Social media and blogging is a foundation of my marketing plan. It’s been so successful for me that I have always tried to share the benefits with my referral partners — real estate agents and mortgage professionals. Along with my law partner Marc Canner, we started a company dedicated to assisting real estate agents with their own social media. We named the company, HubConnected–a little play on Boston and the theory that social media should be the “hub” of any agent’s marketing platform.
We just shot a new professional promotional video featuring some of our most successful agent-bloggers:
Chuck Silverston of Prudential Unlimited — Brookline (www.chuckteam.com)
The blogs have been incredibly worthwhile for these agents as well as for the other 20+ other agents in our blogging network. One agent generated $8 Million in new sales revenue last year alone from her blog!
If you are interested in starting a blog or custom Facebook page, please contact Heather Allen at HubConnected ([email protected]) for more information.
I’m always around to bounce ideas off of too! Good luck and keep on truckin’!
Richard Vetstein is a social media expert for HubConnected LLC, in addition to being a nationally recognized real estate attorney. Rich was recently selected as a nominee for Inman News’ 100 Most Influential in Real Estate. Rich was a recent speaker at the Social E Conference in Newport, RI sponsored by the Warren Group/Banker & Tradesman.
Caveat Emptor is an old common law rule which means “Let the Buyer Beware.” In plain English, it means that home buyers are on their own when it comes to the condition of the property. If there is a defect of any kind, it becomes the buyer’s problem, not the seller’s.
Most home buyers are unaware that in Massachusetts, with a few exceptions, the rule of Buyer Beware is still alive and well. That is why in the vast majority of transactions, buyers choose to have the property inspected by a licensed home inspector. And it’s also why there is a contingency in the offer or purchase and sale agreement giving the buyer the right to opt out of the agreement if there are serious issues.
But what happens if the home inspector misses a broken A/C unit, or the sellers concealed that the basement flooded, or the Realtor didn’t tell the buyers there was a Level 3 sex offender next door? These are all thorny disclosure issues.
Private Sellers: No Duty to Disclose
A private seller has no legal duty in Massachusetts to disclose anything about the property (except for the presence of lead paint). Yes, you read that correctly. He doesn’t have to say boo. Will that assist the buyer in selecting the home for purchase? Maybe not. But if the basement floods, the seller does not have to say anything about it.
A seller, however, cannot affirmative misrepresent a material fact about the property. That is, if the seller is asked a direct question, such as “has the basement ever flooded?” and he answers “never” when it has, he has lied and can be held liable for that.
Most agents will insist that Sellers fill out a Statement of Property Condition (see below) which will fully disclose just about every conceivable condition of the premises. However, the standard form does contain small print language purporting to limit the agent and seller from disclosure liability.
Real Estate Agents: Heightened Duty
Under Massachusetts consumer protection regulations governing real estate brokers, a broker must disclose to a buyer “any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction.” This is somewhat of a subjective standard; what may matter to one buyer may not matter to another. If a broker is asked a direct question about the property, she must answer truthfully, accurately, and completely to the best of her knowledge. Further, a broker cannot actively avoid discovering the details of a suspected problem or tell half-truths. This is why most Realtors err on the side of full disclosure, as suggested in Bill Gassett’s blog.
As for that Level 3 sex offender living next door, I would advise the listing agent to disclose that fact. The Massachusetts Supreme Judicial Court has held that off-site physical conditions may require disclosure if the conditions are unknown and not readily observable by the buyer and if the existence of those conditions is of sufficient materiality to affect the habitability, use, or enjoyment of the property and, therefore, render the property substantially less desirable or valuable to the objectively reasonable buyer. I think a dangerous sex offender would be something a buyer would want to know about, wouldn’t you?
Home Inspectors
In 1999, Massachusetts joined a growing number of states that require home inspectors to be licensed. There is now a state Board of Registration of Home Inspectors. Home inspectors are now required to carry at least $250,000 of errors and omissions insurance. The board is empowered to suspend licensed home inspectors for violations of the statute or regulations and to impose civil penalties on persons purporting to conduct a home inspection without the required license.
A home inspector is one of the most important referrals your Realtor will give you. Most agents know which inspectors are great and which are terrible. If you are the unfortunate victim of an incompetent home inspectors, they can be sued civilly for breach of contract or negligence.
Does A Massachusetts Seller and Realtor Have A Legal Duty To Disclose The Existence of a Smelly Waste Water Treatment Plant?
Dear Attorney Vetstein:
We purchased our first home in September. We were unfamiliar with the area and relied heavily on the realtor’s knowledge. After living there for a couple of weeks, we went outside to grill and there was a horrid stench to the air. We weren’t able to eat outside and couldn’t figure out where the smell was coming from. After a few times of this, we researched the area and found out that there was the town’s waste water plant behind what we thought was a house, but what was actually the office. We did a Google Earth search on the plant and it is quite large. We bought the house mainly for the large yard and were looking forward to bbq’s, planting a garden and in general spending a majority of our time outside as we had moved from the city.
Do we have any rights? Had the real estate agent or seller disclosed the existence of the smelly plant to us we would have never bought this house. We want to sell and fear that the home will be unsellable.
Your truly,
Worried About The Smell
Dear Worried,
While your Realtor did you no favors, I’m afraid that you (and your Realtor) should have driven around and investigated the neighborhood before you purchased this home.
Legally in Massachusetts, a private seller has no obligation to disclose anything to you about the home or nearby conditions. A seller can only get in trouble if he is asked a direct question and flat out lies about it. Since you did not indicate that you asked the seller the specific question of whether there were any nearby waste water treatment plants, you most likely won’t have any luck pinning this situation on the seller.
The Realtor, while standing on different legal footing, is also most likely not to blame legally. Under Massachusetts consumer protection regulations governing real estate brokers, a broker must disclose to a buyer “any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction.” This standard, however, doesn’t necessarily mean that a Realtor must disclose every single conceivable on-site or, in this case, off-site condition which may impact the buyer’s decision to purchase. The Massachusetts Supreme Judicial Court has held that off-site conditions may require disclosure only if the conditions are “unknown and not readily observable by the buyer [and] if the existence of those conditions is of sufficient materiality to affect the habitability, use, or enjoyment of the property and, therefore, render the property substantially less desirable or valuable to the objectively reasonable buyer.” In that case, the court refused to hold a seller liable for the non-disclosure of toxic waste contamination at the nearby local elementary school which gave the seller difficulty selling previously.
The key factor here is that the waste water treatment plant is out in the open and obvious to anyone searching nearby. This situation underscores the importance of having a Realtor who knows the neighborhood and also doing your own basic due diligence, i.e, driving around the neighborhood.
I do sympathize with you plight. I’m not sure why the Realtor didn’t feel it was necessary (assuming he or she knew of the plant) to tell you about the stinky plant. It’s certainly something I would have wanted to know. You also didn’t tell me whether the Realtor was the listing agent or your own buyer’s agent. A listing agent’s duty is to the seller and getting the home sold. They do their best not to divulge too much info about the surrounding area, lest they get themselves in trouble (like this case). A buyer’s agent would be much more likely to advise you of problematic conditions like the plant (assuming they know about it). If they didn’t know about it, shame on them.
April 1st marks the Boston Red Sox’s Opening Day. No more wait ’til next year. This is the year!
Come to think of it, there is a lot that Youk, Pedroia, Big Papi and the rest of the Red Sox can teach us about real estate. Here are a few tips–
Listen to your Manager and your General Manager. Your Manager is your real estate agent. Your General Manager is your real estate attorney. Tito and Theo (yeah!). Joe Girardi and Brian Cashman (boo!!!). This is the foundation of your team. Listen to them. Trust them. They will lead you to the World Series–your closing.
