Avoid Steering Your Buyers

If you have a real estate license, you know the definition of steering: the illegal funneling of home buyers to a particular area based on the desire to keep the makeup of that neighborhood the same or intentionally change it. Racial steering receives the most consumer complaints, but the practice is not acceptable for any reason, and it goes against Fair Housing laws.

Your job is to match your buyers to the features of available properties, not to the racial (or other) makeup of the area. If someone asks you to eliminate certain areas based on any of the protected classes, you cannot legally follow their instructions, even if you are a Buyer's Agent.

Protected Classes

* race
* color
* national origin
* religious preference
* sex
* familial status
* handicaps

Download the parts of the Fair Housing Act that affect you, and read the material until you understand it.

Pay attention to your state laws, too, since they might contain additional guidelines specific for you area.

If you manage rental properties, you are involved with many more aspects of Fair Housing Laws. Have an expert answer you questions, and follow the advice given.

Illegal" Flipping & Lender Seasoning

There has been a lot of negative press and misinformation lately about double-closings. Many people have been indicted recently under what the press has labeled "Property Flipping Scams." Misinformed lenders, real estate agents and title companies will tell you that double-closings are now illegal. In fact, they are nothing of the sort.

A double closing is simply two back-to-back closings wherein the proceeds from the second closing is used to fund the first closing. Both closings are done in escrow so that the "middleman" can buy and resell a property for profit without using any of his own cash. The mihttp://www.blogger.com/img/gl.link.gifddleman profits because he buys the property below market and resells it for market price. This process has been done tens of thousands of times over the last 100 years - legally, ethically and PROFITABLY!

The so-called "illegal property-flipping schemes" work as follows: unscrupulous investors buy cheap, run-down properties in mostly low-income neighborhoods. They do shoddy renovations to the properties and sell them to unsophisticated buyers at inflated prices. In most cases, the investor, and mortgage broker conspire by submitting fraudulent loan documents and a bogus appraisal. The end result is a buyer that paid too much for a house and cannot afford the loan. Since many of these loans are insured by the Federal Housing Authority (FHA), the government authorities have investigated this practice and arrested many of the parties involved.

Despite the negative press, neither flipping nor double-closings are illegal. The activities described above simply amount to loan fraud, nothing more. Newspapers have inappropriately reported the activity as illegal "property flipping," rather than simply "loan fraud." So, whenever you hear a real estate agent or mortgage broker say, "flipping is illegal", you know they are misinformed.

The misunderstanding of the real estate flipping business has not been without consequence. Many title and escrow companies simply will not do a double-closing. Fortunately, there's many that still do double closings, but they are also keeping a close eye on potential fraud (as they should).

Some lenders have placed "seasoning" requirements on the seller's ownership. If the seller has not owned the property for at least six months, the lender will assume that the deal is fishy and refuse to fund the buyer's loan. This may be a problem if you bought real estate cheap and are reselling it quickly for a profit (the good, old American way!). This should not be confused with LAW - it is simply an underwriting guideline for some lenders. Of course, guidelines are just that - by going up the chain of command, you can generally get approval from loan underwriting by showing the real estate is being resold for a higher price because either it was purchased in a distress situation (e.g., foreclosure) or that substantial repairs were made. Keep good records of your repairs to show to the lender.

If the buyer is getting an FHA insured loan, there is no way around the "seasoning" issue. FHA real estate regulations prohibit the funding of a purchase where the seller has not owned the property for at least 90 days, NO EXCEPTIONS. This generally should not be a problem in a fix-and-flip situation, since it will likely take you 90 days by the time you acquire, rehab and sell. But, if you are planning on buying the property and reselling it in a double-closing, the end-buyer CANNOT go with an FHA loan.

Early Commissions - Get Paid NOW

Early commission payments are one way to make your cash flow more consistent. Here's how it works.

1. An advance company sends you a percentage of your commission before closing, typically 70-80%.
2. A fee is deducted from that percentage, based on the number of days remaining until the scheduled closing date.
3. If the commission amount and closing date don't change, you receive the balance at closing. If closing is delayed, additional fees may be deducted from the amount reserved.

