In this seller’s market, where there are multiple offers on new listings within the first day, many buyers are bidding and losing on several properties before finally “winning” a new home.  These buyers find themselves asking, “what do I need to do to Win?”  Here is quick run-down of several strategies our agents have used to help their buyers win the bid.  The graph at the bottom of this post summarizes these strategies and their pros and cons.

As we said, these are strategies that our agents have used to win the bid.  They all have consequences to consider and should be done with the guidance of an experienced agent.  We would love to hear if you have additional strategies to share.  Just click on the FB link on our homepage to share.  And as always, if you have any questions, we are here to help.

In our June 8, 2020 post, we introduced escalation clauses with a quick primer describing them and listing the pros and cons for buyers and sellers.

As these clauses are tested, we are finding there is a common misconception worth further explanation. The confusion comes in determining if the escalation is to be applied to the gross or net offer.

Let’s start by defining gross and net offers with an illustration of Buyer A and Buyer B.  Buyer A is preapproved for a loan. They have the money they need for their down payment, but not enough to also cover their closing costs. Buyer B has enough cash out of pocket to cover both their down payment and closing costs. Their offers look like this:

Buyer A offers $154,600 and asks the seller to cover their closing costs of roughly 3% of the purchase price ($4,600).

Buyer B offers $150,000 with no request for seller-paid closing costs.

Here’s how those offers look side by side:

                                            Buyer A                                  Buyer B

Gross offer price               $154,600                               $150,000

Less Closing Costs            -  $ 4,600                                            0

Net Proceeds to Seller      $150,000                              $150,000

In this illustration, Buyer A’s offer is higher, but the net to the seller is equal to Buyer B’s offer. 

Now, let’s add the escalation clause: In this example, buyer A’s offer stays the same, but Buyer B’s offer is $148,000 with no closing costs and an escalation clause that says, “Buyer hereby increases their offer by the amount necessary to give the seller a net sale price that is $1,000 above the net sales price in the competing offer not to exceed a maximum contract sales price of $160,000”.

Many agents in reading this would immediately make the mistake of thinking that Buyer A’s offer is $154,600, so Buyer B’s escalation would make their offer $155,600 ($1,000 higher). But the clause says, “$1,000 above the net sales price”. So, in this case, Buyer A’s net to seller is still $150,000 and Buyer B’s offer with the escalation clause is $151,000.

If you’re having a hard time getting your head around this, remember that the seller does not get all the money Buyer A is offering. Some of it goes to the Buyer’s lender for their costs. They only actually get what is “left over”.

This illustration should also make agents aware that it is important to use a well-written addendum that clearly states how the escalation is to be applied. Our local association has approved a form for use that covers these bases. And, as always, if you have any questions, call us at RE/MAX, we’ve done this a million times.

Purchase agreements are written to clarify most concerns

There are common questions that buyers and sellers ask during the process of a home sale.  Questions such as: “Are they leaving the lawn mower?” or “How long will I have after closing to move out?”

Over time, answers to the most common of these questions have been built into our contracts in the form of standard clauses.  Most agents who sell real estate in the greater Calhoun County area use a common purchase agreement that has been reviewed by an attorney and is approved by our local Association of Realtors.  Here are some of the standard clauses in that contract and the common questions they answer:

The Financing Contingency Clause:  This clause requires the buyer to be specific as to how they will be paying for the property (cash, mortgage, land contract, etc) as well as what type of loan they will be getting, if any, what their down-payment and interest rate will be, and it establishes deadlines for the buyer to perform.

The Inspection Clause: Buyers are given the opportunity to do any and all inspections they feel they need to verify the condition of the home.  The inspection clause gives them this opportunity, but it also puts a time limit on the process.  It gives the buyer the opportunity to re-negotiate or terminate the sale  if the inspections reveal concerns.  The seller also has the opportunity to terminate the contract if they feel the buyer’s requests are unreasonable.

The Possession Clause: This clause works to be sure that all parties agree as to when the sellers will give possession to the buyer.  It also clarifies that the seller will leave the property in its current condition giving the buyer the opportunity to pursue legal action if the seller damages the property or removes items that should not have been removed.

 The Clause Concerning Personal Property:  Many disagreements have arisen when the buyers and sellers have different expectations as to what stays and what goes.  This clause works to clarify expectations and to determine if items that normally are included (like a water softener) are owned by the seller or are rented. 

