Buyer and seller expectations can affect real estate sales

by Dan Krell
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DanKrell.com
© 2013

Buyer and seller expectations can affect the housing market

Recent positive housing news has raised expectations for many home sellers, but not for some home buyers who are looking for a great deal. This combination of seller and buyer expectations can make for an interesting spring market.

Expectations, much like beliefs, are influenced by your experiences as well as information to which you’re exposed. A combination of media reports and stories by relatives, friends, and co-workers could create an expectation about the home buying process that could be practical or unrealistic.

Regardless of your expectations, the home selling/buying process is full of pitfalls and surprises. If you’re not prepared, your expectations could set you up for disappointment. Of the many components of the sale/purchase process, the highest expectations are typically placed on pricing and the home inspection.

Home sellers obviously want to sell their home for the highest price. News of low inventory and increasing average home sale prices nationally and regionally would lead you to believe that your home could fetch a higher price. Of course, expectations of a higher price should be reality checked with factual neighborhood data.

Home buyers, on the other hand, want to buy a perfect home and feel as if they bought for a good price. For many buyers, stories of homes purchased at serious discounts are fresh in their memories and may set an unrealistic expectation. Once again, factual data can be a reality check; and depending on the neighborhood, savvy negotiation could be warranted. For example, buyers are encountering fierce competition (not unlike the market just before the financial crisis) in some neighborhoods. And although home buyers are rushing to see homes recently added to the inventory, many are not interested in paying the list price. And although some homes are getting multiple offers, many are not. And of those receiving multiple offers, many of those offers are below list price.

Additionally, appraisals can be an issue too; buyers and sellers alike typically expect that the home appraises for the contract price. If not properly prepared, some home sellers can react to low appraisals by initially finding fault with the appraiser’s comparables and methodology, as well as wanting the buyer to pay the balance; while home buyers may experience increased uncertainty and doubt about their purchase.

High expectations are typically had for the home inspection by all. Home sellers who put forth the effort to prepare their home for a sale, often spending money for updates and upgrades, expect the home inspection to reveal a perfect home. If not prepared, the seller can become headstrong when confronted with an inspection that is other than exemplary. Buyers wanting a perfect home may also be demanding of even inconsequential repairs to be made by the seller.

Buyers and sellers sometimes choose to work with agents who offer promise to meet their sometimes unrealistic expectations, only to be let down by the reality of the sale/purchase process.

Veteran real estate agents often appreciate the novelty of each real estate transaction, due to the ever changing market, circumstances of the transaction, as well as the personalities of the parties involved. Your real estate agent can help you set the tone of your expectations; an experienced and skillful real estate agent can prepare you for the ups and downs of the selling/buying process by reframing your expectations to fit the reality of your neighborhood housing market.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published the week of March 25, 2013. Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

March 25, 2008September 9, 2018

Have you unknowingly perpetrated Mortgage Fraud?

You’ve probably read a few recent articles featuring victims of the mortgage crisis. Many of these home owners claimed to have been duped into obtaining loans that they could not afford. One recent article described how the home owner went along with a plan to obtain a mortgage that involved using someone else’s credit as well as artificially inflating their bank account to qualify. Is the home owner guilty of mortgage fraud if she knowingly follows the scheme of their real estate agent and/or mortgage broker to deceive the lender to qualify for a mortgage?

Among the many crime reports published by the Federal Bureau of Investigation (FBI) is the Mortgage Fraud Report. According to the 2006 Mortgage Fraud Report (https://www.fbi.gov/stats-services/publications/mortgage-fraud-2006) mortgage fraud is defined as “the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan.” As the Maryland and Virginia areas are described as being significantly affected by mortgage fraud, the FBI cited recent increases of mortgage fraud are due to many perpetrators of fraud who have taken advantage of recent lenient credit standards.

The FBI divides mortgage fraud into two categories, fraud-for-profit and fraud-for-property. Fraud-for-profit typically involves schemes or scams for financial gain. According to the FBI, fraud-for-profit schemes (also referred to as “industry insider fraud”) often involves artificially inflating property values, obtaining loans on non-existent properties, or “revolve equity.” Illegal flipping schemes that commonly use straw buyers and fraudulent appraisals are examples of fraud-for-profit.

Fraud-for-property, however, is the misrepresentation by a borrower so as to obtain a loan to purchase a home. Fraud-for-housing increased in recent years due to the rise of home prices; applicants would provide misleading or false employment, income, and asset information to the lender to qualify for the loan. Although the intent of the borrower is to repay the loan, this activity is still illegal and can lead to Federal prosecution.

