Real Estate Appraisal – Bring Back the Cost Approach

In the last few years there has been a trend toward a complete discounting of the Cost Approach to value in residential appraisal. For owner occupied homes, the sole technique is now the Sales Comparison Analysis, which involves selecting and comparing individual property sales to a subject property.

Many lenders and government agencies no longer require the Cost Approach technique, even on new or nearly new construction, and appraisers are often instructed to omit it completely, or not to place any reliance on the results. When a lender does require that the Cost Approach be completed, it seems that this is only so that a proper amount of homeowner insurance can be determined. This is, of course, something critically important to the lender as well as the homeowner, but should not be the only criteria for the use of a cost-depreciation analysis.

Years ago a Cost Approach was always required for an appraisal report. The basis of this approach was the Principle of Substitution, which holds that a prudent buyer will not pay more for a home than the cost to acquire an equally desirable substitute home. Accordingly, the reproduction or replacement cost new of a home set the upper possible limit on value, particularly for an existing preowned home. So this analysis served not only as an additional means of estimating value, but also as a governor on runaway home prices.

The cost approach also served an important function as an educational tool for appraisers. To perform this approach, an appraiser had to have at least a minimal working knowledge of residential construction and to carefully observe the quality and condition of the various components of the home. Cost data services, which still exist today, provide continuously updated information on the various costs of construction involved in a home and some are quite accurate.

One service publishes a manual with a wealth of good data and information, complete with descriptions and photographs that illustrate the differences in quality and appearance for different types of homes, which is a great way for new or inexperienced appraisers to familiarize themselves with these features. In recent times I have come across reports by relatively new appraisers where no cost approach was done and it was painfully obvious that the appraiser knew very little about construction or how to evaluate the differences between their subject and the comparable sales they used in the Sales Comparison Analysis. I suspect we have a new generation of appraisers out there who have this deficiency and that's a bad sign for the future. The best appraisers know something about construction and can immediately spot differences among homes as to their quality level. This ability is also critical for the appraisal reviewer.

The Cost Approach is not without its weaknesses. The primary weakness is in the estimate of depreciation, be it physical, functional or external in nature. These things are difficult to estimate, but again, the appraiser who learns how to do this becomes more knowledgeable and competent, both in the Cost and Sales Comparison methods. Another weakness is in estimating the land value. Actual sales are often not available as a means to determine what buyers are paying for a similar lot and so market abstraction (also called extraction) is used to estimate the ratio of land value to dwelling value from market sales of already built homes. Improperly done, this technique is subject to serious errors. The general rule for the Cost Approach is that it is most accurate when the dwelling is not very old and sales of nearby similar lots are available.

I am of the opinion that the majority of foreclosures involve relatively new homes and that this is where the largest amount of lending losses occur. At least, that's how it is in my local market which has always had a lot of new construction. There are many reasons for foreclosures, but certainly one is upgrades.

Builders typically offer various home models at "base" prices and offer upgrades for both the home and the lot. Buyers can choose from a wide variety of options to enhance the home and can choose lots that are different in size or that have more trees or other desirable aspects. This is great for the buyer but can become a nightmare for the lender when a foreclosure happens because so many of those nice upgrades do not hold their value in subsequent foreclosure sales, and often do not hold their value as the distressed homeowner desperately tries to sell the home to avoid foreclosure.

The homeowner finds out they are "upside down" meaning the home cannot be sold for as much as the mortgage amount, especially when the initial down payment was very low or when financing costs were included (rolled into) the mortgage, necessitating an increase in the sale price. Another problem is inflated upgrade cost where some builders mark up the prices of upgrades well beyond normal prices that consumers pay at retail stores, even with installation added on. This is similar to what many service contractors (plumbers, car mechanics, etc.) do because they want to make a profit on the "parts" as well as the labor. The problem comes when the markup is excessive.

There is little an appraiser can do about upgrades when it can be shown that buyers often do select upgrades with their new home purchase. In the absence of current resales or foreclosures to compare with, it is not possible to estimate the resale value of upgrades, and values ​​are estimated as of a given date, not the future.

The Cost Approach long served as a reasonable basis for making adjustments to market sales in the Sales Comparison Analysis for individual items. If a home needed a new roof, the appraiser had a handy source for determining the cost for this. Likewise for appliances, HVAC equipment, a garage and the like. Removing the Cost Approach and the good data that comes with it forces too many appraisers to have to guess at these kinds of adjustments and the results can vary wildly from one appraiser to the next.

Long ago homes were valued only by a Cost Approach. The Sales Comparison Analysis (formerly known as the Market Approach) came later. I don't believe it is a coincidence that foreclosure rates and personal bankruptcies caused by unaffordable mortgage amounts and runaway home prices seem to have increased so much in recent years while the use of the Cost Approach has declined at the same time. Not do I believe it is a coincidence that the decrease in emphasis on cost minus depreciation began about the same time as tremendous inflows of capital into the marketplace encouraged every sort of easy money credit scheme that allowed so many people to buy homes they couldn't actually afford and that has severely damaged not only the US economy, but the entire world. Mountains of money to lend tend to push caution to the side.

I believe that the Sales Comparison Analysis is surely a good valuation technique, but its down side is that there are too many clever ways for market participants to smuggle hidden costs, fees and even fraud into sales contracts, which make their way silently into market data services and onto appraisal reports. The same can be true for unhidden costs like seller paid loan discount fees and other monies paid toward buyer closing costs. At a minimum, an accurate Cost Approach serves as a useful check on the results of even the most thorough and detailed Sales Comparison Analysis where the appraiser is carefully searching for and analyzing such things. Undesirable things can and do happen in real estate and some can slip past even the best Sales Comparison Analysis because they happen quietly and incrementally.