Additional Costs and Who Pays for Them:  There are several paragraphs in the contract that address extra items like surveys, home warranties, title insurance, etc.  By including standard wording, agents can fill in the blanks to ensure that everyone agrees on what needs to happen to complete the sale and who pays for them.

Utilizing these clauses in the contract, gives agents a consistent method to avoid missed expectations and mis-communication.  For this reason, it is important if you are the client that you review the contract carefully and check that blanks are filled in or crossed out to prevent un-answered questions.  If you have any questions, direct them back to your agent.  Don’t have an agent?  Call us – we’re always happy to help.

Locally, we are currently experiencing a “Seller’s Market”. This occurs when the inventory (houses available for sale) is less than 6-month’s worth of demand. There are more buyers looking to purchase homes in the next six months than there will be homes available for sale.

One of the common characteristics of a strong seller’s market is the receipt of multiple offers. Sellers can receive many offers on their listing and find themselves with the task of choosing the best. When multiple offers are in play and only one is accepted, it is natural to expect that someone is going to be disappointed. Problems arise when there are unmet expectations. The best way to smooth the process for competing buyers, their agents and the seller, is to set very clear expectations up front. Here are 5 things to remember when setting these expectations:

• Develop a very clear process for handling multiple offers with the seller up front. Listing agents should discuss the possibility of multiple offers with the seller at the time of listing and agree in writing on exactly how they will be handled. RE/MAX Perrett Associates has developed a template that agents can use to accomplish this. This document can be used as an addendum to the listing agreement.

• Once a plan is in place and expectations are set, COMMUNICATE. By using the marketing remarks in the on-line listing and the showing instructions to agents, listing agents can clearly communicate the seller’s plan for receiving and responding to multiple offers.

• When creating a plan with the seller, try to answer these questions:
  1. How long will the seller collect offers before making a decision?
  2. Will all buyers who submit offers be notified that there are multiple offers and given a chance to increase their offer before a deadline?
  3. How long will seller take to make a decision?
  4. What will be the process for offers not accepted? Will they be held as backup offers?

• Stick to the plan – Having the seller agree to the plan in writing encourages them to adhere to the plan when things get hectic. If the seller has agreed to wait 10 days before responding to any offers and then gets a great offer the first day, they may want to change their mind and jump on the offer in hand. Sellers have a right to change their mind, but they will be much more thoughtful in their decisions when they have already carefully considered the possibilities and have a plan in place. If the seller does decide to change the plan mid-stream, re-visit item 2!

• Make sure buyers are aware of all of their options – This step is for buyer agents. Buyers can get very creative in working to be the “winning” bidder in a multiple offer situation. A buyer’s agent should be aware of all the tools at the buyer’s disposal including, but not limited to, escalation clauses, waiving of inspections, financing type, paying closing costs, etc. For more information on escalation clauses, see our post from June 8 of this year.

The common thread for all parties of making this process as clean and pain-free as possible is communication. Listing agents should communicate early with sellers about the process and possibilities. Buying agents should communicate early with buyers on their options. Listing and buying agents should communicate clearly and in a timely manner with offers, terms, changes, questions, etc. Setting expectations early and communicating them clearly are the key to navigating this wonderfully hectic seller’s market.

The road to finding the right home is not easy, especially in our current market.  With inventory historically low, buyers have to watch the market and respond instantly to new prospective matches.  Even when they find the right match, they most likely will have to survive and win a bidding war to become the home’s next prospective owner.  After all that work, the last thing they want is for the deal to fall apart and start over again.  To prevent this from happening, we need to ask “Why do deals typically fall apart?”  A good agent and excited buyer can work on preventing these pitfalls by doing some work up front.