Spring training is more than just practice. In real estate, spring is the busiest time of year. So apply your eye black and get your game face on. Make your best offer. Swing for the fences. Everything counts in the spring in real estate.
When you get up to the plate, make sure you have your batting helmet and battling gloves on, and you’ve studied the pitcher. In real estate, this means that if you are buying, you need to be well prepared. Get pre-qualified or even better, pre-approved for a mortgage so your offer will be seriously considered by the seller. Studying the pitcher means do your homework. Have your real estate agents pull comparable sales and obtain market research before settling on a offer price. Same for sellers. It’s not what you need or want for a price, but what the market will bear. Reality check.
Baseball is a rewarding long-term investment. Watching a baseball game can be a long term investment. (Sometimes too long!). So is real estate. Think long-term. This is going to be your home for the next several years. Don’t lose sight of that.
Don’t get caught stealing. Sellers, be honest and upfront about your home and its problems. The home inspector will most likely find all the issues you’ve tried to hide, so disclose up front. Otherwise, you’ll lose all credibility, and the deal will be that much harder to close.
Expect an occasional curveball. With tight credit requirements and longer underwriting, closing in 30 days is very difficult. Delays are becoming more prevalent as well. So, hope for the best, but prepare for the worst.
Statistics & numbers are critical. ERA stands for Earned Run Average, not a well known local real estate office. CMA stands for Comparative Market Analysis. For real estate, you need to crunch a lot of different numbers: price per square foot, PITI, down payment, taxes, etc. You can’t properly analyze a baseball team or a real estate market without understanding the numbers. Sabermetrics for real estate anyone?
Waiting until next year is not always the best strategy. This is more true than ever. Most experts believe we have hit bottom in the Greater Boston area. Interest rates are still at historical lows. It’s time to pine tar the bat and get up to the plate. Get out of the on deck circle.
Spitting should never be permitted in a dugout or a living room. ‘Nuff said.
Play Ball and go Red Sox!!!
_______________________________________________
Richard “Lefty” Vetstein, Esq. is an experienced Massachusetts real estate attorney and life-long, diehard Red Sox fan. Rich was once a fire-balling southpaw pitcher in Little League, striking out 14 batters in one game. His baseball career is now relegated to second-guessing managerial decisions and throwing things at the TV.
Many home buyers today still need to sell their current homes and use the sale proceeds for their next purchase. Often, there is a closing in the morning on the “sell,” and a closing in the afternoon on the “buy.” This is called a “piggyback” or “back to back” sale.
Back in the boom days, we were doing piggyback transactions all the time, and lenders were able to offer special programs, like bridge loans, to facilitate these back to back transactions. The days of bridge loans, no-docs, and 100% financing may be over, according to Mortgage Network’s Mark Maoicca, but piggyback transactions are still going on, but in a changed market.
There are numerous factors and variables to consider when doing a piggyback transaction, from a legal, financial/lending and marketing perspective. There can be at least 11 different people involved – buyer, seller, 2 agents, up to 3 attorneys, loan officer, appraiser, home inspector and contractor.
Sales/Marketing
There are a number of considerations on the sale/marketing side according to Jon Ufland and Chuck Silverton of Prudential Unlimited Realty. When to put your home on the market so as to ensure a quick sale? Statistics show that the most sales activity in the Greater Boston area occurs in March, April and May, with families trying to get settled before the summer and back to school season ends. December through February is the dead zone. Getting a pre-sale home inspection and comparable market analysis before putting your home on the market are two good tips suggested by Jon and Chuck.
Lending
According to Mark, lenders are no longer offering bridge loans or 100% financing, which helped cash strapped sellers to close on their new purchases. Also, home equity lines are tougher to qualify for. No income verification and stated income loans are just about long gone for the recently self-employed. Mark also says that the days of “washing the rent” on income properties is over. You need a 2 year history of rental income for qualification purposes. You also need to factor in the required real estate tax and insurance escrow reserve in your mortgage payment affordability analysis.
Bottom line, confer with your loan officer and financial planner as early as possible in the process before putting your house on the market! Get those financial ducks lined up before….
Coordination & Control
The piggyback transaction works best when one person takes on the role of “project manager.” It’s usually your real estate agent or attorney. Communication and coordination is the recipe for a successful piggyback transaction.
On the legal side, the overriding goal is to keep your buyer’s feet to the proverbial coals on the sale while protecting your deposit on the buy. It may seem like common sense, but it’s best to hire the same attorney to handle both transactions. An experienced attorney will line up the two mortgage contingency deadlines so that your buyer will obtain a firm loan commitment as soon as possible (with no contingencies, especially the sale of other property), and you have sufficient time on your purchase to get your own firm commitment while protecting yourself from any worst case scenarios like job loss, defective title, etc. The attorney should always be on top of these important deadlines so he or she can ask for extensions and otherwise exercise any opt out rights. Failure to do that can result in the loss of your deposit. Delays are common today in the tighter lending environment.
The Big Day
As the closing day approaches, everyone gets into high gear, with the agents coordinating smoke certs and pre-closing walk-throughs, the attorneys drafting preliminary HUDs, deeds, and coordinating wires, and loan officers sending closing packages. Speaking of wires, your attorney should be able to coordinate a wire of your sale proceeds into the IOLTA account of the purchase closing attorney, so you have good funds to close.
The closing day is about as hectic as you can get. I suggesting giving your attorney a power of attorney so he or an associate can attend the closing on the sale, get on record, coordinate the funds, and you can deal with moving and attending the purchase closing in the afternoon.
Jon, Chuck, Marc, Rich and Mark have all worked together as a team on piggyback transactions. Don’t hesitate to contact us if you need expert assistance.
This week I’ll talk about the court’s ruling that the listing broker violated its fiduciary duties when it messed around with the escrow deposit.
Quick Take-Away
The important take away from this case for all real estate agents is that if you are holding a deposit as an escrow agent, don’t even think about messing with it even if there’s a legitimate dispute about your commission or other monies owed to you. It’s not your money! The best advice is to let the dispute run its course and continue holding the funds in escrow.
Dispute Between Listing Broker and Buyer
The facts of this case are a bit unusual. Listing Broker represented the seller in a purchase of residential property in Wayland, MA. Under the standard purchase and sale agreement, the buyer posted a $92,500 escrow deposit which Listing Broker held as an escrow agent. The same buyer apparently used Listing Broker on another transaction and owed it nearly $35,000 in fees.
The buyer lost its financing and defaulted on the contract, thereby forfeiting the $92,500 deposit. (I covered that in my prior post). Listing Broker took an assignment of the buyer’s right to the escrow funds, but didn’t tell its client that right away. Then Listing Broker tried to strong-arm its client by threatening litigation if he didn’t accept $2,500 and release the escrow deposit to Listing Broker.
Breach of Fiduciary Duty and Chapter 93A Violation
The court was none too happy with Listing Broker’s course of action here. The court reaffirmed that Listing Broker had a fiduciary duty — one of the highest duties under law — to hold the funds for the benefit of the seller and not to engage in any self-dealing. The court found that Listing Broker’s collection of a debt against the escrow deposit while it was acting as escrow agent was a clear breach of fiduciary duty.
The kicker was that the court imposed triple damages and an award of attorneys’ fees under the Massachusetts Consumer Protection Act, Chapter 93A. So Listing Broker is now on the hook for $277,500 plus thousands in legal fees. Ouch!
On Halloween eve, I thought I would delve into the spooky topic of haunted houses and disclosure issues. Massachusetts real estate brokers struggle to sell homes tainted by shocking murders, suicides, or even suspected “haunted houses” filled with paranormal activity. These “stigmatized” properties are particularly difficult to deal with as they raise unique valuation problems and disclosure issues.