An example of this is what I call closing cost price compounding. A real estate agent provides a seller a pricing analysis where the agent has found 20 recent sales of similar homes in the area and averaged the prices to arrive at a figure he or she believes is correct for the home. The home is then marketed at that price. Along comes a buyer (perhaps from a higher cost market) who lacks cash, needs some assistance with his closing costs, and makes an offer at or very near the asking price. The seller counters with an offer in which he adds the amount of assistance the buyer asked for to the price.

But what if this type of assistance turns out to be normal for the area and is already reflected in the selling prices of those 20 homes used to set the asking price to begin with? The new sale closes at the upwardly adjusted price and is then used as a "comp" by other agents and by appraisers and the process continues with every repeat occurrence of the needy buyer, causing home prices to rise, affordability to lessen, creating more needy Buyers, and setting in motion a snowball effect where prices to rise eventually to the point that they exceed even cost new. This is not unlike interest compounding on your savings account. Over time your balance goes up faster and faster. Combine this with other inflationary market tendencies and you get a nasty bubble that will some day burst to the peril of us all … again.

Obviously, this could be avoided by competent sales agents who understand that those 20 sales already included heavy seller costs and inform their clients of this, but many do not and there is a built in incentive to pay prices as high as possible among people working on commission. An accurate Cost Approach would tend to catch this anomaly immediately or at least decrease its effects down the line in future sales because when home prices begin to exceed what it would cost to build an equally desirable substitute home brand new, the competent appraiser knows that something is wrong and that they need to dig deeper into the market data.

A Cost Approach is also a great lie detector for fraudulent appraisals. If an appraiser included a Cost Approach and is using a known cost source or manual that others can subscribe or view, then the estimated costs shown in the appraisal can be reproduced from that same source by someone reviewing the report. So if the appraiser has fudged on cost, that can be detected simply by examining the cost source and parameters the appraiser had described. Moreover, even if the appraiser showed the correct costs, the fraudulently inflated appraisal will exhibit inflated land value in the Cost Approach with little or no support as to where the land value estimate comes from or why it is so high. In fraudulent appraisals, the Cost Approach is "plugged in" with numbers to match the Sales Comparison Analysis. That's because an honest Cost Approach would have indicated a significantly lower value for the home.

There are other examples of how the Cost Approach could eliminate or reduce runaway home prices, and even detect fraud. I believe it is a foolish mistake to take away or encourage the disuse of any type of analysis or tool from appraisers that has a basis in market data. An analyst in any field of study should be willing and enabled to use as many ways as possible of looking at a problem. Focusing on just one method encourages tunnel vision. I say bring back the Cost Approach and let appraisers decide how useful or accurate it is on a case by case basis. It is not the end-all be-all solution but it is a valuable and worthwhile tool.

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US Real Estate Predictions for 2019

Similar as to how political pundits claim that this election cycle will be the most important in a generation, this year could be the most important year in recent memory in terms of mortgage loans and the residential real estate industry at large. (And if you believe that I have some swap land in Florida I'd like to sell you). For a variety of reasons, I have decided unilaterally to keep it short and sweet this year. Hence, here are the three perennial predictions for 2019.

1. Gig Work.
At first glance, the phrase "Gig Work" seems antithetical to sound mortgage underwriting standards, but it is in fact actually very refreshing. And that is to say that as the aftermath of the 2008 crash could not be further from the subconscious, there perhaps is subprime "creep" into present underwriting standards. But this is not your Daddy's Oldsmobile underwriting standards. Meaning, that lenders today are more than willing to count part-time and intermittent work as bonifide income, even though it had been looked down upon post-2008.
According to Saideh Brown, President Emeritus of the National Council of Women at the United Nations, "Mortgage lenders are beginning to factor in gig-work for mortgage approval. This is only going to become more prevalent with the current job market. Banks are looking into all sources of income and gig-work is quickly becoming a primary source of income for millennials and must be factored in to get an emotional buy-in to homeownership from this generational block. "

Thus, the bottomline for 2019 on Prediction 1, expect creative – yet reasonable underwriting standards to become apart of normal mortgage underwriting procedures.

2. Saved by the Millennials (again). Whaaat ??
At second glance, who isn't bored by the self-absorbed Millennials. Me for one, but not withstanding that tongue and cheek denigrative response to the flavor of the month generation – who will undoubtedly be replaced by the next off-spring of eternal hopefulless, they do at least make for good print. And here's the angle; While many are concerned if real estate is a safe bet today, then historically speaking it is – and thus, one's perspective should be long term, despite the naysayers on non-real estate appreciation for 2019.

According to Dan Green, CEO of real estate site Growella, "Rising mortgage rates aren't slowing the Millennial Generation's desire for homeownership. Pent-up demand will continue to unfurl through 2019, moving home values ​​up across all price points. Like all markets , housing is defined by supply and demand. And, so long as supply and demand remain within tolerable ranges, housing will continue to be a good investment. "

Thus, the bottomline for 2019 on Prediction 2, buy now and forever hold your peace, since interest rates are still good.

3. Home price decline.
Real estate has always been local. Hence, the adage "Location, location, location." With that in mind, there is nothing to catastrophically fret about in terms of buying a home as a primary home. If you're an investor, then pick your fights carefully, since not all markets will perform as anticipated no matter how smart you may think you are! With that in mind (again), there will be a slight degree of variability – as there sound be, since it would be insanely moronically not to expect some degree of variability. Even in the Garden of Eve, market value likely dipped in price after Adam bit into the apple.
According to Ruben Gonzales, Chief Economist at Keller Williams, "As we look toward 2019, we are anticipating home sales to decline around 2%. We're expecting it to be another slightly slower year as buyers continue to wrangle with higher mortgage rates after contending with several years of rapid price growth. "

Thus, the bottomline for 2019 on Prediction 3, proceed with caution as an investor, but as a primary homebuyer nothing should reasonable caution you from a buying decision, since home appreciation should be an afterthought, and especially so depending upon your hold period.

