Real estate BS detector

real estate BS detector
Become a real estate BS detector (infographic from visual.ly)

DARPA issued a recent request for information seeking ideas about how to create automated capabilities to assign “Confidence Levels” to scientific studies, claims, hypotheses, conclusions, models, and/or theories.  In other words, the Defense Advanced Research Projects Agency wants to create a BS detector.  First reported by Adam Rogers for WIRED (Darpa Wants to Build a BS Detector for Science; wired.com; July 30, 2017), DARPA doesn’t look at it as rooting out “BS” but rather establishing the what, why, and how scientists know stuff. Imagine how this could be applied as a real estate BS detector!

The Defense Advanced Research Projects Agency’s stated mission on their website is “to make pivotal investments in breakthrough technologies for national security.”  So, chances are that if they are able to devise a real working BS detector, you won’t know about it.

When it comes to real estate, people sometimes bend the truth.  Additionally, real estate agents are known for “puffery” and are generally not trusted because of the salesy techniques they employ.  But having a real estate BS detector would be huge breakthrough!  Imagine being able to weed through the BS and nonsense that many real estate agents spout when they are clearly trying to sell.  Wouldn’t it be wonderful to check your real estate BS detector, when an agent is pontificating about a house or themselves, to know if the agent is wasting your time?  Unfortunately, the real estate BS detector is not a real device.  However, there are strategies to help you detect real estate BS.

“Luke, trust your feelings.”  Ok, there’s no such thing as a Jedi, but empirical research has demonstrated that intuition can be used to weed out lies.  Many say they rely on their gut instincts to protect themselves.  But the truth is that many ignore or don’t trust their intuition because the rational mind takes over and dominates.  Increasing your intuition could help you detect the real estate BS and prepare for (and maybe prevent) regretful situations.  Becoming more aware about your “gut feeling” can increase your intuition.

Being cynical can also help detect real estate BS.  Don’t be rude of course, but questioning what others say helps you clarify and understand them at a higher level.  It can also reveal untruths.  Question all claims and over-the-top statements.  For example, if you’re dealing with a real estate agent, ask for support to any assertion they make about themselves or their services.  Ask to speak to their references.  Also, ask for additional information that support their opinions on the housing market and deciding on a price to sell or buy a home.

Do your due diligence to discover real estate BS.  After asking questions, take what others say or do during the real estate transaction at face value and take it upon yourself to verify it.  It can save you a headache down the road.  It’s easy to verify many aspects of the real estate transaction, because many local jurisdictions have their databases online.  However, making a call or two to a helpful government employee is straightforward and can provide bonus information.  Verify licenses of real estate agents, loan officers, and even home contractors.  Verify permits of home improvements.  Verify the local schools and the home’s zoning.

Finally, don’t feel pressured to do anything.  The BS artist will make it seem as if you have to act immediately.  But if you are not comfortable with the situation or are not yet ready, take a pause.

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home inspection surprises

home inspection surprises
home inspection surprises (from wini.com)

The American Society of Home Inspectors (ASHI) often conducts surveys to measure home buyer satisfaction. Although most home buyers are typically satisfied with their home inspections, you should be prepared for home inspection surprises after you move into your new home.

A 2012 ASHI survey conducted by Harris Interactive indicated that home buyer confidence was boosted in eighty-eight percent of respondents who had a home inspection before buying. A 2011 ASHI survey revealed that about seventy-two percent of homeowner respondents indicated that their home inspection helped them avoid potential problems with their home.

Although the surveys suggest a majority of home buyers are usually satisfied with their home inspections, there are some that are not.  It’s not unusual to read or hear about a home inspection that is not perfect.  And sometimes the home inspection goes awry from the start.  An agent once told me a story about a home inspector who flooded a condo because he wanted to check the fill rate of tub by closing the drain; he walked away and forgot about the quickly filling tub.  Years ago, I witnessed how a home inspector almost caused a fire by turning on an oven – if the inspector first checked inside before turning the oven on, he would have noticed that is where the homeowner stored pans separated by paper towels.

There’s a lot going on during a home inspection to distract the inspector from their duties.  And no one said home inspectors are supposed to super human or perfect; but there is an expectation that they are thorough.  Not so much because they are paid professionals; but rather, they’re relied on for information about one of the highest cost purchases of a lifetime – your home.

When you first meet with your home inspector, they will tell you they are not perfect.  However, they are supposed to follow “standards of practice.”  Years before home inspectors were licensed, ASHI developed standards of practice as a means of establishing expectations placed on inspectors.  Many of those standards have since been incorporated into state home inspector licensing laws.