No Disclosure Rule
Under Massachusetts law, real estate brokers and sellers are under no legal obligation to disclose that a property was the site of a felony, suicide or homicide, or has been the site of an alleged “parapsychological or supernatural phenomenon,” i.e., a haunted house. Thus, buyers are on their own to discover these types of stigmas.
Here is the law, Massachusetts General Laws Chapter 93, section 114:
The fact or suspicion that real property may be or is psychologically impacted shall not be deemed to be a material fact required to be disclosed in a real estate transaction. “Psychologically impacted” shall mean an impact being the result of facts or suspicions including, but not limited to, the following:
(a) that an occupant of real property is now or has been suspected to be infected with the Human Immunodeficiency Virus or with Acquired Immune Deficiency Syndrome or any other disease which reasonable medical evidence suggests to be highly unlikely to be transmitted through the occupying of a dwelling;
(b) that the real property was the site of a felony, suicide or homicide; and
(c) that the real property has been the site of an alleged parapsychological or supernatural phenomenon.
No cause of action shall arise or be maintained against a seller or lessor of real property or a real estate broker or salesman, by statute or at common law, for failure to disclose to a buyer or tenant that the real property is or was psychologically impacted.
An easy way to determine whether a house is truly “haunted” is to hire Ghostbusters. No seriously, Google the property address and the last few prior owners and see what comes up. If there was a murder or suicide–or even ghosts– it should reveal itself.
OK folks, you want to know what your house is worth? Stop obsessing over your town assessment and online estimates. At the end of the day, your house is worth what someone is willing to pay for it.
But while you follow the sale prices of your neighbor’s house and e-mail me to ask what your house is worth (sight unseen), I’ll explain to you that it is neither an exact science, a mathematical equation, or a guesstimate. So many factors go into the value of your house. In this case, perception is, for the most part – reality. The location, the condition, the square footage, the updates, the amenities, the lot, the neighborhood, the neighbors, proximity to school, the floorplan – and so much more. Size matters, but it’s not the only thing.
It’s so easy to want to use the two words interchangeably, but please know that an assessment and an appraisal are totally different things.
ASSESSMENTS: (Think – measurement rhymes with assessment) Assessments are based upon the town’s opinion of value of the land and the value of your house, based on the measured square footage and condition (excellent, very good, good, fair and poor). The square footage includes everything in the house – closets, hallways, two-story foyers, stairways, etc. So, although you may add up the square footage from each room, it’s not the same. The taxes you pay are based on your assessment. Years ago, houses were priced close to, or above, their assessed value. If a house were priced below the assessment, it was featured as a fabulous thing. Priced WAY BELOW assessment, translated, meant: “Don’t forget your checkbook as you’re running like a madman to the open house.”
These days, assessments may be in the general vicinity of the asking price. Not a lot of weight is placed on the assessed value as it compares to the true market value. Most are priced around the assessed value, especially if they sold in the past 10 years. The assessor’s office does not take into account all of the items within a house that a buyer perceives as valuable (age of systems, paint vs. 1970s wallpaper, neighborhood full of kids the same age, master bathroom rivaling the one at the Four Seasons in Nevis, etc.) Just the square footage, value of the land and the town’s rating of the neighborhood.
APPRAISALS: An appraisal is a valuation made mathematically by a real estate appraiser for the purposes of providing security to the lending institution. The bank wants to be sure that the money it is loaning – for a refinance, home equity loan, line of credit or a purchase – can be recouped in today’s market if the owner defaults on the loan. Essentially, they need to know that they would not have a problem selling the house for the amount borrowed.
The appraiser formulates his/her appraisal based on the sale prices of the houses nearby that would be comparable for the square footage, the amenities, and the condition. In some towns, it’s not necessarily apples to apples, because a house down the street may have been foreclosed upon, thus skewing the value of the subject property.
Appraisals used to be more of a formality, and now they are extremely strict. As a result of the mortgage debacle, banks have cracked down and the rules have changed. Banks used to be able to communicate with the appraisers – now they have been prohibited from having direct communication. If you have recently refinanced and your appraisal came in at one price, it doesn’t necessarily mean that that price is what you would get from a buyer if your house went on the market.
ZESTIMATES: I think Zillow is an entertaining and somewhat informative website. It is a great site to search for homes and to take advantage of all of the interactive features. The “Zestimate” is Zillow.com’s term for “estimate of the value of your house.” For houses in Middlesex County, Zillow states that its accuracy is 99 % of the homes in Middlesex County that are on Zillow. Ninety-nine percent of homes in Sudbury are on Zillow. Ninety-nine percent of those have “Zestimates.” Of that 99%, only 32% sold within 5% of their Zestimate. Fifty-eight percent sold within 10% of its Zestimate and 82% sold within 20% of its Zestimate. Median error is 8.3%.
Dizzy? This means that if your Zestimate is $800,000, your sale price may be closer to $640,000 or $960,000. It’s a pretty big spread! So, fun site – yes. Accurate – not really. Why? The information pulled by Zillow is information that is available online – and if one piece of data is incorrect (it happens all the time) then everything is skewed.
Zillow does not know what streets are busy, what houses have just updated their kitchen and bathrooms, furnaces, roofs, etc. Zillow also does not know the motivation of sellers. So, if your neighbors won the lottery and just wanted to sell the house so they could sail around the world and sold for about $50K less than they could have – according to Zillow, your house just went down $50K, also.
Unless he or she has a really good sense of humor, please don’t tell your real estate agent that you disagree with his/her extensive analysis because your “Zestimate” states “X.” It would be like telling Todd English that you know how to make his signature dish because you just Googled the recipe. So, enjoy the site, have fun searching, reading the real estate news, etc., but don’t get excited or freak out because of your Zestimate. It will likely change the next time you log on.
COMPARATIVE MARKET ANALYSIS: This is the best, and most accurate, way to know the value of your house. A comparative market analysis is written by a real estate agent. It would best completed by an agent who knows the market, knows each house that your’s would be compared to, and has his/her hand on the pulse of the buyers. A real estate agent preparing the market analysis should take into account everything about your house – the square footage, the condition, the style, the location, the demographic of the potential buyers, the market conditions, the intangibles, and the perceived value within the town.
We then analyze the house in comparison with the houses that are on the market, have accepted offers, are under agreement and have sold (closed). A market analysis conducted today would not include sales from the spring as it was a different market. It’s also very important to have a sense of what comparables appraisers will use when appraising the house for the buyer’s mortgage company.
So, assessments (pain in the assessment = taxes), appraisals (think = approximate), Zestimates (Zillow.com), market analysis (call me/real estate agent).
David Gaffin of Greenpark Mortgage, www.massmortgageblog.com, is here with a superb summary of what’s now going on with Massachusetts (and national) residential mortgage market.
The National and Massachusetts Mortgage Lending Picture
Lot’s has been happening in the Mortgage World lately. Refinance business is very good. Purchase business is fair, heading into the all important year end buying season.
I will let this post be a little more free-form than my taking a particular topic and expounding on it (or beating it to death) depending on your perspective.
FHA has changed guidelines… Again.
USDA is still not guaranteeing loans.
Fannie and Freddie need another $200 billion of taxpayer money.
Foreclosures stopped and started again. What could that mean to you and me?
The Fed is meeting on Nov 3 to either lay the hammer down on Quantitative Easing II or will do nothing and really mess up interest rates.
Refinance Now!
1. So you want to refinance? My suggestions: A. Get started now! Loan pipelines continue to be backed up. Remember the bad old days when rates were an exorbitant 4.75% for a 30 year fixed rate and everyone re-fied? When was that again? Oh, right. JUNE. Well many of those same people are now re-fiing again in the low 4′s, possibly high 3′s. And people who were late to the party are adding on. So don’t expect your file to be closed in less than 60 days. Many lenders are at 120 days for refinances. If you have a current home equity line of credit that you plan to keep open, add another 30 days or so.
