Simply Junior

At the heart of the matter, the purchase or sale of a home is a legal transaction. When we mention the world legal, lawyers cannot be far from the discussion.

Whether you are buying or selling, the real estate industry has developed forms that often can be used to get the deal done. Many people rely on these forms every day, but the outcome isn’t always so great. If there is any problem in the transaction, the forms become obsolete. At that point, it is time for legal representation in many situations.

The first thing to know about a real estate lawyer is you may be legally required to have one involved in the transaction. The rules vary by state. In California, for instance, you are not required to use a lawyer and they usually only get involved in disputes or commercial transactions. Florida, on the other hand, has a strong policy towards using lawyers with the idea being to get the matter right at the outset instead of having problems later on.

Whatever your particular reason of needing a real estate lawyer, you are still going to need to find one. There are a couple of things to keep in mind when selecting one. Here are some tips.

1. Find a real estate lawyer. By this, I mean someone who practices primarily in the field of real estate. Most lawyers own homes, so they think they can handle real estate transactions. This typically is not true. Real estate law can be complex, so get someone that already knows it.

2. Go local. Real estate laws tend to be state wide, but regulations tend to be local. Obviously, it depends on the situation in your state, but you need to seriously consider getting a lawyer in the area you are selling or buying.

3. Comfort Level – Many people just choose any old lawyer. This is a mistake. Get one who speaks your language and you are comfortable. If you like aggressive people, get an aggressive lawyer. If you like yellers, get a yeller. If you prefer a more poised attorney, a yeller is probably not a good choice.

4. Know Your Purpose – Lawyers have distinct styles. Some prefer to try to find solutions to disputes. Others prefer to crush the other side. You need to know what your goal is when interviewing lawyers and communicate it clearly. Their reaction should give you an idea of whether they are a good choice or not.

Perhaps the biggest rule to remember when dealing with lawyers is your role. You are the client. They represent you. Most people hire a lawyer and then ask for advice on what they should do and what decisions they should make. This makes lawyers uncomfortable because they don’t know you from a hill of beans. Know what you want and communicate it to them. Their job is then to go get it.

If you have decided to hire a real estate agent for your commercial property then hiring the right real estate agent is an extremely important step. Mostly people do not focus on the importance of the real estate agents thus they quickly overlook this step. But today I am going to entirely focus on how to choose the right real estate agent to deal your property.

If you will pick up the phone directory and choose a right real estate agent for your property from the Yellow Pages, then just forget it. Because there are more real estate agents in the city as compared to specialist doctors but the thing goes opposite, if you announce to purchase or sell your property, you will be surprised to know the numbers of real estate that will appear out of nowhere to represent your property. It happens everywhere but you can not handle such crucial matter to anyone whom you don’t even know properly.

If you are a seller then you are obviously going to give your most precious asset and you can not take risk to hand it over to someone whom you don’t trust. I would recommend inquiring the agent completely before you sign to hire him. Another fact, agents work for commissions so they can sell you anything by describing any property as the best property they have ever seen. They will not take any responsibility of any fault later. How you can test the credibility of any agent, therefore, before taking a decision ask a referral from your friends. It doesn’t mean to rely completely on their suggestions but test him and then hire him.

There are not several agents who are dealing in specific priced properties and can not give you their best services because they are neither specialized nor have experience in your recommended price range. Therefore ask the agents’ specialization before signing anyone for you.

If your friends are unable to suggest you any real estate broker then it is my suggestion to always go for the real estate agencies first. You can ask anyone about the reliable agencies, go any one out of those names and ask them to give you broker or agent and then stick to that agent.

There are specialized agencies which are solely dealing the sellers or buyers but there are few who do not differentiate between seller and buyer and represent both of them. My suggestion is to avoid such agencies because they can not do justice with both parties.

Choose an agent who can provide you all services and their license is active because sometimes we get agents who give us any offer but after inquiring we get to know that their license is expired or inactive.

Investing in real estate has long been considered as a safe and high return investment. “Flipping” in real estate investing has become very popular over the last few years especially among the speculative real estate investors. Flipping refers to the buying and selling of real estate property within a short period for quick profits. Though the return on investment appears to be good, there is still a risk that your money could get locked-in in the absence of buyers.

Real estate prices have steadily increased since the beginning of this decade. However many signs point to the real estate boom coming to an end, so it may be wise to put real estate investing on hold. Investing in real estate, contrary to popular thinking, is a slow yielding investment. Hence real estate investors need to do proper planning and to conduct market analyses before investing.

