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Are you looking for an experienced agent to help you buy or sell a home? Contact Jim the Realtor!

Carlsbad
(760) 434-5000

Carmel Valley
(858) 560-7700
jim@jimklinge.com


Category Archive: ‘Why You Should List With Jim’

COE + 3

be on your way

Realtors tend to use industry jargon in their contracts, and regularly you’ll see the term, ‘COE + 3′ in a counter-offer coming back from a seller.  It means they get to occupy the home for three more days after the close-of-escrow date, at no charge – and usually no other written agreement.

Agents are very casual about these arrangements, because everything usually goes fine and the sellers move out as agreed.  They’ve never seen one go bad.

For buyers, it’s a nightmare waiting to happen.

An example: The seller (who was a realtor) was buying another home that was virtually brand new.  The buyer of her house agreed to the COE + 3 days, figuring that was plenty of time for them to move out.  But once the seller closed on the new home, she found that it needed modifications/improvements to suit their needs.

She hung out the buyer for two weeks, without compensation.

If it is a hot property and fresh on the market, the buyers don’t have much bargaining power and get stuck with COE + 3, whether they like it or not.

What can you do?

1. Don’t agree to COE + 3 days, especially if tenant-occupied.

2. If you do agree, then bargain with the listing agent that it’s in everyone’s best interest to complete our SIP form that spells out the terms of tenancy.

3.  If the listing agent refuses to include the SIP, then he/she is crazy – if the sellers don’t move after their three days, then the agent will get sued for damages too.  But how hard can you press them if they are threatening to take another offer?  Make the deal, and hope for the best.

4.  If you can include the SIP, be careful about the terms.  Use the form to ensure they move out as agreed, not to make a couple of extra bucks on 3-days’ worth of rent.  Sellers get bugged about renting their own house, and asking for a security deposit really sets them off.  I’ll forego both, and instead add a note at the bottom that any holdover rent past the three days be at least double the norm as an incentive to move.  Sellers always object to the amount, but I’ll point out that it doesn’t cost them a dime if they move as agreed.  The form covers other specific terms too; including maintenance, insurance, utilities, and buyer entry.

5.  Do your final walk-through at the last minute, and if you don’t get a warm fuzzy feeling that the sellers are about to move, then don’t close escrow.

Back in the day, we used to hand-carry a sellers’ proceeds check from one escrow company to the next for their closing – and they weren’t cashier’s checks.  It took an extra day or two to get the next escrow closed, so it was natural to give the sellers the time to close and move into their new home.  But today there is no reason to COE + 3, because we wire funds, and close concurrently every chance we can, even with different escrow companies involved (has to be the same title company).

Listing agents who insist on adding COE + 3 are just being tough guys and wanting to show everyone who the boss is – or on brain-dead automatic.  Unfortunately, they must be ignorant to the liability they are forcing on their sellers and themselves.

If you get stuck having to accept a COE + 3, be cautious about making your moving plans for an exact date.  If the sellers don’t move in three days, keep track of your expenses/damages and prepare for small-claims court – where you will win 100% of the time.  If you have to evict, it’s not the end of the world – it’s a three-month inconvenience for which you should be reimbursed.

Posted by on Dec 9, 2014 in Jim's Take on the Market, Listing Agent Practices, Why You Should Hire Jim as your Buyer's Agent, Why You Should List With Jim | 5 comments

Variable-Rate Commission

bounty

A listing that just closed escrow had this in the confidential remarks:

Seller will pay 6% commission if property is sold at $735,000 or higher; seller will pay 5% if property is sold for less than $735,000 – commission to be split 50/50 between listing and selling brokers.

In this case, the home sold for $715,000, but the agents can still say they made a decent living - and the seller can say he got a break on the commission for accepting a lower price (the list price was $735,000).

I love the idea of our pay being performance-based.

If listing agents promise to deliver a certain price, and they don’t, then sharing the pain with the seller would be a fair proposition.

Likewise, if a seller wanted to incentivize agents to sell the house for retail (or retail-plus), then the paying of an additional reward, or bounty, could make a difference.

The new purchase contract we were discussing?  Yep, the buyer-agent’s commission is still not disclosed anywhere - buyers will never know if their agent got a bonus.

P.S. There is a category on our MLS to specify ‘yes’ or ‘no’ to a variable commission, which serves as an alert to the buyer-agents that the listing agent has an incentive plan, and/or a dual-agency discount.

Posted by on Dec 8, 2014 in Jim's Take on the Market, Listing Agent Practices, Why You Should Hire Jim as your Buyer's Agent, Why You Should List With Jim | 2 comments

Early Offers

Sellers and inexperienced agents are prone to panic when a purchase offer is received during the first 1-2 days the home is on the market.  They usually think something is wrong – like the price is too low.