To avoid becoming involved in a mortgage fraud scheme, the FBI provides these tips: If it sounds too good to be true, it probably is; Get referral for real estate and mortgage professionals and check the licenses with regulatory agencies; Be wary of strangers and unsolicited contacts, as well as high-pressure sales techniques; Look at written information to verify the value of the property; Understand what you are signing and agreeing to – If you do not understand, seek assistance from an attorney; Make sure the name on your application matches the name on your identification; Review the title history to determine if the property has been “flipped” and the value falsely inflated; Know and understand the terms of your mortgage (Check your information against the information in the loan documents to ensure they are accurate and complete); Never sign any loan documents that contain blanks as this leaves you vulnerable to fraud.

Mortgage fraud is not a victimless crime. Besides foreclosed upon borrowers and mortgage entities, other victims include legitimate borrowers and those living in neighborhoods affected by mortgage fraud.

Original published at https://dankrell.com/blog/2008/03/25/have-you-unknowingly-perpetrated-mortgage-fraud/

By Dan Krell

March 25, 2008November 23, 2021

Creative financing can lead to creative trouble

by Dan Krell
Google+

Several weeks ago, my client encountered The Amazing Criswell of real estate. Without knowing anything about my client’s home, this real estate agent professed to know how many homes are for sale in his neighborhood, the price the home would sell for, and time it would remain on the market. Much to my client’s dismay, the agent expressed an interest to discuss a proposal to sell his home quickly and for more than the list price. Needless to say, my client did not call him.

There is always someone pushing their angle on how to sell your home faster, make more money, or buy with no money. Some of these “real estate solutions” could even be called schemes; many schemes are not practical, some are outrageous, and some are blatantly illegal. Presently, the temptation to think outside the box tends to be more prevalent since financing guidelines are more restrictive, and for many it means needing more cash for a higher down payment, closing costs, or reserves.

Aside from creative financing options that offer seller financing, land installment contracts, or leases with the option to purchase, there are schemes that provide creative gifts of money to the home buyer so they can qualify for their loan. One of the more blatantly illegal schemes involves a “gift” from the home seller to the home buyer while increasing the sale price to exceed the listing price; the gift is not disclosed to the lender as well as exchanged outside of settlement. This scheme essentially creates a 100% financing loan from a loan that technically requires some form of down payment.

A graduate student who researched this type of transaction for his Ph.D. in finance (as reported in the New York Times “The Cash-Back Mortgage,” June 10, 2007) found that the “cash back” scheme is more prevalent than previously thought. He found that people advertised such deals through advertising and through key words in the MLS (the study revealed 150 keywords were used).

Additional findings suggested that this type of transaction would occur when homes were on the market for long periods of time, yet sold above the original list price. Furthermore, these types of transactions tend be executed by the same real estate agents (who are either the seller and/or they are the only agent in the transaction). Ironically, most of these deals were perpetrated through loans packaged in bundles and sold on Wall Street.

A subtler form of this cash back scheme occurs when the seller provides closing help to the buyer, but raises the sale price beyond the list price to make up the difference. Although the closing help is disclosed to the lender and recorded on the settlement sheet, this transaction could be illegal. Federal law (18 U.S.C. 1014) forbids providing false statements and/or willfully overvaluing land to influence a lender’s behavior in providing a loan. In fact, a New Jersey State Judiciary committee stated that an attorney knowingly participating in such a transaction is ethical misconduct.

In today’s market, it is tempting to look for creative methods to sell or buy a home. However, before you agree to any creative financing proposal, consult with an attorney to determine its validity and legality.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of March 17, 2008. Copyright © 2008 Dan Krell.

March 13, 2008November 23, 2021

Buying "as-is" means as-is; or does it?

by Dan Krell
Google+

The home seller, unless exempt, is obligated to provide a property disclosure or disclaimer to the home buyer. Sometimes a home seller will disclose the home’s condition by answering all the questions on the form; other times the home seller will provide disclaimer statement that you are buying the home “as-is.”

There really isn’t one answer why a home seller would provide a property disclaimer, although there are many situations where providing a property disclaimer is appropriate.

The disclaimer statement practically states that the home seller makes no representations or warranties as to the property condition. Additionally, you, as the purchaser, agree to accept the property “as is” with all defects, including latent defects- except as otherwise stated in the real estate contract of sale. The statement says it all, you basically take the home “as-is.”

