Archive for the ‘for buyers’ Category

5 Things to Try When Buyer’s Appraisal Comes in Low

Friday, March 3rd, 2017

Home buyers these days have many hurdles to jump through in order to finally purchase a new home, from finding a home, to making an offer in possible multiple offer situations, to actually getting to closing without other issues. One such issue is appraisal – with inventory so low and prices climbing to meet demand it is not out of the ordinary for an appraisal to come in on the low side. But have no fear – there are a few things you can do to keep the sale moving along.

1. Renegotiate price/ compromise. If the home does not appraise there is always an opportunity to renegotiate price with the seller. Either the price can be negotiated down to the appraisal price, or the buyer and seller can agree on a compromise (for example, if the appraisal comes in $10,000 under contract price the parties can split the difference – buyer pays $5,000 more in cash and seller lowers the price by $5,000). However, if the seller had multiple offers there may be another buyer willing to pay that high price just to get into contract, so sometimes a seller will not renegotiate. It is always worth a try though, because if the other potential buyers are getting loans the seller could wind up in the same position.

2. Pay the difference with cash. Lenders are only concerned with the appraisal only because it affects the borrower’s loan-to-value ratio. The lender will only make a loan based on the contractual amount or appraised value.

3. Seller can carry a second loan. If you cannot lower the price and the buyer cannot pay cash over appraisal value, the seller can offer to carry a small second loan to make up the difference. The problem with this is that often the interest rate is higher than normal, but you can negotiate with the seller

4. Challenge the appraisal and ask for another to be ordered. Depending on the type of loan the buyer is obtaining this can be a possibility. If there is a good reason to challenge the appraisal with a conventional loan, say the appraiser was from out of the area or did not know the reasons why comparable properties sold for different prices (maybe your home is highly upgraded or has a better lot or view, etc.), then the appraisal can be challenged and you can ask for a second appraisal. Make sure that you provide comparables and an analysis of their sales to the new appraiser or to the lender – a job that the listing agent should have done (but even if s/he did there could still be other issues that did not bring in the appraisal value to the contract price). Talk to your agent and mortgage professional and figure out a plan that works best.

5. Cancel the sale. If there are no other options available the buyer has the right to cancel the sale without losing any deposits (unless otherwise agreed in the contract).

The bottom line is that there are potential solutions if your appraisal does not come in at contract value, so don’t panic. Make a plan with your agent and mortgage professional and see what you can do. Most of the time there will be a valid solution.

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How to “Win” That Home in a Tough Market

Monday, November 28th, 2016

If you have been looking for a home recently you may realize that doing so has become tougher: there is less inventory out there and when a great home lists there are often multiple offers. So how does a buyer get ahead to secure a home when many others are in the same situation? Here are some tips. home-wrapped

Hire a great real estate agent. This is above all the number one way to find a home in a tough market. Not only can your agent give you advice about what price and terms may get you that house you love, but they are also locally connected, which can make all the difference in the world.

Here is an example – After losing out on a few multiple offer situations I found buyers a home through my connections with other local agents – one that had not gone on the MLS yet. In another situation, I notified buyers of a home that was about to come on the market (they lost out on purchasing my listing in the same neighborhood), and they got into contract prior to the home going on the MLS. Some say this is unfair for the other buyers out there as they never had a chance to see or bid on the home, but many real estate sales work this way. Those of us who work particular areas often stay in touch and know when there is a listing coming up. Having that on your side as you search for a home is priceless.

Be Paperwork Ready: There is no better advice than to be ready to make an offer. This means you need to be preapproved with a lender (the lender should have all your paperwork so s/he is ready to go once you write an offer, and you should have a preapproval letter). Have a copy of your latest bank or investment statement showing proof of funds for your downpayment, in order to submit with your offer. Your offer should be as strong as possible so speak with your agent to determine what needs to be in there and what may be left out in order to avoid a multiple offer situation.

Know what you want: Often this is difficult when one is focusing on multiple areas or neighborhoods, but if you really know those you prefer, including floorplans and other amenities, you will be able to act quickly to see the home and make and offer. Even if multiple offers do come in, being first to present can often be helpful. Start looking at areas and homes before you are ready to purchase – the more information you have the better and more prepared you will be when the time to buy is right.

