question

unmotivated sellers - those who don't need to sell but who will sell if the price is right - place property on the market at above market prices

answer

Will-sell sellers

question

highly motivated seller/desperate - price asked could be less than the sale prices of similarly desirable properties - includes those in foreclosure sales and short sales and lender owned RE

answer

Must-sell sellers

question

buyers who don't really have to buy - investors and speculators - often bargain hunters

answer

Will-buy buyers

question

generally look for properties that meet their specific needs - more likely to pay a reasonable price

answer

Must-buy buyers

question

places pressure on prices to rise or fall

answer

Suppy and demand

question

Buyers must compete among themselves for properties. In a ___ there may be multiple offers for a property. Prices will increase in a ___ market.

answer

Seller's market

question

There are many sellers and few buyers. Sellers must compete for the available buyers which usually means lowering the prices.

answer

Buyer's Market

question

The RE marketplace is a ______ based on price range. There could be a seller's market in homes priced in a certain price range and a buyers maket in another price range.

answer

Stratified Marketplace

question

Salespeople selling new homes in subdivisions - can sell a product at a fixed price

answer

Tract Sales

question

agents specialize in listing and selling ___ for investment purposes as well as to provide builders with a supply of real estate

answer

Lot sales

question

Broker's must carry _____ for salespersons that are considered for this purpose to be employees

answer

Worker's Compensation Insurance

question

broker's share of commission received if a salesperson fails to contribute at least the amount of "desk cost" overhead - the agent is a negative factor on earnings

answer

Company Dollar

question

Total office operational overhead divided by the number of salespersons

answer

Desk Cost

question

the new hire assists a successful salesperson for several months - may be a fee involved

answer

Mentor Program

question

National Association of Realtors

answer

NAR

question

California Association of Realtors

answer

CAR

question

salesperson pays a flat desk fee or a desk fee plus a transaction fee to the broker and then keeps all the commissions earned - may not include support services - not a good option for new salespeople

answer

100% Commission offices-

question

Senior Real Estate Specialist - provides the expertise to meet RE needs of seniors

answer

SRES

question

offers the ECO Broker designations for agents dedicated to reducing our carbon footprints and protecting the environment.

answer

Association of Energy and Environment RE Professionals

question

tool for making intelligent decisions - seven principles (specific not abstract, time frame, put in writing, tell someone, reasonably attainable, adoptied after consideration, should be changeable)

answer

Goal setting

question

foundation of your goal setting - should include steps leading to your short term, intermediate term, and long term goals

answer

Daily planning

question

time spent making listing presentations and showing properties for sale - can lead directly to a commission

answer

A Time

question

time spent in prospecting for buyers and sellers and in preparing for showings

answer

B Time

question

caravanning, studying inventory, doing necessary taks and paperwork in support of more important activities

answer

C Time

question

time spent for personal and non work related activities

answer

D Time

question

Procedures manual

answer

Policy Manual

question

NAR traning program to certify RE professionals as Internet professionals - will prepare you for more effective online communications

answer

e-PRO certification

question

bar code readable by smartphones - one phone scans the other for data transfer - can mean paperless electronic card

answer

QR Code

question

comes from the Greek word Ethikos - meaning moral and comes from the word Ethos - meaning character moral standard for life

answer

Ethics

question

Do unto others as you would have them do unto you.

answer

Golden Rule

question

set minimum standards for what a society regards as acceptable behavior

answer

Laws

question

an illegal act for which the state sets penalties

answer

Violation of the law

question

_____ is right, not in miniumum standards _____ remains constant _____ tends to precede the law

answer

Ethics __

question

No down payment purchasers rent homes purchased, pocket rent, and not make payments on loans they assumed. Not againt the law (in 1980's) but was unethical. Is now illegal.

answer

Rent Skimming

question

Your motive for an action could determine if the action is ethical or unethical.

answer

Ethics and motive

question

___ incompatible with good business practices

answer

Ethics is ____

question

Good Business

answer

Good Ethics =

question

based on the Golden Rule and is an excellent guide to ethical behavior. Adopted by the RE commissioner

answer

REALTORS Code of Ethics

question

strives to increase professionalism in the RE industry

answer

NAREB goal

question

ordered teh federal govt to keep out of slavery issues because it was a matter for the states to decide

answer

Dred Scott Decision

question

abolished slavery but it didn't specifically address the rights of former slaves.

answer

Thirteenth Amendment

question

-Intended to provide equal treatment for former slaves. -States "all citizens of the US shall have the same rights in every state or territory to inherit, purchase, lease, sell, hold and convey Real and Personal Property" -broad but only applied to race -had no exceptions

answer

Civil Rights Act of 1866

question

-Protects the rights granted in the 1866 act by providing protection in the US Constitution - prevents a later Congress/court from taking away these rights -States ... "no state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the US .. nor deprive any person of life, liberty or property w/o due process of law..." -offered comprehensive civil rights protection

answer

Fourteenth Amendment

question

..."and be it further enacted that the act to protect all persons in the US in their civil rights and furnish the means of their vindication, passed 1866 is hearby reeneacted..."

answer

Civil Rights Act of 1870

question

John F Kennedy issued an order that prohibited discrimination in housing wherever federal funds were involved - affected prop sales involving FHA and VA loans and other govt subsidized programs - passed 1962

answer

Executive Order 11063

question

made the 1962 executive order law and is among the first of the modern civil rights acts - prohibited discrimination in all federally assisted programs

answer

Civil Rights Act of 1964

question

involved a seller who refused to sell a home to an African American - ruled that prohibiting discrimination also applied to individuals (not just the state)

answer

Jones v Mayer

question

prohibited discrimination in housing based on national origin, race, religion or color

answer

Civil Rights Act of 1968

question

act of directing people of different races, religions, away from or toward particular areas

answer

Steering

question

process of inducing panic selling by representing that prices will drop or crime will increase bc of the possible entrance of minority group members to the area

answer

Blockbusting

question

the refusal to loan within an area

answer

Redlining

question

extended federal protection against housing discrimination to include familial status and handicapped persons.

answer

1988 Fair Housing Amendments Act

question

prohibits discrimination that would deny the equal enjoyment of goods, services, facilities, and accomodations in any existing place of public accomodation based on an individual's physical or mental disabilities. Also applies to employment discrimination.

answer

Americans with Disabilities Act ADA

question

applies to stores, offices, and other nonresidential commercial facilities open to the public

answer

Place of public accomodation

question

"easily accomplished without a great deal of expense" based on the cost of compliance related to property values and on financial abilities of the person involved

answer

Readily achievable

question

prohibits credit discrimination because of sex, marital status, age, race, religion, national origin, or bc the income is coming from public assistance

answer

Equal Credit Opportunity Act

question

prohibits discrimination in all business establishments Applies to RE brokers, salespersons, and anyone managing an apartment building or other business establishment.

answer

Unruh Act

question

prohibits discrimination in supplying housing accomodations on the basis of sex, color, race, religion, marital status, family status, sexual orientation, disability, source of income, ancestry, or nat. origin. Anyone selling, renting, leasing, or financing housing must comply with _____

answer

Rumford Fair Housing Act

question

prohibits fainancial instituitons from engaging in discriminatory loan activities or practices

answer

Holden Act

question

makes all of CA nondiscr. acts consistent with the CA Fair Employment and Housing Act as to coverage.

answer

California Omnibus Housing Nondiscrimination Act

question

a federal act to protect consumers from businesses that conspired to control prices and/or competitors - penalties for violation can include imprisonment.

answer

Sherman Antitrust Act

question

Prohibited by Sherman Antitrust Act brokers cannot agree on miniumum fees to be charged

answer

Price fixing

question

Prohibited by Sherman Antitrust Act it's illegal to divide a marketplace geographically or by type of service as it reduces competition

answer

Market Allocation

question

Prohibited by Sherman Antitrust Act firms may not agree to refuse to do business with a firm or individual

answer

Group Boycotting

question

Prohibited by Sherman Antitrust Act agreements that require a client to buy additional goods/services as a condition of doing business or cooperating

answer

Tie in Agreements

question

prohibits kickbacks from service providers to brokers

answer

RESPA

question

refer to money or anything of value received by an agent, but not belonging to the agent, held of the benefit of another.

answer

Trust Funds

question

w/in 3 days of receipt of the funds do one of the following... Give the funds to the principal Deposit the funds directly into escrow Place the funds in the broker's trust account

answer

When a broker receives funds for a transaction .. they must

question

mixing of property of another with property of the broker

answer

Commingling

question

should a broker missappropriate trust funds for personal use or any other use than designated, the act would be considered ____ which is a criminal offense.

answer

Conversion

question

an item of info required by law to be conveyed from one entity involved in a RE transaction to another entity in the same transaction

answer

Mandated Disclosure

question

required in a transaction involving residential real property of 1-4 units

answer

Agency Disclosure

question

Disclose - must be in writing using prescribed form Elect - agent and principal decide which type of agency will be used Confirm - confirmation of the type of agency elected must be in writing, signed by agent and principals - usually part of the purchse contract

answer

Disclosure Process for Agency Relationships

question

the purchaser of residential property of 1-4 units is entitled to this - informs of defects, nonoperational items, all info regarding possible issues

answer

RE Transfer Disclosure Statement TDS

question

agent uses same statement as TDS to be completed if the seller is represented by a listing agent

answer

Agent's Inspection Disclosure

question

under this case, a RE agent was deemed responsible for what was known or accessible only to the agent or his or her principal but also for what the agent should have known following an inspection

answer

Easton vs Strassburger

question

required for RE sales of 1-4 unit residential properties disclosure to the prospective buyers of all material facts affecting the value or desirability of the property

answer

Agent Inspection

question

can be caused by environmental extremes, poor design, material deterioration, water or insects shown in cracks, bulging, sloping, other instability

answer

Structural Failure

question

can be produced by substandard material or construction procedures or by a moist environment (most severe type - damp rot) shown in decay/warping wood, rotting, cracking, erosion

answer

Material Deterioration

question

can be caused by faulty plumbing, rising ground water, sewage, bad drainage, condensation shown in water stains, mold, mildew, loose or warped wood, rotted wood, roof defects

answer

Water Problems

question

sellers of 1-4 residential property must disclose in the RE Transfer Disclosure Statement if the owner is aware of mold on the premises presence of ___ can have serious health effects caused by damp conditions

