of course…but at least I’d have some people to sell my book to!
Our instructor finally returned, and shared the answers to the incomplete problem. No one got it right.
Closing Problem - This was handed out to us with the challenge that no one ever gets it right. Spending five minutes trying to answer will show you why. This is probably worth reading over simply because it provides some genuine sample closing-related documents.
Real Estate Purchase and Sale Agreement - This was provided as extra information for the above problem. It created more questions than it answered.
Exclusive Sale And Listing Agreement - This is a dated listing agreement used by agents to list a property for a seller.
Closing Instructions Sheet - This is actually somewhat useful for double checking a closing statement to make sure everyone was charged the right fees.
Blank Closing Statement - Want to try doing a closing statement of you own? Knock yourself out.