All in all, buying a home in a low inventory market can be tough. With interest rates rising every day counts – if you can lock in a rate prior to another rate increase that is great – and it just means you need to be ready when that right home becomes available. Of all the above tips, having a great buyer’s agent is the best advice I can provide. Many people think they can find a home without an agent, but a good agent is worth her weight in gold when it comes to finding the right home.

Happy home shopping!

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Keeping the “Real” in Real Estate

Thursday, January 21st, 2016

The real estate business has definitely evolved over the last few decades, with the growth of technology being the main contributor. But when it comes down to it, working with a real estate agent is not just about finding a savvy salesperson, but rather it is about finding someone who truly has your best interests at heart and is willing to work hard to find the right property or sell your home, at the right price, with the best terms. It is not so much a sales relationship as it is a trusted adviser relationship. An agent plays many roles throughout the buying and selling process – researcher, chauffeur, adviser, negotiator, paperwork coordinator, and therapist – to name a few. For sale

As they always will, many people try to come up with ways to find and convert “leads” to clients, from advertising to cold calling to handing out cards to people all day long and asking for referrals from past clients, friends and family members. In the last year I have seen some interesting attempts to woo potential buyers and sellers, and although I am impressed with those who are trying hard, I must say I have been surprised at some of these methods:

1.  Recorded Calls: I received my first recorded sales call from a real estate agent last year. I was surprised because the agent, who had a lot of enthusiasm, sounded like he was trying to sell me a used car. He went on and on about how he could help me buy or sell a home, and about his strengths as an agent. Now, I must say that selling real estate is not difficult – anyone can do it. BUT not everyone can do a great job at taking care of the PEOPLE, the clients. I have always said that this business is not about houses, it is about people.

2.  Print Marketing: Marketing via mail and email has always and will continue to be a very strong way for the real estate agent to get business – s/he creates a lovely flyer or brochure and lists skills and past sales and testimonials to make her/him look amazing. S/he even uses words like “Number 1 agent” and “Top agent,” “sold more homes than anyone else.” The trick is that many agents can say these things by putting a spin on the information, and these statements can be true.

justice-scalesMany of these advertisements actually constitute ethical violations in my opinion (and I have been trying to get the rules changed to prevent this, but that is another story). For example, if you are a broker who oversees say 30 buying agents, and among those agents your brokerage or team sold 100 homes last year, how is it ethical for you yourself to claim you sold over 100 homes last year – you did not do that personally, your agents contributed many of those sales. But to the average homeowner who receives your marketing piece, you look like you have done more business than anyone else. Glossy marketing pieces with claims to being “the top producer” do sway the average Jane and Joe many times. Like the political arena, I think that if agents are going to make claims like this they need to explain the truth behind the claims.

3. TV Commercials and movie theater advertising: These types of marketing can also be valuable, but again the time is limited and the agent has only a few moments to convince you of how incredible they are at their job. There is no fine print – but if it gets you to remember their name and call them then the piece has achieved the goal set by the agent. Again, anyone can make a great marketing piece that makes them look like the best agent ever – and of course that is what all salespeople try to do.

4. Broker Calls to Agents About Homes “Coming Soon” to the Market: This newest method is interesting, and is aimed at local area agents. A broker has an agent make calls to other agents’ voicemails, reading from a script about a home that is not yet listed on the open MLS but soon will be – they tell the agents (it seems agents are chosen based on who sells the most in a given area – not all agents receive these calls) that they are giving them a chance to show the property to their buyers before it hits the MLS. Now, if you happen to be an agent working with a buyer and get a call describing the perfect home, this could be a win-win for your client. But if you are an agent and do not get that call, or if you are a buyer looking online and waiting for the perfect home to pop up, you are truly at a disadvantage in such a situation. So this can be a good or poor method of advertising, depending on how you look at it.

5. “Coming Soon” Listings Posted on Third Party Sites: There are some third party sites (such as Zillow and Trulia) that allow agents to post “coming soon” listings. Not all agents can do this – they must pay to become an elite member of these sites, and then they have the “privilege” of posting such properties. It’s great for the agents – they likely get at least some calls from potential buyers – but for those buyers who are not looking on those sites they get the short end of the stick if the home sells before hitting the MLS. Similarly, agents can send out e-flyers or emails about listings that are coming to the market soon, and if this is done fairly (sent to ALL agents in a county), then that is a great advertising tool. It is not fair to the potential buyer who is not working with an agent and who waits for properties to list on the MLS, but of course this is just one of the many benefits of working with an agent (we tend to hear about up and coming listings from many industry sources – agents, appraisers, lenders, sellers, etc.).