• Buyer is only pre-qualified, not pre-approved. There is a big difference between a pre-approval and a pre-qualification and sometimes it takes an experienced agent to recognize the difference.  A prequalification is a statement from the lender that if everything the buyer told them about their work history, income, credit, etc is true, then they are good for a loan.   Very little if no verification has been done at this point.  A pre-approval letter lets a buyer and agent know that the lender has checked the buyer’s credit report, verified their employment and income, and reviewed their tax returns.  The buyer’s file has been through the underwriting process.  Often, when an offer is accepted from a buyer who is only pre-qualified, the process of closing the loan brings up credit or employment questions that can kill the loan and the deal.
• Problems with the lender – Not all lenders can be relied on to deliver as promised. Sometimes a buyer’s lender will encourage a buyer that they are “good to go” without doing their due diligence.  They might tell a buyer they qualify for an FHA or RD mortgage when further investigation reveals they don’t.  They might promise grant money that is unavailable.  Sometimes, the lender’s underwriter is located in a different part of the country with different expectations for loans than a Michigan lender.  Maybe they don’t understand the value of acreage, or a basement.  Many Realtors prefer a buyer use a local lender that they have worked with before and trust.  They want someone close-by that has a local reputation to protect.  In the end, the buyer has the right to work with any lender, but it is highly recommended that you use someone that has been referred to you by someone you trust.
• The Property does not appraise – Part of the loan process is the completion of an appraisal. A licensed appraiser’s job is to be sure that the property has enough value to support the loan as collateral.  There is not a lot that can be done to influence the appraisal, but there are a few tricks that can help.  If a buyer makes a low offer and then later accepts a higher counter from the seller, the contract should be re-written with the actual sales price on the front page assuring that the appraiser is aware of expectations for price.  The listing agent should pay attention to the appraiser assigned to the file.  Sometimes, an “outside” appraiser is assigned who may not be familiar with values in the area.  If the appraiser is from an office more than 20-30 miles away, the seller can refuse the appointment and request that the lender assign someone else.  Lenders won’t always honor these requests, but the effort should be made.
• Problems with the title – At the closing, the seller signs over the deed to the home, but only if the deed is free and clear of liens.  There are a number of lien defects that can be found.  Maybe parents deeded the house to children incorrectly before they passed and now the deed must be cleared through probate.  Maybe there is an unpaid tax lien on the deed.  Maybe there is an easement that no one realized was there.  Maybe the seller got a loan to buy a vacation home and didn’t realize the current home was attached to the lien.  While not every lien defect can be pre-determined, a good agent will interview the seller and try to uncover possible issues and clear them before the sale.
• Buyer is not prepared for hurdles and backs out – It is very important that a buyer understand all the hurdles they must go through to get to the closing table. The lender may ask for documents to further verify income, employment, etc.  The home inspection may turn up issues that must be negotiated.  The appraisal may be delayed, or there may be a title issue that takes time to clear.  An experienced agent will make a buyer aware of possible pitfalls.  I used to tell my buyers this:  “I’m going to sound a bit like a Debbie Downer right now because I’m going to make sure you are aware of all the things that could go wrong during this process. I would rather get to the closing with no issues and have you happy that things were much easier than you expected than to tell you everything’s going to be easy and have you upset at the closing because we had to work through a few issues.  Either way, I’m here to guide you and help you work through any of these issues that may come up”.  A prepared buyer is less likely to terminate the deal at the first sign of trouble.
• Missed deadlines – There are many dates on the contract that must be met. The buyer commits to having a home inspection within a certain # of days.  If the buyer asks for repairs, the seller must respond in a certain # of days.  The contract states the deadline for the buyer to make loan application and to close.  Good agents make deadlines sacred.  They watch them constantly and make sure they are met, or make sure they secure a written extension if they cannot be met.
• Too much negotiation is done verbally – An experienced agent knows to GET EVERYTHING IN WRITING. All too often, the seller tells the buyer they’ll take care of something, or the listing agent tells the buyer’s agent that the seller is taking care of something only to get to the closing and find out it wasn’t done, or it wasn’t done as agreed.  ANY time a promise is made, someone should be writing an addendum and getting it signed so that all parties are bound to a written agreement.

Experienced, top-producing agents keep detailed checklists to be sure that no steps are missed and that all deadlines are met.  They clarify agreements in writing and they review all documents for possible issues up front.  A good agent doesn’t write an offer unless they are pretty sure it will close.  They know how to do the homework up front to help get their buyers get to the goal line.  Have any questions?  Call your favorite RE/MAX agent – we’ve done this a million times.

