Archive for the 'Numbers' Category
Appraisal is an Exact Science
Today we gathered about to learn about the topic I’ve already mentioned as being one of my favorites, Appraising!
Our instructor began by stating that any property bought through financing will require an appraisal, which range in price from $250 to $500 for residential properties, to much more for larger properties.
According to our instructor, appraisers are monitored closely, and he warned that some time ago several hundred appraisers lost their licenses for giving appraisals that were too high. It would appear that this has led to appraisers being overly conservative, as they really cannot get in trouble for appraising too low, only too high.
He admitted that many agents pressure appraisers to raise the appraisals to get a home appraised for more in order to save a deal. Investors obviously, want their home to appraise for a huge amount to allow them to get cash back in either a refinance or in a first mortgage.
Our instructor then shared a story about a home he recently sold where he had two appraisals done, which he felt were both honest, even though they varied by more than $100,000. As you can see, this is definitely an exact science.
You are paying an appraiser to give you a guess which will be different every time. Pickup dollar bill. Open lighter. Light bill. Repeat 500 times. An appraisal is sadly, a necessary waste of money.
When an appraiser does an appraisal, he or she is required to do using three different approaches. The sales comparison approach, the cost approach, and finally the income approach.
Generally speaking in Utah, state law governs appraisals, with federal guidelines only applying to commercial property over $1 million, and homes over $250,000 purchased under federal programs such as FHA Loans.
I ask, if state law governs appraisals, then WHY do they vary so much depending on the appraiser used? Better yet, WHY won’t lenders allow buyers to choose their own appraiser in most cases. WHY do lenders require that you PAY for a bank appraiser to do the appraisal?
Real Estate Agents do their own appraisals, known as Competitive Market Analysis (CMA). These ARE not recognized by most financing companies, but can be useful when lobbying for lower property taxes. A CMA is simply a comparison between the property and other ones which recently sold in order to estimate what the home could potentially sell for.
“Lets assume you’re on floor time”, our instructor continued, “and get a call from someone looking for an agent to tell them what their home could sell for. Now realize, this person has probably called several other agents already, probably asking the same thing. (A few in the class cringe) Nothing wrong with that, this is America, and we live by competition.
One thing you want to make sure, is whether you’re the first agent in or the last agent in, you want to make sure you’re the last agent in.”
Now when they call, you want to get as much information as possible over the phone from them about their home, and it’s size, bedrooms, etc.
“Now in the old days, it used to take several days to do a listing appointment. Technology has changed that.” Oh blessed technology.
“Now if you’re the first person in, how do you make sure you’re the last person in?” he asked.
“Give them a number?” a woman in the front responded meekly.
“Well you’ll do that, but it’s going to depend on your marketing program, your professional appearance. You need to convince them to let you list it. Now if they choose you, suggest that you’ll call the other agents for them and cancel the appointments for them. Now I’ve had that done to me, and I’ve done it to others so I know how it feels to have an appointment cancelled on you.”
Our instructor then showed us a hypothetical CMA he had prepared for this class. He showed it to us, and explained how in just a few moments the computer put the whole thing together.
He explained how by varying the number of comparable you have the computer find, you can manipulate the price however you like. One person in the class asked “can the computer do everything for us”
He responded by warning “Now computers are kind of dumb. They can’t do it all on their own. You need to keep things like distance to a school in mind, etc.”
“Things are a lot easier though, it’s really really easy to do a CMA”
We were told that many appraisers work in the same way by using the MLS to pull comparables.
A good agent we were told, can do an appraisal as good as a appraiser, but banks won’t accept them.
Apparently guessing isn’t that hard to do. Too bad computers are too dumb to guess.
We continued learning the usefulness of having an appraisal in Part 2
Today’s Illegal Aliens are the Homebuyers of Tomorrow
The instructor today was the head of the entire brokerage, and rather successful agent. I was amused by the graph on the brokerage wall showing the month’s sales, coming it a cool 8 million for January. The amusing party of the graph was the stater goal of $165 million yearly sales. This shocked me at first until I realized that they were striving for a year’s total of that much, and not 165 million in sales in the month of December. There certainly is money to be made in this industry.
The instructor eagerly explained that the market was hot in Utah, (which is true, Utah has seen nearly 20% appreciation in the last year). He hinted that the reason for the constant growth is the mecca-like status of the state with a certain religious group. With more than 30 years experience, he clearly had some scope of experience in the business, and joked that possessing some level of Spanish speaking ability is often a useful talent, given that the Hispanic population will be buying homes in increasing numbers over the years to come.
We were told to focus on selling Real Estate, and that while we should possess some level of knowledge in regards to financing, that we shouldn’t strive to know much about finance as that is the Mortgage Brokers job. He claimed that since we cannot possibly know everything there is to know about lending we should instead focus on selling homes and get to know a few good brokers to refer business to. After my recent experience with Quickenloans, I am quite open to considering the use of a broker for my next loan.
He then apologized for jumping around a bit, and stated “I love A.D.D people…if you’re A.D.D talk to me after…the best agents have A.D.D, our minds think different” Seems like a solid recruiting policy to me.
Introductions in place, we moved on to discussing property taxes, which I cover in Part 2.
Quickenloans claims to be the best company to work for. I learned this from all the flashy advertisements all over their site telling me how great it was to work at Quickenloans. I was constantly reminded of this as I spent 20 minutes waiting on hold listening to their silly message about how great it is to work for quickenloans.
The purpose of my call? Quickenloans advertises that you can get a free rate quote for their loans without needing to provide a social security number. That’s standard practice in the loans industry, since people like to shop around. I had the added advantage of knowing my credit score, and so I figured this would be an easy call. I’d give them my score, and ask for the rate on a certain loan amount.
I found myself calling, after a ridiculously frustrating online chat with an agent. It went something like this:
“Hi, I saw on your site that you advertise being able to give quotes without needing a social security number. I would like a quote for a $90,000 loan.”
“Hello sir, please provide your social security number and I’ll be happy to assist you in finding a loan that matches your needs”
“No thanks, I can give you my credit score though”
“Sir, please just provide me with your social security number and I’ll be happy to help you”
“Your website says that you don’t need my social in order to give me a quote”
“Sir, I CANNOT help you without your social security number, please type it”
“No thanks, I’ll give you my score though”
“Sir, please just type your social”
“Look, I’m not going to. Are you going to help me or should I use someone else?”
“Sir you are going to have to call us. I cannot help you further without a social security number”
“Will they be able to help me without one?”
“Yes sir, just call”
So here I am calling, and I finally get my call picked up. I politely ask for a quote, answer the normal questions, then we come to the hated:
“Ok sir, I’ll just need your social security number”
“I just gave you my score, as I explained earlier, I do not wish to give my social security number. Your site says that we can contact you and ask for a quote with ‘No Social Required’”
“I’m sorry sir, I cannot give you a quote without that information, please give me your social security number”
“Like I said, I don’t want to do that. I’m not sure I’m getting the property, and don’t want to waste the credit inquiry until I know what your rates are”
“Sir, we won’t affect your credit report in any…”
“look, I don’t want to give it, your site says I don’t have to, who can I talk to that can help me?”
I finally get transferred to the Utah loan officer. He supposedly can give the sacred quote information…as it seems no one else is allowed to even give me rough numbers.
More holding then….
Voicemail.
He called me back weeks later and left a message…
…asking for my social.
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!
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.