From my perspective I believe that all agents should be able to advertise and “sell” their services and skills. But I think there are 2 rules that need to always be adhered to by real estate agents and brokers: 1. Keep it classy. 2. Be honest and ethical. If the local real estate associations who govern agents and make rules set out to make the rules stricter, I think it would be beyond valuable to potential buyers and sellers.

If you are looking for a real estate agent, remember to get the full picture – what can s/he do for you that is different from other agents? Make sure you will not be just a number – some agents have teams of people working for them and they represent many clients – if you like this than great, if not you may want to look for an experienced agent who treats you like you are the only client. Everyone has different needs, so make sure you get all your questions answered and find the person who is best able to help you; shiny materials and boasts about being a “top producer” should play into your decision minimally (although you do want someone who can sell your home with strong marketing and advertising abilities), but you need to feel comfortable with the person and what s/he can offer you.

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Lawsuits On the Rise Against Real Estate Agents

Friday, June 13th, 2014

When the real estate market heats up, so do the number of lawsuits against real estate agents and their brokers. Many buyers and sellers of real estate do not often pause to consider that they are involving themselves in a legal transaction, which can have severe consequences if not handled properly. Many agents, whether intentionally or by mistake,  unfortunately do not understand the ramifications of contract law.images

Here are the main areas for which agents and their brokers are sued in real estate sales-related cases:

1. Failure to advise on a contract. Real estate agents have a duty to make sure buyers and sellers understand the contacts they are signing. If there are any problematic issues or clauses in the contract the agent needs to make sure her clients understand them before signing. It is important to remember here that there is a fine line for agents – only attorneys can give legal advice (see below). An agent can explain a contract clause but should always defer to her broker and an attorney if further clarification or if advice is needed.

2. Giving legal advice. Only an attorney is licensed to give legal advice. Unfortunately there are many agents who provide legal advice, whether intentionally or not (most just have no clue they are doing so). I have seen it happen. The golden rule for agents is to not provide any advice on the contract that could be considered legal advice…when in doubt tell them you cannot give legal advice and refer the question to a broker (or if an agent is a broker he can refer directly to an attorney).

3. Misrepresentation of property features. This is a leading cause of real estate sales litigation. The key to avoid litigation is to be honest. Exaggerating features of a property or claiming it has features it does not can land agents in the hot seat.

images-34. Failure to disclose defects. Real estate agents have a duty to disclose any known defects of a property, or any that they see that are obvious (think big wet spot under a sink or in a ceiling, or an HVAC system that does not come on when started, for example). It is important to remember that a real estate agent is not held to the same standard as a home inspector, but here in California most agents complete an Agent Visual Inspection Disclosure, in which they document any known or observed faulty conditions.

When in doubt, always disclose (this is the same thing agents should tell their sellers when they fill out their disclosures – disclose everything). This is especially important if a listing agent has an escrow fall out and has been given a home inspection or other reports from a previous buyer – at that point the agent and homeowner are considered to have knowledge of the issues that were discovered and reported, and must disclose those items and provide the report to any new buyers.

There have been rumblings in past years about allowing only licensed attorneys to obtain broker licenses, but that has never been implemented. It may help reduce lawsuits, but the problem is that mistakes will still be made by agents, and brokers will often not catch them (especially brokers who oversee large numbers of agents).

The best security for buyers and sellers is to work with an agent who is also an attorney. In many states only attorneys can be the closing agents in real estate sales (here in California we have escrow officers instead, but attorneys can handle them as well, although this is rare). Working with an agent or broker who has a legal background offers peace of mind for both buyers and sellers of real estate.