It is not all doom and gloom. I know of many files that were closed in less than 45 days. Purchases always get priority and about 30-35 days is the requirement. If you lender can’t get it done in that time, well my contact info is below.
Don’t be cranky with your loan officer or processor when they request enough paper work to rebuild a forest. The secondary market has really toughened its verification guidelines, cause no one wants to be left holding the bag on a loan that goes bad. Everyone wants to ensure that the underwriting, appraisal and income verification has been double and triple checked.
Good news for Realtors
End of year buying season has begun and the clients that want to be in their new homes by year end must make some decisions soon. We should see a boost in P & S activity over the next 30 days. If that doesn’t come to fruition, it could be a long dark winter for many of my realty friends. But rates are great! If you bought the same priced home 2 years ago, you would have paid 5-20% more than current prices and your interest rates could have been more than 2.00% higher. Now is a GREAT time to buy. I know that is self-serving, but I am a numbers and value guy. I don’t like seeing the value drop in my house either, but if I were buying I would be psyched!
FHA has changed it guidelines again as of Oct 4
FHA needs money to keep guaranteeing its loans against default. Every borrower pays a fee to get into the program and to ensure its continuation. So the fees got changed. FHA lowered the UPMIP (up-front mortgage insurance premium) from 2.25% to 1.00%. Sounds good right? With one hand they giveth and the other taketh away. The monthly mortgage insurance will virtually all FHA borrowers pay has moved from .55% of the base loan amount to .84% monthly. On a $200,000 loan the old cost over 7 years was $12,200 and the monthly MI was $91.67. Now the projected expense is $13,760 and the monthly MI is $140.00. Most investors have now raised the minimum credit score requirement from 620 to 640. FHA is still the best choice for borrower’s with credit scores under 660 and who may have little equity or down payment or who need higher tolerance levels for debt to income ratios.
USDA Loans
The USDA which offers a great program, or at least did, can’t seem to get its funding in order and therefore cannot issue any conditional guarantees for loans. USDA offers several advantages over conventional and FHA loans but they are proving very hard to get. If you would like more information on the availability of these loans, send me an email.
Freddie and Fannie are in more trouble with losses.
Do we shut them off and let the private sector take over? We can but rates would rise dramatically and put an even further damper on the housing market. Given that TARP actually turned a profit, I think any additional funds to rescue the GSE’s should have an opportunity for the taxpayer to make a return on the re-sold properties even if it takes years to divest the shadow inventory that they own.
Foreclosure Mess
Speaking of shadow inventory… Foreclosures are on again/off again/on again. For legal thoughts on this check out the Mass Real Estate Law Blog by Rich Vetstein and Marc Canner.
My thoughts are that although there will be a delay to ensure that the legal work has been properly done, people will unfortunately continue to lose their homes. Many will lose them due to the economic downturn or medical reasons. Others will have lost them to predatory lenders or poor decision making on their parts. I don’t really want to get started on “It was all the lender’s fault.” Needless to say, a reason the paperwork requirements exist today, is reliant upon the the lack of paperwork requirements and shoddy underwriting in the past.
I could write several scrolls on this whole mess, but I don’t wish to bore. It may already be too late.
Big Federal Reserve Meeting
Possibly the greatest short to mid-term driver for interest rates will be what the Fed decides or doesn’t decide to do at it’s next meeting. The market has baked in that the FED will ease monetary policy further. If they don’t come through in a big way the stock market most likely will drop and interest rates will rise. But how much will rates rise? Probably enough that any one who re-fied this summer won’t be able to do so again, or at least until some other economic driver comes to bear. So get off the fence and talk to your loan officer NOW.
Having grown up in Sudbury and now settled there with her family, Gabby’s knowledge of the Sudbury and surrounding market is unparalleled. Plus, she re-defines “concierge” service, going so far as to ensure that her buyers meet their neighbors ahead of time, get local nannies, and find the right preschool. Gabby is writing today about the mutual respect buyers and sellers should have for each other during the real estate process.
Home Buyers And Sellers, You CAN Just Get Along!
Once upon a time there was a newlywed couple house-hunting in the suburbs. They held hands as they strolled into each house, they conversed with their real estate agent about every detail of their wedding and giggled like sixth graders whenever they spoke the words “husband” or “wife.”
Then, they found the house of their dreams. The dreams that mirror “happily ever after” — it was the house they imagined having babies (2 boys and 2 girls – the girls would be twins of course and would share a room painted with Benjamin Moore’s Cotton Candy).
The happy couple told their real estate agent that they wanted to make an offer for asking price, closing the exact day that the sellers wanted to close. They had enough money from their wedding gifts and unfortunate passing of Great Grandpa Charlie to pay for the house in cash. The husband dabbled in construction, so every item that appeared as a result of the home inspection would be “no big deal.”
Both sets of parents came to see the house and everyone oooh’ed and ahhh’ed instead of bringing up the fact that the kitchen wasn’t updated, or that the family room was a little smaller than what they had thought it would be, or that the garage was under the house. The parents all talked about how happy they were and they never said anything that remotely sounded like “YOU paid ____ for this??? Our house cost $37,000 when we bought it …” And then the sellers threw a welcome party for the buyers before they moved in – just to make the proper introduction to the neighborhood.
I’m sure you are thinking that this story is a work of fiction. Nope. Well, aside from the buyers volunteering to pay the asking price and the gushing in-laws, the concept of a truly pleasant real estate transaction doesn’t have to sound so foreign. Without compromising the financial objective of either party, the real estate transaction can be pleasant and satisfying to all parties involved.
The decision to buy or sell a home is as much a personal transaction as it is business. It’s an exciting one, and a process in which I truly love being involved. And although it’s certainly not as straightforward as a show on HDTV about finding the right house, it doesn’t have to be challenging. As much as buyers would like to say that they won’t buy with their hearts, that is crazy – of course they will. It’s a home. It’s where you live. It’s where your heart is. Your life is not one big business transaction.
Everyone remembers the details of their real estate transactions. Even if they bought or sold their house 12 years ago, they will tell you exactly how the buyers or sellers acted, the items negotiated during the home inspection, the credit they received, what they negotiated during the purchase & sale agreement, and the details that still make them happy or cringe.
They may not remember the date they bought their house, but they will remember everything about the closing.
I have been involved in scores of real estate transactions. When multiple persons are involved in the decision-making process for a major life event, so much can get lost in translation and people don’t always behave in a way that they, let’s say, would be proud of if a TV crew were following them around. In addition to the number of family members and friends who know EXACTLY what is best for you, there are many people involved in a real estate transaction — buyers, sellers, two real estate agents, two attorneys, possibly two paralegals, one mortgage broker, one appraiser, at least one inspector, and, sometimes, the nosy neighbor.
If my intention with this piece were to promote the value of experienced real estate agents, this would be the part where I emphasize that it is the role of the real estate agent to quarterback the entire team involved to ensure that everyone wins.
In general, buyers are excited to buy a house. When an offer is made, it is the beginning of negotiations with the seller with the goal of consummating the sale of the home. In today’s market, prices have adjusted and many sellers are having an understandably difficult time grasping the reality of the market.
Because of the resources available in 2010, today’s buyers are also the most knowledgeable, well informed and cautious. The market value of a house is what a buyer is willing to pay. Without giving up any money on the sale side and overpaying on the buy side, there are so many ways in which to make the real estate transaction one that is not so painful.