All of the companies who pay advance commissions have slightly different policies. Some ask your broker-in-charge to pay them at closing, others prefer to be paid by the closing agent. Some require you submit more paperwork than others to apply for an account, or when requesting an advance.

All companies expect your broker-in-charge to verify contracts, and participate in other ways. Brokers are not responsible for repaying the advance if your closing doesn't happen, but they are required to withhold future commissions if you do not repay the funds. If a deal falls apart, most plans allow you to transfer your advance, attaching it to another contract.

Your typical costs range from 8%-12% of the commission, and most companies do have a minimum fee. If your closings take place consistently, the decrease in income might not make sense for you. But if you have five closings scheduled for December, and none for November, taking an advance on one or two might be a good way to ease the cash crunch.

Visit the Web sites below to learn more about the differences between advance commission plans. Be sure to read all pages carefully. If you find sites not listed here, I'd appreciate it if you would tell me about them.

Broker Responsibility

More often then not, the keyword in the real estate industry is "sell" rather than "represent". Far too many brokers and agents appear to have an undeclared mission statement that reflects "salesmanship" rather than "representation" of Buyer or Seller. The California Department of Real Estate unwittingly reinforces this by identifying the licensee as a "Broker" or a "Salesperson". A "Salesperson" should be more properly identified as a "Broker Associate" or "Broker Affiliate" to more properly identify the responsibility inherent in this role.

First and foremost, ethically and legally, a real estate agent should be continuously aware of his fiduciary responsibility to the client. "Fiduciary" simply means handling funds on behalf of another. Integral to that definition is the element of trust which is as much a responsibility, as it is a privilege. Real estate breeds the most litigation of any industry, a fact that could very easily be a thing of the past if more agents would faithfully execute their fiduciary responsibility to their clients. It would reduce litigation significantly.

There is an adage in this industry that says, "20% of all agents make 80% of all sales". Is this a measure of success? Perhaps, but a better measure of success would be one that measures character and responsible representation.

Personal Property Trusts

You are probably familiar with the concept of creating and using land trusts for privacy and protection of your real estate. However, what about your ownership of notes, mortgages, deeds of trust, leases and options that may appear on public record? What about cars, boats, mobile homes and other items that are registered and recorded in public places? Good news . . . there is a special trust just for that purpose!

The "Personal Property Trust" agreement is basically the same as a land trust in that the trustee is essentially a nominee title-holder acting at your direction. Like the land trust, the paper trust is a revocable, living trust. The same rules for tax reporting apply - there is no gift tax or income tax consequence of placing title to your paper in the paper trust. You still retain full control of your trustee, so no fiduciary tax return is required.

Like the land trust, the primary purpose of using the personal property trust is to keep your name off the public records. Let's examine a few documents that are generally recorded and how we can use them with the personal property trust:

PURCHASE OPTION

A purchase option is often recorded in the public records to give notice to the world that you have first crack at the property. Again, using a trust as the named "optionee" will protect your anonymity. Furthermore, it may be an excellent tool for confusing potential creditors; you record options a gainst your property in favor of the name of a trust. To theoutside world, your property looks less valuable, because, after all, who would purchase a property subject to the recorded options (nobody but you has to know that your are the beneficiary of the trust and thus the "true" option holder!).

MORTGAGE OR DEED OF TRUST

One of the most practical uses of a trust is for holding a mortgage or deed of trust. A mortgage is an asset, like any other, that can be found by searching the public records. Using separate trusts for each mortgage will help you keep a low profile. As in the above example, you could record mortgages against your properties in the name of a trust to make your property appear encumbered. Make certain that there is at least some consideration for the mortgage or you may be found guilty of filing a fraudulent document.

AUTO OR MOBILE HOME

Essentially any asset that is recorded in public records can he held in the name of a nominee-type trust. Department of Motor Vehicle records are often public information and will let everyone know where you live. Holding your car or mobile title in the name of a trust with a post office box or business address will help protect your privacy.