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Renters Looking to Buy? San Diego, Carlsbad, San Marcos Named Toughest Housing Markets

Monday, May 12th, 2014

A new study was just released that named San Diego, Carlsbad and San Marcos the #1 toughest housing markets in which renters can purchase homes. For every 100 homes available for purchase, there are slightly over 5 renters who can qualify to buy the home (according to research firm SNL Real Estate). home_sold

The recent market increase has made it more difficult for people hoping to purchase homes, pricing many out of the market. Prices in San Diego county rose 19.4% year over year as of January 2014, resulting in a rise in the median home price, to just under $477,000. Today’s buyer needs to earn over  $81,000 to purchase a median-priced home.

While many economists and real estate experts believe the price increase is cooling off, there are other factors in play that could continue to make it difficult to afford a home here in San Diego county:

Low inventory still plagues many parts of the county, so that many buyers are competing for the same properties…which of course could have the effect of actually increasing prices but we will have to see.

The ability to obtain financing is still very challenging for many would-be buyers. Lenders are not making it any easier to obtain loans. Plus, with new reports showing that 1/3 of home sales are paid for in cash (click here for more on this statistic), this also presents a challenge for a buyer who needs to obtain a loan – most sellers will obviously opt for a cash buyer over one who has to qualify for a loan.

If you are a renter looking to purchase, there are a few things you should do to get ready, so that once you find the right home you are able to make a solid offer:

images-  Get preapproved. It is very important to speak with a mortgage professional so that you know exactly how much mortgage you can afford. I highly recommend a formal preapproval, where the mortgage professional analyzes your earnings, debt and other factors to come to an accurate assessment of your ability to purchase.

-  Find a great real estate agent. You need to find someone who has experience, patience, and really is an expert in the areas in which you wish to hunt for properties. Your agent needs to be on your team, whether you like to search for properties on your own or have her/him do so for you. He or she can help educate you on different areas/neighborhoods, etc., so take advantage of their expertise. It costs you nothing, but will be a big benefit to you if you have someone who can answer questions provide further information, and walk you through all the paperwork and legalities.

-  Stop spending on any big ticket items. If you are in the market to purchase a home, it is imperative that you stop spending money on any big items, like furniture, cars or trips. Lenders scrutinize all spending during the loan approval period, so just to be safe it is smart to stop spending from the start.

The bottom line is to not be discouraged if you are a renter looking to purchase a home. In fact, in March of this year 30% of homes were purchased by first time buyers, so it can happen! Just make sure to get all your ducks in order so that you are in the best position to make an offer when you do find that perfect home.


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5 Reasons to Purchase a Home

Friday, December 6th, 2013

The following article was written by Michael Deery with Citiwide Financial Corp – I felt it was great information to share with my readers. If you have any questions about any of this information above, please feel free to contact Michael directly at 858-442-2686.

In 2013 alone, the cost of paying a mortgage has climbed 13%, which means a buyer has lost 13% in purchasing power. Mortgage rates were at 3.25% in April and today sit at 4.5%. So a buyer who was approved at $500k at the beginning of the year, can now only afford $435k using the same monthly payment today. With home prices also surging between 10%-20% in most housing markets during 2013, the cost of waiting to purchase a home has increased considerably for buyers. Here are 5 reasons to purchase a home soon!

1. The Cost of a Mortgage Increased 13% in 2013
It has been a rough ride for mortgage rates over the past 9 months. As you can see on this chart, 30-year fixed mortgage rates have increased from 3.25% to 4.5% during 2013.A buyer who could afford $500k at the beginning of the year, can now only afford $435k using the same monthly payment today. So in just 9 months, the cost of paying a mortgage has climbed 13%, and a buyer has lost 13% in purchasing power.

2. Home Prices are Continuing to Rise Everywhere

Home Prices are on the rise everywhere, as limited inventory is driving prices up. It is the old law of supply and demand, with limited supply demand will rise, and this is why we are seeing bidding wars for properties going on in most local markets, and this in turn is driving prices up.

For example, see below the September year-over-year home price appreciation gains for the cities Case-Shiller tracks for its report on housing values!

The housing markets in San Diego, LA and San Francisco have all seen annual appreciation gains around 20% over the past 12 months!


3. Tougher Underwriting Rules are Coming in January 14th 2014

On January 14th the CFPB, (the Consumer Financial Protection Bureau), is due to enforce new tougher qualifying rules for mortgages. These new laws will be known as “Qualified Mortgage” (QM) and the “Ability to Repay” (ATR).