But this is how the game works – the motivated buyers are automatically notified when a new listing hits the MLS, and they jump right on them.

Buyers may act quickly, but it doesn’t mean they are willing to pay the price.  Their decision is complicated by fewer closed sales, and generally flat prices – plus the sellers still want test new highs.

What do you do when you get a quick offer that isn’t full price?

Here are my three thoughts when deciding what to do:

Posted by on Dec 7, 2014 in Bubbleinfo TV, Thinking of Selling?, Why You Should List With Jim | 6 comments

New Purchase Contract

gov

The C.A.R does make some minor changes every year to our purchase contract, but according to Gov Hutchinson, the lead attorney for C.A.R., they haven’t made any wholesale changes in 12 years.  Gov was in town yesterday to review the latest version.

Here are my notes:

1.  The form is written by C.A.R. attorneys and is meant to protect realtors.  There are 10x as many lawsuits filed today as there were thirty years ago, yet the State of California’s population hasn’t even doubled in the same time.  Home buyers file more than 90% of the lawsuits against realtors.

2.  Buyers used to have 17 days to release all contingencies, but now the new boilerplate gives 21 days to release the loan contingency.  Most lenders can hit the 17-day mark, but it’s usually tight; so the 21 days is probably more realistic. But it does add a second contingency-release date, and more paperwork.  We surmised that in the real world, all contingencies might drag to the 21st day.

3.  The separate termite form was deleted, and its contents added to the ‘Request for Repair’ form.  Previously it was customary to include the termite costs in the original offer (and assigned to the seller), but now they will be a negotiable item after the inspection, as is the custom in Northern California.

4.  You regularly see these remarks, “Seller is exempt from TDS”, which applies if the actual seller is a bank, or a successor trustee who has in effect inherited the house.  But they are only exempt from having to use our specific TDS form, they aren’t exempt from disclosing everything they know about the property.

5.  There are times when the sellers will occupy the home for days or weeks after closing (a subject to which I will devote a whole post), but it is now stated in paragraph 9F that keys and passwords be delivered to buyer on the day escrow closes, regardless of possession.

6.  The big-screen TVs have been excluded for a while, yet their brackets remain with the property.  But this version added a second choice, if the box is checked – “[bracket] will be removed and holes or other damage shall be repaired, but not painted.”  This is on the purchase offer that the buyer is submitting, so they will be guessing on whether the sellers intend to leave the bracket, or remove it and repair the holes or other damage.

7.  If the buyer adds a phrase about intending to occupy the property for 12 months, it will negate the 60-day notice required to give a month-to-month tenant who has been living there more than a year. Instead, only a 30-day notice is required.

8.  There are two stigmas that are required to be disclosed – death and meth.

9.  Sellers have to disclose any insurance claims over the last five years – whether they owned it or not.

10.  This is a first – they added verbiage about what happens when a party won’t sign off to cancel a sale.  If either party fails to execute mutual instructions to cancel, the other party can demand that escrow release the deposit.  Escrow shall promptly deliver notice of the demand to the other party, and give them 10 days to object.  If they don’t object, escrow can unilaterally release the deposit to the other party.  The form authors couldn’t resist adding a final paragraph that escrow companies can still require mutual cancellation instructions at their discretion, which we’re guessing that most will do.

11.  This rarely comes up, but if a buyer cancels after releasing all contingencies, and the seller gets their deposit – he has to split the deposit with the listing agent.

12.  It is in the boilerplate that every dispute goes to mediation.  If both parties initial the arbitration agreement, then the dispute goes there instead of going to court.  Arbitration is cheaper, quicker, and private, but it is binding – there is no appeals of an arbitration decision.  If you don’t like that, then don’t agree to arbitrate.  Small-claims court is excluded, so disputes under $10,000 can go there for resolution.

Once a seller has a signed agreement, there are no back doors – if the buyers can perform, then they are buying the house.  Once the buyers release all contingencies, they are committed too – and will lose their deposit if they cancel later.  There is always joking at these seminars that nobody reads the contract – including the agents.  Get Good Help!

Posted by on Dec 5, 2014 in Realtor Training, Realtors Talking Shop, Thinking of Buying?, Thinking of Selling?, Why You Should Hire Jim as your Buyer's Agent, Why You Should List With Jim | 5 comments

Precision Pricing

Jim, when you say “be within 5% of the last comp”, you’re saying to add 4.999% to the last sold price nearby to determine a list price for my house?

That’s how most sellers and agents will do it.  But motivated buyers will compare it closely to other sales - homes they have probably seen.

