Goodbye 2009- A Great Year For Some

The year is nearly gone, and many of us are saying "Good riddance". And I apologize for not keeping this blog more up to date, but it has been a very busy year. I will admit it has been a tough year in many ways. And to hear most folks tell it, real estate took the biggest hit.

But that isn't quite so. Sure, those who choose to do the same things, in the same ways, even when circumstances change will find themselves behind the 8-Ball. But for those of us with many "tricks" in our bag, and with the will to innovate and come up with new ideas, this has been a boom time. Why?

Because regardless of the economy, people need places to live. And regardless of the economy, the population grows. And BECAUSE of the economy, the wise investor will find the best bargains among the many bargains available, and repackage them to make them more appealing to buyers, using unusual incentives.

During these times, sellers are desperate because there are fewer buyers. And the seller is probably in financial trouble and must sell. So here is one strategy I have been using with tremendous success...

The seller needs to get rid of that mortgage payment. He knows he cannot sell for a profit as values are down. But there are no buyers. If he doesn't find a solution ASAP, he will lose his home to foreclosure and his credit will be shot for a decade.

So I step up with a solution (money is not made from real estate - it is made from offering solutions to people's problems).

First, an example:

In an area where the average home is selling for $175,000, I find one that is worth as much, but the seller is desperate and has reduced the price to $160K. I specifically choose one where the mortgage payment is lower than average (older mortgages, as the property was purchased for much less several years ago, before the boom).

My offer: I will lease option the property and pay him a monthly payment that will cover the mortgage, so he is "out from under" and his credit is saved. I also offer the full $175,000 purchase price at the time I exercise the option - more than he was asking (but still not more than it is worth).

The option period is at least 3 years, and $500 of each monthly lease payment gets applied to the purchase price when I buy.

I then sublet to a tenant for at least the amount I am paying the seller each month, so the place costs me nothing. (I also get first month's rent & security deposit which goes in my pocket now).

In three years, the economy should be brighter, and the home value should have increased at least a little. If I can find a buyer, I exercise the option and flip the property to my buyer (which may even be the tenant).

I resell for $185K
My purchase price is $175K
Remember the $500/month being applied? Times 36 months is $18,000 applied, so I only owe $157,000 at closing, and I pocket the difference between $157K and $185K (that's $28,000 profit).

In this economy, it is not difficult to lease option at least 4-5 a month. With an average of $2500 deposit per, that's at least $10,000/month in pocket, now. And beginning in 3 years, I start flipping 4-5 per month, for a net of roughly $100,000+ per month.

Now, just try to make that kind of money at the 7-11. Or even in a cushy office job.

This is just one of the methods my students are using today. Of course, it would not be wise to try it unless you have the specifically designed contracts provided in "The Simple Man's Guide to Real Estate", as they protect you from liability and insure better profitability. And having a professional coach is great, especially if you are new to this. He or she will "hold your hand" through the entire routine.

Now, back to this blog - I will try to do a much better job in 2010 of keeping it moving for you...

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What is to Come

I am often asked "What do you see in the future for real estate?" Obviously I do not have a crystal ball, but when I received an email today imploring me for some input on the subject, this was my response:

No honest person can claim to know where it is all going, for sure. This is because there are over 5000 "local" markets, each with its own, unique factors to consider. That is why some are still hot, while others will continue to sink for years to come. More important is the part that Congress takes in this. If they do the right things, much of this could blow over in 6 months. If they do the wrong things, as they are prone to do, it could take years.

The only thing we can and should do is find ways to cope with the realities of today. Think outside the box; learn new methodology. That is how I conceived the reverse mortgage in '85. We were just coming out of some rough times, and many retired folks were really in a bind. I developed the concept (which I called The Golden Years Project) to help the elders, and make a profit for myself in the process.