My thoughts below may seem pretty uncomplicated, and that is my objective. It is easier to have a smooth and seamless transaction than it is to have one that feels more like an act of Congress. It is a business transaction, but the basis of the transaction is emotional. You certainly don’t have become new best friends, but cordial is always appreciated.
1. MUTUAL RESPECT. The tone of the entire transaction is set with the first round of communication between both parties.
* BUYERS: Be respectful of the sellers and their real estate agent. This does not translate into paying more. It shows that you will be a pleasure to deal with. Appreciate your sellers. They have cared for and maintained the house you fell in love with.
* SELLERS: Appreciate your buyers. They love your house enough to buy it. If you receive an offer the first day on the market, it is because your house was priced right and the buyers know the market. Don’t be greedy, it will backfire.
2. DON’T TAKE THE MARKET PERSONALLY
* BUYERS: If a seller decides not to accept your offer, it has nothing to do with what great people you are and how many friends you have in common. It’s usually about the financial picture.
* SELLERS: Most likely, you didn’t overpay for your house. You paid what the house was worth when you bought it. It’s exactly what the buyers want to do now – pay what the house is worth in today’s market. I’m certainly not suggesting that you don’t get frustrated or upset if you are taking a loss or not netting what you had planned, just don’t take it out on your potential buyers. What you “want” and “need” to get for your house is irrelevant. Buyers will pay what they feel it is worth and their mortgage company will lend based on what they feel it is worth.
3. WORK SMART. CHOOSE YOUR REPRESENTATION CAREFULLY.
* Work with real estate agents and attorneys with whom you are comfortable and have trust. This isn’t the time to cut corners and do someone a favor. You deserve to have the best people on your team.
4. HICCUPS
* Every transaction has their “thing” – something that needs to be clarified, negotiated, extended, explained. Know this ahead of time so when your own situation arises, you know that it’s normal and just needs to be dealt with.
5. NEIGHBORS
* SELLERS: Keep in mind that the buyers are now going to have your former neighbors as neighbors.
* BUYERS: Keep in mind that your soon-to-be neighbors are your sellers’ current neighbors.
People like to talk, especially about real estate.
At the end of the day, it’s about common decency. It’s about mutual respect between the buyer and seller of the same house. As much as this is a business transaction, it is even more a personal one.
Gabrielle Daniels Brennan and her mother, Carole Daniels are The Daniels Team of Coldwell Banker Residential Brokerage in Sudbury. You may contact them by phone at 508-277-6956 (Carole cell), 617-320-8150 (Gabrielle Cell), or by Email to [email protected]
Yesterday an interesting case came down involving a nasty tug-of-war between listing brokers and an exclusive buyer’s agent, with the buyer’s six figure deposit caught in the middle. The case is Zang v. NRT New England and can be read here.
In the case, the seller signed the standard exclusive listing agreement with the listing broker which provided for a 5% commission, and cooperation with buyers’ brokers, with an equal split of the commission. Mr. Zang, a potential buyer, showed up at an open house for the condominium, unaccompanied by a broker. The buyer made an offer through the listing agent, but an agreement couldn’t be reached. The buyer then hired an exclusive buyer’s agent who submitted a second offer. The offer was ultimately accepted by the seller, and the parties proceeded to sign a purchase and sale agreement.
The listing broker, however, was none too pleased that the buyer’s broker had entered the picture at the final hour looking for a commission. The listing agent even left a few amusing voicemail messages for the buyer, asking him whether “you think that it’s really fair that [the buyer’s agent] should come in at this late date and capture half of the commission… and what does Alan [one of the listing agents] get for all of his work? Nothing. But, you know, I guess that’s money in your pocket.”
The buyer posted a $122,500 deposit (10% of the purchase price) upon the execution of the purchase and sale agreement. The agreement provided that the listing agent would act as escrow agent and that a 5% commission would be paid by the seller to the listing agent and the buyer’s agent, split equally. In short, the seller’s net sales proceeds were to be reduced by $61,250, of which $30,625 was to be paid to the buyer’s agent at closing.
After the closing, however, the listing agent refused to pay the buyer’s broker his commission, and refused to disburse the remaining escrow deposit, essentially holding it hostage. Big no-no, said the Appeals Court. While the listing agent may have a legitimate dispute over the commission, the court ruled, its fiduciary duties as escrow agent took precedence. The listing agent had no right to retain the buyer’s money, and was contractually obligated to disburse it according to the purchase and sale agreement, period. The court did not sanction this sort of self-help by the listing agent. And the court let stand the buyer’s claims for 93A/consumer protection violation which carries triple damages and attorneys’ fees.
So the lesson for real estate agents here is don’t mess with a deposit even if you feel you have a legitimate beef over a commission. It’s not worth it, and it will subject you to liability.
Similar to the obsession over Massachusetts real estate and addiction to the Multiple Listing Service (MLS) is our addiction to The Bachelor / The Bachelorette TV series. Many of us really didn’t want to admit that we were glued to the TV/DVR on Monday nights, or that we conveniently didn’t want to make plans, for fear of missing this show. For those who have much better things to do than to watch, the series revolves around a single bachelor or bachelorette (deemed eligible) and a pool of romantic interests (typically 25). The Bachelor/Bachelorette then go through a *grueling* series of dates with the pool of potential mates, weekly-elimination style, with the winner getting the “final rose” and possibly a marriage proposal.
As a busy Metrowest Massachusetts Realtor and an admitted fan of the show, I can attest that the process that each Bachelor and Bachelorette go through to find *true love* can be easily translated to the real estate home buying and selling process.
Buying & Selling Real Estate Is A Lot Like Matchmaking
Buying and selling a house is serious business. For most, you are buying or selling your largest single asset. In addition to needing data and supporting information to make a sound business decision, there is tremendous emotion that goes into the process. Getting married is more serious (well, to some), but the process is comparable. At the end of the day, if you have grown out of a house, you can sell it. Not as easy in a marriage.
There are so many commonalities between matching Bachelors/Bachelorettes and Home Buyers/Sellers. There is no such thing as a “typical” transaction/relationship. When representing either side, it’s so important to understand the people and what makes each person tick. On the Bachelor, the first night cocktail party actually makes a lot of sense from a home buying perspective. So often, on the first day out with a Realtor, a home buyer will see everything that fits the criteria “on paper” that they think they want in a house. Just because you want a 4 bedroom/2.5 bath Colonial, doesn’t mean you will like all of them. Many get eliminated from consideration on the first day. Unlike the show’s host, Chris Harrison, my job is to understand why you eliminated specific suitors and to make sure that you aren’t introduced to any more!
The Bachelor/Bachelorette Desperately Need A Real Estate Agent!
Jake & Vienna, (c) ABC, The Bachelor
If The Bachelor or The Bachelorette producers are truly serious about helping its “star” find love, I think that Host Chris Harrison should behave more like a Buyer’s Agent during the next season of The Bachelor. For those of you who already appreciate and understand the true value of Buyer’s representation, you are one step ahead. For those of you who think you are getting “a deal” without Agent representation, I have 3 words for you: Jake and Vienna.
Last season’s Bachelor, Jake, had no help. Vienna, his now former fiancée, was the pretty house with the nice big kitchen and partially finished basement. She is the house that is lived in, a house that is ready for you to entertain in. But there isn’t much upstairs. Bedrooms are small, possibly mold in the attic, the poor quality roof needs to be reshingled every few years, ice dams in the winter, and the garage door doesn’t close (catch my drift?). As soon as the season ended, so did they.
If, like a Real Estate Agent, Chris Harrison were acting in the best interest of the Bachelor/Bachelorettes, it would have been his responsibility to not only introduce the Bachelor/ette to the appropriate suitors matching their needs, but to:
Assess the TRUE value of each suitor (house)
Give the Bachelor/ette some history about the suitor and the suitors’ family (neighborhood/community)
Provide information that would reveal any work that has been done to the house, before it came on the market, along with permits, etc.