Before investing in any property it is vital to study all the related documents of the property, to see the license of a broker if any, to check for liabilities etc. All contracts have to be in writing. All details such as the names of all parties, address of the property, area, purchase price, consideration etc. have to be entered in the contract along with all parties’ signatures. It is also prudent to hire a property lawyer to look into the intricacies of real estate contracts.

One good way of investing in real estate is to buy foreclosure properties. Foreclosure is the process in which a bank or a creditor sells the property of the homeowner to recover the loan, which the owner has not been able to pay back.

A lease to purchase contract is considered the best type of real estate investing. This type of contract basically allows the tenant to lease a particular property for some period, and at the end of the period he has the option of purchasing the property at an amount decided at the signing of the contract. The tenant pays an initial non-refundable deposit. If the value of the property goes up at the end of the leasing period, the he may want to buy the property at its original value. If the value has not increased he can opt not to buy it. During this period he can also rent the property to someone else. By this method, the investor takes a lot of the risk off himself as he does not have to commit a large sum of investment capital not apply for a big loan.

Currently, there are a few areas where the real estate market is just too overheated and investing in real estate is just too risky. They are Miami, Las Vegas, Northern Virginia, Phoenix, Sacramento, Boston, Washington DC, and San Diego. Other “hot” areas also include San Francisco, Chicago, New York, Los Angeles, and Seattle. The safer, less volatile areas for investing with good ROI are Dallas, Cleveland, Houston, Columbus, Omaha, Kansas City, and Pittsburgh.

For decades the real estate world turned in a very predictable manner. The roles of the buyers, sellers and real estate professionals were well defined and the real estate transaction followed a distinctive pattern. It would be an understatement to say that the real estate market has gone through some changes in the last two years. Along with these changes – the dynamics of real estate have been redefined thanks in large part to the internet. With the help of the World Wide Web, buyers and sellers have become more empowered thus enabling them to buy and sell with more ease.

As technology advances, the real estate industry is transforming itself from agent centric transactions to consumer centric practices. With the help of the online industry, consumers now have more real estate knowledge, tools and resources at their fingertips than ever before. According to the National Association of Realtors (NAR), more than 72 percent of homebuyers now begin their home search online. Thanks to the Internet and other technological innovations, more real estate information is now freely available. As a result, consumers are demanding more choices, improved services, faster transactions and lower prices.

Buyers are not the only ones that are benefiting from the internet. With the downturn of the housing market the last thing sellers want to do is pay a hefty commission. More and more sellers are taking a stand by not wanting to pay the sales commission that an agent would command. This is understandable, as it will save you roughly 6% in commissions…which can easily be more than ten thousand dollars.

For example, if you sell a home for $250,000 you would traditionally pay your agent $15,000…the buyer’s agent gets 3% ($7500) and the seller’s agent (your agent) gets the other 3%. The buyer never pays any commission; that burden falls completely on the home seller. It’s no wonder that sellers are opting to sell their properties independently, without the help of an agent. This explains the increase in the number of For Sale by Owners. Sellers who are not affiliated with an agent make up a large part of our market today.

So what makes a seller think they can sell their home on their own? The answer is the internet. The internet allows sellers to market their homes to millions of people with just a few clicks of their keyboard. Pricing information, Comparative Market Analysis and Recently Solds can all be available on the web for the sellers who choose to list their own homes. Years ago – agents were the must haves for this kind of information, but this is no longer the case; simply put – the face of real estate has changed. Therefore, if you have the time to sell your own house and you are interested in saving thousands of dollars…then go ahead and take the plunge. You will be happy you did.

Is it my imagination, or did I hear somebody out there complaining about real estate commissions?

Anyone who complains about real estate commissions now, is not going to be thrilled if banks have their way and are allowed to sell real estate, something that the American Bankers Association (ABA) has been tried to do by lobbying, pressuring Congress – and paying millions of dollars in the process by way of special contributions – for the past seven years. And it does not matter if banks are not allowed to share commissions. All banks simply need to do, once they are permitted to step into real estate, is to buy brokerage firms and they can share all the commissions in the world without ever once breaking the law. They do not even need real estate licences.