Maryland’s home inspector licensing law (COMAR Title 9 Subtitle 36 Chapter 7) states that the inspector identify the scope of the inspection, and visually inspect “readily accessible areas” to determine it the items, components and systems are operating as intended, or are deficient.  Further, to be in accord with the standards of practice, a home inspection: “Is intended to provide…objective information regarding the condition of the systems and components of a home at the time of the home inspection; Acts to identify visible defects and conditions that, in the judgment of the home inspector, adversely affect the function or integrity of the items, components, and systems inspected, including those items or components near the end of their serviceable life; May not be construed as compliance inspection…; Is not intended to be construed as a guarantee, warranty, or any form of insurance; Is not an express or implied warranty or a guarantee of the adequacy, performance, or useful life of any item, component, or system in, on, or about the inspected property…”

Given the limitations of the home inspection, home buyers are sometimes confronted with surprises about the condition of items that were not readily seen during the inspection, such as: the roof, chimney, foundation, and HVAC.  However, you can limit subsequential issues by having a licensed contractor further examine those areas during the inspection period.

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Home marketing may be limited due to agents’ personal wealth strategy

From stagingworkstoronto.ca

If you ask a real estate agent about their home sale strategy, you may get a sanctimonious presentation of the best way to sell a house. However, if you question why they advocate specific procedures over others, chances are they will answer “experience.” Even in the face of an abundance of research, many continue to hold on to old and outdated beliefs about how to sell a house. Furthermore, consider that a real estate agent’s strategy to sell your home may not necessarily benefit your bottom line.

The latest study by Allen, Cadena, Rutherford & Rutherford (2015. Effects of real estate brokers’ marketing strategies: Public open houses, broker open houses, MLS virtual tours, and MLS photographs. The Journal of Real Estate Research, 37(3), 343-369) is the most recent extension of home sale strategy research. The study reinforces the outcomes of some strategies, while shedding light on others; and asks a compelling question about agent motives.

The study looked at home sale price, time on market, and the likelihood of a sale in relation to: broker open houses, public open houses, MLS photos, and MLS virtual tours. The results indicated that all four tactics positively influence home sale price. Additionally, conducting public open houses and having MLS photos have a positive influence on time on market. However, there is little evidence that having more than six MLS photos increases that positive effect. Surprisingly, MLS virtual tours and conducting broker open houses have a negative influence on time on market. The authors conclude that as a package all four strategies may be worthwhile to consider when home sale price is the goal, even though the time on market may be slightly extended.

However, if your goal is a successful home sale, you may consider another strategy. The study concluded that the probability of your home sale success increases when you have broker open houses, MLS virtual tours, and eight or more MLS photographs. The study found that public open houses actually decrease the probability of a successful home sale.

In light of these findings about home sale price and success of sale, the authors rhetorically ask: “Why do all sellers/brokers not use these marketing strategies in every transaction effort?” They propose that, “Perhaps the answer is that brokers follow a wealth maximization strategy that may result in an agency problem with sellers.”

It should come as no surprise that there are agents who have a “wealth maximization strategy” for themselves, and place their own needs before their client’s. However, the authors’ suggestion about agent motives could be problematic with respect to the National Association of Realtors® Code of Ethics (realtor.org). For example, Standard of Practice 11-2 indicates that, “The obligations of the Code of Ethics… shall be interpreted and applied in accordance with the standards of competence and practice which clients and the public reasonably require to protect their rights and interests considering the complexity of the transaction, the availability of expert assistance, and, where the Realtor® is an agent or subagent, the obligations of a fiduciary.”

If you’re selling your home, one takeaway you might have from this study is that you should exercise due diligence when choosing your listing agent. Consider discussing the sales strategy, and getting it in writing.   Additionally, protect yourself by ensuring that your listing agreement can be terminated without penalty and within a reasonable amount of time.

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Don’t skip the home inspection – old, new, or renovated

homesLike the 49ers seeking gold in California, real estate investors have flocked to D.C. in recent years to seek their fortunes. As home values rebounded, many distressed homes were snapped up by investors with the intention of renovating/rehabbing, and then selling them. For many home buyers, these “flipped” houses have become home; however, for a few, the dream has become a nightmare.

Martin Austermuhle reported on WAMU (A Dream Home Becomes a Nightmare; wamu.org) about D.C.’S house flipping environment and highlighted one family’s dream turned nightmare. Characterized as a “cautionary tale of home-buying in a hot real estate market,” the story was basically about how rotted wood in the porch has led to a multimillion dollar law suit between the purchasers and the rehabber.

If you haven’t received the memo, “house flipping” is once again a bad thing – or is it? Unfortunately, “flipping” has become synonymous with fraud and scams because of the attention that it received in the mid 1990’s (as the result of widespread fraud and scams that involved flipped homes). At that time, several cities (Baltimore being one) were known for flipping scams because of the investors’ ability to purchase a home for very little money and turn it around for a big profit.