Summer 2020 is definitely shaping up to be a HOT market.  Sellers are routinely experiencing multiple offers within the first day or two on the market.  Buyers are writing full price offers and losing out to higher offers.  With this frantic pace and multiple offers, we have seen a rise in the use of the escalation clause.  Here’s how it works:

A buyer writes an offer for $100,000 and adds an escalation clause that basically says, “If seller receives competing offers, buyer increases their offer by an amount necessary to give the seller a net sale price that is $1,000 above the net sale price of any competing offer not to exceed $115,000”

Essentially, the buyer will beat any competing offer by $1,000 as long as they don’t have to go over $115,000.

Let’s take a look at the pro’s and con’s of this strategy for both buyers and sellers:

The benefit for a buyer is they pay the lower price if there are no competing offers, but still have the opportunity to beat a competing offer if one exists.  The down-side of an escalation clause for the buyer is that it let’s the seller know the top dollar they are willing to pay ($115,000 in this example).

For sellers, an escalation clause can push the sales price up without having to waste time going back and forth between the competing buyers.  Conversely, if a seller accepts an escalation clause from one buyer, they may never know if the competing buyer would have gone higher as well.  Also, if a seller accepts a higher offer and the house does not appraise for the agreed price, the seller may have missed the opportunity to sell to a stronger buyer at a lower but possibly better price.

We agree it can be confusing.  Just be sure if you are considering an escalation clause, you get the advice of an experienced agent who understands the pro’s and con’s.  RE/MAX Perrett Associates’ agents use a pre-written clause that has been reviewed by an attorney and addresses otherwise unforeseen loopholes.

 and you want to be sure you know what you’re doing.  If you have any questions, reach out, we’re happy to help.

Hey guys, for today's installment of "What should I be doing while I'm waiting to go back to work?", we are going to talk about a Realtor's gold mine and that is a database.  Successful agents have a few things in common and one of those things is a database.  All successful agents have a complete database that they use to track their customers and clients and their business. 

If you already have a database, don't stop reading quite yet: I'm going to talk to you first.  If you've already got a database in place, then as yourself, "What am I doing with it right now?". Are you reaching out personally to your top 50 clients asking them how they are doing, how things are going, are they on quarantine, are they essential, do they need some grown-up time, would they love to video chat with you?"

The thing to ask yourself right now is "What kind of an agent am I going to to be?" Are you going to be that agent that is reaching out, helping, giving advice and caring, or are you going to be that agent who says, "Sorry, I'm off work for the next few weeks, I'll talk to you when I get back?"

Okay, now for those of you who do not have a complete database: Get busy.  It's data entry, guys.  Get your phone and go to LeadStreet and start manually entering all the contacts from your phone into LeadStreet.  Save yourself a bunch of time and categorize them as you enter them. Categorize them as past client, friends and family, soccer moms, Christmas card, etc.  If you have a teenager at home dying of boredom, this is a great job for them.  For you techies out there, download your contacts from Google into a CSV file and upload them to LeadStreet.

Once you get that database complete, here's an idea:  add additional contacts for the area you want to farm.  Just go to the tax records, enter the street you're interested in and start entering those people in your database categorizing them as a specific farm.

When your database is complete, go back to the beginning of this entry and ask yourself, "What am I going to do next?"  Reach out, get in touch, show your clients and friends and family that  you care.  Start a private Facebook group for a certain demographic like Ashley Reniger's Momfit group.  this is the timem to be creative.  Let's ask ourselves every day what can I do in this market that no one else is doing that can set me apart?  How can I encourage buyers and sellers to move forward or at least be ready when this is over?  Once you have the answers to those questions, let's share...let's keep each other busy and motivated.

If you have recently gotten a mortgage, your lender asked you to sign a form authorizing them to pull your original tax return in case of an audit.  Unfortunately, there have been instances in the past when either a borrower or their loan officer falsified numbers on a tax return which was later caught during an audit.

It is hard for most of us to believe that someone would commit such blatant fraud.  What we don’t realize is that almost every day, there are opportunities for buyers, loan officers or Realtors to commit fraud without intention and without knowing it.

Basically, problems happen when there are terms in the contract that are not shared with the lender and/or the underwriter.  For example: Let’s say the seller has offered to give the buyer a $2,000 carpet allowance.  At closing, the seller hands the buyer cash or a personal check for the $2,000.   Payments that go from one party to another without the lender's consent are a violation of real estate escrow laws. The buyer's mortgage lender is entitled to know all the financial details as the loan approval is based upon those details.