Work with the Bachelor/ette on their financing – will they be able to afford their choice? What will it cost to maintain the relationship?
Disclose any and all research about their history. If any liens (restraining orders) are in effect, this would be important to know
Very importantly – negotiate EVERYTHING on behalf of the Bachelor/ette
Manage the home inspection (home visits) – make sure the Bachelor/ette is asking the right questions
Make sure that everything proceeds smoothly prior to and at the closing (Fantasy Suite and beyond…)
Getting That Final Rose (The Keys)
Ali & Roberto, (c) ABC, The Bachelorette
Bottom line is that your Real Estate Agent is there to guard and protect your real estate purchase and your wallet. We want you to be as sure about your decision as Ali seems to be with this season’s winner, Roberto. We aren’t here to tell you how to decorate or to follow you around a house like the helicopter date in Bora Bora. We are here to guide you, to tell you if we feel you are making a mistake (Jake and Vienna). To negotiate for you. To point out the big issues that we see while you are ogling the gorgeous marble in the master bath (Ed & Jillian). If you want someone to agree with everything you are doing, bring your BFF along. It could be the most dramatic home purchase process ever or it could be truly enjoyable and exciting (Trista and Ryan).
When buying a home, you don’t want to make a mistake. You don’t want to second-guess anything (Jason & Molly). As Real Estate professionals, it’s our preference that you don’t show up on the cover of US Weekly in tears (or the equivalent). If you decide to buy or sell on your own, don’t come crying to us “After the Closing” when you realize that you overpaid for the house that has taken 3 years to sell or that your Buyer couldn’t get their financing and now you can’t close on your purchase (Brad Womack). We would rather be handing you the final rose at your closing.
Carole Daniels and Gabrielle Daniels Brennan are the #1 real estate team in Sudbury. As a top producing, award winning Mother/Daughter team, Carole offers over 31 years of successful Real Estate Sales and Marketing experience. Daniels and Daniels are #30 in New England and within the top 1% of Agents internationally. Gabrielle and Carole have been a team for 7 years. Prior to Real Estate, Gabrielle spent over a decade in sports and event marketing for ESPN, The Olympics, Coca-Cola, Arby’s and NIKE. They work 24/7 for their clients and love what they do. For more information go to: www.liveinsudburyma.com.
If the condominium project that you are buying into is involved in any pending litigation over construction or its common areas, chances are you will not be able to obtain a conventional loan under newer, strict Fannie Mae condominium lending guidelines. This is not good for condominium buyers, lenders, unit owners desiring to sell and condominium associations.
Fannie Mae underwrites the vast majority of mortgages in the United States today. Reacting to the condominium market meltdown, Fannie Mae (FNMA) substantially overhauled their condo underwriting rules, effective Jan. 1, 2009. The new rules require a 70% sell out threshold for new construction project, tough rules governing condominium finances, and new insurance requirements, among other tighter standards. The net effect is that condominium lending has gotten substantially more difficult to obtain, and the real estate industry and some lawmakers aren’t happy about it.
Pending Litigation Involving Safety, Structural Soundness or Habitability
The new guidelines exclude condominium financing for “projects in litigation, arbitration and mediation that arises out of a dispute as to safety, structural soundness or habitability.” Fannie Mae underwriters now look closely at any pending litigation involving the condominium, especially concerning its construction and common areas. I’ve seen several loans denied and canceled recently over pending condo litigation, regardless of the merits of the lawsuit. According to the Fannie Mae FAQ, if the litigation is minor and covered by insurance, lenders can ask Fannie for a waiver or exception.
So how can buyers and realtors protect themselves here?
First, prior to signing the purchase and sale agreement, make sure you ask the seller and the listing broker (preferably in writing to create a record) whether there is any pending litigation involving the condominium. Realtors should follow up with the board of trustees or management company. Attorneys can obtain access to the state trial court database to search for pending litigation.
If there is pending litigation, borrowers need to inform their lender, and get an answer whether this will affect the financing.
If you cannot get an answer by the signing of the purchase and sale agreement, use a clause in the agreement where the seller certifies there is no pending litigation (and assessments) affecting the condominium.
Buyers’ attorneys should also use a catch-all Fannie Mae contingency clause which gives the buyer an out if the condominium ultimately is Fannie non-compliant. This should give some additional protection to the buyer, especially where these issues often arise on the eve of closing and after the loan commitment deadline.
The Pendulum Has Swung The Other Way
What’s troubling about the new rules is that many condominiums are involved in litigation, some of which is meritless or frivolous unit owner suits. A lot of lawsuits are covered by the condominium master insurance policy so there is little risk of real loss. That Fannie Mae would summarily deny financing to these condominiums is disturbing to say the least. Overall, I believe that the pendulum has swung way too far. I wrote about this back when the rules were first implemented (still our most popular post), and it’s still true. But it’s the reality. Buyers and their advisers need to be aware of the situation.
I recently had a closing on a property in a flood zone almost fall apart because, unknown to everyone, Congress decided to let the federal flood insurance program run out of money. After doing some research, I was dismayed to learn that since the program expired May 31, home buyers have been unable to buy or increase their flood insurance coverage, and many lenders are unwilling to close on properties in flood zones until the program comes back online. When, or if, that may occur is anyone’s guess. Luckily, in my transaction we were able to transfer the seller’s existing policy to the buyers so the deal closed. But others aren’t so fortunate. Researchers estimate that for each day the program remains in limbo, approximately 1,400 closings for home purchases must be delayed, according to the National Association of Mutual Insurance Companies in Washington.
The National Flood Insurance Program Runs Out Of Money
Flood insurance is funded through the federal National Flood Insurance Program (NFIP). Congress appropriates funding for the program, but it inexplicably allowed the program to lapse for the fourth time in a year when lawmakers took the Memorial Day holiday without extending coverage. This lapse comes at a precarious time for lenders, owners, and buyers alike as forecasters are predicting a tumultuous hurricane season and buyers are pushing to close quickly in order to qualify for the first time home buyer’s tax credit.
Consumers with existing policies will not be affected and therefore will not see any interruption in their payments, said Rachel Racusen, a spokeswoman for the Federal Emergency Management Agency. However, renewals or increased coverage requests will not be processed unless Congress decides to renew the program. This means most closings on flood zone properties are in limbo until the program funding is restored.
Flood Insurance Tips
If you are selling or buying a property in a flood zone, you need to deal with this situation well in advance.
Buyers and their Realtors need to verify whether the property is in a flood zone in the first place. Here is the link to the FEMA Flood Zone Maps. Lenders will require a flood zone certification, but with the program out of money, you need to know way ahead of time.
Buyers need to address flood insurance with their lender right after they decide they want to purchase a flood zone property.
Sellers should contact their insurance agent to see whether their existing policy can be transferred to a new buyer.
The Wall Street Journal Blog has a very interesting article on the recent demise of McMansions:
America’s love affair with McMansions continues to wane: The size of new single-family homes completed last year fell 3.2% to 2,438 square feet, according to the National Association of Home Builders trade group, which analyzed Census data.
It’s the second year of downsizing, officially ending an expansion that spanned nearly three decades: The average home sized peaked at 2,521 square feet in 2007. It came in flat in 2008 and fell in 2009 as builders built smaller, less ornate homes priced lower to compete with foreclosures. The new generation of homes has fewer bedrooms: Just 34% of last year’s homes had four or more bedrooms. Between 2005 and 2009 – years that include the building boom – the proportion of homes with three bedrooms jumped from 49% to 53%.