Regardless of the economy, it is innovation that will fix it, not government bailouts. I recall in the recession of '89, home sales were stagnant in eastern MA where I was at the time. I still had homes to sell. While everyone else was doing the same old thing the same old ways - listings, ads etc., I decided to try something different. I contacted the personnel directors of the large corporations in the area and let them know I had a few, select executive homes available, and if they had any new execs transferring into the area, please invite them to attend a Wine & Cheese Party at - and then I listed the addresses and dates/times of the Wine & Cheese parties. Execs came. They did not just see a house. They saw a home that was a super place to entertain their society friends, because they were already in such a party. Of 4 homes, I sold three on the very night of the parties.

Innovation. Sometimes as simple as Wine & Cheese. Other times, it takes developing an entirely different strategy.

Good Luck. Remember - no matter what the economy does, trust in America, and Americans. And trust in yourself. I do not consider myself as someone who just invests in real estate, stocks, bonds, gold. Instead, I see it as investing in the strength of America, and the hope that is tomorrow. Helps keep a clear perspective.

Bill

Homeseller's Guide Part XIV

Choosing an Escrow Agent or Title Company

You will want your transaction to go off without any hitches. A smooth closing is essential. Therefore, use care in choosing who will act as your closing (escrow) agent.

Your first consideration would normally be to consider only those who are experienced professionals would good references. Spend some time talking with them, asking questions, such as their experience with FSBO transactions and discovering the ease with which they work with you. In short, you not only want a knowledgeable pro, but one you feel comfortable with, because you will be spending a lot of time with him - escrow can take from 30 to 90 days. If the you and the agent "hit it off", talks in terms you understand, and his references speak highly of him, that is the one you want.

Whereas you will likely make numerous trips to the escrow agent's office, it should ideally be within a comfortable distance from your home. Long trips to an agent's office can add more stress, and you don't need any more of that.

You will also want to discuss the agent's fees. Fees can vary. Get answers on what his fees are, who will be responsible for which those fees (buyer or seller). You should receive a breakdown listing and describing each fee, and which party is responsible for it.

Escrow agents take care of most of the paperwork, ensure all terms of agreements are complied with and distribute the funds accordingly. They will also:

* get instructions and loan documents from the buyers lender
* order the preliminary Title Report
* secure payoff demands from existing lenders, requesting full reconveyances of any deed of trust or mortgages to be paid off at closing
* obtain documents necessary to clear any and all outstanding liens on the property
* issue receipts for deposits and hold those deposits in a separate escrow account
* prorate taxes, rents (if any), interest etc.
* prepare escrow instructions per buyer & seller
* determine the date that escrow will close
* obtain Title Insurance on behalf of the buyer or his lender
* assuring timely transition of fire insurance
* record all necessary documents, such as deeds, reconveyances, powers of attorney (if used)

Depending on the terms of the agreement(s), the escrow agent may perform other tasks necessary to execute the terms of those agreements.

When all is said and done, closing - or settlement - can occur. At this time, you and your buyer will sign your names so many times, on so many documents that your hand will get tired.
Note that most escrow agents will require that checks brought to closing for down payments, escrow fees etc. Be in the form of a cashier's check. Most will not accept personal checks, so make sure your buyer is aware of this, to prevent unnecessary delays.

If either party, for reasons unknown, shall be unable to attend closing, that party can issue a Power of Attorney to have someone else take his place at closing, and sign all papers. Another method is to have the escrow agent send the documents ahead, to be signed in advance of closing.

Closing documents that you will be required to read should be examined carefully, preferably before closing, to check for any errors in the wording or the math.

NEXT: Seller's Checklist

Homeseller's Guide Part XIII

Negotiation Tactics

A big part of your profits will be directly proportional to your negotiating skills. Sharpen them by following and practicing these tips. Use them in everyday dealings with people, whether buying a suit or trying to convince an associate that you are right. Practice, practice, practice!

* A sophisticated buyer will try to gently and subtly poke holes in your expectations. Owners tend to get used to the flaws in their properties, and no longer notice them. Your job is to make sure that you do notice them, and not allow him the position of power he would otherwise hold if you had not noticed these flaws beforehand.