Q: What is a Qualified Mortgage (QM)?  

A:  A Qualified Mortgage is a home loan that meets certain standards set forth by the federal Government. Lenders that generate such loans are presumed to have also met the Ability-to-Repay rule mandated by the Dodd-Frank Act. The Qualified Mortgage rule, as defined by CFPB, is designed to create safer loans by prohibiting or limiting certain high-risk products and features.

One of these new rules will cap the debt to income ratios allowed on certain loans at 43%. Currently the FHA and VA allow buyers to go to a 55% Debt to income ratio, Conventional is currently allowed to go to 45% and sometimes 50%.

Once these new rules are in place on January 14th, I will send out more information.

4. As Mortgage Rates Increase in 2014, Your Purchasing Power Will Fall

A question that all buyers have is, where will rates be in a year and how will this affect my affordability? There have been several experts out in the past few weeks who are convinced the Fed will taper their bond purchases early next year, now that economic data is improving, and predict mortgage rates will be north of 5% by this time next year. (Goldman Sachs, Pimco)

With that in mind, here is a good chart to share with your buyers, that shows the “impact of rising rates on a buyers purchasing power or affordability”. It shows if rates just increase from 4.5% to 5.5%, a buyer will lose another 10.75% in purchasing power, which means, if they can afford to purchase $600k today, they will only be able to afford $540k in a year!

Add in another 8%-10% appreciation, and the cost of a home will be roughly 20% more expensive in a year than it is today!

5. Buy A Home When the Fed is Offering Money at a Discount.

A question many people ask is, “When is a good time to buy a home?”

I think a great time to buy a home is when the Fed is applying monetary stimulus into the economy, via their Quantitative Easing or “QE” program, which essentially is giving buyers the opportunity to borrow money at a discount. But now that recent economic data has been improving, The Fed will start to pull back on their monetary stimulus soon, which will automatically increase the cost to borrow money.

As you can see on this chart, the influence of Federal Reserve stimulus on mortgage rates is undoubted, and is the #1 reason why rates are so low in the first place. The average 30 year fixed rate prior to stimulus was roughly 6.5%, compared to today’s rates of roughly 4.5%.

This is a chart that all buyers and move-up-sellers who are contemplating when they should sell should review, so they know what effect the Fed is having on current interest rates and affordability. Without Fed stimulus, rates will probably revert back to normal, which will be roughly 6.5% on a 30 year fixed.

Tips for Buyers and Move-Up-Sellers in 2014

Bottom line, all evidence above suggests that rates and home prices are going to continue to increase over the next 12 months, which means the cost of purchasing a home is going to increase for buyers. And it looks like qualifying for a mortgage may get more difficult too.

But, on the positive side, buyers should know that the average 30 year fixed mortgage rate over the past 40 years has been 8.7%, and 6.5% over the past decade!  So for any buyers who are still on the fence looking at buying a home, a 4.5% rate is still a terrific rate to get on a home loan.

Another good tip for buyers too, is to focus on the monthly payment and NOT the rate. Yes rates have gone up this year and it is very unfortunate, but is the monthly payment still affordable? If the payment is still affordable, do not focus on the interest rate.

Overall, it is still a great time to buy a home, but waiting another 6 months or a year to buy a home, will probably just end up costing you even more money.

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How Do You Find the “Right” Home?

Thursday, October 10th, 2013

Buying a home is one of the most challenging and emotional processes – with such a big purchase of course buyers want to make sure they are making the right decision, but oftentimes that is difficult to do. Let’s look at some of the things to consider when looking for the “right” home (in no particular order).house_question

Location. Of course this is a big ticket item when buying a home. Location takes into consideration many things – proximity to work, school or loved ones, or to highways and public transportation, airports/train stations. It might be that someone wants to live by the beach, or far from it. People may wish to be away from power lines or noise, or may want to live where all the action is. No matter what the location issues might be, a buyer needs to identify them and then focus on the properties that are in the right locations. Many buyers end up changing their minds and expanding searches to other locations, so the searches can mold into different shapes as the search progresses (and a skilled agent can help you with this as well).

Amenities. Whether you want to be close to transportation or have personal or community amenities like a pool, spa or tennis courts, this is an important part of your decision. Focusing on properties that will meet your specifications will help you find the right property.