answer

Toxic mold

question

companies are licensed by the Structural Pest Control Board in CA copies of termite reports conducted within the last 2 yrs are available to anyone who requests

answer

Insect Infestation - termites

question

Section 1 - active infestation - seller would pay for this termite damage Section 2 - a condition that could lead to a further problem - buyer would correct section 2 problems

answer

2 parts to termite reports

question

anything that indicates that ther may be a problem this info should be conveyed to the purchaser with a warning that it could indicate a problem

answer

Red flag

question

property that may be perceived to be undesirable for other than physical or environmental reasons

answer

Stigmatized Property

question

a RE agent doesn't have to disclose the locaiton of a licensed care facility that serves 6 or fewer people a large facility close to the property should be disclosed

answer

Licensed Care Facilities

question

state law requires that when selling 1-4 unity res. prop's built prior to 1960 - you must disclose whether the dwelling has earthquake weakness - this booklet helps to identify weaknesses in a structure

answer

Homeowners guide to earthquake safety

question

all houses sold in CA has to have an earthquake safety disclosure statement that is filled out and signed by the buyer and seller

answer

Residential Earthquake Hazards Report

question

for sales and exchanges of any real property built of precast concrete or reinforced/unreinforced masonry with wood frame floors or roofs built befor e1975

answer

Commercial Prop. Owner's Guide to Earthquake Safety

question

natural hazard disclosures that must be made on a statutory form Special flood hazard zone - areas of potential flooding - very high fire hazard zones - state fire responsibility areas - wildland areas that are at a high fire risk - earthquake fault zones - seismic hazard zone

answer

Natural Hazard Disclosure Statement

question

term used to describe contaminated soil

answer

Brownfields

question

disclosure required if a property is within one mile of a former military ordinance location that may contain explosives

answer

military ordinance location

question

modern commercial buildings have sealed windows and receive fresh air through ventilation systems - some develop ___ - agent should reveal this information altho its not mandated by law

answer

Sick Building Syndrom

question

protect purchasers in new subdivisions from fraud

answer

Purpose of the CA Subdivided Lands Law

question

disclosure known as ___ must be provided to purchasers who must sign that they have received and accepted the report before they are bound to complete the purchase Commissioner approves the report

answer

Public report

question

Subdivided lands which include a separate interest in real property combined with an interest in common with other owners. The interest in common may be through membership in an association. Examples are condominiums and stock cooperatives.

answer

Common interest subdivision

question

federal act requires disclosures for interstate sale of remote unimproved lots for subdivisions of 25 or more parcels - to prevent fraud, requires disclosure as to title, location, facilities, utilities availability and charges, and soil conditions

answer

Interstate Land Sales Full Disclosure Act

question

when a developer intends to convert an apartment to idividual ownership - the developer must notify current and prospective tenants of the intent

answer

Condo conversion notice

question

financial disclosure involving seller carryback financing of 1-4 unit residential properties - Seller Fiancing Addendum & Disclosure Statement

answer

Seller financing disclosure

question

lenders offerig an adjustable rate residential mortgage must provide prospective borrowers the most recent copy of the Fed Reserve publicaiton Consumer Handbook on ARM's

answer

Adjustable Rate Loan Disclosure

question

if there is an underlying blanket encumberance that affects more than one parcel, the buyer's funds should be protected unless the unit can be released from the blanket encumberance

answer

Blanket Encumbrance Disclosure

question

when a RE broker solicits or negotiates loans that are not federally related on behalf of lenders or borrowers - the broker must deliver a mortgage loan disclosure statement to the borrower w/in 3 bus days of recv the borrower's written loan application

answer

Mortgage Loan Disclosure Statement

question

applies to private party lenders and pension plans that make purchase loans through a broker - broker must provide a disclosure statement as to the loan terms and status and info about other encumberances

answer

Lender/Purchaser Disclosure

question

Laws created to allow buyers to compare costs of services from different lenders or closing agents.

answer

RESPA

question

one day prior to settlement - this has to be given to the borrower

answer

Uniform Settlement Statement

question

broker has a financial interest in a service provider - the relationship should be disclosed - buyer is free to choose another provider

answer

Controlled business arrangement

question

requires escrow holders, RE agents, others to report elder financial abuse, fraud, or undue influence - reporting the abuse is mandatory

answer

Elder abuse law

question

statutory - applies to a number of transactions - buyer must be informed of his/her rights

answer

Recission Rights

question

midnight third business day

answer

Truth in lending rescission

question

subdivisions of 25 or more unimproved residences 7 day right of rescission

answer

Interstate Land Sales Full Disclosure Act rescission

question

3 days after signing contract

answer

Time Share rescission

question

3 day right following day the agreement is signed undivided interest subdivision

answer

Undivided Interest Subdivision rescission

question

right to cancel any contract with an equity purchaser until midnight on the 5th business day following the sales agreement or 8am on day of the sale

answer

Home Equity Sales rescission

question

3-5 day right of rescission failure to disclose the property is in a ___ district

answer

Mello Roos Disclosure rescission

question

process of locating owners who are interested in selling property and prospective buyers who are interested in purchasing property any method of exposure to people who can buy or sell real estate

answer

Prospecting

question

can be an excellent way to cover a geographical area must get homeowner's attention within the first 20 seconds in some communities it is not allowed or might require a permit

answer

Door to door canvasing

question

published ____ giving occupants' names from the address are now availble in some areas - the whitepages.com/reverse can provide names from an address

answer

Reverse directories

question

The Federal Communications Commissioner has established a National _____ to protect consumers from unwanted commercial solicitations. All telephone numbers can be registered. Fine up to $16,000 per call.

answer

Do not call registry

question

- if you have an existing business relationship (w/in 18 months of purchase, sale, or lease) - within 3 months of an inquiry the party made - people who gave written permission to call - can call commercial numbers - can call #'s on for sale by owner ads/signs as a uyer representative - not to obtain seller representation - can call for survey purposes - no solicitation

answer

Exceptions to do not call rules

question

most effective when agents carefully plan their mailing process to be effective a mailing must get attention and result in action

answer

Direct Mail Canvasing

question

-#10 plain envelope w/ no window - don't use mailing label, preferably hand address envelope - 1st class stamps - test market your mailing

answer

General rules for direct mailing

question

protects consumers from being assaulted by misleading unsolicited e-mail messages, unsolicited e-mails must include the following: opt out mechanism, return email address, valid subject line, legitimate physical address of the mailer

answer

CAN-SPAM

question

prohibited to send unsolicited advertisements and solicitations to a fax machine - to send a fax you must get a signed statement including the fax number

answer

Fax solicitations

question

good prospecting tool - should include local information to grab attention from reader along with RE information

answer

Newsletters

question

never contact owners before their listings expire -> trying to take a listing from another Realtor is a violation of code of ethics when a listing contract expires - approach property owners in a low key way show owners why a property failed to sell and how you can succeed

answer

Expired listings

question

approach with free advertising tools and information and help with paperwork - if they fail to sell they may come to you for help

answer

FSBO

question

when a home is advertised for rent - the owner may really want to sell but needs income for payments - owner contact can be made face to face or by letter

answer

Rental ads

question

people advertising willingness to trade usually want to sell may be dealers

answer

Trades

question

notice of default recorded - owner may be in trouble - obtain property profile from title company (free service offered to realtors)

answer

Legal Notices - Foreclosures

question

Heirs who inherit often would prefer to cash and may want to sell Or property may have to be sold to pay debts of the estate or to carry on wishes from the deceased

answer

Legal Notices - Probate

question

CA is a community property state - divorce often means that a home must be sold to split assets

answer

Legal Notices - Divorce

question

in CA many owners in bankruptcy may keep their homes still may want to move for a change

answer

Legal Notices - Bankruptcy

question

can be dificult to solicit a listing after death - do not approach for at least one month after a death

answer

Legal Notices - Death

question

an eviction = owner with a problem = may be highly motivated to sell

answer

Legal Notices - Eviction

question

a person who takes out a building permit may own another home that needs to be sold

answer

Legal Notices - Building Permits

question

Notices of violations/fines indicate a problem with the property - may want to relocate and sell property

answer

Legal Notices - Code violations

question

could have financial problems - a solution could be a sale of their house

answer

Legal Notices - Tax Delinquencies

question

when an investment property is sold, find out who the buyer is - they may have further iterests in purchasing property - could be good prospects for buying and selling

answer

Investors and speculators

question

check with local lenders about their Real Estate Owned (REO) properties - how to get a key and the commission paid contact large lending groups VA, FHA, HUD for foreclosure lists

answer

Lenders

question

aka referral method of prospecting - ask every prospect to recommend other prospects - produces a large # of referral prospects

answer

Endless Chain

question

Cultivate a friendship of influenial persons in the community They serve to bring you together with potential sellers/buyers Considered Bird Dogs - they point the way to prospects

answer

Centers of Influence

question

Develop a systematic plan - Keep track of the results of your methods - Utilize all sources of information - Make them aware that you are in the RE business - Follow up referrals by reporting back to the referrer

answer

Build a Referral List

question

working or prospecting an area of interest for sellers and buyers can be geographic or nongeographic (special interest area) requires constant attention and regular contacts

answer

Farming

question

a specific area with definite boundaries w/ similarly priced homes or other shared characteristics

answer

Geographic Farms

question

some agents farm areas of several thousand homes - some using assistants to help - or by specializing in listing activities rather than sales

answer

Megafarming

question

a particular segment of the marketplace defined according to property differentiation or buyer/seller differentiation ie ethnic groups, small investors buying duplexes, horse properties

answer

Nongeographic Farms/Social Farms

question

specializing in a narrow segment of the market based on what best meets your personality, experience, needs

answer

Niche Marketing

question

keeps you motivated - can evaluate the effectiveness by keeping track of sources of new prospects as well as the results of working with the prospects Quality of leads is more important than quantity of leads Initial plan shouldn't be cast in stone

answer

Prospecting plan

question

a comparison analysis used by RE agents to aid in determining a proper list price for a property comparables must be presented in an honest, logical, and convincing manner so that the owner realizes that if the property is to sell it must be priced based on the market

answer

Competitive Market Analysis

question

The CMA provides info on ____ that have been placed in the marketplace so they can be compared with the property that is to be evaluated to determine an offering price.