LLC INTEREST

The names of the members of a limited liability company are public record for everyone to see. Consider forming your LLC using a personal property trust as the member (you being the beneficiary of the trust).

TRUST "STACKING"

You can combine a personal property trust with a land trust for greater privacy. Since the beneficial interest in a land trust is personal property, it can be held in the name of a personal real estate property trust. Thus, you could form a self-settled personal property trust of which you would be the grantor and beneficiary. The personal property trust would then create a self-settled land trust of which it would be the grantor and beneficiary. This "stacking" of trusts might be appropriate in states which require the public disclosure of the grantor (HI, MS and AZ) or in situations which an uncooperative lender or title company insists on such disclosure in writing.

Preparing Your Sellers for Home Showings

Introduce sellers to the realities of showing their home
You've already talked with your sellers about the physical work involved to get a home ready to show, but have you mentioned other events that may take place while the house is on the market? Giving home sellers a basic education in Buyers 101 will help prepare them for the realities of showing their house.

Be Ready to Show at All Times

Sellers should be aware that same-day and even last-minute requests for showings are common, so a seller with a '24 hour notice to show' stipulation often cuts himself out of a good chunk of the buying market. The only standard hefty lag time that should be necessary is when you must give ample notice to a tenant.

Once a house gets tagged difficult to show by agents, you won't receive as many calls to show it.

If sellers choose to make showings difficult, be sure to tell them now that it will cut down on showings--and fewer showings equals fewer potential buyers.

Keep it Flexible

Explain to your home sellers that most agents do try to arrive within the scheduled showing time, but sometimes it isn't possible. They may get stuck in traffic, or the house they saw prior to your showing took longer than expected. It happens, and sometimes it happens too late to be fixed by a phone call.

Encourage sellers to stay away from home a little longer than they think is necessary, just to make sure they don't interrupt a showing.

Sellers Who Want to Be Present

This is nearly always a bad idea. Sellers think agents and buyers won't be able to find everything, that they must be there to point out important features. Truthfully, most just want to be present to see buyer reaction firsthand.

Sellers should be aware that at the very least buyers feel uncomfortable when they are present, and that it can actually kill a sale. Buyers often won't even open closet or cabinet doors when the seller is home, and when they cannot view a house comfortably, they'll hurry up and move on to the next one.

Sellers want to talk, and not just about the house. You never know when a buyer will be turned off by the mood of the seller, or by a statement the seller makes. Buyers are there to look at the house, not chit chat about hobbies or the weather or worse--politics and other controversial topics.

If sellers must be home during a showing, counsel them to go outside or stay put in one location, not wander around with the agent and buyers.

Sellers Who Want YOU To Be Present for All Showings

If you're selling a large estate or complicated property, it might be the norm to plan on being present for all showings, but it's not necessary or smart for the typical house.

Explain that other agents generally feel uncomfortable with the selling agent hanging around, listening to and participating in conversations with potential buyers. If the other agent is representing the buyers as a buyer's agent, she won't be free to have open discussions about the house in front of you.

There's another negative that may be more important: busy agents don't have time to work around your schedule. Requiring the listing agent to be present for all showings is another way to give the house that difficult to show reputation.

If your sellers are worried about theft of small items, they should store them away. Packing up collections and small personal items is part of the process they should have already gone through to prepare the house for showings.

Pets Must Be Controlled

Pets should be out of the house during showings, especially large dogs, since many people are afraid of them. A gruff bark coming from inside the house is enough to make some home buyers turn around at the front door.

If there are pet odors, talking with your seller about the subject can be tricky, because most people are not aware of odors in their own home. You may need to conjure up your best be-tactful mode to deal with that subject, but it must be dealt with. Your sellers don't want buyers to remember the home as the house that smells.

Gaining Seller Cooperation

Share showing information in a 'did you know this about buyers' tone, rather than simply telling a seller what he must do. Explaining why these steps are important helps sellers realize that it's in their best interests to comply.