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10 Tips For Choosing a Real Estate Agent

Whether you are buying or selling a property, choosing a real estate agent may be the most important decision you make. Good real estate agents can save you a substantial amount of time and money. They can also ensure that the buying or selling process is an enjoyable and memorable experience. Here are some tips for choosing a real estate agent:

1. Ask Friends/Family for Referrals

Ask family and friends for their advice on local agents. This way you will be sure to find an agent with a good reputation.

2. Consider More than One Agency

There is an array of agents that will kill for your business. That is why you should interview as many agents as you can. Compare agents with regard to their knowledge of the area, experience and qualifications. Also, ask for references from previous clients.

3. Choose an Agent that Knows the Importance of Customer Care

While interviewing different agents you will be able to establish their level of customer care or how far they will go to satisfy the customer. Look at things like their attitude towards returning phone calls and their willingness to meet with you.

4. Choose an Agent that Handles Homes in Your Price Range

When you opt for an agent that deals with homes in your price range, you will be sure to end up with an agent that will give his or her best effort. Some agents deal only with high-end properties and are used to high commissions. They are more likely to attend to these properties first.

5. Choose an Agent that Respects Your Time Schedule

If you will not be able to view properties during office hours, you need to find an agent that is willing to do business after hours or over weekends.

6. Look for an Agent that You Can Communicate With

Communication is vital when buying or selling real estate. Make sure that you choose an agent that understands your needs and that communicates them well. You will be best off if you choose and agent that registers a high level of comfort with you or with whom you are compatible with.

7. Choose an Agent that Provides Multiple Services

It will be a bonus if you can find an agent that can handle the buying/selling process as well as other additional services like arranging property inspections or who can refer you to a trustworthy real estate attorney.

8. Choose an Agent That Can Negotiate

Negotiating skills is an essential quality of a good real estate agent. Make sure you choose and agent with impeccable and proven negotiating skills.

9. Choose an Agent with Lots of Resources

Ask agents where your property will be advertised. Make sure that the agency uses print advertising (newspaper/magazines) as well as other promotional material such as brochures. Also check if the agency makes use of the Internet for advertising their listings.

10. Follow Your Instinct

Choose an agent that makes you feel comfortable and whom you trust. You level of comfort and satisfaction will let you know if you’ve met the right agent.

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How to Work Real Estate Internet Leads Without Going Crazy

So you've finally figured out a way to generate real estate leads through the internet?

Congratulations, you're rich!

Except for one tiny little thing, of course: actually closing your leads and generating sales.

Without a solid system, the only thing you'll be generating is a lot of work and heartache. In fact, I would say it's better to avoid online leads all together unless you're willing to invest the time upfront to set up proper systems.

What exactly do I mean by a system? A proper lead follow up system consists of three parts:

1. Customer Service / Follow Up at Internet Speed

Everything is faster on the internet. Think of the last time you shopped for anything online. Were you willing to wait even half an hour for an answer from an online store, or did you just move on until you found the answer immediately?

Online customer service is an entire article in itself, but here are the basics:

  • Make it easy for them to contact you – post your phone # prominently and use an online form – just posting your email address is worthless.
  • Respond within 5 minutes – after 30 minutes you may as well not even bother.
  • ALWAYS provide something of value in every phone call / email / tweet / note on rock thrown through their window, etc. This could be market news, useful links, answers, etc.

2. Use a CRM System (even if it's just an excel sheet).

37 signals, a hugely successful software company has a great saying: make half a product, not a half a ** ed product. The same goes with leads: it's better to work half your leads well, than try to work all your leads and do a half-a ** ed job of it.

To do it right, you'll need to track your leads. For no frills, make an excel sheet with their info, how / why the found you, and what you've sent them so far. Don't forget the most critical part: prioritize your leads (I can't argue with the time-tested "A, B, C" system, but feel free to get creative if you need a little flair in your CRM).

My personal favorite for real estate CRM is Highrise, by the aforementioned 37 signals (just Google "highrise, they're # 1). It's free up to 250 contacts, it's drop dead simple to use, and it plays nicely with your email.

3. Give The People What They Want.

Ask yourself why they contacted you in the first place: what do they want? Figure that out, then create or find those resources and put them all in a folder called "resources" on your computer. For example: buyer's guides, market statistical reports, recent neighborhood sales, advice articles about picking lenders, etc.

That way, every time you email a lead you can either attach something useful, or link to it in your email. It also gives you a great reason to call them, so you can ask permission before sending them an attachment.

In all honesty, there is simply no way to get the same success rates from online leads as you do from referrals and personal connections – that's simply the nature of the beast. Done properly, though, you can generate a solid amount of business without letting online lead follow up take over your life.

Now if you'll excuse me, I have to go research the pet weight restriction of a condo building for a random lead who just called … hey, I never said it was easy!

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Title Companies Vs Real Estate Lawyers

Is a real estate lawyer a better choice than a title company when it comes to selling your home? You can choose any one of the two but you should first be aware of the difference between real estate lawyers and title companies. Here is some information about both the entities and whose services can benefit you most.

Real estate lawyers

Real estate lawyers specialize in laws relating to real estate and make sure that your interests as a seller are met in the transaction. These lawyers can act as escrow agents as they can hold your earnest money, down payments as well as help you with the requisite documentation. These attorneys can also help you understand the legalities involved in the sale transaction, the offer made by the buyer and your rights as a seller.

An attorney can also handle a closing in case the lender’s lawyer doesn’t do that. Every real estate lawyer has two most important responsibilities.

• To advise on the documentation process of the transaction

• To represent you at a closing

Besides these two important services, an attorney also negotiates any modifications in the purchase contract that the seller wants to incorporate. Preparing the seller’s deed, another crucial aspect, is also taken care of by the attorney. The attorney you hire will also accompany you on your meeting with the client/buyer at the time of settlement. He/she will also advise you on the tax implications involved in your home or property sale.