answer

Comparable Properties

question

Should include the following 3 seperate areas: - on the market now - reported sold prior six months - reported expired prior six months

answer

Relevant Property Data for CMA

question

indicates to an owner the prices that competitors are asking for their properties - shows an owner what a prospective buyer will see and how the owner's pricing will compare with that of the competition

answer

On the market now

question

more valuable than the list of current properties on the market bc it shows actual sales prices - strive to obtain data covering a period of about the past 3 months

answer

Reproted sold prior 6 months

question

adjustments to comparable properties should be made based upon the property that is the subject of the CMA

answer

Adjusted selling price

question

vary within a 10% range of what you consider the value to be (mean point) a variation of 20% might be an aberration and not reflect a true market picture

answer

Prices of sold comps can be expected to vary

question

list of the losers - failed to sell - usually failed to sell because the price was too high

answer

Expired Listings Comps

question

easy to come by - MLS - perform radius search there are services that will prepare comparables for you

answer

Obtaining Comparables

question

valuable visual tool for obtaining listings presented in a 3 ring binder or displayed on a laptop a visual tool that works well with an agent's dialogue to make a structured and effective presentation should be prepared for sale listings and buyer listings

answer

Listing Presentation Manual

question

1. Why List? 2. Why us?

answer

Listing Presentation Manuals should be divided into...

question

The word fee denotes a professional charge for benefits, whereas commission has a negative connotation to some people

answer

Using the word fee

question

a nonexclusive written memorandum that when signed by the seller or buyer, authorizes the broker to serve as an agent for the sale or purchase of property the owner agrees to pay a commission if the broker procures a buyer or property that is purchased

answer

Open Listing

question

gives a broker the sole right to procure a purchaser for a property - the broker is the sole agent and has the right to a commission if a buyer is found by anyone during the term of the listing

answer

Exclusive Authorization and Right to Sell Listing

question

the seller will pay a commission to the listing broker regardless of which agency makes the sale - doens't prevent owners from selling their own property and paying no commission

answer

Exclusive Agency Listing

question

could be open, exclusive right to sell, or exclusive agency listings - a clause in the agreement states that the owner is asking a certain sum of money from the sale of the property - all expenses including broker's commission are to be covered by any sum the broker gets in excess of the selling price specified by the seller

answer

Net listing

question

The agent who is the ____ of a sale must have initiated an uninterrupted series of events that led to the sale.

answer

Procuring cause

question

An __ is an irrevocable right to buy a property at an agreed price.

answer

Option

question

Entitles the broker to compensation under the listing if the property is sold to a third person as well as the agent's right to buy the property himself. An option listing is legal - but an agent who makes an extraordinary profit could be involved in a lawsuit.

answer

Option combined with a listing

question

shoud be avoided

answer

Net Listings and Option Listings

question

gives authority to the broker to act as the agent of the buyer

answer

Buyer Broker Agreement - Exclusive right to represent

question

3-6 months - but could be longer if agent thinks it may take more time

answer

Time limit typically for Residential Listing Agreement

question

protects an agent from attempts to evade paying their fee even after the listing expires provides that the listing agent shall be entitled to a commission if the property is sold within a specified number of days after expiration of the listing to a prospective buyer whose name was furnished by the agent w/in 3 days of exp date of listing OR was sold to a buyer who was shown and entered the property during the listing period

answer

Safety Clause

question

- if the seller sells, leases, or rents the property; withdraws it from the market w/o the consent of the broker; or otherwise renders the property unavailabel for sale before the exp date

answer

Seller agrees to pay a commission (listing agreement)

question

requires an actual service provided for every fee agents may not charge duplicate fees

answer

RE Settlement Procedures Act

question

sets forth the type of property that the buyer wishes to purchse, its general location, and the price range - also sets forth the specific duties and obligations of the buyer and broker - also states the matters that are not the responsibility of the broker

answer

Exclusive Right to Represent Buyer Agreement

question

the buyer is responsible for the broker's compensation - compensation received from others shall apply to the amount owed by the buyer (cooperative sales) if the buyer defaults on a valid purchase contract, then the buyer is obligated to pay the broker commission upon default

answer

Compensation for Buyer's agent

question

- Obtain information about the property - Prepare yoru Competitive Market Analysis (CMA) - Drive by the current/expired/recently sold properties

answer

Preparing for the listing

question

a saleable listing is still possible with a short sale if you can convince a lender that it is in their best interest to agree to a short sale where the lender agrees to accept the sale proceeds as settlement of the loan obligation

answer

Short Sale

question

should start with the listing - agents should inform owners what will be happening in the few days immediately following agents should make definite appointments to discuss marketing approaches

answer

Owner agent communication

question

give the owner's ____ to follow when you recognize work needs to be done, advise the owners to do it or have it done show that it is in the owners' interest and not yours that the house appears at its best

answer

Homeowner Instructions

question

Tell the owners what you have already done, what you are doing, and what you will be doing. Owners should understand that you will be sending them a ____ Prepare reports on all of your listings every week so they become a part of your routine.

answer

Weekly activtiy report

question

ask the owners to complete a _____ - this information can be extremely valuable - filled out copies should be available to all salespersons in your office - agents who know what buyers want will have special ammo to sell particular houses

answer

Neighborhood Information Request

question

can be very productive because other agents and prospective buyers get excited over new listings

answer

First few weeks after a listing is taken

question

You want the sellers to complete the _____ as soon as possible so it can be given to a prospective buyer - if the owners reveal problems that you feel should be corrected before a sale - advise them to take corrective action

answer

Real Estate Transfer Disclosure Statement

question

Several weeks before your listing expires - schedule a meeting with the owners to go over the listing and what you have been doing on their behalf If owners think you've been diligent in working for them - they may want to obtain a listing extension.

answer

Listing Extension

question

can emphasize a desirable feature not evident from the exterior - ie pool and spa, 5 bedrooms, etc

answer

Rider Strips

question

RE agents can order signs or create fliers with quick response codes on them - allows users to scan them to obtain immediate information on the property

answer

QR Codes

question

If a broker does not submit a listing to the MLS service and precludes other agents from showing the property - it is considered ___ - could be a breach of the agent's feduciary duty and MLS rules

answer

Pocket Listing

question

an advertising flyer about a particular property must include your name, license, identification #, cell #, email, fax, perosnal website copies should be on table at the home, information box, agents in office, open houses of this house and others

answer

Property Brief

question

After the listing is on MLS, you prepared a prop brief, and posted the property info on the internet - prepare at least 3 classified ads on the property and one open house ad - want to use max effectiveness

answer

Advertising

question

w/in 1 week of taking a new listing, you should send a letter to residents living within at least 1 block of the property - this informs neighbors of the listing and asks them to help locate a buyer

answer

Area canvas letter

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as soon as you get a new listing in an office, all agents should go through their prospect files to try to match their current prospects with a new listing Adv 1: buyers get excited about new listings - urgency Adv 2: creates traffic w/in a few days of taking listing - looks good in seller's eyes

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Check the files

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used when selling an unusual property, a property that must be sold, or several identical properties close to eachother

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Broker open house

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when owners owe more on their loan than house is worth solution = short sale - in which lender agrees to accept the net receipts of the sale as a discharge of borrower's obligations

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Short sales

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attempts to create a favorable image of the real estate company, the broker, and the salesperson - it keeps the company's name in the public eye - inspires trust, confidence, and goodwill - often done by organized groups having similar interests, manifests pride in and respect for the RE business

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Institutional Advertising

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also called Operational Advertising - concerned with immediate results - describes a particular piece of property and stimulates activity in a specific property or an entire tract of homes - a broker's ads are in direct competition with the ads of other brokers

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Specific Advertising

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If an ad is to be read and attract buyers, it must be designed to grab the reader's ATTENTION, stimulate his or her INTEREST, generate a DESIRE, and lead the reader to ACTION

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AIDA approach to advertising

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attention getters include headlines that use words and word combos as well as typefaces and layouts that attract prosepective buyers and encourage them to read further.

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AIDA Attention

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the ad should arouse interest in the specific product or service offered - done through curiosity

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AIDA Interest

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the ad can create desire by appealing to the senses and emotions - language must be clear and concise and inspire the reader's confidence

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AIDA Desire

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the ad should move potential buyers to take action

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AIDA Action

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- Advertise the right property - Know when to advertise - Choose the right market - Use the proper media - Use effective advertising techniques

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Advertising guidlines

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In determining media choice - the advertiser must begin with 3 considerations: The target audience to be reached, the message to be conveyed, the money available for media purchases Broker must evaluate which medium or combo of media will deliver the max # of potential customers for the expenditure the broker can afford

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Choosing Advertising Media

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NAME TAG id'ing you as a RE professional - readable from 6 ft away BUSINESS CARDSyou want people to be able to id your car among a group of cards - RE license # must be on your business card CD BUSINESS CARDS CAR SIGN YOUR OWN COLUMN - in small circulation local papers - should be well known in subject PERSONAL BUSINESS SITES - personal website BLOGS - emphasis on a certain subject, regularly updated, should be separate from personal website SOCIAL NETWORKING - twitter, faceboo, linked in YOU TUBE

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Personal Advertising

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-the high cost of advertising in a newspaper and the growth of the internet has resulted in less reliance on the RE classified ads - have a degree of audience selectivity - effective life span is short - any newspaper ad should provide broker name, phone #, and internet address - must list that the ad is placed by a broker (otherwise deceptive blind ads and are illegal)

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Newspaper advertising

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- most common form of newspaper advertising for RE - have a very short life span and will be in direct competition with many other ads - analyze likely buyers for a property and appeal to those buyer's needs -ad should indicate an internet address - read by willing readers looking for properties - attention getters are important

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Classified ads

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the use of adjectives to paint word pictures of features can spark readers interest can bring a desired image to the reader - so use them important for print and internet ads

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Adjectives

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-the greater the circulation - the higher the cost of advertising -relatively short ads can be used to perk the reader's interest to check more info on the internet -many single office RE brokers avoid large newspapers because so much of the circulation is beyond the broker's market area

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Large circulation papers

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-may be either institutional or operational in nature -primarily used for selling developments rather than single homes - consider obtaining prof help for display ads