1. Consider putting showing advice on paper in an easy-to-read format. Give the seller a day or so to digest the information, then ask if he has any questions about the information.

2. Show that you respect the seller's opinions by asking what he thinks are the home's best features, then spotlight those features in a flyer or brochure that can be left on a table for prospective buyers.

Sellers usually just want to help. It's up to you to figure out a way to give them a role in the sales process, one that is truly helpful and that won't have a negative impact on showings.

Important Questions the Broker Should Answer - Part 1

A successful real estate career is dependent on your desire to succeed, and your willingness to hang in there until things start to take off. Just how fast things start moving depends a lot on your work habits, but choosing the right agency can help jump-start the process.

What You Need to Know

There are many things you should know before deciding which firm to work associate yourself with.

Training

* What type of training is offered for new agents? If a broker's answer is 'none,' that agency is probably not the best place to begin a real estate career.

* Does the firm have a designated trainer, perhaps the broker or another experienced agent who acts as a mentor for new agents?

* If part of a franchise, are there local or regional training sessions for new agents? If so, who pays for the training?

* How many new agents has the firm hired during the past year? How many of those agents are still with the firm? A revolving-door of agents alerts you that something isn't quite right.

Floor Duty
Sometimes creatively called 'Opportunity Duty,' it refers to times you are scheduled to work at the real estate office.

* Are all agents scheduled for floor duty, and if so, how often?

* Are phone leads, walk-in customers, and referrals given to the agents on duty when those leads come in? If not, how are they distributed?

Advertising
Advertising is a major expense for real estate agents, so anything the agency pays for is a plus.

* Does the firm pay for the typical agency ad, where listings are showcased, or are you required to pay for the space occupied by your listings?

* Does the firm pay for any portion of personal ads? (Ads designed to promote you, not your listings.)

* What types of advertising does the firm do? For instance, newspaper, radio, television, Internet, for-sale publications, bulk mailings, chamber of commerce, and other promotions.

* Does the firm have a bulk mail permit? (The expense of a bulk mailing is typically yours, but many firms pay the yearly permit feet.)

Computer Equipment, Digital Cameras, Other Tech Gear

* Does the firm have computer equipment for all agents to use, or are you expected to bring your own to the office?

* What types of software are loaded on office computers? Are all agents allowed to use the existing software?

How To Find a Job in Real Estate

Prospective real estate agents should interview with several real estate firms before accepting a position. Here are some tips that will help you find a job in the real estate profession.

Difficulty: Easy

Time Required: Varies
Here's How:

1. Make a list of agencies you want to talk with. If you don't know where to start, browse real estate ads to see if some firms seem more interesting than others. Which ads 'pop out' at you?

2. Visit your local Chamber of Commerce to find out which firms are best represented. Pay attention to television and radio advertising, to billboards, and to the For Sale signs you see in yards. Do specific firms seem to be represented in more areas?

3. Make appoinments with the broker-in-charge of each real estate agency on your list. Larger firms may have recruiting managers.

4. At appointment-time, make sure you dress appropriately for your area. Not sure? Stop by a few agencies in your area to see how agents are dressed.

5. Ask what type of real estate training the firm provides. Is there a full time trainor or mentor? Is training free, or will you be expected to pay for all or a portion of the costs?

6. Find out how many new real estate agents were hired last year, and how many of those agents are still working. A high turnover could indicate a lack of training or other problems.

7. Ask if all agents are scheduled for regular "floor duty," a time you work in the office. Find out how leads are distributed during floor duty and at other times.

8. Ask the broker for an itemized list of start-up expenses. Are you required to join local, regional, and national professional organizations? Are there recurring monthly or quarterly expenses for membership?

9. Find out if advertising expenses are paid by the agency. How about for sale and other signs, do they provide them to agents free of charge?

10. Who pays for long distance telephone calls to clients? How about photocopies, stamps, and other office-related expenses?

11. Does the firm provide in-office computers and printers for real estate agent use, or are you expected to bring your own?

12. Are commissions paid immediately upon closing? What is the typical commission split between office and agent? Does it increase as sales increase? Does the agency pay more for in-house transactions?