Title companies

Title companies are insurance agencies that represent title insurance companies. Such companies insure titles to lenders and buyers by ensuring that a title is free from any encumbrance that can cause financial loss.

The title company assures the buyer that he/she can get his/her title on the home or property with no liens against it. The availability of a title on the particular home/property is made clear and vouched for by a title company. In the process, such an entity protects the rights and interests of both parties in question.

Usually, most title companies insure a closing with the help of a lawyer to fulfill certain requirements. Closings also depend on the area you are living in. Toronto natives can hire the services of a real estate lawyer for sale closings.

Keep the following things in mind when you sell your property:

Title companies can hold the down payment and close your home without additional costs. Also, there is a possibility that title companies may give you a discount on your title insurance if you had previously used their services to either refinance or buy your home or property. Lawyers can also close your home/property sale and hold your down payment but may charge an additional fee.

A lawyer can charge a higher fee to write a contract. In cases of simple transactions, this can complicate negotiations. But in most other property sale transactions, the services of a real estate lawyer can prove invaluable.

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Choose the Best Realtor – How Can You Find the Best Real Estate Agent For You in Today's Market?

Real estate agents don't get enough credit for the work they put into their clients. There is a lot of potential liability in the real estate career, and true success takes sustained hard work. Many try, and few survive. A good Realtor should become your trusted advisor. By understanding and appreciating what the Realtor does for you as the client, you can guarantee a wonderful working relationship with your Realtor and ensure total success throughout your home buying process.

Always, when I say "real estate agent" I want you to think Realtor, and to consider only a Realtor to represent you in your home purchase. "Realtor" is a professional designation for a real estate agent who has made a public commitment to a high level of accountability and professionalism. A real estate agent merely signs a license; a Realtor adheres to a code of ethics.

With a Realtor, you can expect someone who has invested time, money, and energy into the real estate profession, as opposed to someone who paid a couple hundred dollars, took some classes and passed a test. Yes, a license allows one to practice in real estate in the state of issuance, but it says nothing of the agent's reputation. Most first-time homebuyers don't even know to ask, "Are you a Realtor?" or even better, to check out the agent's business card to verify their title. A Realtor can also take additional education to gain special designations, further proof of effort towards professionalism and competence. Usually, the more designations the better: few would spend the time and money on these designsations without a passion for this business and the clients they serve.

Finding the right Realtor is hardly an exact science, but a little research can go a long way. In so many cases, the best agents are not the ones you see and hear about; on the contrary, the best agents are the ones who are so good at their trade and profession they don't need to spend money on advertising. These are the agents who work primarily by referral or word of mouth and have qualified people coming to them every day. This phenomenon only happens to great agents who know their trade and have built their business over enough years for new clients to seek them out.

Referrals Rule

Many buyers start by looking at agents they have heard of. This could be the local Century 21 branch next to the coffee shop down the street, or it could be that nice old lady who walks down the block every Thursday with her funky flyers. That old lady agent is desperately hoping that her hard work pays off and that after years of delivering her funky flyer to you, one day you will pick up the phone and call her. Similarly, the local Century 21 branch is hoping that next time you get coffee, you will walk in and become their next lead (and potential client). After all, they pay good money for the visibility that has been building their brand awareness every time you passed by and saw their sign over the years.

These are some of the many examples of how agents try to get your business, but you should not concern yourself with them. You should actively seek out a Realtor. Essentially, the best agents are typically the ones who don't need to spend time cold-calling or door-knocking to get their business. Business comes to them via referrals from past clients who are satisfied with their professionalism, honesty, and results. Take the initiative and give yourself the best opportunity to win: choose your agent carefully.

Let's take a moment to clarify this issue about star agents and how they go about their business. Great agents did not get that way by sitting around waiting for business to come to them. Rather, their success is the result of years of hard work building their businesses and spheres of influence in order to get to the position where they no longer need heavy marketing. Please don't mistake an agent's aggressiveness for a bad thing. A proactive agent is a very good sign! He or she is just trying to see where you are in terms of the buying process. An agent needs to know whether you are looking to move next month, or are looking to start looking next month – there is a huge difference! Sometimes agents who don't need to advertise do so anyway in order to maintain an identity in the community. Just as choosing the best agent is not an exact science, neither is the way that great agents market and advertise themselves.
Knowing what I know, if I wanted to find the best real estate agent for my first-time purchase, I would follow two basic plans: I would ask several people I knew and trusted for Realtor recommendations, and I would scan the online community consumer blogs for highly recommended Realtors.

As I mentioned before, the best agents are the ones who get consistent referrals. You should be one of those referrals! You should ask everybody you trust about his or her most recent experience in real estate. Preferably, you want to ask people who bought their homes within the past year or so, though a referral to an agent someone has worked with multiple times is a good sign. Always keep an open disposition for what people are telling you. In general, we humans have an innate need to share good experiences, so you should take any recommendations with open arms and then qualify them with questions about the experience. Whenever I get a referral from a past client or good friend, I am excited! I am already going to have a more solid connection to the referral, and there is a good chance the new client and I will mesh in terms of personality.

I will ALWAYS treat clients referred to me by people I know at a higher level than online "leads" or other unknowns. Without question, the level of commitment on the part of the buyer is so much more significant when it's a referral from a good source. I don't like admitting that my initial treatment of an Internet lead compared to a referral is different, but in practice it most certainly is! I can depend on a referral; I cannot depend on an online lead. For this reason I give priority to my referrals, and reserve the best service for them. Ask around, get referrals, check out the agents' websites, pick out your favorites, and schedule a time to meet.

Before you meet a potential agent, write down your most pressing questions. This will really help with your interview. It may be necessary to let the agent know you are interviewing a few other agents. This will keep them on their best behavior and you will see the best that they can offer. Usually I dislike it when I am referred a client who is "shopping" other agents, but here's the bottom line: If I were in your position, I would want to shop around until I meet the Realtor who is going to represent me in the most important buying decision in my entire life. It is a good idea to shop around, even if it hurts the agent's feelings. The one you choose will probably forgive you.