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Display ads

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- cost of advertising in a magazine having mass appeal is high - special interest groups could be productive for the right property - SPECIAL CITY/AREA MAGS have limited circulation - most effective for impressive homes - AREA HOMEBUYER MAGS particularly effective for newcomers to the area - E BROCHURES can be sent as emails or included on a CD bus card - RADIO BRODCASTING - relatively new medium - effective bc audience can listen while doing something else - TELEVISION delivers ads to both eye and ear - used sparingly for general RE ads and by large RE firms/franchises - HOME SHOWCASE PROGRAMS excellent responses

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Magazine Ads

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- used less frequently - depends on the size of the town and availability of ad billboards - used by larger brokerage offices or chain operations - used a lot for large developments

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Outdoor advertising

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- effective and they work 24-7 - should be unique, original, quickly informative, and attractive

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For Sale Signs

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- rather expensive per contact - can be effective in reaching a select audience

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Direct Mail

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except for prep time, it is a no cost approach

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Direct email

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particularly valuable in niche marketing should be quality

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Newsletters

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free ads your local newspaper publishes press releases that are well written, double spaced, and newsworthy message can include a photo with a caption and id'ing people in photo

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Press Releases

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promotional giveaway items - in the ad budget - can be given out to promote you or your company at open houses, social gatherings, door to door

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Specialty gifts

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-predominant marketing tool - more productive -majority of contacts come from internet postings -relatively low cost once your website has been established -include your web address in all your other advertising media -internet is over twice as effective as print for RE firms

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The Internet

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About us - Inventory - Area Map showing locations - Email Signup offer - Motion or sound - Loan Qualifying Opportunity - 1-800 number - Back to home page link - Contact us - "Search MLS here"

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Webpage Preparation - features to include

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- success in pay per click ads on websites other than real estate sites - sites that benefit the community are good sites for pay per click ads - you pay a fee when viewers click on your ad - it links to your site

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Pay per click ads

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-to determine their cost compared to the amount of business they generate -key to good measurement system is simplicity -a technique is to have a code on the bottom of the piece of ad or a certain telephone number -receptionists in the office can keep track of what ad a person has seen when they call in -just because one medium is not as effective as another in terms of number of responses does not mean the medium is ineffective

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Track ads

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CA RE Law Regulations of the Real Estate Commissioner Federal Consume Credit Protection Act (Truth in Lending Act)

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Advertising of Real Property is regulated by...

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- Penalties for Unlicensed Person False Advertising regarding any land or Subdivision Disclosure of Name False Advertising in not including license # in an ad Misleading Advertisement regarding rates/terms/conditions loans Inducements for making a loan or purchasing a promissory note Mobile Home Advertising

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CA RE Law

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RE commissioner can adopt regulations that have the same force and intent as law ADvertising License Designation - broker, agent, realtor etc are sufficient Disclosure of License ID # on Solicitation Materials - on all first point of contact solicitation material

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Regulations of the RE Commissioner

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its a moral code, not law but should be followed Realtors should: present a true picture in their ads, clearly ID their status as a Realtor, shouldn't advertise a sale of a prop w/o authority, not advertise listed prop w/o disclosing firm name, advertising unlisted real property for sale/lease when they have an ownership interest w/o disclosing their interest

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Code of Ethics of the National Assoc of Realtors

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requires disclosure of credit costs as a percent and total finance charges enforceable by the Federal Trade Commission 3 elements should be included in advertisements: amount or % of down pmt, terms of repayment, APR advertising the APR alone will not trigger above disclosures

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Truth in Lending Act

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advertising property that agents don't intend to sell or that is not avaialble in order to attract buyers for other property - a FEDERAL OFFENSE

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Bait and Switch

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if the loan is for consumer credit secured by the borrower's residence, the borrower has the right to reconsider and cancel

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Recission Right Truth in Lending

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Loans exempt from all truth in lending disclosure requirements include: business loans, ag loans, construction loans, personal property loans over 25k, interest free loans w/ 4 or fewer installments, non owner occupied housing, and carry back financing for most sellers is exempt

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Exemptions Truth in Lending

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-successful RE offices have a budget for expenses - advertising is a big part of the budget and it must be accounted for -the budget should determine how the money should be allocated to advertising -online advertising for most firms is nearly 2/3 of ad budget

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Advertising Budget

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- the time to increase advertising is when market sales are increasing - a budget should be adjusted to relfect market change - in a down market - total ad dollars will decrease - percent of the company dollar spent on advertising will increase - in an active market - total ad dollars will likely increase - percentage of advertising cos to the company dollar will increase

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Advertising Budget Rules

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- generally takes the form of a telephone call - your goal with this call is not to sell the property but to make an appointment to meet - a call is a valuable commodity - wasted call wasted money

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Initial Buyer Contact from Advertising

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many offices have designated periods of floor time - calls can be at all hours and on home/personal cell phones - you will receive inquiries by email and fax

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Floor Time

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- you should be prepared to field inquiries at all times - have copies of both your own current ads and office ads and an all office listings - need to be readily accessible - make notations on ads so you know what prop each ad refers to - also consider likely switch property priced up to 20% more or less than advertised properties - have a map of your community readily available with numbered adhesive markers referencing all your office listings (have one with you and on your office wall)

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Prepare to receive telephone calls

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-like or would be satisfied with the area -like or would be satisfied with the appearance of a home with a similar exterior -tend to buy property other than the one they called about -are often looking beyond their means

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Callers on For Sale signs

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- tend to buy property other than the property they initially inquire about - callers on priced ads are often hopeful of buying a property that is less than they can afford to pay

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Callers about classified ads

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- have a greater likelihood of buying the property they called about - caller likes the appearance of the property and the description seems to fit his/her needs - property is priced within the range the caller expects to pay - property location and address are satisfactory - it is a valuable inquiry bc a caller has half sold himself on the property

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Callers from Internet presentations

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General rules: - obtain callers name and # - ask questions about family size/needs - find out what intersted them about the ad - find out what the prospective buyer is interested in and why - find out if they have ben prequalified or approved for a loan and for how much - hold the details - give a bit more info than whats in the ad (try to get an appt to give more info) - answer home elimination questions with a question - if the questioning reveals the house is not suitable, switch to another similar property that has the required features - close an appointment - choice given should be what time not whether they want to see the prop - set the place for the meeting 1. at your office 2. at a property only after you'vepreapproved them with a lender - include mention of other property that may interest them - keep the call short and end after appt is set up

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Handling the phone inquiry

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Offer to give info on other properties they are interested in. This may keep them from going online and contacting other agents/brokers

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Locking in the caller

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If you receive an email contact aout a property on the web you will likely also get a name, which allows you to call rather than email your response - easier to set up an appointment when in direct phone contact than with email

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Email Contacts

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- think through the qualifying process - make some tentative appts to show specific properties (may need to cancel them later if the qual process leads you to other properties) - do the discussion in a 'qualifying room' - reduces interuption

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Prepare to Meet the Prospective Buyer

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- make mental note of their names - pronounce names correctly - use names frequently

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First Impressions with Prospective Buyer

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- primary purpose of this meeting is to gain information - when talking it should involve asking a question - ask open ended questions that result in an explanation and reasons rather than closed ended questions which result in just yes/no - questions asked should relate to FAMILY, OCCUPATION, RECREATION, DREAMS (FORD) - use a qualification form as to not forget the info prospective buyers give them - contact management systems should include info you obtain, should indicate properties they have seen and their reactions - one method for this is listing 10 most important features they want in their new home and to rate them in importance

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Needs and Interests of Prospective Buyer

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- Nees and interests of the buyers - buyers' motivation - preapproval by an institutional lender

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Buyer Qualifying Process - 3 part process

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- you should know FHA and VA loan limits and downpmt requirements if buyers are likely to be eligible - you should know down payment requirements for various types of loans - know FRONT END RATIO - refers to the ratio of a buyer's housing costs to income - typically its 28% (total monthly pmt / gross monthly income = 28% or less) - know BACK END RATIO - a persons total housing expense plus long term debt obligations - can't exceed 36% (PITI + Total monthly Credit Obligations / gross monthly income = 36% or less) - know down payment requirements that vary by the lender and type of loan - LOAN TO VALUE RATIO - LTV - tax returns reveal what buyers really make - max loan they can qualify + their down pmt = max limit on housing that prospective buyers can purchase

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Financial Qualifying

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-recommended that you ____ or obtain lender preaproval whenever possible before you show properties -if you don't prequlify, you could be showing properties they can't afford = wasting time and may loose a buyer -send prequalifying lending info to a lender you recommend before you leave your office to show a property -you may change the buyers' attitude from looking to buying -reduces likelihood that they will seek out other agents

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Prequalify buyers

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-before you show a property, discuss earnest money (money deposits held uncashed that show that you mean to buy) -show buyers possible problems rather than hiding so they can prepare to deal with them -give prospects a copy of the purchase contract that you will use if they buy -explain agencies and have prospects sign agency form -offer to serve your prospects as their buyer's agent and attempt to obtain a buyers listing

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Preparing the buyer

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1. acceptance means that they have purchased a home 2. a counteroffer from the owners - can be accepted, counteroffered, or rejected 3. rejection of the offer means the entire earnest money is returned to the offerors

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What happens to the Buyer's offer - 3 possibilities

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In selling, the abiltiy to be a good listener is more important than being a good talker Practice active listening Silence is a good tool to listen well Do not interupt or formulate a response when the speaker is talking

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Listening

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- material prepared for a buyer makes it easy for the buyer to evaluate and compare offerings and can lead to a natural closing - each property presented should include prop details, photos, a map and space for viewers comments - offer a property comparison sheet showing what the buyers have indicated they are seeking

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Property tour package

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- know all available properties in the area - be able to identify school boundaries - be cognizant of shopping/recreational facilities in area - be aware of public transportation - be aware of any other information about the area that might help prospects make a favorable decision --select previously visited houses for viewing and consider the benefits offered by each property to particular buyers --don't show a prop just to please the owners --don't show overpriced/unsuitable property first just to later show the best property for the prospects - could be unethical --try to show vacant homes on lockboxes first so you can give homeowners time to prepare

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Preparing to show

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will generally show fewer properties per sale than less successful salespeople - they have a better understanding of their buyer and tend to be more selective in properties they show

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Successful salespeople

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plan your route to sell the neighborhood - choose most scenic route - plan route to the interests of the prospects - don't hide negative factors in the route

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Sell the neighborhood

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a technique that entails warning buyers about any problem feature - often works well - buyers build these features up in their minds and are relieved when they find a simple solution to a problem or don't perceive it as a problem

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Negative Motivation

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-Sell the neighborhood -Don't park in the driveway - park accross the street to show curb appeal -Create a favorable ambiance -If you are unable to answer a prospects question - promise to get the info and treat the promise as a priority -Involve the whole family - ask questions of all family members -Ask, don't tell, if you want to sell -Sell benefits not features -Use tie downs "this is a spacious room, isn't it?" -Invite comparisons between houses they've seen

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Showing Techniques

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-Occasionally allow the buyers privacy -just because you like a feature doesn't mean the buyers will -do not resent the presence of a friend of the family - use them as an ally -overcome objectives on the scene -begin and end the tour of the home in the most beautiful and unique part of the house -buyers will follow your lead .. into rooms -speak plainly and avoid technical terms -call attention to outstanding features - don't go overboard -show the rooms in the most productive order- end on the most attractive rooms on the first floor -if the rooms are small, stand along the side not the middle

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Additional showing tips...