When prices are rising quickly, pricing accuracy isn’t that important – the market will catch up shortly.  But when the market is flat with a potential to stay flat or worse, listing your home for the right price is much more critical.  Buyers don’t mind waiting – it is very comfortable on the fence!

The values between similar houses can differ by approximately 10%, based on location, view and condition.

To price within 5% of the last comp means +/- 5%.

If the last sale was superior to yours and you add the 5% to their price, you could be 10% too high from the beginning.  If yours is king of the hill, it is still smarter to list at only +5% to look very attractive, and push for multiple offers.  But you have to have an agent skilled at causing effective bidding wars!

Could you fool someone?  Not the highly motivated buyers – they are the people willing to pay top dollar because they are the most comfortable knowing how it compares to the rest.  In a flat market, the casual or uninformed buyers aren’t as comfortable, and want to pay less.

The frenzy appealed to the casual and uninformed who just jumped at a house and paid whatever it took, regardless of comps. But those days are over, and the motivated, informed buyers are making the market.

As a result, sellers are smart to price their home to sell in the first week or two on the market.  Once you agree that you want to use the initial urgency to help push the sales price to top dollar, then carefully analyze the comps – like buyers do - to arrive at an attractive list price, instead of automatically adding 5% or more to the last comp.

It boils down to this:

When you catch yourself wanting to ‘tack on a little extra, just in case’ – resist that urge, and instead price it to sell, not sit.

Posted by on Nov 19, 2014 in Jim's Take on the Market, Why You Should List With Jim | 3 comments

Giveaway Meter

We’re in agreement that the local market has seen all its biggest price gains.

You’ve patiently waited until there were a couple of good comps nearby, and you’ve agreed to list for an attractive price – within 5% of the last sale.  You’ve spruced up the home, and are ready to hit the open market.

You understand the logic about taking advantage of the urgency early on, but you don’t have to sell - and you’re not going to give it away!

How will you know?

Here is my Giveaway Meter:

1. Multiple offers the first couple of days: You hit the jackpot, and it was probably more due to your home’s higher quality and lack of good inventory nearby, rather than you under-pricing your home.  Don’t panic, and don’t raise your price.  Thankfully, you have hired an agent who has legitimate bidding-war strategies – let him do his thing!  P.S. Spreading the offers out on the table is not a bidding-war strategy – though it is the standard answer when you talk to realtors.

2. One offer the first couple of days: Drag your feet to see if anything else comes in – and threats of offers don’t count, unless they come from a great agent who might deliver.  Wait until the offer is about to expire, and counter-offer to buy three more days.

3.  Offer comes in on Day Four:  The fourth day is peak urgency - if the offer is full-price or better and the other terms are acceptable, sign it.  Sellers and agents are highly resistant to not countering – but if you get your price, don’t rock the boat.  Three thoughts:

a.  You have a second negotiation coming over repair requests, and buyers who get worked over in the beginning are more likely to exact their revenge after the home inspection.

b.  Buyer’s remorse starts setting in the minute a buyer signs a full-price offer, and they get indignant if you don’t agree.  They might walk out over the smallest counter-offer, so don’t risk it if the price is right.

c.  Happy buyers are more likely to close escrow.

4.  Offers After Day Four: Tread carefully, because your urgency is completely drained by Day Seven.  You’re not giving it away, and appreciate that you have properly tested the market.

5.  You don’t get any offers:  Lower your price 5% to keep the urgency higher.  After 30 days on the market, buyers will already be pricing in a 5% to 10% wrong-price factor, so you might as well stay ahead of them.

You can spend a million dollars on advertising and do open house every day, but if the price isn’t right, the home won’t sell.  Once you have accepted that fact, and realize that you and your agent are conducting a search for what the market will bear, use the Giveaway Meter to guide you.  Yes, there is always a chance for a lucky sale, but if you go that route, you should list in short spurts (1-2 months) so buyers won’t see a long stretch of failed listing period on your record.

Posted by on Nov 16, 2014 in Bidding Wars, Jim's Take on the Market, Thinking of Selling?, Why You Should List With Jim | 6 comments

First Offer Is Best Offer

Zillow and other internet tools are helping to generate maximum urgency early in the listing period.  But the industry doesn’t do a great job of educating - and sellers can be surprised to see an offer in the first few days.  There is temptation to wait for the two in the bush.

There is an old adage that the first offer is the best offer.  But that sounds like sales talk, and is easy to shrug off.

Let’s change it to the first BUYER is the best BUYER.

The old adage makes it sound like you have to accept the first offer, but even the most motivated buyer wants a deal and will offer less than they might pay.