*Often the best negotiation tactic is silence. Silence tends to make the other party a bit nervous, and almost forces him to speak, just to break the tension. In speaking, he will often say something that will cost him.

*Act a bit disinterested. Make sure he understands that, while you certainly want to sell, you do not have to sell today, that you have time to find a buyer who will pay close to your price.

*First one to mention a price loses. Except for your original listing price, never, NEVER be the first to mention a lower price.. If you are the first to mention a figure, you will lose in the negotiations.

*Meet on your turf, preferably in the home. A seller has a distinct advantage meeting with buyers at his home or office. Home court advantage, you know. It may be psychological, but it is still effective. Meet on YOUR terms.

*NEVER involve emotion in your negotiations. If the buyer even thinks you are anxious and motivated, the price will go down, accordingly.

*When face-to-face and the buyer mentions a price, do not counter-offer with a higher one. Just keep silent and look at him as though you are waiting for him to say more. In many cases, he will go up of his own accord, out of sheer uneasiness. Again, silence can be your strongest asset.

*Never insult a buyer, by word or deed. The friendlier you can be, the less likely he will see you as an opponent. Avoid being blunt and bold, but do be honest and straightforward. Let him know that if he buys, it is your intention to help overcome whatever problems he may have and to make this a "win-win" deal. Listen intently, and listen as well to what he is not saying.

*Before talking money, just get him talking - about his family, his hobbies. In a short time, he will subconsciously accept you as a friend, and this will make it more difficult for him to negotiate effectively.

*While letting him talk, you are learning more about what motivates him, and what his priorities are (see "Speaking the Buyer's Language"). This gives you an edge in negotiations.

*Always write terms into your agreement that you really don't want, or expect to get. Then, you have something you can "give up" in exchange for things that you DO want, like a higher price, stricter terms etc.

*Never give up dimes for dimes. Give up nickels for dimes. For example, if the buyer comes up $2,000 in price, you should only go down $500-$1000 in your counter offer. If you give up the $300 power mower, make sure you get something worth more to you in return, such as the buyer paying part of your closing costs.

*When meeting with a buyer, do not dress up to the point where you look like a cold businessman. Dress casual, but nice. He will feel more comfortable, and be more apt to deal .

*If the buyer is in a bad mood, postpone negotiations until a later time.

*Whatever you do, do not get so tied up in a deal that you let the buyer talk you into terms you can't live with. If you cannot get the terms and price you feel that you need to, let him know that he is working too far below what you will accept.

*Determine beforehand the minimum price you will accept and the maximum terms you will offer. Hold to them. If you cannot make this profitable for you, forget it. There are other buyers.

* Be honest and ethical. A Straightforward approach that shows respect and a true desire to help the buyer as much as possible will pay big dividends. I cannot stress this point enough.

Note, too, that while customs, and even state laws may dictate who is responsible for various closing costs, these costs can still be negotiated between buyer and seller. In other words, if the custom or law states that buyer shall pay a certain cost, you can agree to pay it on his behalf.

Splitting closing costs which are often the responsibility of the buyer can often result in a signed agreement. If you want to share your non-agented savings with the buyer, this is a good way to do it, since it requires less cash out of his pocket at closing, making it easier for him to close.

NEXT: Choosing An Escrow Agent or Title Company

Homeseller's Guide Part XII

Speaking the Buyer's Language

So you think that, since you speak English, and the buyer speaks English, you are both speaking the same language? Not necessarily.

There is language, and then there is language.

Each of us speaks one of five types of any given language, and some of us speak more than one. Let me explain.