In some cases, you may feel so strongly about a particular agent that you don't find it necessary to interview other agents. There is nothing wrong with this, so long as you feel very certain about it. It's typical to see that with a highly referred agent only one appointment is needed to see that they truly are the best fit for you. You'll probably be sold on them after that initial consultation. After all, there is a reason they are that good in the first place.

The WOW Agent

Test-drive your potential agent during the interview! You're hiring your agent primarily for their real estate expertise. Their most important assets are their local knowledge (of the market, prices and inventory), their ability to negotiate and handle contractual issues, their ability to manage emotions and surprises, and their ability to connect with you as a person and help usher you at your pace through the transaction. How do you know your Realtor's skills before you begin? Ask questions! Your agent should leave you saying "WOW!" and feeling excited about the process ahead. Keep an eye out for that "WOW" agent. You will know when you find him or her, and you will be happy you did!

I cannot tell you how many times people have come to me looking for help after they have been working with a non- "WOW" agent. Sometimes the agent's problem is a lack of knowledge, sometimes it's a lack of communication, sometimes it's an unforgivable mistake, but no matter what, if you have found yourself with an agent you thought was a "WOW" agent, and you turned out to be wrong, it's OK to move on. My only suggestion is that as soon as you realize that your agent is not a "WOW" agent, you must cut ties with that agent as soon as possible! I say this because a lot of people are generally so afraid of confrontation that they negatively affect themselves in the process by not severing the relationship with the non- "WOW" agent. Do yourself a favor. Be bold. This will help you get what you want quicker, and it will be a wake-up call of sorts to the agent.

The bottom line is simple: go with a pro. Go with someone who knows the trade, and who is aggressive and tenacious (in a good way). Go with someone who knows how to talk and negotiate. Go with someone who has it together. Go with someone you connect with on a personal level – this will help you to build trust with your agent, and trust is the most important aspect of the agent-client relationship. Once trust and respect are established, the rest will fall into place. Just make sure you have the agent who will get you what you want!

It is important to remember that no matter how you choose your agent, being a good client will pay off in the end. Being demanding or demeaning to your agent will get you nowhere. Go in with the intention of keeping your agent as a trusted advisor for anything real estate-related from that point on. A long-term relationship is better for both parties, and no agent will tolerate an extremely needy or demanding or rude client for long!

Recently, I've been planning a wedding. I made a point of asking all our vendors what an "ideal client" is for them, and how we can work best with them in their service for our wedding. This would give me the idea of ​​how to make our relationship and the task at hand as enjoyable and successful as possible. Similarly, when I work with clients who have this kind of commitment to the client / agent relationship, there is no end to what I would do for them to ensure that their experience is second to none.

Bonus: The Top Ten Traits of a Successful Client

A recent client of mine named Amanda embodies this mentality. Her purchase price was low, which meant I wouldn't get much of a commission. The job entailed many hours of work, several offers, a long short-sale escrow and a couple of delays. All this was of no concern to me because of the type of client Amanda was. The time and effort involved did not matter, because she was top-notch. I wish all my clients were like her. In fact, I have said during the course of transactions with several clients that I wished all my clients were like the one at hand. Whenever I say this, I am saying that this particular client exhibits the following qualities, and no matter the challenge at hand, I am there without question to make sure everything goes right.

1. Be reasonable! Don't get too emotional, ever. When clients get overly emotional, agents get impatient. This is a grown-up world and you need to act like an adult. I will hold your hand throughout the transaction, but irrational clients never get the best treatment.

2. Be responsive! Unanswered phone calls and ignored emails are never a good sign. This is a warning flag for an agent, signaling that you may not be as motivated as you say you are.

3. Be punctual! If I am on time, you must be on time, too. This is a simple thing, but it's surprising how many people are late to everything. This is a slap in the face and you lose points in my book if you are late to confirmed appointments. If you flake on an appointment, start looking for some other agent; I probably won't work with you any further after a stunt like that.

4. Be flexible! Sometimes your wants don't quite line up with your budget, and you need to be OK with that! An irrational client is the last thing I want, a big waste of time. Really, it means that the client does not know what they truly want, or that what is affordable for them (what the buyer can actually buy) will not work.

5. Be honest and upfront! The more honest and open you are, the better I can serve you. Sometimes I go weeks with a client, only to find out about a preference, financial condition, or special need that has not been addressed. This can seriously affect the client's ability to find something that will work. Open yourself to your agent, and your agent will be better equipped to find you what you are looking for!

6. Be grateful! Show some love for your Realtor. Show that you appreciate all the time and hard work put in for your benefit. A grateful client is easier to work with and gets more appreciation than a demanding client.

7. Be respectful! This is a business, and you are dealing with a professional. Treat your agent like you would want to be treated yourself. When I am treated without respect, I have no problem moving on, letting go of a potential client. Sometimes clients seem to feel a need to act condescending or big or strong to establish control over the situation. This behavior is not conducive to a mutually healthy and beneficial business relationship.

8. Be trustworthy! I want to trust you and you should want to trust me. When both the client and the agent have a relationship built on trust, nothing can stop them. It's only when I have clients who question me as to my skill or ability that the relationship becomes distant.

9. Be prepared! Be ready to move fast! I know you are a busy person, but buying a home takes focus and commitment. I don't care if you had a busy week; we have a lot of documents to go over in a short time, and I shouldn't have to feel bad asking you to go over things you should be going over through the course of the escrow. I am bringing to your attention items and issues that will directly affect your purchase and the home you end up with. I cannot want the home more than you do, and if you aren't prepared and committed, it makes everything more difficult and stressful for me and for you.