Schools. For families with children or planning to have them, schools are very important. Many buyers have definite ideas as to which districts they want to live in, and that will help narrow the search. If you are a family (or plan to have one) moving into an area from out of town, it is important to research local schools and districts – visit them, speak with staff and families whose children go to the schools, research the test scores and other relevant information so that you can feel good about the schools in the neighborhood(s) in which you are looking.

house_shoppingcartAffordability. Of course price will always be a factor in home shopping. It is important to get pre-approved with a lender and to know how much mortgage you can afford before home shopping. This may also have an effect on the areas you search.

Gut Reaction. I don’t know about you, but I am a big believer that my gut instinct is always right. The few times I have decided to go against my gut I have always realized down the road – whether sooner or sometimes later – that I should have trusted my gut. As a Realtor I can often tell when a buyer finds the “right” home, and usually I can see it very quickly, even if they are not yet sure. You won’t always know right away what home is “the one,” and sometimes they actually grow on you, but if you do have instincts listen to them.

Get Help From Your Agent. Another key factor to finding the right home is to make sure you are working with a local agent who not only knows the area and different neighborhoods, but can really understand what you are looking for. S/he can guide you in your search, and even point out some things you may not have considered that could broaden or narrow your search.

Note that there may be challenges even if you find the right home, such as financing issues or appraisal problems. All you can do is be prepared to deal with these should they arise; for example, if your “right” home does not appraise, you can try several things – click here to read about dealing with appraisal challenges. Just stay informed and work with your agent to try and anticipate challenges, and hopefully by doing so you will be able to overcome them.

There is a “right” home for every buyer, sometimes even many that can feel right. The best way to know if you have found “the one” is to do your homework before you start looking at homes – research neighborhoods, amenities, different areas and the proximity of desired places. Study comparables and floorplans, drive around neighborhoods before going inside any homes, chat with people who live there. Once you have identified those areas that have the right characteristics you will feel great about looking at homes in those neighborhoods. Trust your instincts, get help from your agent, and you will find a wonderful home.


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New House, New Yard

Tuesday, July 2nd, 2013


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Selecting a Real Estate Agent: Quantity vs. Quality

Monday, May 20th, 2013

Deciding whether to purchase or sell a home is possibly one of the most important and expensive financial/emotional decisions you will make during your lifetime. It is one that has not only financial consequences, but also legal ramifications. If done correctly it can be the catalyst for your future – during your lifetime, for your retirement, and to take care of your family after you are gone. That is why choosing the right real estate agent is so important. So how do you do that?

I was inspired to write this article after an ad I saw in my local paper by a real estate agent. The ad focused on the quantity of sales he has completed this year, inferring that the quantity makes him a great agent with whom to work. I realized immediately that this is the mindset of the average buyer or seller – let’s find the agent who has the most sales, because s/he must be very experienced. Personally, I think there is a big gap here so I thought I’d break it down.

Sure, there are agents out there who sell a LOT of properties, many of whom are very skilled at what they do, and likely have many happy customers. Personally, I have had MANY calls from buyers and sellers who have worked with mass-production agents (2 just this month), and I hear a very different side of the story. Many of these people tell me they were treated like a number, that they rarely (if ever) got to speak with the agent after initial contact, and that they were not satisfied with the overall handling of their purchase or sale…these people wanted QUALITY treatment and did not feel they received it.

When choosing an agent to work with, here are some things you may want to investigate:

1.  Contact person: Will you be dealing directly with the agent throughout your purchase or sale, or will there be others involved? Make sure you know who will be your contact person, and if it is not the agent then make sure you meet that person(s) before you start working with the agent (assuming you are ok with not being able to deal directly with the agent).

2.  Workload: Ask the agent how many clients s/he is currently working with; if the agent has a multitude of clients you can follow up with setting your expectations throughout the course of the transaction, and finding out how the agent will be able to dedicate time to you and your needs.

3.  Referrals: Get the names/contact information for at least 3 past clients, and find out how they rate the agent on communication, availability and overall quality of service

I do not have a personal goal to be a mass producer. My theory is to provide excellent service, so that my clients keep coming back and send all their friends, relatives and neighbors to me. This quality of service is more important to me than selling a higher quantity of homes. But there are agents out there who handle a multitude of clients at a time and are successful. It really comes down to what makes you feel comfortable, and finding the right agent to meet your needs.