From the time we are born, our brain begins processing as data everything we experience - every thing we see, hear, touch, small and taste makes a lasting impression. This is how we learn. Unfortunately, we do not all process information in the same way. Sometimes, we simply cannot. If a child has a vision impairment, less of his input comes from sight, and more from his other senses. The brain associates input with the method by which it is received. For a majority of people, sight is the predominant input device, followed closely by hearing, then the other senses provide the rest. If, however, the person has a vision impairment, the predominant sensory input device may be the ears, or maybe touch.

So, what does all this mean to you, the guy who just wants to sell his home? A lot!

People who grew up using sight as the predominant input vehicle will be sight oriented - they learn to depend more on visual stimuli than any other. To these people, what they SEE is most important. On the other hand, those who grew up depending primarily on their hearing to input data will place more emphasis on what they hear. And so on, through all five senses.

Now, if you want to capture someone's attention, and you want them to see things your way (persuasiveness), you must speak to them in the language they predominantly use - for example, sight-based language if the person is sight-predominant.

If, while listening closely to a person you discover he uses a lot of "sight" words, such as "I see by this that...", or "I try to envision (or visualize)..." etc., you can suppose he is sight oriented, and if you want to speak his language, you must base your speech on sight, as well. If, on the other hand, the person uses hearing-based language, he will say things like, "From the sound of it, I'd say...". Smell-oriented people might use phrases like, "Something smells rotten - I don't think he's being honest..."

By listening carefully, you can usually determine the primary sensory input device, and use that to help sell your home. Let's say your buyer uses a lot of words like "see, vision, color, pretty, gorgeous" etc. He is probably sight oriented. Hence, he can best be swayed by those assets and benefits that are most pleasing to the eye - the view, color schemes etc. Those who are touch oriented (you'll spot them, because they have to touch everything) will be more impressed by textures, rather than patterns. Smell oriented buyers can be best impressed by the smell of fresh-baked cookies in the oven, and other smells that seem to scream "homey".
By playing on the buyers' senses, you have a much better chance of closing the deal. By the way - it is always a good idea to make a batch of chocolate chip cookies just before a showing, or whenever a buyer is due to show up. If a buyer can envision (yes, I am sight oriented) the homey comfort of living in that house, he is more apt to buy it.

I once taught this strategy to a very doubtful real estate agent that I had worked with a few times. She was, to say the least, very skeptical, but since her sales were not anywhere near the Top 10, she promised to give it a try. Within 8 months she had reached Top Salesperson for her agency, and a few months later she opened her own brokerage. She claims that, knowing how to speak the buyers language made all the difference, and that selling homes had almost become easy.

I use this strategy all the time - not just when buying or selling real estate, but in any interaction with others - business associates, personal relationships and so on. Not only does it afford me the opportunity of having someone fully understand what I am meaning, it also puts them more at ease, not having to try and decipher what I am saying.

Other, more "traditional" tips for talking with buyers should not be neglected. One such tip would be to schedule showings according to the time of day that best highlights your home. If the afternoon sun plays beautifully with the color scheme in the living room, schedule your showing for that time. If your home is situated in an area that has a great view of the sunset, then that is when you want buyers to see the property. Don't be afraid to bring these nice features to the buyers attention, if need be, but be sure to phrase it in a way that highlights the benefits of those features. But don't be too enthusiastic - no one likes a pushy salesperson. Know when to hold back. Be brief, but effective.

Make sure that you disclose any major problems with the house before the buyer spots them himself. This prevents him from using such things against you during negotiations, but more importantly, it insures you comply with any disclosure law in your state.

Answer the buyers questions truthfully, and respectfully. If you do not have the answer, say so, and add that, since he will likely have an inspector look it over, you are certain he can answer the buyers question.

If the buyer notices a problem, but you have had the source of the problem fixed, tell him. Explain how it was fixed, and at what cost.

Many buyers will try to pump you with questions designed to learn your true motivation for selling. It is their hope that they can use this in their negotiations. Do not give the impression - true or otherwise - that you are desperate. Do not tell them that you have already purchased another home, as this will lead them to assume you must now sell quickly. Try to give the impression that, while you obviously want to sell, you are not under any pressure to do so. This, alone, may do more to influence a higher first offer than he might otherwise make. And, when the buyer does make a verbal offer, advise him that you will consider all offers made in writing by any qualified buyer. Insist on a qualification letter from his lender, before considering his offer.