This is all well and good, except that the contract has a condition of property/equipment, maintenance and condition clause (depending on the contract your Realtor is using) as well as a termite inspection clause. The condition of property/equipment, maintenance and condition clause states that the home will be delivered in essentially the same condition as at time of contract acceptance and that mechanical items (such as HVAC, electric, etc.) will be in good working order at time of settlement.

The termite inspection clause essentially says that seller is responsible for remediating any termite or wood destroying insect infestation and damage. However, the Maryland Association of Realtors Residential Contract gives the home seller the option to void the contract if the cost of treatment and repair exceeds 2% of the sale price and the home buyer does not want to pay the excess.

Additionally, a home seller is required to disclose all known latent defects. A latent defect is described as being a defect that a home buyer would not know of even through a careful inspection, and could pose a threat to their health or safety (as described in the Maryland Residential Property Disclosure and Disclaimer Statement).

In addition to the property disclaimer, there is an “as-is” clause in the Addendum of Clauses. This “as-is” clause states that all clauses pertaining to the property condition and termites are considered deleted from the contract. This “as-is” clause still requires the home seller to deliver the property free and clear of debris and trash.

A true story about “as-is” and latent defects: A family purchases a home with a pool in “as-is” condition. The home buyers attempt to open the pool for the summer, however the pool company they contact explains that the pool cannot be opened unless it is repaired. The pool had major cracks and leaked when filled. When contacted, the home seller stated that he had no knowledge about the defect. The home seller could no longer deny knowledge of the defect and eventually came clean when he was confronted by a long list of witnesses (including the pool company) who would testify that he knew of the pool problems. In the end the home seller paid for the pool repair.

Because “as-is” can have different meanings in a real estate contract, it is always a good idea to consult an attorney on your obligations when entering into an “as-is” transaction.

March 13, 2008October 5, 2019

Want to Buy Real Estate Online? (I have a bridge to sell you!)

by Dan Krell

Technology is great, isn’t it? You can do almost anything online these days; you can buy anything online, including real estate. Technological advances in the real estate industry have exploded in the last ten years to make it easier to for home buyers and real estate agents to complete transactions. Present technology allows you to almost complete an entire transaction from your desk. Now you can even bid on homes, from mansions to foreclosed homes, on various internet auction websites.

Sure, buying a home online might save you time, at least initially. But if there are problems with the home, you can bet you will spend lots of time and money to fix it. Nothing (at this present time) fully replaces physically viewing homes to get the full experience of the home and its surrounding neighborhood. Problems commonly encountered with real estate sold by internet auctions may include poor property condition, title issues, and location problems.

Would you buy a home from an online auction…without ever seeing the home in person? The term “buyer beware” may have more significance in this scenario as purchasing a home via internet auction may limit you on your ability to inspect the home.

Regardless of whether you are purchasing a home the traditional way or online, it is a good idea to have a home inspection. According to the American Society of Home Inspectors (ASHI), a home inspection will assist in your decision to purchase the home by revealing any major deficiencies and issues that need immediate attention. Additionally, the home inspection could provide information on regular maintenance as well.

Another problem that arises from internet real estate auctions is that you may be unaware if the property is land locked. Some believe it is safer to buy a vacant lot online than a home because there is no structure to worry about. Unfortunately, a property may physically sit behind other lots or homes with no access to the road. Without access, you would have to park your car and walk through your neighbor’s property to get yours.

If you are buying a lot online with the intention to build a home, having restricted or no access to the lot will pose a challenge. Without road access to the property, delivering materials and equipment necessary to build the home is almost impossible. Additionally, getting utilities to the home may also be a challenge as well, as there may not be a utility right of way or utilities may not be available at all.

Finally, buying a home through an internet auction may also restrict your ability to conduct a thorough title search. Hiring a title attorney to conduct a search and examination of the property’s title, will allow you to know if there are title issues (such as foreclosure, liens, or broken chain of title). It is important to make certain that you are being given a clear and marketable title.

Moreover, some question if internet real estate auctions are considered a binding purchase.

Perusing home listings on internet websites may be easy and tempting, however it is important to do your homework. No matter how you intend to buy a home, it is always a good idea to consult competent real estate professionals.

by Dan Krell Google+ DanKrell.com © 2013

Buyer and seller expectations can affect the housing market

Recent positive housing news has raised expectations for many home sellers, but not for some home buyers who are looking for a great deal. This combination of seller and buyer expectations can make for an interesting spring market.

by Dan Krell
Google+
DanKrell.com
© 2013