Although, there should be nothing wrong with buying a distressed property, rehabbing and selling it (aka home flipping); flipping has generally become the term used when there is an accusation of fraud or con involved with a rehabbed home. During the 1990’s, flipped homes were the center of many mortgage fraud cases that took advantage of lenders by providing false income statements, fraudulent credit reports, and/or fraudulent appraisals. In these cases, the investor was not the only scammer; as accomplices often included: loan officers, appraisers, title agents, real estate agents, and even “straw” buyers.

Many home buyers were also scammed into buying homes in disrepair that were represented as being rehabbed. And believe it or not, some of these homes were nothing but shells (e.g., gutted).

In the aftermath of the flipping crisis of the 1990’s: lenders wrote off hundreds of millions of dollars, lawsuits were filed, and a movement grew to educate home buyers about the need to conduct home inspections. Mortgage underwriting changed to safeguard against future scams with the introduction of title seasoning (length of ownership).

Legitimate rehabbing of distressed properties has always been a viable industry; and can transform an eyesore into a livable home. However, just because renovations have been made to an old home doesn’t mean that it is now brand new!

When buying a home, you must do your due diligence regardless of the age of the home. A thorough home inspection should be conducted, even on new homes. Although home inspectors don’t have x-ray vision, the technology they employ can sometimes make it seem as if they do. Besides the routine identification of deferred maintenance, home inspectors can typically identify issues with renovations and can usually identify code violations. Furthermore, you should check permits when considering a home that has been renovated or expanded. Many jurisdictions offer online services to search permits; locally, the Montgomery County Department of Permitting Services has such a search portal (permittingservices.montgomerycountymd.gov).

If you’re buying a home, you might also consider working with an experienced Realtor®. A seasoned professional is not only knowledgeable about neighborhood price trends and disclosures; many are skilled to work in tandem with the home inspector to negotiate repairs.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Trust and verify – home buyer due diligence

home for saleIf you’re a home buyer who’s ready to jump into the housing market this spring, you’ve probably begun searching to see what’s on the market. You may have already met a real estate agent or two; and if you’ve haven’t yet talked with a mortgage lender for a prequalification, it’s probably high on your priority list.

Before you know it, you’ve selected an agent, mortgage lender, and title attorney to assist you; and you find yourself increasingly perceptive and selective about the homes you view. Guess what? You’re in the process of buying a home! But before you put the buying process on cruise control, how much trust should you put into the professionals helping you?

It’s not to say that real estate agents, loan officers, home inspectors, and anyone else assisting your home purchase are not qualified – but no one is perfect. Buying a home is probably one of the biggest purchases you’ll make during your life. The idiom “trust but verify” should be your mantra throughout the home buying process to ensure due diligence.

Have you verified the credentials of those you’ve hired? Believe it or not, there are some who are doing business without the authorization of the corresponding licensing agency. And yet, some reasons given for not having a license may sound innocuous, such as forgetting about a license renewal deadline; other reasons may not seem as innocent (for example, licensed professionals from neighboring jurisdictions, DC or VA, attempt to do business locally where they are not licensed).

Professional licensure is a regulatory safeguard that provides consumers a pool of professionals that meet or exceed a minimum professional competency. Agencies such as the Maryland Real Estate Commission; Maryland Home Improvement Commission; Maryland Commission of Real Estate Appraisers, Appraisal Management Companies, and Home Inspectors; Office of the Commissioner of Financial Regulation; and the Maryland Insurance Administration offers an internet portal to verify a licensee’s status, check for disciplinary actions, and also explains how to file a complaint.

Information is believed to be accurate, but should not be relied upon without verification. Accuracy of square footage, lot size, schools and other information is not guaranteed…” is a disclaimer used by Metropolitan Regional Information Systems, Inc (MRIS) prompting you to verify MLS listing information. Although MRIS strives for accuracy in MLS listings, providing guidelines and standards for MLS data; exactness and truthfulness can vary because data input is performed by many agents and/or their staff. You can verify schools by checking the Montgomery County Public Schools “School Assignment Tool” (gis.mcpsmd.org/SchoolAssignmentTool2/Index.xhtml); zoning, development and other information can be verified through the Montgomery County Planning Department (montgomeryplanning.org).

Was the home seller into the DYI (do-it-yourself) trend? Is it possible the seller hired unlicensed contractors to repair or renovate the home prior to listing? Make sure any improvements and recent repairs have had the proper permitting! The permitting process certifies that repairs/renovations comply with building and zoning codes, which are in place to ensure that houses are safe, structurally sound, and meet health standards. Most permits can be checked online via Montgomery County Department of Permitting Services (permittingservices.montgomerycountymd.gov) “eServices” data search portal.

Most home buyers are familiar with basics of the home buying process. However, “trust and verify” can help identify and reduce hidden and obscure risks; conducting due diligence can make your home buying experience increasingly trouble free and more enjoyable.

© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.