Here are a few questions you should expect:

Why are you selling without an agent? If the buyer asks this question, he is hoping your answer will indicate that he will share in the savings, which he has every right to expect. It takes two people to make a sale. Also, a buyer must do more of his own work if no agent is involved, so he should receive some share of the savings. If he believes these savings will be shared, it will encourage further negotiations (your listing price, however, should not reflect those savings - let the buyer negotiate for them, so he can feel better about the deal he's getting).

Why are you selling? As mentioned earlier, this question is a not-so-subtle attempt to learn your level of motivation. Answer honestly, but in a way that does not compromise you, or give away your true motivation.

How long has your home been on the market? He probably already knows the answer, so be honest. But understand that, if the buyer asks this question, he knows that the longer a property has been on the market, the more apt he will be able to dicker you down on the price. If your home has been up on the market for some time, let him know that you would consider making certain concessions (the ones you have already planned on, such as seller financing instead of all cash if you plan to invest some of the money, anyway; or to offer to pay ½ buyers closing costs instead of reducing the price by his share of the non-agent savings - this reduces his out-of-pocket costs at closing, which is probably better for him). Know ahead of time how you will answer this.

How did you come up with your asking price? If you followed the earlier suggestions on how to price your home, you will easily be able to validate your asking price. Be sure to explain, in detail, how you arrived at your price, and why you believe it to be fair. Offer to show him either the appraisal, desk appraisal or the comparables you used to come up with your price.

Will you take less? If the buyer does not ask this question, he shouldn't be in the buying market! And it is a question that rightfully deserves an answer. Plan your answer before the buyer ever comes to see the home. A good, general response to this question is that you will consider any reasonable offer in writing, made by a qualified purchaser. If he pushes further, to test your mettle, you may want to hint that you want this to be a win/win deal for all parties, and that you would be interested in looking over his written offer. Do not make or suggest any possible concessions at this time, even if you planed on making them eventually - remember, the first one to mention price or terms will lose in the negotiations. Let him make the first offer.

If, at any point, the buyer asks how low you would go, or if you would accept "X" dollars, tell them that you would first need to see their entire offer, and a letter of qualification from their lender. There is no point wasting time and stressing out if the buyer cannot qualify for the amount of his offer, and until you see the entire offer, you won't know if the terms are acceptable.

If any meeting with a prospective buyer starts to become adversarial, or confrontational, calmly call an end to the meeting, and suggest you meet again at another scheduled time.

NEXT: More Negotiation Tactics

Homeseller's Guide Part XI

Know What You Want

I know this sounds rather stupid, but you might be surprised at how many sellers are not really all that clear as to what they want, or they know what they want, but not how to get it. While you undoubtedly have a pretty good idea as to what price you want, have you given any thought to how you want it, or even why? Perhaps a straight deal, putting big equity bucks in your pocket might create a huge tax liability. Or maybe you plan on investing at least some of it into CD's. Perhaps your child is ready to go to college, and you need money for the tuition.

Whatever you might be using the money for, you could easily increase your chances of a sale for top dollar simply by allowing the buyer to help you fulfill those needs. If the buyer requires less upfront cash, or requires a smaller mortgage because he is taking on some of these things, the buyer benefits greatly, and can afford to pay top dollar. And you, the seller, can get everything you want - a true win/win situation. Let us look at an example:

John Seller wants $150,000 for his $150,000 home, but realizes that he will likely get only $140,000. He has $60,000 in equity, with an existing mortgage of $90,000. John plans on getting only $50,000 out of this, after negotiations. He plans to use $30,000 as a down payment on his next home, and the other $20,000 would be invested in CD's, currently at about 5.5%.
Bill Buyer wants to buy the house, and can only afford $7,000 down and a mortgage of $133,000, for a total of $140,000. On the surface, it appears that this deal will work for both parties. But there might be a better way, IF John Seller realizes it before negotiations get too far.