Sellers should recognize that anyone who makes an offer in the first few days must be on high alert, and is ready to buy.  They have probably made offers on others, and lost out or couldn’t come to terms. Frustration is creeping in, and they want to get it done – these are the folks who pay top dollar.

Here are some qualifiers:

1.  Timing is the key. If the market is hot and prices are trending higher, then it might get better, later.  Generally, San Diego’s pricing trend is flat today.

2.  Is it a clean offer?  Be cautious about offers that are contingent on selling another property, or have other complications.  They are worth considering, but drag out the negotiations to see if anything better comes along.

3.  The motivated buyers have been in the game for a while, and have seen the comps.  They will pay a fair price, or maybe a little more.

If your house is super spectacular, then a higher bidder might come along later – those are the houses that are the hardest to find.  But if yours is a regular offering, get it done early while you have urgency on your side!

Here are more thoughts:

http://www.chicagonow.com/getting-real/2014/09/first-offer-is-your-best-offer-fact-or-fiction/

Posted by on Nov 15, 2014 in Jim's Take on the Market, Thinking of Selling?, Why You Should List With Jim | 3 comments

Why Sell Early

Sellers expect their listing agent to toil for weeks and months searching for the right buyer for their home.  Let’s face it, that’s how other jobs work - the desired result comes at the end of the effort.

But it’s the opposite when selling a house.  The tight inventory has left anxious buyers waiting for the next new listing to come along, and when it does, they pounce on it in the first few days.

This is why Zillow has become the go-to website for buyers.  Zillow provides transparency with several great features (and the zestimate is down the list):

1.  Zillow shows how long the property has been listed for sale, and how long the property has been on Zillow.  The ‘re-freshing’ of listings isn’t fooling buyers, because Zillow divulges the truth.

2.  They track how many times the property has been viewed on Zillow, which is a secondary ‘sniff test’, much like the days-on market stat.  Once a property has been seen hundreds of times, the buyers start wondering why it hasn’t sold (much like the DOM count):

stale meter

3.  Savvy buyers know that the zestimate is a rough guess of actual value.  But Zillow backs it up nicely with three similar listings nearby, AND the last three closed sales – all on the same page!

4.  They also show how much the seller paid, and when.   Buyers will grant sellers the right to make a profit, so only the greedy are harmed here.

5.  The categories of homes for sale on Zillow are prioritized by date listed.

These data points are all in a seller’s favor during the first few days the home is on the market – use them wisely!

The best thing that could happen to the market is a mass marketing campaign by Zillow (or anybody) to explain to sellers that the urgency created in the first few days on the market should be used as a selling tool.  Then, at some point, maybe we can convert to an auction-like format to sell houses!

Posted by on Nov 14, 2014 in Auctions, Jim's Take on the Market, Listing Agent Practices, Thinking of Selling?, Why You Should List With Jim | 14 comments

How Homes Are Sold

aussies

The purchase of Move, Inc. by News Corp could bring more change to how homes are sold in America.

Last summer, I described on camera how our market is moving towards a single-agency format, and have been mumbling about it ever since.  By the time the movie comes out, it will probably be a fait accompli.

News Corp already owns the primary real estate website in Australia, where the listing agents pay to advertise their properties on Rupert’s website, and buyers go direct.  The commission rates are 2.0% to 2.5%, and according to this article, buyer-agents are involved in only 1 out of 1,000 sales:

http://www.inman.com/2014/09/30/rupert-murdochs-australian-portal-thrives-in-country-with-no-mls-and-few-buyers-agents/

Currently we call this ‘dual agency’, where the agent has a fiduciary duty to represent the interests of both parties.  Eventually it will erode down to a ‘transactional brokerage’ format, where the agent’s role is reduced.

While sellers will marvel at the perceived savings, they won’t benefit much unless expert salespeople are manning the phones/emails/texts.  Listing agents – who now make 5% to 6% when buyers go direct – will reluctantly accept the lower commissions but won’t push for top dollar.

Why?  Because eliminating the buyer’s agent has always been the ultimate goal of listing agents, and the reward was double commission.  When the extra incentive is gone, it will feel like working for half price, and, as a result, agents will mail it in.

In this format, the most important ingredient when hiring a listing agent will be how they handle the inbound inquiries from the buyers directly.  Test them by calling their number – do you get a receptionist?  Voice mail?  Assistant?  Or the actual listing agent?

I answer my own phone, and I’m pushing the product – your home!

Posted by on Oct 2, 2014 in Jim's Take on the Market, Listing Agent Practices, The Future, Thinking of Selling?, Why You Should List With Jim | 13 comments