Fewer bedrooms means fewer bathrooms. The percentage of homes with three or more bathrooms came in at 24% last year, down from a peak of 28% in both 2007 and 2008.Home sizes have fallen before, but this time the change might stick around for some time.
“We also saw a decline in the size of new homes when the economy lapsed into recession in the early 1980s,” says David Crowe, the National Association of Home Builders’ chief economist. “The decline of the early 1980s turned out to be temporary, but this time the decline is related to phenomena such as an increased share of first-time home buyers, a desire to keep energy costs down, smaller amounts of equity in existing homes to roll into the next home, tighter credit standards and less focus on the investment component of buying a home.”
I’ve witnessed the steady influx of McMansions into my own 1960’s era Sudbury neighborhood, and I dealt with them as a zoning board member. There are obvious pros and cons with the trend. I’ll raise some thoughts, and open up the dialogue.
A dilapidated property converted into a McMansion can be beneficial for property values and neighborhood aesthetics. Local zoning boards have come up with good guidelines to minimize the impact of larger houses in a neighborhood of smaller houses. However, on a macro level, McMansions tend to reduce the stock of otherwise suitable affordable housing stock within a community–and that can have long term effects. That 3 bedroom multi-level will do just fine for many first time home buyers. But the sprawling 4,000 s.f. McMansion is unaffordable to most. Once a McMansion is built, the affordable home which it replaced is gone from the housing stock, and will most likely not be replaced as builders aren’t interested in those types of starter homes anymore.
It’s encouraging to see the market self-regulating and providing a shift back to smaller and more affordable homes. I think that’s good for everyone.
The well maintained 4 bedroom Colonial in a North Shore suburb with a great backyard looked nice enough thought “Debbie,” the buyer. However, she was dismayed to learn from neighbors after closing on the property, that the prior owner had committed suicide in the house. The real estate agent never advised her of this, and she says she would have never purchased the home if she had known this.
In Massachusetts, real estate brokers struggle to sell homes tainted by shocking murders, suicides, or even suspected “haunted houses.” For real estate brokers, sellers and buyers, these “stigmatized” properties are particularly difficult to deal with as they raise unique valuation problems and disclosure issues.
“Haunted Houses”
Under Massachusetts law, however, real estate brokers and sellers are under no legal obligation to disclose that a property was the site of a felony, suicide or homicide, or has been the site of an alleged “parapsychological or supernatural phenomenon,” i.e., a haunted house. Thus, buyers are on their own to discover these types of stigmas—however, a quick Google search on the property address or prior owner may have revealed the prior suicide in “Debbie’s” case.
Power Lines, Cell Towers & Underground Gas Pipelines
Less notorious, but equally challenging, are stigmas such as high tension power lines, cell towers, high pressure underground gas pipelines, landfills, nearby sex offenders, former Army bases, and other environmental concerns. These are much more challenging to handle, and are becoming increasingly prevalent.
While there is an ongoing debate whether electric and magnetic radiation emitting from powers lines and cell towers are harmful to humans, there are studies suggesting that buyers perceive them as health hazards and will drop asking prices accordingly. Neighborhood opposition to cell towers and new gas lines are becoming increasingly widespread, vocal and well-organized. Also, virtually all power lines and gas pipelines running over property will carry with them recorded easements which typically restrict building near the lines. Depending on the proximity of the lines, these easements may impact potential home additions and backyard activities such as pool installations, etc.
Buyers need to be cognizant of the impact of all potential stigmas, whether well-publicized or not. For most off-site conditions, Realtors and sellers are under no legal obligation to disclose them to buyers. Buyers, you need to do your due diligence. Check the town assessors maps (often available online), registry of deeds information, the Mass. sex offender registry, use the internet and Google Maps to verify any potential impacts on the property, and drive around the neighborhood. You’d be surprised what you’ll find.
My Boston.com colleague, buyer’s agent Rona Fischman, has a great post today on walk-throughs, or pre-closing inspections. I’ve re-posted it here, along with my commentary (in italics) and my own tips.
The walk through is the last thing that the buyer does before closing. The buyers, plus the real estate agents, walk through the empty house to check that it is in the same condition as inspection day — except that the seller has moved out. I advise clients to do it immediately before closing. This gives the seller the most time to move out properly. Rich’s Note: In the purchase and sale agreement, we always require that the seller leave the property in “broom clean” condition, free of all personal property and debris.
What can go wrong?
Planning: Sellers often underestimate the time and energy required to get everything out of the house. Then, as the deadline arrives, they get sloppy. The result is that the seller leaves a mess behind. Commonly it’s something like a pile of debris left in the basement, or some piece of furniture falls down the stairs and makes a hole in the plaster.
Here are some unusual ones:
1. A seller who was a landscaper had some plants that she was fond of. She was entitled to dig them up. But, she was in such a hurry that she left the yard looking like a crazed raccoon had attacked it. We brought pictures to closing. She came back and made it nice for the buyers.
2. A seller who coached a hockey team left the team equipment in a window seat. Although it was heavy, we hauled it to closing.
3. A seller who was cleaning up put his wallet in the kitchen cabinet. We found it on walk through and brought it to closing (the listing agent was not at walk through.) Rich’s Note: The more serious situations are when sellers leave hazardous materials behind, such as old paint cans, chemicals, asbestos covered materials, or old insulation–often without the buyer even knowing they were in existence. This is often not discovered until after closing, and the best protection is to draft a contract provision where the seller represents and warrants there are no such materials, so the buyer can pursue the seller later.
Sometimes the problem involves the way the house was working. Here are a few examples:
1. Easy: Old-style washing machine spigots often drip. A homeowner just doesn’t know it until they disconnect the machines.
2. Hard: Once, I went to a walk through where there was a washing machine in the kitchen. The kitchen sink had no water at walk through. We found out why: if we turned on the sink, the laundry hook up ran (they had no shut-off and were on the line with the sink.)
3. Easy: Sometimes drip-leaks start under sinks or downspouts fall off outside.
4. Hard: sometimes a gutter tears off the house or a tree comes down shortly before closing.
5. Only once have I seen heating that failed at walk through. It was a condo that had just gotten a new boiler. It was on warranty. The company that installed it fixed it that afternoon.
What is the remedy for a problem at walk through? Whether it is easy or hard, there is usually a solution that money can buy. Frequently, the attorneys write out a quick agreement to hold some of the seller’s money to pay for correcting whatever the problem is. Rich’s Note: This is called a “hold-back agreement” where a portion of the seller’s proceeds are held in escrow until the problem is fixed. Sometimes the seller than fixes it and gets the funds released. Sometimes the buyer fixes it and gives the seller the bill and any remaining money. It depends on what it is and who it is.
Rich’s walk-through tips:
Do not waive the walk-through! You snooze, you lose, if there are subsequent problems.
Always go with your agent.
Bring your camera, Iphone, etc. to document any issues
Turn on/off all major appliances to see if they are working properly
Check under decks–sellers often leave nasty stuff behind
Scour the basement, check for water seepage and stuff left behind
Check repairs if the sellers agreed to make any
Turn on and off every light fixture
Run water & look under sinks for leaks
Check garage door openers
Have broker test alarm system
Open and close all doors
Flush toilets
Inspect ceilings, wall and floors
Run garbage disposal and exhaust fans
Test heating and air conditioning (even if off season)
After The Walk-Through
When the buyer arrives at the closing, the first thing I always ask is how did the walk-through go? I can usually tell how it went by whether the buyers (and their agents) are smiling or frowning when entering the closing room. The good thing is that no matter how poorly it went, the attorneys are almost always able to draft a hold-back agreement or some other solution to enable the transaction to close as scheduled. This is just another reasons why buyers and sellers should have experienced real estate counsel at the closing.