When Bill Buyer begins negotiating the price downward, claiming it is "just a bit out of my reach", John can come back with something like, "If you will agree to $145,000, I would be willing to finance $20,000 at 7% interest only, principal due in 5 years when you can refinance - that's much less than the rate you would pay on your mortgage, which saves you money. And, instead of taking out a $133,000 mortgage at 8.5%, you would only need a $125,000 at that rate, and with the $20,000 second you would owe at 7%, you come out a little better - a slightly smaller mortgage payment each month. Then, we both get what we want."

You see, if you sell for $140,000, pocket $50,000, use $30,000 as a down payment on your next home, you have $20,000 left, earning you $1100/year in interest. But if you sell for $145,000, you still have $30,000 down on your next home, $5,000 extra cash in your pocket and a $20,000 note that pays you $1400/year (instead of $1100). You come out ahead by $5000 cash plus an EXTRA $300/year in interest (times 5 years = $1500 extra dollars). That's a total increase of $6,500, and the buyer pays nothing extra for it. You both win.

Or, instead of you paying $5000/year towards your child's tuition, let the buyer sign an agreement to do that in exchange for an equal amount off the price of the house, provided he can show the financial means to do so, and your agreement with him is a lien on the home. Or perhaps you had planned to use $5000 of your proceeds to pay off your credit cards - let Bill Buyer assume responsibility for those debts in return for an equal amount off the purchase price.

The point here, of course, is that if you can give the seller a break - and still accomplish what you need to do - you can negotiate a better deal for both of you, just in a different way.

NEXT: Speaking The Buyer's Language

Homeseller's Guide Part X

Negotiating With A Buyer: Know What You Have

When you want to go on vacation, you might notice that it is virtually impossible to have a successful trip if a) you do not know where you are going, and b) you do not know where you are now. It's pretty much the same with successful negotiations. Unless you know what you have, and what you want, it is virtually impossible to come out a winner in negotiations. You will either try too hard for too much, or not try hard enough to get what you deserve. The former will cause the prospect to pack up and go; the latter will cost you a great deal. It is time to get a grip on just what, exactly, you have that the buyer wants.

During your initial inspection you should have come to a pretty good realization of what you have, but the real work is in presenting it in a way that coincides with what the buyer wants. Before you even begin meeting with sellers you should make a comprehensive list of all the assets and benefits of the property. Does it have a nice view? Is the deck a nice place to relax on a sweet summer evening? Is the tub a Jacuzzi? Is is suited to social events? Is it near schools, shopping or public transportation? By taking note of every conceivable asset and benefit, you are better prepared to present them to the seller in a way he can relate to (we will get into exactly how you will do this in the chapter "Speaking The Buyer's Language").

More important than knowing what you have, perhaps, is the full, unbiased realization of what you DON'T have. Many sellers make the mistake of placing too much value on areas that may have no value - or even negative value, to others. You may think that those notches on the kitchen door frame that indicate your child's growth are priceless, and add charm. But to a buyer, it simply represents another repair he must make. And even that expensive swimming pool in your back yard may not be the asset you think it is - it raises insurance rates, and it can pose a real liability if someone's child should accidentally drown in the pool. And, of course, some people just hate swimming in cold, chlorinated water.

Your objective, prior to starting negotiations, is to look at both sides of everything - not just from your point of view, but also that of a buyer. Forewarned is forearmed. If you know ahead of time which arguments a buyer might use to try and lower the price, the better prepared you will be to counter his argument, or at worst, to accept his argument without having been caught by surprise.

OK, assuming you now know, exactly, what you do and do not have, you need to give some thought to what you really want.

NEXT: Negotiating With The Buyer - Knowing What You Want