13. If you are talking with a franchised agency be sure to ask what percentage of each sales commission is deducted and sent to the franchising company.

14. Ask if the firm carries Errors and Omissions insurance for agents. If so, find out what's covered. Discuss the policy with an insurance carrier to make sure it's adequate.
Tips:

1. Real estate agents are typically responsible for most expenses of doing business. Think of this meeting as a dual-interview. The broker must impress you as much as you impress her.
2. Leads are an important consideration for new agents who are trying to establish a customer base. Ask the broker how her office can help you grow your database.
3. Try to get a general feel for the office atmosphere. Is it simply cordial, or do agents appear to really like what they are doing and where they are doing it?

What You Need:

* Notebook
* Pen
* Calculator

Mortgage Broker vs. Mortgage Banker

Many consumers assume that “mortgage companies” are banks that lend their own money. In fact, a company that you deal with may be either a mortgage banker or a mortgage broker.

A mortgage banker is a direct lender; it lends you its own money, although it often sells the loan to the secondary market. Mortgage bankers (also known as “direct lenders”) sometimes retain servicing rights as well.

A mortgage broker is a middleman; he does the loan shopping and analysis for the borrower and puts the lender and borrower together. Many of the lenders through which the broker finds loans do not deal directly with the public (hence the expression, “wholesale lender”).

Using a mortgage banker can save the fees of a middleman and can make the loan process easier. A mortgage banker can give you direct loan approval, whereas a broker gives you information second-hand. However, many mortgage banks are limited in what they can offer, which is essentially their own product. In addition, if you present your loan application in a poor light, you’ve already made a bad impression. I am not suggesting you lie or mislead a lender, but understand that presenting a loan to a lender is like presenting your taxes to the IRS; there are many ways to do it, all of which are valid and legal. Using a mortgage broker allows you to present a loan application to a different lender in a different light (and you are a “fresh” face).

A mortgage broker charges a fee for his service, but has access to a wide variety of loan programs. He also may have knowledge of how to present your loan application to different lenders for approval. Some mortgage bankers also broker loans. As an investor it is wise to have both a mortgage broker and a mortgage banker on your team.

SIDENOTE: MORTGAGE BROKERING. Keep in mind that mortgage brokering is an unlicensed profession in many states. If there is no licensing agency to complain to in your state, make sure you have personal references before you do business with a mortgage broker.

Choosing A Lender

Choosing a lender that you want to work with involves several factors, not the least of which is an open mind. You need a lender that can bend the rules a little when you need it and get the job done on a deadline. You need a lender that is large enough to have pull, but small enough to give you personal attention. And, most of all, you need a lender that can deliver what it promises.

1. Length of Time in Business

Since the mortgage brokering business is not highly regulated in most states, there are a lot of “fly-by-night” operations. Bad news travels faster than good news in business, so bad mortgage brokers don’t last too long. Look for a company that has been in business for a few years. Check out the company’s history with your local Better Business Bureau. If mortgage brokers are licensed with your state, check to see if any complaints or investigations were made against them. Also, ask for referrals from other investors and real estate agents.
2. Company Size

A company that is too big can be problematic because of high employee turnaround. Also, the proverbial “buck” gets passed around a lot. If you are dealing with a mortgage broker, it is often a one-person operation. Dealing with a one-man operation may be good in terms of communication if he or she is a “go-getter.” On the other hand, the individual may be hard to get a hold of, since he or she is answering the phone all day.

A small to mid-sized company is a good bet. You will be able to get the boss on the phone, but he or she will have a good support staff to handle the minor details. Also, a mid-sized company may have access to more wholesale lenders than a one-person company.

3. Experience in Investment Properties

It is important to deal with a mortgage broker or banker that has experience with investor loans. Owner-occupant loans are entirely different than investor loans. And, it is important that the broker or lender you are dealing with has a number of different programs. It is often the case that you find out a particular loan program won’t work, in which case you need to switch lenders (or loan programs) in a heartbeat to meet a funding deadline.