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as buyers if they want to include the property on their list for consideration - prepares the buyer for a purchase choice between several properties they have shown interest in

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Establishing a list

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opening the door and telling the prospects to take their time and look around and that you will join them shortly don't use when property has furnishings

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Vacant Property showing technique

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home tours by bus or caravan very popular attract prospective buyers and can present competition that stimulates buying decisions unthreatening situation being part of a group viewing property

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Multiple prospect home tours

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- arriving at a property being shown by another agent - wait inconspicuously until they are finished and have left - showing a home - leave it the way you found it and be sure to replace the key in the lockbox where you found it - notify a listing immediately if something seems to be amiss at a property you have shown - call first - never take a customer to the door and ask to show the home - if a last min showing is needed, go to the door alone and ask if it is ok to show the place - only show properties during their designated showing times - leave your business card at each property incl. date/time - When calling another agency for information - immediately identify yourself and your company - do not enter a house while smoking or smoke inside their house - avoid making uncomplimentary remarks about a house/its condition/furnishings - owner may be in the house

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Rules of Professional Conduct

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central theme in many descriptions of the selling process

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Persuasion

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the most common cause of poor communication is the communicator's own failure to understand the idea they want to express

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Idea-Communication

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to make the sales message understood, you must provide sufficient facts - w/o facts the person receiving the message cannot form valid conclusions or take effective action

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Facts-Communication

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assess your listner before attempting to communicate - recognitino of his/her past experience, mood, temperment, or knowledge of the product or service, will make or break the communication chain

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Receiver-Communication

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-articulate clearly -sound positive and friendly -MIRRORING - match your customer's speech in volume, speed, and tone -use his or her descriptive words

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Your Voice Personality

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-Help your client/customer to discover -use open ended questions in qualifying prospective buyers -start with fact finding questions which appeal to emotions

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Communication tools

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RATIONAL MOTIVES - any considerations that deal with long term costs, financing, and benefits from proposed expenditures - measure all the costs against all the probable gains EMOTIONAL MOTIVES - frequent ones - love, fear, convenience, prestige, or social approval - self improvement -Best to give a buyer a rational reason for fulfilling an emotional need

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Customer's reasons for buying

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No customer is a single type, he or she is a composite of several types - some individuals display more than one termperament during an interview Adjust your sales approach to the attitudes, temperaments, and buying needs of each customer

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Selling is knowing your Customer

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-If you are going to satisfy customer needs and wants you must know what properties are available and their features -Knowledge and expertise are even more important as consumers become more sophisticated -Many salespersons begin by specializing in a specific geographic area - they do the most business there - they should keep up with neighborhood changes -You must present both positive/negative aspects of a property - must be meticulous about disclosure issues -It is better to refer people to brokers/other individuals who have the required expertise if you do not have it

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Selling is knowing your Product

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-After each showing, ask the clients what they liked about the property and what they considered to be negatives. -Then ask if the property should be added to their list for consideration -After you have 3 or more properties on the list, go over the pluses/minuses of each property and let them tell you which properties they feel they like best -once they have made their choice - ask if they would like to put an offer on the property

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Make a list...

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Apeal to buying motives Watch for buying signals Overcome resistance Attempt Trial Closing

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Steps to obtaining the Offer

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Essential for optimum results Ownership of Real Property satisfies several basic needs/BUYING MOTIVES: -Survival - most basic need -Security - including financial security -Pride of Ownership/social need - refer to the house as theirs -Love of family and their needs -Health - quality of the environment is a motivator -Desire for profit/gain (investment) - road to financial independence=home ownership - appreciation -Tax Benefits - homeownership offers tax advantages -Comfort and Convenience - may be less important than other needs -Reason vs Emotion - buyers buy not only bc of need but bc of want -Sensory appeal - enhance your presentation by employing all of the senses -Negative Motivation - applies to knowing what someone doesn't want - can be more immediate and real to a person than positive motivation

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Appeal to Buying Motives

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prospects may signal they are ready to buy - these buying signals are tip offs to the saleserson -Actions, Words, Body Language -Negative statements can be a signal to buy too

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Watch for buying signals

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- to obtain the offer - be prepared to answer any objections raised by the buyer - you should treat an objection as a prelude to a sale - a natural part to any sales routine -Before proceeding to a counterattack - determine if its really an objection or a comment, and if its an objection you can do something about

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Overcome resistance

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an objection means that you have an interested buyer who has a concern - do not fear objections - welcome them

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Welcome Objections

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to avoid putting buyers on the defensive - recognize legitimate concerns

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Concede before Answering

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Try to restate objections as questions - doing so shows the buyer you are working together and that you are most concerned with helping them

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Rephrase an objection as a question

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If buyers can solve their own objections, you are on the path to a sale

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Meet objections halfway

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bring up potential objections before the prospect does - anticipating the objection - it reduces the importance of the objection and shows the client you do not fear it

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Forestall objections

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It is better to say you don't know than to fabricate an answer you are unsure of - 'I'll get the answer for you by ..."

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When you don't know - objections

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One way to answer a question from a buyer is to use a 'hook' Answering a question with a question Also nail down approach - 'if ___, would you buy this property?'

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Answering a question with a question

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when the property meets most of the buyer's expressed needs - you can summarize benefits and attempt to minimize or overcome the objections - expose negative features in a way that makes them manageable

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Listen and minimize

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If a salesperson successfully builds each part of the sale throughout the presentation - the close will come easily There is a psychological moment for a trial close but it varies with each transaction If the customer is not ready to buy, add a little heat - present new evidence or reiterate key sales points and try again.

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Attempt a trial close

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ASSUMPTIVE CLOSE - physical aciton close - assumes the buyer will buy and you complete the deposit receipt form POSITIVE CHOICE - a choice between two things rather than between something and nothing INDUCEMENT - be careful - say that you will do your best to get the inducement (low interest rate, fridge) - never suggest an inducement that you may not be able to get - unethical FEAR OF LOSS - this technique works only if it is based on facts concerning a personal, immediate, and real situation NARATIVE - involves the use of a third party as an ally - always use real experiences ASK FOR THE DEPOSIT - don't hesitate to ask for the sale - don't fear rejection - buyers will buy if they are asked to buy

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Closing Techniques

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The sale can be killed by ... not listening, talking too much and too fast, being overeager to sell, having incomplete knowledge, using high pressure tactics, exhibiting fear, criticizing competitors, straying from the subject, displaying a negative selling attitude, being argumentative

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Killing a sale

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-Whenever possible, contingencies should be removed -Don't deviate from what the seller wants unless absolutely essential -To make the offer more desirable - loan qual info can be attached to the offer

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A Clean Offer

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in the event you have a buyer for a property that has other offers - you could suggest an offer over the highest bona fide offer received if your buyer's offer is accepted - your buyer's offer should allow for verification of the competing offer

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When there are otehr offers..

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when formulating the purchase offer - provide the buyer with the ____ - an estimate of the total cash requirements as well as estimated monthly payments based on the ofer be honest and full in your disclosures - best to err on the high side

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Estimated buyer's costs

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- now widely used in CA - it is a model form - the form acts as a checklist to ensure a contract that is compete in all respects - responsible parties must comply with the requirements stipulated to help both parties avoid entangling legal complications - any changes should be dated and initialed by the principals to the transaction

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CA Residential Purchase Agreement and Joint Escrow Instructions

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-if buyer intends the property to be a principal residence, then liquidated damages resulting from the buyer default cannot exceed 3% of the purchase price

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Closing and Occupancy

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this paragraph provides for the buyer's rights to inspection and provides either the removal of the inspection contingency or cancellation of the agreement

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Buyer's investigation of property and matters affecting property

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the CA Residential Purchase Agreement and Joint Escrow Instructions - when signed by the buyers it is referred to as an offer to purchase

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The offer to purchase is really...