Some people may like the quantity agents, and for them that is great (and you may even be able to find one who provides both quality and quantity). I believe the most important characteristics in a real estate agent are not only their experience, knowledge and ethical standards, but also the quality of their work and the way they treat their clients.

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Buying a Flip Home: What Buyers Should Watch Out For

Friday, April 26th, 2013

If you haven’t noticed, flippers are back in full force. It seems everyone wants to get into property flipping these days, even those who have never done so or may not have a good sense of what they are doing. If you are a buyer or know someone looking for property – whether a home, second home or investment property, you need to be careful when you come across flipped properties.

Let’s start with defining a “flip.” This is a property that has been recently purchased and then remodeled, oftentimes very quickly, in order to put back on the market and make a profit. There are all kinds of flippers – from experienced to do-it-yourselfers, and many different levels and degrees of remodeling. As a buyer you need to be very careful when considering writing an offer on these properties. There are several different types of flips, and I have categorized them to make it easier to understand:

Types of Flips:

1. Quick Flip or “Eye Candy” Flip: This is the most common type of flip that I see when showing property, and it is very easy to do and the cost is minimal. This type of flip often involves new paint inside and usually outside, a major cleanup, new (usually inexpensive) carpet in carpeted areas, new hardware to freshen up cabinetry, new light fixtures, and often new kitchen appliances. It gives the illusion of newness, but usually upon deeper inspection one finds that there are many items that need attention – furnaces and water heaters that need to be replaced, electrical issues, landscaping, and many others. If the home is older oftentimes the flipper does not replace the windows, which is an expensive job. Each home obviously differs in what is needed to make it look great to a buyer, and these quick flips often get the “oohs” and “ahhs” from buyers, but they may still need a lot of work.

2. Full Flip: These types of properties address replacement, or partial replacement, of most appliances and other issues, along with a remodel. They typically involve more than just painting and putting in baseboards and new kitchen appliances. Many flippers these days do not do this type of flip, because it is not cost effective. but for a buyer this is obviously the best kind of flip property to buy, because it is not just eye candy and things have been properly attended to. These flippers often address issues that quick flippers do not, like replacing old windows, flooring, cabinetry and sinks, appliances, landscaping, and any other issues that a quick flipper might pass over.

How to Avoid Making a Mistake in Buying a Flip that is a Lemon:

1. Get a home inspection: Keeping in mind that not all home inspectors are alike, it is a good idea to do your research – most real estate agents know inspectors who do a thorough job. If not, contact a few and get names of people who have used them. Talk to those people and see how well the inspector did. Also, check their credentials and make sure they are certified by either CREIA (California Real Estate Inspection Association) or ASHI (American Society of Home Inspectors); if you live in another state you can check with that state’s licensing board. My favorite inspector is a licensed civil engineer and a licensed general contractor as well, so I feel very confident my clients are getting the best inspection possible.

2. Get a home warranty plan. Home warranties are great for the first year, in case any appliances break or you have other issues that are covered under your policy. You can write this into your purchase contract and ask the seller to pay for it. You may want to ask the seller to include upgrades to the policy, like roof, pool (if relevant), air conditioner, etc. That way you are covered, and you can extend the policy at the end of the first year should you desire. Discuss this with your real estate professional.

In order to avoid having to waste time on a home that is a low quality quick flip, you should look beyond the “eye candy” that paint and fresh baseboards and appliances may present. Look inside cabinets, check the furnace and air conditioner (if there is one), as well as the water heater. Look for any signs of prior leaks (although paint usually does a good job of covering these up for a short time). Really take a good look at the home to see if there are other potential issues that may need to be addressed, either immediately or in the future. Have your agent ask questions of the listing agent if you need. If you feel comfortable in making an offer than you will find out more when you have your home inspection.

The bottom line is to hold off on getting excited about a flipped property until you have all the facts and can verify that the home will not end up in need of a lot of work soon after purchase. As always, if you do your homework you will likely avoid making mistakes…buying a flip home can be wonderful if you are careful. Happy home hunting!

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