In fact, since we are on the subject of commissions sharing, let’s do a little numbers crunching to find out the ‘commissions’ banks are charging consumers today. They do not call them ‘commissions’ – they call them ‘interest charges’, but fact of the matter is that a fee computed on a percentage basis in payment for a service is a commission. So therefore, the user’s fee charged by a bank to a borrower on a percent basis for the use of a certain sum of capital is nothing other than … a commission.

Banks base mortgage rates on a variety of indexes. Among the most common indexes are the rates on one-, three-, or five-year Treasury securities. Another common index is the national or regional average cost of funds to savings and loan associations. A few lenders use their own cost of funds as an index, which gives them more control than using other indexes. To determine the interest rate on a mortgage, bankers add to the index rate a few percentage points, cumulatively referred to as the ‘margin’. The amount of margin may differ from one lender to another, but it is usually constant over the life of the loan. The formula therefore, is: Index Rate + Margin = Mortgage Interest Rate. Most banks use a 2 percent margin minimum. When they offer ‘special packages’ to consumers, they typically apply a 3 percent margin, and then offer a 1 percent ‘special’ discount or rebate.

But let’s take the 2 percent typical margin. To all those readers who think that 2 percent sounds better than the 6 percent commission commonly charged by real estate brokerage firms, let me point out that the 2 percent margin charged by the banks is per year! So, if it is true that the average consumer keeps his property for seven years, the ‘commission’ charged by the banks is really 14 percent. The only difference is that the margin applies to the principal of the mortgage, i.e. the amount borrowed as opposed to the real estate brokerage commission, which applies on the full sale price. But this is of little solace if one considers that almost fifty percent of all mortgage transactions involve 95 percent financing.

Banks have come to the realization that the U.S. real estate brokerage market amounts to some $61 billions, a sum that, if attached to a single firm, would rank 19th on the Fortune 500, ahead of Boeing, Microsoft, Morgan Stanley and JPMorgan Chase. To paraphrase Scarlet O’Hara in Gone With The Wind, this is a market that’s ‘worth fighting for and worth dying for’. To be sure, the tactic adopted by ABA is that of nonchalance. ABA is trying to convince Congress that banks are not really interested in pursuing this line of business even if they were legally able to do so, but that they would like to be able to pursue it … just in case.

The truth, of course, is much different and deeply rooted in the economics of real estate. Brokerage firms charge commissions to Sellers, the recipients of the money proceeds in a real estate transaction, and only when Sellers have received those proceeds. Banks, conversely, charge interest rates to Buyers. What ABA is aiming and attempting to do now, is to charge both Buyers and Sellers. Sort of like eating from two dishes at the same time, so to speak. Give the money to the Buyer to complete the transaction, and charge the Seller for completing it.

So again, how much is the real estate commission ABA would like its members to charge, were they allowed to get into real estate? Let’s see: there is the 14 percent from the Buyer over seven years, there is the 6 percent from the Seller at the time of closing, and then, of course, there are ‘minor’ commissions like appraisal fees, set-up fees, administration fees, loan initiation fees, loan cancellation fees, front-end fees, and then, of course, there is the loan insurance.

Boy, that’s a lot of commissions!

No wonder that Consumers Union (http://www.consumersunion.org/), publisher of Consumer Reports, the independent, non-profit testing and information organization serving only consumers, is strongly lobbying Congress to conduct further studies on this issue.

But besides the added cost to consumers, letting banks into real estate would not only be bad for the industry and bad for consumers – it would be bad for the economy at large. In fact, the notion of a ‘free market’ where all economic decisions regarding transfers of money, goods, and services take place on a voluntary basis, free of coercive influence, is commonly considered to be an essential characteristic of capitalism. But in the eventuality of banks dominating the real estate industry, how free would consumers really be to choose, for example, how to sell their homes, or to negotiate a commission, or to counter an offer to purchase, or to change agent if they do not like one, or to even try to sell their properties themselves?

Did anyone ever attempt to negotiate something – anything at all – with a bank? I have, several times. And I have witnessed personally and can report first-hand on a variety of responses from bankers, ranging from the amicable “no .. no .. no”, to the tap on the shoulder and nod of the head, to the sarcastic smile, all the way to the glacial look and the beyond-the-grave silence. However, I still cannot report a single ‘Yes’ from a bank, after nineteen years in the business. Banks understand negotiating not as a give-and-take, two-way process but, rather, as a one-way street – going their way, that is, only their way. And this is today, when consumers still have the option to walk away. What will happen to consumers when that option will be taken away from them?

Banks getting into real estate? Do not let that happen to you.

Luigi Frascati