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-When you have a signed offer to purchase, notify the listing office immediately and deliver the offer to the listing office asap. -Provide info about the buyer, and if they've been qualified or been approved for a loan. -If the offer is for less than the list price - you should include data you have that justifies the price. -The listing agent should present the offer to the owner -It is good to set up an in person appt with the owner - don't do it over the phone - an offer can't be accepted over the phone -Avoid giving details over the phone -If you must present the offer over the phone - you should also fax/email the offer

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The appointment ... to submit an offer

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- For an offer less than list price - prepare an Estimated Seller's Proceeds form - based on the offer received - Show the owners what they will net from the offer - Shows the owners that you are being straighforward

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Estimated Seller's Proceeds

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-If market values have been falling and the property has been on the market for several months - update the competitive market analysis that you prepared when you took the listing

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Competitive Market Analysis for an offer

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-role playing exercises can be important -anticipate the objections you will receive and decide how you are going to help the owners overcome the problem areas

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Anticipate Problems with an offer

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-when more than one offer has been received on a property - you must present the multiple offers together -if you know another offer that has not been received yet, you have a duty to inform the owners of it -you also have the duty to inform owners of verbal offers - even tho they are not binding and can't be accepted -offers should be presented in a nonprejudicial manner so that owners can compare the offers and make their decision -a listing agent might want to encourage multiple offers - to take advantage of competition - obtain seller's permission to inform all offerors of the fact that there are multiple offers -set a deadline for improved offers

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Multiple Offers

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it is important for the listing agent to prepare a seller's net sheet to show the seller the net from a successful sale including any concessions to the buyer

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Net sheet

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-present the offer to the owners at your office or the owners' home -to set a positive mood, mention some features that played a part in the sale and that the owners can be proud of

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Setting the mood

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-Prof presentations are well organized - into 3 stages 1) History of the sale - if the prop has been on the market for several months - go over the history of the sale 2) Info about the buyers - paint a verbal picture of the buyers that will make the sellers feel they are likeable people who will appreciate their home (obtain buyer's permission first) - also point out if the buyer's are interested in another property to show the competition 3) The offer - gain agreement on the little things before you handle the offer to the sellers (occupancy date, what stays/goes etc) - then hand copies of the offer to each owner - you can go through the whole contract, or answer any ?'s - when finished ask them to initial each clause and then sign the agreement

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Stages of the Presentation

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-when an offer is less than the list price - you must be able to justify the offer -explain how or why the buyer decided on the offering price -when sellers/buyers have a high regard for eachother - there is less likelihood of a sale's failing during escrow -emphasize that the sellers are in competition with other sellers -always be honest in justifying acceptance of an offer

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Justify the offer

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- It is unethical for a seller's agent to recommend to owners that an offer be accepted if the agent does not feel that the offer is in the best interests of the owners (considering the market, property, their needs)

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Agent Recommendations for an Offer

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3 choices: 1) Acceptance 2) Rejection 3) Counteroffer

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Owners' Responses to Offers

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- It would be unusual if you were to recommend outright rejection - Would likely be made only in cases of clearly frivolous offers or offers in which buyers are attempting to take advantage of sellers

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Rejection of an offer

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- If it is a fair offer - work for its acceptance rather than counteroffer - Many agents are too quick to suggest a counteroffer when it isn't necessarily in the owners' best interests - You have a duty to try to make them understand that a counteroffer rejects the offer and gives the buyers an out - Once the offer is rejected - the owners have lost their right to accept and form a contract - offer is dead - To some buyers with buyer's remorse - a counteroffer is an escape and they may get uninterested in the property - Even buyers who intend to accept the counteroffer frequently decide to spend one day looking before they sign - they often find something they like in that day - many owners have lost advantageous deals because they tried to squeeze a bit more money - its not unethical to use persuasive skills to persuade an owner to accept an offer you believe is reasonable

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Acceptance vs Counteroffer

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- If an agent doesn't represent the seller - the agent has a duty to try to get his/her client's offer accepted - The agent must be honest about any facts presented to influence the seller - An agent must never aid the buyer in fraud - Agent must fully explain the offer to the seller - especially any provision that is unusual or provides the buyer with a right to cancel the agreement - The seller must understand that the agent represents the buyer as a buyer's agent

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Duties as a Buyer's Agent

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- As the seller's agent - you have a duty to protect them from fraudulent/shady practices - There are offers that on careful reading do not actually state what you expect them to do - If you are unsure of the meaning of an offer that has come through form another agent - suggest the owners obtain legal help or reword the offer in a counteroffer - Be wary of any offer received on an offer form you are unfamiliar with - Be wary of offers with low earnest money deposits with lengthy escrow periods - may be using the purchase offer as an option than a purchase - hoping to resell it before closing - ask for increased down payment and verification of funds or buyers' loan preapproval - Be alert for any purchase in which it appears the buyer could be promoting a 'cash out scheme' - a way this is done is a SUBORDINATE CLAUSE - prop owned free/clear and seller's have equity - buyer offers cash amt and asks sellers to carry the balance with a trust deed - the deed is a subordinate trust deed - Be alert for those who enter into a purchase with no investment - may be RENT SKIMMING (info in last class) - Check court dockets to determine if potential buyers have been defendants in lawsuits - Be wary of buyers wanting to exchange personal property or real property LOOK OUT FOR DEALS THAT LOOK TOO GOOD TO BE TRUE

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Protecting the Seller

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- many sellers will accept your recommendations for acceptance when they are logical and you have built up a relationship of trust with the owners - Primary Seller Objections >> Price and Terms

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Gaining an Acceptance

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- the most common objection to an offer is about price - the owners have counted on obtaining a certain price - they think they are accepting a price cut - goal to minimizing the difference is to make the difference appear small in relation to the whole - Put the difference in perspective by showing it as a percentage

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Price Objection

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- if there is to be seller financing - make sellers aware of the risks involved should the buyers default on their obligations - Seller financing terms are often stumbling blocks - with carryback financing - the downpayment amount should show positively in the offer if its a good amt

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Terms Objection

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- If agents worked harder with buyers in formulating offers - the need for counteroffers would be diminished - some agents accept unreasonable offers w/o expending effort - this allows buyers to believe that a terrific bargain is possible - it can be difficult to get a reasonable counteroffer accepted - once perspective buyers have been given false hopes - an unreasonable offer should be countered rather than rejected - there is still a chance of a sale - try to structure the counteroffer in such a manner that it will be met with acceptance - if the listing agent does not feel acceptance of an offer is a good idea - the agent should advise against acceptance and make suggestions for a counteroffer that will serve the clients interests

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The Counteroffer

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Depends on the market: Sellers market - many buyers - few sellers - an offer of 10% below the CMA might be unreasonable Buyers market - many sellers - an offer of that ^ may be accepted A reasonable and acceptable offer falls within 10% of the value established by the CMA

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What is a Reasonable Offer??

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- Any alteration to an offer (even a change of date/time of close) is considered a counteroffer. - a counteroffer = a new offer where the seller becomes the offeror

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Counteroffer continued

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- inc in purchase price/deposit - safeguard provisions for the seller when buyer's offer is conditional on sale of other property - limitations on the seller's warranties/demands that the buyer accept property as is - change of amt, terms, conditions relating to loans to be carried - limitations on time allowed to get financing - limitation on liability of termite work, repairs, etc - change in date of possession and demand for free occupancy - seller's right to accept other offers until counteroffer is accepted

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Most common conditions desired by the seller when making a counteroffer

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- Do amend the acceptance clause to refer to the counteroffer - Do have the seller sign the printed acceptance clause as amended - Don't make changes to the contract simply for the sake of change - Don't pressure your principal to agree when the other party wants to have a right/remedy inserted - Do make sure the addendum is dated and proper reference is made to the contract of which it is a part - Don't make piecemeal changes in important terms - rewrite the whole paragraph in which the terms occur - better clarity - Do # the items of the counteroffer and refer to the contract paragraph where possible - Don't let disagreement concerning language terminate the sale - Do use a simple checklist for all points to be included in the counteroffer when drafting it - Do be sure that all changes are initialed or signed properly and that all parties receive copies of the final contract executed by both sides USE A SEPARATE COUNTEROFFER FORM - do not make changes on the purchase contract # each counteroffer for clarity as to what the final agreement is

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Do's and Don'ts for preparing/presenting a legitimate counteroffer:

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- a counteroffer at full asking price is not much of a counteroffer - allow the buyers to receive some advantage from the negotiations - many buyers will walk away from an advantageous purchase rather than pay full price - in presenting counteroffer to the buyers - you could make the sellers appear reasonable bc splitting the difference is often considered fair

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Counteroffer amounts

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- Acceptance of an offer must be unqualified - a qualified acceptance must be considered a new offer or a counteroffer - the legal effect of any changes is to reject the original offer and bar its later acceptance - acceptance doesn't take place until the person making the offer is notified of the acceptance - Until that time the offeror is free to revoke his/her offer - notification of acceptance is the delivery of a signed copy of the acceptance to the offeror - The CAR Residential Purchase Agreement allows notification of the acceptance to be to the buyer's agent - placing acceptance in the mail is notification - notify the buyers of the acceptance immediately on receiving it - leave a completed form with the buyers and let them know what the procedure to be followed and when you will contact them again - give buyers assurances of value and that they purchased a fine house and done the right thing

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Acceptance of an offer

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in CA fax can be used email acceptances of offers are now possible

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Fax and Email Acceptance

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- you must make sure the closing actually takes place - when there are delays - the likelihood of the sale being killed increases - it is your job to check frequently to uncover small problems before they become big ones - check to make sure things are moving according to schedule - keep all parties informed of all events - referrals depend on good follow through - keep the lines of communication open with buyers, sellers, lenders and escrow to prevent many problems - some buyers will use their property inspection as the basis for another renegotiation of price - they seek disproportionate adjustments in price - point out that they could be giving the seller the opportunity to back out - do they want the property??

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Checklist for closing

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you will want the buyer and seller to agree asap as to the disposition of the deposit - immediately address the problem - will reduce the likelihood of legal action

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Should the buyer or seller be unable/unwilling to compete the purchase ..

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-is responsible for our monetary policy -it seeks to adjust the availability and cost of money so there is steady economic growth with minimum unemployment and inflation in check -3 BASIC CONTROLS 1. Discount Rate - raising and lowering the discount rate charged to member banks to borrow funds - affects long term rates charged by lenders 2. Reserve Requirements - by raising and lowering reserve requirements of banks - amount of availabel funds to loan is regulated 3. Open market Transactions - the Fed Reserve can buy government securities on the open market to put money into the economy or sell govt securities to take money from the economy to slow growth

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Federal Reserve

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- is directly related to the cost of money or interest rates - lower interest rates= lower payments = more people can qualify for loans -- more buyers = seller's market and see RE prices increase - interest rates increase = RE sales tend to decrease = rising interest rates affect affordability - slow market = sellers encouraged to help finance buyers - creative financing arrangements become common - higher housing costs associated with higher interest rates tend to increase the # of foreclosures

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Health of the RE Industry

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- points are percentages of the loan - they are charged to the borrower at the time the loan is made - one point = one percent of the loan amount - points are either discount points or origination points

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Loan Points

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- are monies paid at the time of loan origination that allow the borrower a rate of interest less than originally offered by the lender - discount points could be considered prepaid interest - lender considers 8 points = to 1% difference in a fixed rate loan

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Discount points

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- are fees to cover administrative loan costs and lender compensation

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Origination Points

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- from the Nat. Assoc of Realtors - measures the median family income neccessary to support a mortgage for the median priced home - index is based on a 30 yr fixed rate mortgage with a 20% down payment at the current Freddie Mac mortgage rate - also based on the assumption that total monthly house pmts (incl taxes/insurance) cannot exceed 30% of gross household income - it best measures changes in housing affordability