10. BE COMMITTED! Being committed means that your heart and mind are in harmony with respect to the goal at hand. I have found that this is the number-one trait for all the buyers in my most successful and seamless transactions. When a buyer is committed, no matter the hurdle that may arise in escrow, the buyer will overcome. When the buyer is committed, the entire process is less stressful. When the buyer is committed, success is in the cards!

Bonus: Google Your Agent!

Today's online community offers an exceptional ability for any consumer to check in on the history of their service provider's reputation and work ethic: kudzu.com, yelp.com, and angieslist.com are a few stellar examples of websites geared to service providers for a specific geographic location. As time goes on, more and more of us will become connected, and this type of virtual "feedback" will become more and more pervasive.

Real estate aside, you can and should be doing this for any service provider, from your babysitter to your auto mechanic. That said, at least a nominal amount on online research should be called for to find any specific warning flags regarding the agent (s) you are considering working with. Check the agent's website and see if there are written testimonials on the site, and if these testimonials match up with what you find online. Keep in mind that there are some people who just love to file complaints, even for good service, and this can tarnish your expectations of the person you are considering working with. Please know that the online community cannot be fully regulated for accuracy, but it is typically more helpful and accurate as opposed to being burdensome and untruthful. There is no doubt that this kind of research will become more common because it is user-generated and tends to offer a comparatively unbiased opinion of a given service provider.

Choosing the right agent won't necessarily make or break your deal, but it can mean the difference between a satisfying deal and an unfulfilling one, a good deal and a not-so-good deal, a one-time transaction and a trusted advisor for life. Put simply, choosing the best agent gives you the best opportunity to realize massive success for your first home purchase. Choose wisely!

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Real Estate Agent Slogans

Catchy taglines are everywhere in advertising. Whether they rhyme, or they inspire, or they create a memorable image, taglines are something every advertising agency works hard to craft. How many of us know, "Like a good neighbor" or "Just do it"? While you might not create a slogan as memorable as those, you should be able to come up with something that your local clients will always think of. Need a little inspiration to get started? Here are some suggestions for slogans and ways to get the creativity rolling.

When you do come up with a slogan, you need to use it throughout your advertising and on your website. That way, people will be faced with the association frequently and they will be better able to keep your name and the slogan together.

Your slogan should be short and sweet. Try your best to keep it under eight words. Anything longer will just deter people instead of drawing them in. It should also make sense for the brand you are creating.

One thing you can do is come up with a rhyming slogan. Case in point – a Realtor named Scott Geller tagged "The Home Seller" after his name and because it rolls off the tongue so smoothly, it has become all one phrase. And, that makes it easy to advertise. His word of mouth campaign keeps his advertising costs low.

Your slogan should make a tug on the heartstrings, too. You are taking part in one of the most important events in a person's life. By letting your customers know what you can do in terms of customer service, your slogan will help quickly convey what you can do. Consider something like, "Jane Smith – Helping Your Family Make the Right Move".

Avoid any slogans that are bland or generic. They won't work to set you apart from your competition, and they might even work against you. If your slogan is generic, your potential clients might think you are, too, and that you won't be the best agent they can find. Think about something like, "I'll take the stress out of your home buying experience", or "Call the Carson City condo specialist".

You can also consider your location for your slogan. When you add in your place, it not only helps make you the personal expert for someone, you also boost your search engine ranking.

Creating an image in your potential client's mind is an effective slogan, too. Assuring your client you can solve the mystery of home buying or be their personal navigator makes that slogan unique and memorable at the same time.

If creativity is still escaping you, you can contract this process out and hire a professional. Some will even blend the slogan into your total advertising plan, and not charge you too much for it.

Now, if you come up with a slogan and you test it on your friends and family but you receive a negative reaction, be ready to set that slogan aside and pick something else. You should also not take it personally. Try out another one and keep going until you do find one that is well received.

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How to Choose a Realtor – 7 Questions to Ask Your Real Estate Agent

Buying or selling real estate is probably the most significant transaction you’ll ever make in your life. That’s why it’s important to choose the best Realtor to help you achieve this goal. But before you hire the services of a real estate agent, there are important factors to consider.

Many people have the perception that all real estate agents are the same. Some sign with the first one that comes along. Unfortunately, they realize later on that they should have been more selective before signing an agreement. To guide you in choosing the best Realtor for your needs, below are seven questions to ask your prospective real estate agent.

1) What is your experience in real estate?

The first thing you need to ask a real estate agent is how long they’ve been in the real estate business. It doesn’t mean that you cannot enlist the services of newly licensed real estate agents. Just keep in mind that those who have years of experience under their belts are probably more knowledgeable on what to do, from listing to closing. Aside from the number of years in the business, ask them what segment of real estate they focus on – residential, commercial, luxury, etc. Find out if he/she is primarily a listing agent or a buyer’s agent (or both). Familiarity with the market is also essential, so ask what geographic areas the agent usually covers. You can even dig deeper by asking if the agent has received any awards for outstanding performance.

2) How many and what types of properties have you listed and sold in the past year?

It’s one of the most important questions you should ask a real estate agent. The number of properties he or she has listed and sold in the past year is a valuable indicator how good a real estate professional is in getting the job done. Take note that this question consists of two parts: properties listed and properties sold. Agents may demonstrate their ability to list homes; however, the more important thing is the sales part – the ability to close deals. If they have many properties listed and sold in the past year, it shows that whatever strategy the agent is using, it’s certainly working.

3) What was the average sales price for the properties you’ve sold over the last year?

Asking this will give you an idea in what kind of market the agent specializes. Find out if the real estate professional has experience selling properties in the price range you’re listing at. If a majority of properties sold falls on the low-end market segment, it might take longer for the agent to sell if yours is a higher-end home. Although agents can sell any property regardless of price range, it’s likely that they will have better success in the market and price segments in which they have the most experience.

4) What is your average sale to list price ratio?