In this example, it is very probable that none of the parties intended to commit fraud.  The Realtor doesn’t think of carpet as having to do with the loan, the loan officer doesn’t want to “muddy things up” with extraneous details, and the buyer has no idea what the underwriter requires.

Another example would be if the buyer financed only 80% of the property’s value from the lender and the seller accepted the proceeds as full payment but collected the remaining 20% from the buyer with an “undisclosed seller second mortgage”.

Both buyer and seller are asked to sign an affidavit at closing stating that all terms of the sale are included in the statements and that there are no undisclosed agreements.  Parties that sign this document but proceed to transfer money outside of the closing run the risk of committing fraud.

What to watch for?

Be aware if any party to the transactions directs you not to share certain documents with your lender.  While this is not always wrong, you want to be sure you understand why the document is being withheld.  If furniture or appliances are included in the sale, but the buyer isn’t paying any more for the house to get them, the lender would prefer that the personal property be addressed on a separate addendum.  Lenders prefer the loan cover only the real estate.  Also, agreements between the buyer or seller and their agent may not require disclosure to the lender as long as they don’t affect the actual terms of the sale between buyer and seller or the buyer’s costs.

Boiling it down to basics:  Lenders use the buyer’s income, their debt-to-income ratio, the property’s value and the buyer’s cash investment to approve or deny the loan.  Any agreements between parties related to the transaction that might change these factors should be disclosed to the lender and the underwriter to avoid loan fraud.

If you have any questions, contact your favorite RE/MAX Perrett agent today and don’t worry, we’ve done this a million times!

REAL ESTATE IS EASY…

Why do people succeed?    Because they INTEND to.

What if you asked yourself to fill in these blanks at the end of each day?:  “I’m glad I did ______________ or,  I wish I had___________________”.   How about at the end of each week?  The end of each year?  The end of your career? 

One of the most common mistakes that small business owners make is spending all of their time working IN their business and not enough time working ON their business.  A real estate agent is a small business owner and just like any business, they have several departments:  Marketing, Sales, Admin, Accounting, Receivables/Payables, etc.

Now is the perfect time to step back and look at your business and evaluate the performance of each department and make a plan for improvement for 2020.  A written business plan is the roadmap to your 2020 goals.


essful agents go through this process at least once a year.  They intentionally decide where their business is heading and they intentionally decide how it is going to get there.  Once an initial business plan is created, the process is relatively easy each year as it typically requires tweaking an already existing plan.  The hardest part for most agents is creating that initial plan. 

Jon Cheplak, a top agent coach recently said in a presentation of video for social media, “don’t let your fear of looking bad in video keep you from starting.  My crappy video beats your no video every day”

The same could be said for business planning.  A one-page no-frills basic business plan beats no business plan every day.

So, just start with these five basics:

1.  Make a written production goal.

2. Divide that goal by your average commission and determine the number of sales you have to have to reach that goal.

3. Decide what percentage of your sales will be with sellers and what percentage with buyers.

4. Decide where these sellers and buyers will come from.

5. Decide what you are willing to do to attract the number of sellers and buyers you must work with to accomplish your sales goal.  Don't forget that Quality is by far the best business plan.  As you develop yours strategies, ask yourself how you can build on quality.
   

Here is an example:

1.  Annual production goal: $100,000.00

2.  Average commission: $3,000. $100,000/3000 = 34 total sales

3. 50% sellers/50% buyers= 17 sellers and 17 buyers
   

4. Sources for clients: FSBO’s, Expireds, My network, On-line Leads, Sign Calls, Open Houses, Relocations, Referrals, Farming, etc.
   

5. Create a written statement explaining how you will work with your selected lead sources to attract the clients needed for your goal. (“I will attract 5 listings and 4 buyers by contacting my current network at least once per month including a phone call at least every 6 months”).

This is a very bare-boned business plan, but it is a terrific start.  Once this plan is in place, you can add to it, improve it and concentrate on different areas of your business each year as you improve. 

If you would like to see this process in action, please feel free to attend our in-house business planning sessions beginning this week.  We will be concentrating on creating and updating plans for agents in both our Marshall and Battle Creek offices and are happy to share the process with you.