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Affordability index

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- Directly from someone or some institution that has accumulated the money - Indirectly from a lending institution that loans money deposited in customers' accounts - from investors who purchase loans or collateralized mortgage securities

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Money to finance RE purchases is available through 3 primary money markets:

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- refers to the first loan recorded against the property - interest rates are related to risk = primary financing has lower interest rates than other loans in which the security interest is secondary (second trust deeds)

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Primary financing

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- any junior trust deed - holders of a second trust deed bear a greater risk than holders of a first trust deed - second TD bear a higher rate of interest - Default on first trust deed >> the holders of the second trust deed have to either cure the default and foreclose on teh second trust deed OR wait until the foreclosure and bid cash - if they do neither they may lose their security

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Secondary Financing

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refers to loans being made directly to borrowers either 1st or 2nd trust deeds

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Primary Mortgage Market

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- refers to the resale of existing mortgages and trust deeds - 4 agencies, Fannie Mae, Freddie Mac, Ginnie Mac and Farmer Mac, are responsible for creating and establishing a viable secondary mortgage market - they buy loans originated by others and resell mortgage backed securities - they have created a national securities market for the sale of RE debt instruments by the originators of second buyers - Selling the loans frees capital to create more RE mortgages - the secondary market minimizes the effects of regional cycles and redistributes the funds from cash- rich areas to cash- poor areas

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Secondary Mortgage Market

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FANNIE MAE - Fed Nat Mort. Assoc. - est 1938 - guarantees mortgages made by private lenders - is now under Govt. Conservatorship FREDDIE MAC - Fed Home Loan Mort. Corp - founded w/ money provided by the 12 Fed Home Loan Banks when new mort loans coudl not be made bc money was flowing out of S&L Assoc - created needed funds by floating its own securities backed by its pool of mortgages and guaranteed by Ginnie Mae - gave a secondary market to S&L's for selling their conventional mortgages - also under govt conservatorship GINNIE MAE - once Govt Nat Mort. Assoc. - a wholly govt owned agency - higher risk programs (urban renewal, low income housing, other special purpose govt backed programs) are financed through this agency FARMER MAC - Fed Ag. Mort. Corp - government chartered - now private corp - provides secondary mort market for farm property and rural housing

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4 Agencies

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- loans that the lender keeps

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Portfolio Loans

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- loans that the lender sells

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Non portfolio Loans

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- conventional loans that meet the underwriting standards for purchase by Fannie Mae/Freddie Mac - they are written for 15 or 30 yr terms and are not assumable - they have strict guidlines regarding down payments and max amts - bc of the ready market for these loans - lenders are willing to make them and to purchase them on the secondary mort market - bc of their strict underwriting requirements - the interest rates for confomring loans are generally less than rates charged for nonconforming loans

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Conforming Loans

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- loans for amounts of $417k and more - interest rates on jumbo loans are higher than rates for conforming loans

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Jumbo loans

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- are subject to govt regulations - major commercial banks, savings associations, and life insurance companies

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Institutional Lenders

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- principal activity = lending money-prefer to make loans to their customers bc this preference helps to create depositors - often charged lower loan fees than other institutional lenders - versatile in the type of loans they may consider - seldom allow secondary financing at the time of providing a purchase money loan - major source of constuction loans - they like the shorter term and higher interest rates of these loans - have been expanding their home equity loans - some offer an open ended line of credit secured by borrowers' home equity - follow relatively conservative appraisal and lending practices - RE loans from them are 80% or less of the appraised value of the property - buyers who can't put at least 20% down must buy PRIVATE MORT. INSURANCE - PMI - homeowner can request cancellation of PMI when equity is 20% - insurance must be cancelled when homeowner's equity reaches 22% - they are federally or state chartered

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Major Commercial Banks

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- aka thrifts and originally knows as S&L's - deregulation in the 1980's led to them being into other higher yielding but higher risk loans - led to their failures - they are federally/state chartered - allowed to loan up to 95% of the property's appraised value-80% loan to value ratio is usual - operate like banks

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Savings Associations

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- governed by the laws of the state in which the company is chartered, the laws of the state in which the loan originates, the policies management, and the avaialbility of loan funds - supply many of the loans on properties for which huge loans are required (commercial props, shopping centers, hotels) - in CA they make lonas for up to 75% of the property's market value - commercial loans are usually 25-30 years - interest rates are often lower than those of banks/S&L's - seldom have due on sale clauses - frequently demand an equity position as a limited partner as a condition of making a loan (PARTICIPATION LOAN)

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Life Insurance Companies

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- include Pension Funds, Credit Unions, and Private Individuals, and RE Investment Trusts

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Non Institutional Lenders

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- can be licensed in CA by either the Bureau of RE or the Department of Corporations - they make loans using a line of credit from another lending institution and resell the loans on the secondary mortgage market - usually have a close relationship with one or more lenders and receive daily rate sheets

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Mortgage Bankers/Mortgage Companies

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- SAFE was enacted for consumer protection and to reduce fraud - requires licensing for mortgage loan originators - anyone who accepts compensation for taking a loan app on a 1-4 residential unity mortgage loan or whose compensated by a morgage originator must have a MLO endorsement on their license (endoresement requires education, testing, and reporting)

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Safe Act - Federal Secure & Fair Enforcement Mortgage Licensing Act

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- the largest single source of residential mortgage loan origination in CA - make money on origination fees as well as loan servicing fees - generally resell their loans but continue to service these loans - might wait to sell mortgages that they originated if they believe that mort. interest rates would drop - they are careful in qualifying borrowers - laons that fail to conform to Fannie Mae/ Freddie Mac purchase requirements are difficult to sell on the secondary market - only make loans when they have a buyer for them - able to make difficult loans that most banks would decline >> mixed use props, credit problems, low FICO scores >> would make the interest rate higher

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Mortage companies

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- the mortgage banker borrows on their inventory of loans held for resale

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Mortgage warehousing

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REIT - created in 1960 to encourage small investors to pool their resources with others to raise venture capital for RE transactions - to qualify as a REIT - the trust must have at least 100 investors and 90% of the trust's income must be distributed annually to its investors - a # of equity trusts invest solely in ownership of real property - many mortgage trust invest their money in mortgages - there are also hybrid trusts that invest in both real property and mortgages

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RE Investment Trusts

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- used to only invest in stocks - perceived mortgages to be safe high return investments >> they got into the mortgage market - make loans on large projects - generally purchased loans originated by mortgage companies or went through mortgage brokers

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Pension Funds

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- used to offer mostly low dollar loans for consume purchases - evolved to be major lenders - limit their loans to members - their loans are more community based - offer home equity loans, home purchase loans, and construction and development loans - resemble commercial banks

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Credit Unions

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- when conventional loans are not available to a buyer in the amt required or is too costly >> a seller can carry back a first/second mortgage on property to facilitate a sale - is customized to the needs of the parties - generally fixed rate loans with pmts based on a 30 yr amortization - due payable in 5-7 yrs - most have a due on sale clause >> limited to situations where the property is owned by the seller free of loans where the lender will agree to a loan assumption, where the existing loan doesn't have a due on sale clause, or when the seller will hold a secondary loan after the buyer obtains primary financing

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Seller Carryback Financing

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- a person who acts for compensation in negotiating a new loan and is required to be licensed as a RE Broker or Salesperson - no seperate license required - limited in the amt that they can charge as a commission for arranging the loan and for costs and expenses of making the loan --- Loans on the 1st Trust Deeds of $30k or more or on 2nd Trust Deeds of $20k or more don't have a maximum commission - but expenses are negotiable between the broker and the buyer

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Mortgage Loan Broker

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- 1st Trust Deeds - less than $30,000 - 5% of the loan if less than 3 yrs - 10% of the loan if 3yrs or more - 2nd Trust Deeds - less than $20,000 - 5% of the loan if less than 2 yrs, 10% of the loan if at least 2 yrs but less than 3 yrs - 15% of the loan if 3 yrs or more - READ MORE ON PG 409 Loans are usually over the above amts - so lenders can charge whatever the market will bear for loans above the amounts stated above

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Commission maximums under the law - Mortgage Loan Broker

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Morgtgage Loan Brokers are required to provide a ___ to borrowers

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Mortgage Loan Disclosure Statement

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1. Hard Money Makers and Arrangers - Hard Money Loan = a cash loan rather than an extension such as seller financing - mort brokers act as an intermediary bringing lenders and borrowers together =>> MORTGAGE BROKERAGE 2. Third Party Originators - prepare loan applications for borrowers, which they submit to lenders - may be agents of the borrower or the lender or dual agents of both - out of state lenders that wish to invest in CA mortgages use 3rd party originators 3. Mortgage Bankers - not all mort bankers are RE Brokers - mort bankers are licensed under the CA Res. Mort. Lending Act - administered by the Dept of Corp. - a mortgage banker must elect which license to operate under 2 AGENCIES - Bureau of RE and Dept of Corp ^^

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3 Distinct Areas of Lending Activity that a RE Brokercan engage in...