The sale to list price ratio (sometimes called the sale-to-list or list-to-sale ratio) is the final sales price divided by the listing price, expressed as a percentage. If it is 100%, it means the sales price was equal to the list price. You can view this ratio in two ways. A skilled listing agent can negotiate sales prices that are equal or close to the list price, and sometimes even greater in a very competitive market. So ideally, listing agents should have sale to list price ratios closer to 100%. On the other side of the coin, a good buyer’s agent can often negotiate a sales price that is lower than the list price. Therefore, buyer’s agent ratios ideally should be lower than 99%.

5) What marketing strategies will you use?

Deciding on what strategies to use can spell the difference between success and failure. A poor marketing strategy will diminish the chances for success. Do your own due diligence by asking how the agent will sell your property. There are lots of options – staging, open houses, joint marketing, print advertising, and of course, online marketing. Whatever approaches are used, they should be designed to bring in the highest number of qualified potential buyers. Higher end properties can also often benefit from professional staging. In any case, your agent should advise you on how to best prepare the property to make it the most attractive to potential buyers.

6) Can you give me some references?

Reputation is important in this line of business. Whether you’re buying or selling a property, you should ask for references (past clients). If possible, call a few and ask them about their experiences with the agent. Were they pleased with the service provided? Also ask if they are in any way related to the agent. A list of references made up of friends or relatives generally won’t provide an objective assessment of the agent’s qualifications.

7) Do you offer any type of guarantee, and will you let me out of my contract early if I am not satisfied with your service?

You can’t say with certainty how things will go, even if you did your due diligence. For this reason, you should ensure that you’re prepared for any eventuality. If you sign a contract and later find that you’re not satisfied with the service, will the agent allow you to cancel the agreement? If things don’t work out the way they’re supposed to, you should have the freedom to choose another agent who can deliver better results.

As you can see, there are many things to consider when choosing a real estate agent. Finding and interviewing Realtors can be a very time-consuming and laborious task. However, now armed with these seven questions, you are on your way in choosing the best Realtor for your needs.

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The Funniest Real Estate Blunders

In real estate it pays to steer clear of blunders. Every Agent will tell you so, adding also with a very serious, monochrome facial expression the like normally reserved for weddings or funerals, that blunders in real estate are very costly . What not every Agent will tell you, however, is that sometimes we – the Agents – are the ones making the blunders. I was reviewing the other day a collection of very funny newspaper ads I have gathered throughout my eighteen years of real estate practice. Today it is very easy to correct an error on the Internet with just a couple of clicks of the mouse. But only a few short years ago we did not have the benefit of computers with all the whistles and bells like websites, blogs, electronic newsletters and ads. The electronic era was in its infancy and the World of Real Estate was primarily a printed world. Which meant that a blundered newspaper ad, for example, was going to be delivered into each and every household in town before it could be corrected, much to the detriment of the author. And in the impetus and stress of real estate sales and sometimes merely for an abundance of zeal, some of those ads did not reach the intended results. You be the judge …

[] CENTRALLY LOCATED

"Location .. Location .. This property is conveniently located with Revenue Canada only two short blocks to the south, the hospital only one short block to the north and the cemetery right across the street."

[] CENTRALLY LOCATED … IN THE INTERIOR

"This apartment complex is located in the center of town, surrounded by all modern amenities and with Safeway only a short two-hour drive away".

[] WHISTLES AND BELLS

"Furthermore this very fine house comes with all the whistles and bells you can possibly imagine, including the front door".

[] HOW HIGH IS IT?

"From the luscious living area step outside the large, stone-covered, wrap-around balcony where you can enjoy the most amazing, breathtaking, 270-degree view of Canada."

[] LEAVE THEM IN THE CAR …

"Additionally this open layout apartment comes with the exclusive use of one underground parking where you can securely park your car with your inlaws."

[] ENGLISH AS A SECOND LANGUAGE …

"The living room is bordered by the open wall which coupled by the crystal floor-to-ceiling divisory partition enhances the spaciousness and luminosity of the area so that practically anyone can be laid down."

[] PERFECT FOR ROBINSON CRUSOE …

"Enjoy the sunsets from the acreage of this wonderful, pristine island estate, with the ferries passing on the horizon once a week".

[] THE FASTEST GUNS IN THE WEST …

"This spectacular house was built by the famous Sahota Brothers, Amrit and Jill, in less than a month."

[] A VERY SMALL MAID

"The kitchen communicates with an approximately 8 'by 7' room that can be used as pantry or can easily be adhibited as living quarters for the maid."

[] SHE IS GOING TO NEED A LADDER

"Grandma will no doubt enjoy the ceiling-mounted wall socket, perfect for plugging in the iron while watching TV."

[] THIS ONE IS REALLY, REALLY NEW

"This fine property is still on the drawing board, construction will begin in mid-June and it's never been used before".

[] LEAVE THEM IN THE GARAGE

"The detached garage is fully functional and self-sufficient and can be used to park your cars or as a guest suite for the inlaws."

[] START YOUR HOME BUSINESS

"The manicured backyard which is second to none borders with the United States and is, therefore, a smuggler's paradise."

[] A LITTLE TIGHT, PERHAPS?

"Don't be fooled by the square footage. This studio will easily fit yourself, the wife, the children and your pets all in the same room."

[] HOW MANY DO YOU NEED?

"There is a master bedroom on the main floor, a master bedroom on the upper floor and a master bedroom downstairs. They will make a Frenchman pale."

And here are some very good reasons for hiring them:

"With me real estate is not an art: it is an adventure!"

"List with Bob Bye – The Guy with the Tie."

"I am not only your Realtor! I am your boyfriend!"

"I am not only passionate about real estate, not only passionate about your house: I am passionate about you!"

"My marketing plan is very simple and efficient: I will present you the offers and then will dispose of them all."