The deadline for getting under contract for the First Time Home Buyer Tax Credit was last Friday, and some preliminary statistics are already coming out demonstrating how popular the program was.
The Boston Herald reports that almost 30,000 Massachusetts buyers have taken advantage of the credit already, and that doesn’t include the most recent weeks of frenzied activity in April.
The National Association of Realtors estimates that 4.4 million Americans will ultimately receive tax credits. That includes 900,000 buyers that NAR projects wouldn’t have purchased homes otherwise.
Massachusetts sales of single-family homes for March leading up to the credit were up about 28% over last March — the largest March year-over-year increase on record. Once the statistics for April come out, we should see some very strong numbers. Realtors were reporting very heavy activity last week, leading up to the tax credit deadline. This week was our busiest of 2010, by far, for new purchases.
The Other Foot…
But…all good things must come to the end, and the biggest question looms. How will the real estate market fair in a post-tax credit world? One school of thought is that the tax credit created an artificial demand which will ultimately hurt the natural equilibrium of the market. Others believe that the stimulus was just what the doctor ordered, and expect the housing market to stay strong and on track. It’s probably going to be a bit of both, and the proof will be after the data comes in through June 30 when all tax credit sale must close.
Congratulations to all those new home buyers who were able to find a home! Lastly, I believe that folks who buy in 2010 can claim the credit on their 2009 returns by amending their 2009 return. Click here for the IRS website. Talk to your CPA for more guidance.
This week, a very interesting decision involving the negotiation of a residential purchase and sale agreement came down from the Massachusetts Appeals Court in Coviello v. Richardson. Click here to view the decision. The case highlights the need for realtors and real estate attorneys to be proactive with respect to mortgage contingencies and requests for extensions.
The Facts
In the case, on February 12, 2008, buyer (Coviello) and seller (Richardson) signed the standard form Offer to Purchase, which provided that a Purchase and Sale Agreement would be executed by 5:00pm on February 26th. Under the mortgage contingency clause of the offer, which gives the buyer the right to cancel if she cannot obtain financing, the buyer was required to secure a firm mortgage commitment by February 29th. The realtor, who prepared the offer, made the first mistake here: requiring her client, the buyer, to obtain a firm mortgage commitment not even 2 weeks after the parties signed the offer. This was and remains completely unrealistic.
Predictably, the buyer and her broker had immediate concerns that they would be unable to meet the mortgage commitment deadline. The broker asked the buyer’s attorney, Scott Kriss, if he would ask the seller to agree to extend the commitment deadline for an additional week. According to the decision, the request was not immediately conveyed to the seller.
Two hours before the 5:00pm deadline to sign the purchase and sale agreement, Attorney Kriss sent an email to the seller’s attorney, Alan Sharaf, requesting the extension. The seller, who was dealing with a high-risk pregnancy, refused to extend the deadline. No agreement could be reached, and there was no tender or signing of the purchase and sale agreement. (It does appear that the pregnant seller got “cold feet” and backed out of the deal–the request for a one week extension is eminently reasonable and wouldn’t have exposed her to any significant risk).
The buyer sued, claiming that the seller’s refusal to agree to the extension was a breach of the deal. The Land Court initially ruled in favor of the buyer, but the Appeals Court overruled the decision in favor of the seller, holding that a jury would have to decide whether the seller repudiated the contract or would have proceeded with the original terms. The case will be heading to trial.
Take Away
In our opinion, the lesson for realtors and attorneys from this case is (1) make the mortgage contingency dates workable in the offer, and (b) if you are asking for an extension at the 11th hour, protect your buyer in case the seller refuses to agree.
First, the realtor should have used a more realistic mortgage contingency deadline. In the current underwriting environment, realtors should allow at least 30-45 from the signing of the offer for a mortgage commitment.
Second, in our opinion, the buyer’s attorney’s apparent delay in asking for the extension until the 11th hour certainly didn’t help the situation. He could have protected the buyer a lot more had he coupled the request for the extension of the mortgage commitment deadline with either (a) notice that if the seller would not agree, the buyer would opt out of the deal entirely, or (b) a tender of the purchase and sale agreement with the original deadlines (assuming the buyer would take on the risk of being unable to make the deadlines). This would have “boxed in” the seller to either agree to the extension or go through the deal, essentially calling her bluff. At least it would have enabled the buyer to have been in a much better position for litigation because now the fight is over whether the seller would have gone through the original deal. Granted, it appears that the pregnant seller had already made up her mind that she wasn’t going through the deal, no matter the reason.
To the credit of the realtor and attorneys involved, it’s much easier for me to play Monday morning quarterback.
While folks here in Massachusetts are finally drying out from the Big Flood of 2010, it’s clear that it has negatively impacted the spring real estate market, and will have repercussions for years ahead for buyers and sellers of affected properties.
Impact On The Market
As recently reported in the Boston Globe, realtors around the state have said the flooding caused canceled and delayed closings, final walk-throughs under inches of standing basement water, and postponements of listing homes for sale. Also, lenders are requiring re-inspections and second appraisals to ensure that homes haven’t lost significant value due to the flooding. This is unfortunate as we’re in the middle of the usual busy spring sales season, made even busier by the soon-to-expire $8,000 first time home buyer credit. (Hey President Obama, how about extending the credit for Massachusetts like you did for the tax filing deadline!).
Disclosure Dilemma
Sellers who’ve been affected by the flooding are asking themselves and their realtors how they should handle the inevitable question from buyers: did your basement flood? Under Massachusetts disclosure law, while sellers are under no obligation to volunteer information, they must answer truthfully to any question posed directly by buyers regarding the condition of their property. Real estate agents are held to a higher standard. They must affirmatively disclose any fact that may have a material impact on whether the buyer would purchase the property. You better bet that whether a home experienced water penetration is “material.”
So, realtors and sellers would be wise to come clean if a home was affected by the recent flooding. The key is how to present the flood damage in the best possible light. Which brings me to the next topic…
Get It Fixed, And Done Right
How did you repair the water damage, and are you taking any steps to prevent it from happening again? Tough questions, because this was a 50 or even 100 year storm event. A flooded basement two weeks ago may never get a drop of water again.
Regardless of whether you are now going to invest in a perimeter drain/sump pump system, homeowners should hire licensed contractors who will pull permits to repair all flood damage. Having it done right will prevent even greater headaches later in the form of mold, dry rot and the like. As my friend general contractor George Lonergan of Lonergan Construction points out, pulling permits gives sellers the ability to show buyers that flood damage has been repaired correctly by licensed and qualified contractors with sign offs from the local building inspector.
Lastly, I want to point out to buyers that they shouldn’t simply walk away from a home which experienced flooding or has a sump pump system. Many properties in river watershed communities like Wayland, Sudbury, and Natick for example have historically been subject to flooding and wet basements. Seeing a well run and working dry basement system/sump pump/french drain is a good sign actually. What you don’t want is what looks like a dry basement which later floods and then requires a sump pump system later on.
Richard D. Vetstein, Esq. is regarded as one of the leading real estate attorneys in Massachusetts. With over 25 years in practice, he is a four time winner of the "Top Lawyer" award by Boston Magazine, a "Super Lawyer" designation from Thompson/West, and "Best of Metrowest." For Rich's professional biography, click here. If you are interested in hiring Rich or have a legal question, email or call him at [email protected] or 508-620-5352.
Richard Vetstein is a social media expert for HubConnected LLC, in addition to being a nationally recognized real estate attorney. Rich was recently selected as a nominee for Inman News’ 100 Most Influential in Real Estate. Rich was a recent speaker at the Social E Conference in Newport, RI sponsored by the Warren Group/Banker & Tradesman.