"My motto is not integrity, not credibility, not sincerity: my motto is you and me!"

"Your friendly neighborhood expert. And I know the whole town too!"

"I will get you the highest possible price – if not, it could not be done."

"If I can't sell your house in four months, by then you will stay with me for another four months."

Luigi Frascati

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What Real Estate Investors Should Know About Local Customs

As a commercial real estate investor, there is a good chance that you will invest in a property located in another state in which local customs may be very different from where you live. Knowing some of these customs may help you avoid mistakes that may cost you money. While people say when you are in Rome, do what Romans do. However, there is often disagreement about whether the seller or buyer is in Rome. This article discusses some of the common customs that you should know. It may or may not explain why these customs are what they are which could be a very long story.

Independent Consideration
You often see this independent monetary consideration in contracts in Texas (TX), Georgia (GA), and North Carolina (NC) but not in California (CA) where love and affection are acceptable consideration. Listing brokers in these states often insist that you pay the seller $ 1000- $ 5000 as independent consideration for the right to cancel the contract during the typical 30-day due diligence period. As an out-of-state investor, you have to pay for air fare, hotel, food, and car rental to visit the property as part of your due diligence. So if you decide that the location is not as good as it appears from satellite map or whatever reasons, it does not make sense to pay another $ 1000-5000 to cancel the contract. While the law in these states requires an independent monetary consideration, it does say what that amount must be. So you should pick a big number between $ 1 to $ 10 to make the contract legal!

Nonrefundable Earnest Deposit
In CA, there is no such thing as nonrefundable deposit per a CA court ruling. Most if not all real estate contracts in all states have a paragraph addressing damages due to contract breaching by either party. This is often sufficient. However, some listing brokers and sellers outside of CA often insist that all the earnest deposit "going hard", ie becoming non-refundable and released to the seller, after the expiration of due diligence period. While the purpose is to make sure you think twice about breaching, it could be difficult to get any of earnest deposit back if

  • You, for unforeseeable position, eg hit by a truck or have a heart attack and go to heaven or wherever, cannot close the transaction.
  • The property is partially damaged, or even burned down by arson.
  • The seller spends it all and your loan is not approved due to soil contamination discovered later on!

You are in a bad position to negotiate with nothing to offer when the money is in possession of the seller. It is therefore advisable to keep the deposit in escrow until closing. However, sometimes you have to make a tough choice, especially when there are multiple offers so you can buy a desirable property.

Property Taxes
In CA, the property is automatically reassessed at the purchased price. The property tax rate is about 1.25% of the purchased price. Due to the Proposition 13, property taxes can only increase by a small percentage annually unless there is change in ownership.

In TX, the property tax rate is about 3% of the assessed or taxable value. However, the taxable value may or may not be the purchased price which is often higher. If the higher purchased price is reported to the county then you will pay property taxes based on the higher purchased price. So it's a good idea not to report this higher purchased price since it is not required. Lately in TX, the local government tries to raise revenue by aggressively reassess the property values. The new assessed value could be significantly higher than, eg 100% the old assessed value. Should this happen to your property, you may want to hire a professional company to protest this property taxes increase even on a property with NNN leases. The success rate appears to be fairly high. As an investor, it's wise and prudent to keep the NNN expenses as low as possible for your tenants. You definitely want your golden goose to keep laying eggs.

In Florida, there is a monthly state sales tax for commercial properties, so make sure you know who is supposed to pay it. In Illinois, the property taxes rate is fairly steep at about 5%. The property tax rate for NC is about 1.45% of the taxable value which is not changed after the sale.

Attorney States
In CA, an escrow company can handle the closing of a real estate transaction. In GA, FL, or NC, escrow companies can only hold the deposit for you and you must hire an attorney licensed in that state to do the closing. These states are often called "attorney states". The proponents say that a real estate transaction is very complex so it must have an attorney to assist you. For opponents, it's all about job security for lawyers. If you invest in a property in an attorney state, you want to hire an attorney who charges a flat fee since the amount of work is very much predictable. You will receive an estimate based on what you need the attorney to do. He or she won't start working until you authorize him or her in writing to do it. The attorney will review all the documents and give the blessing before you sign them. It is advisable to avoid an attorney who charges you by the hours. Most likely you are dealing with a lawyer looking for a big pay day.

In CA, the buyer automatically receives the Preliminary Title report which shows the owner and various information, eg liens and loan amount on the property. If you cancel the transaction, you normally don't pay escrow any fees. In attorney states, the attorney will do the title search and review. The title company then issues a title commitment to insure against any title defects. Should you cancel the transaction, the attorney and Escrow Company may charge a fee for the work done.

Closing Costs
When you make an offer, you often state that buyer and seller split closing costs based on the custom in the county where the property is located. In CA or TX, the sellers customarily pay for owner's title insurance premium based on the purchased price which guarantees the buyer of a clear title (technically you should not have to buy the owner's title insurance when you refinance the property because the title was already insured when you bought the property.) The buyer pays for the lender's policy premium based on the loan amount. This lender's policy is required by the lender to protect it against losses resulting from claims made by others against the property. Of course, if you pay cash for the property then there is no lender's policy. However in GA, it's customary for the buyer to pay for both owner's and lender's policy. So make sure you have sufficient fund to close the transaction.

Deeding Instrument
In CA, the sellers often transfer his interest to the buyers by a grant deed. In other states, the seller will transfer his interest to the buyer by a general or special warranty deed.

  • General warranty deed is used to convey the seller's interest in real property to the buyer. The seller certifies that the title on property being conveyed is free and clear of defects, liens, and encumbrances. The buyer may sue the seller for the damages caused by the defective title.
  • Special warranty deed is also used to convey an interest in real estate. However, the grantor does not warrant against the defects arising from conditions that existed before he / she owned the property. So the special warranty deed is not as good as the general warrant deed. However, most sellers will use this deed for obvious reasons.
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