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- any loan that doesn't involve govt participation - advantage - involves less red tape and shorter processing time, buyers can obtain a larger loan amt from more sources >> more sources = option of choosing a wide variety of fixed/adjustable rate loans - disadvantages - can include higher down pmts and prepmt penalties - PMI may be required if a purchaser puts down less than 20%

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Conventional Loans

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- LTV - Loan to Value Ratio - Interest Rate and if it can be changed - Loan coasts and fees required - Prepayment Penalties - Length of loan - Amount of fixed monthly payment - Initial Rate, Adjustment Period, Caps, Index, Margin of Adjustable Rate Loans

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Comparing Loans

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- several types >> FHA, VA, CalVet, CA Housing Finance Agency Loans

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Government Loans

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- encourages improvement in housing standards and conditions, to provide a system of mutual mortgage insurance, and for other purposes - 2 DIVISIONS under which this protection is granted: Title 1 - loans for modernization, repairs, alterations on existing homes Title 2 - loans for purchase or construction of residential structures - FHA Loans provide high Loan to Value's based on appraisal - max FHA loan amt will vary by region - must usually have 3.5% down pmt - down pmt may come from a gift by can't be from seller/nonprofit group assistance programs - Mortgage Insurance Premium must be paide at the time of loan origination >> based on down pmt the MIP is also added to payments for the life of the loan - lenders may be authorized to make the underwriting decision that a loan qualifies for FHA insurance >> DIRECT ENDORSEMENT - speeds up the loan processing time - foreclosure problems in past >> down pmt requirements have increased for most other loans - FHA down pmt requrements increased from 3 to 3.5%

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FHA Loans

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- assists in aquiring homes - VA doesn't make loans but it guarantees a portion of the loan - has suspended 0 down pmts on loans over $417k - a 25% down pmt is required on amts over the no down pmt limit - can be used for buying/building an owner occupied home, alterations/repairs/improvements RE, purchasing a mobile home, refinancing existing mortgage loans for owner occupied places of vets - 181 days of service - loan cannot exceed the appraisal known as CERT OF REASONABLE VALUE - CRV

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VA Loans

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-CA vets can acquire a suitable farm or a single family residence at a low financing cost - State of CA takes title to the prop and sells it to the Vet under a land contract - arranged through lenders approved to handle CalVet Loans - available to peacetime/wartime vets and active duty military - down pmt can range from 0-5% - no down pmt limits up to $521k - start at 4.15% interest for home loan - higher for mobile homes - origination fee 1% - funding fee 1.25% to 3.3% - mort bankers who process get a $350 processing fee + 1% origination fee

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CAL VET LOANS

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- a self supporting housing bank that offers fixed rate conventional and interest only financing at low rates and down pmt assistance for first time homebuyers - uses no appropriated taxpayer dollars for its programs but utilizes a tax exempt bond program - loans are for low income and moderate income buyers - PROGRAMS INCLUDE: 1. INTEREST ONLY PROGRAMS - first 5 yrs of a 35 yr fixed rate mortgage 2. CONVENTIONAL 30 YR FIXED RATE MORTGAGE 3. DOWN PMT ASSISTANCE FOR TEACHERS in high priority schools 4. DOWN PMT ASSISTANCE FOR HIGH COST COUNTIES 5. DOWN PMT ASSISTANCE FOR NEW HOMES based on school facility fees paid by the builder 6. DOWN PMT ASSISTANCE up to 3% to low income buyers using FHA loans 7. DOWN PMT AND CLOSING COST ASSISTANCE in community revitalization areas 8. LOWER INTEREST RATES FOR lower income disable persons 9. LOWER INTEREST RATES FOR homebuyers receiving financial assistance from an approved govt agency MORTGAGE INSURANCE that makes payments for up to 6 montsh if a borrower loses their job involuntarily State budget problems 2008>> suspended 30yr fixed rate loan programs and down pmt assistance programs

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CA Housing Finance Agency CalHFA

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- allows the borrower to receive addtl loan money up to an agreed amt - using the same trust deed or mortgage as security - a home equity line of credit = an open end loan

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Open End Trust Deed

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- the borrower uses more than one parcel of property as security - should include a RELEASE CLAUSE that allows the partial reconveyance of seperate parcels of property as repayment of a portion of the loan

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Blanket Trust Deed

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an unamortized loan - usually for 3 yrs or less - given until permanent financing is in place

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Construction Loan

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a loan that takes out the construction loan - permanent financing

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Take Out Loan

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a loan that includes personal property and real property

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Packaged Loan

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-also called an all inclusive trust deed -the existing loan is not disturbed -the seller continues pmts on the existing mortgage or trust deed while giving the borrower a new, increased loan, usually at a higher interest rate -new loan is for the amoutn due on the existing loan plus the amt of the seller's equity being financed - to use a wraparound loan - the underlying loan must not have a DUE ON SALE CLAUSE

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Wraparound Trust Deed

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aka alienation clause accelerates loan pmts - making the entire loan amt due upon a sale enforeceable by lenders

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Due on sale clause

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- usually short term loans such as loans between construction loans and take out loan (perm financing) or by buyers who have found a new home byt have not sold their prior residence - aka swing loans or bridge loans - bear a relatively high interest rate

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Gap Loan

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- lenders will make fixed rate long term amortized loans when they must do so, but they prefer Adjustable Rate or Shorter Term Loans - to encourage borrowers to use other types of loans, lenders offer lower costs than for fixed rate loans and lower interest rates

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Fixed Rate Loans

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If a buyer is abel to pay the additional monthly pmt on a 15 yr loan, significant savings are possible compared to the 30yr loan Savings is likely to be high bc 15 yr loans usually have an interest rate from .375 to .75% lower than a 30 yr loan Short term loans are considered by lenders to be less risky

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15 yr vs 30 yr fixed rate loans

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to help offest higher home prices that reduced home affordability >> some lenders began offering 40 yr loans pmts are reduced by the longer amortization period making pmts an extra 10 yrs isn't in the buyers best interests if the buyer can qualify and make pmts on a 30 yr loan

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40 yr loans

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- in order to qualify buyers for home loans - many lenders offer interest only loans - AKA STRAIGHT NOTES - borrower makes pmts of interest only for a set period of time (ie 5yrs) - at the end of the period the borrower must make full amortized payments

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Interest only Loans

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- for borrowers who didn't have a down payment - 80-20 loans were made prior to the mortgage meltdown - 80% of the price was made by a conventional lender - PMI wasn't required - the balance of 20% was covered by a second trust deed at a higher rate of interest - 2nd deed had higher origination costs - lenders no longer make 80-20 loans bc of foreclosures as a result of them

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80-20 loans

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- aka rollover loans - have pmts based on a 30 yr amortization - they are only partially amortized - they are due in full in 5 yrs or 7 yrs - lender will rewrite teh loan at this time at the current interest or the borrower can refinance with another lender - lender is not locked into the interest rate for a long period >> lenders offer these loans for a lower interest rate than the fixed 30 yr rate - the rate is around 1% less than fixed rate loans - amy offer lower origination fees and costs

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Renegotiable Rate Mortgages

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- lenders offer a combo of fixed adjustable rate loans - ie 5-30 --- 5yrs at a fixed rate - balance of the loan (25yrs) is at an adjustable rate - fixed rate is at an interest rate less than for a 30 yr fixed rate >> allows borrowers to qualify for the loan when they may not qual for teh 30 yr fixed loan

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Hybrid Loans

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- unusual loan not for home purchases - a loan where the lender annuitizes the value of the borrower's home and makes monthly pmts to the borrower based on the value of the prop and the age of the borrowers - loan is not repaide until the borrowers die or the prop is sold - homeowners must be 62 or older to qualify for reverse mortgage - reverse mort has compound interest (interest is charged upon interest) - each month the interest is greater than the prev month - more principal is added - principal is increased, accured interest is added to the principal - balance due increases - have higher loan fees than most other loans

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Referse Mortgage - Reverse Annuity Mortgage

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loan shared by two lenders one takes the bottom portion (greater security) and the second takes the greater risk with the top portion it is a 1st and 2nd trust deed in one instrument

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Piggyback Loans

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- interest rate in an ARM changes periodically ^^ usually in relation to an index w/ pmts going up/down accordingly - lenders usually charge lower initial interest rates for ARM's than for fixed rate loans - easir for borrower to qualify for a larger loan bc lenders sometimes qualify buyer on the basis of current income and the 1st yrs pmt - ARM may be less expensive over a long period than a fixed rate loan - another advantage - generally doesn't have prepayment penalties - good for borrowers who expect to resell w/om a short period of time - lenders may offer lower origination costs than for fixed rate loans >> attractive to borrowers who intend to sell w/in a few yrs - buyer must weigh the risk that an incr. in interest rates will lead to higher monthly pmts in the future - borrower obtains a lower rate in exchange for assuming more risk - should envision worst case scenario when deciding

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Adjustable Rate Mortgage

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- is the period of time between one interest rate and monthly pmt change and the next - ARM's have two adjustments: 1. the rate 2. the payment different for each- it may occur once every month/6 months/year/3 yrs - lenders often have a longer adjustment period for the first adjustment

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Adjustment Period of an ARM

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- most lenders tie the ARM interest rate changes to changes of an INDEX RATE - requirements a lender must meet in selecting an interest index: the index control cannot be the lender & the lender must be readily availabel to and verifiable by the public - these INDEXES usually go up and down with the general movemenr of interest rates - lenders base ARM interest rates on a variety of indexes (ie. 6 month, 3 year, 5 year treasury securities; national or regional cost of funds to savings assoc.; the London Inter Bank Offering Rate-LIBOR) - borrowers and agent shoudl ask which index will be sued and how often it changes - ask how index has behaved in the past and where it is published

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Index and Margin of an ARM

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- lenders add to the index rate a few percentage points (2-3) called a margin Index + Margin = ARM Interest Rate Elasitic, Set Figure Limited by Caps Subject to Change - the amoutn of the margin cap can differ from lender to lender - margin cap is always constant over the life of the loan - loans with lower origination costs = higher margins - upward adjustments of the ARM interest rate are made at the lender's option - but downward adjustments are MANDATORY - actual adjustments to the borrower's mortgage interest rate can occur only on a predetermined time schedule

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To determine the interest rate on an ARM...

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- look at both the index and the margin for each plan - some indexes have higher average values but usually have lower margins

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In comparing ARM's

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- the first period is caluculated in the same way as a fixed rate loan payment - after the first period of adjustment, it is like the borrower is starting a new loan >> calucualtions must be made to figure the loan balance & the # of pmts left and the new interest rate be taken into accoutn

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In calculating an ARM payment

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- some lenders offer initial ARM rates that are lower than the sum of the index and the margin ^^ these rates are called teh discounted rates/introductory rates/tickler rates/teaser rates - and are usually combined with the loan fees and with higher interest rates after the discount expires - discount rates may expire after the first adjustment period - at the end of the intro disc rate period the ARM interest rate automatically increases to the contract interest rate = can mean a substantial increase in the borrower's interest and monthly pmt - even if the index rate has decreased -- the interest rate and monthly pmt will likel increase after the intro period >>> payment shock

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ARM Discounts

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.. a below market rate is being offered

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Whenever the lender's advertised qualifying interest rate is lower than the lender's current ARM Index Rate plus margin

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- gives a more accurate picture of the cost of a loan and must be disclosed by law - APR differs from the nominal interest rate - the APR includes the interest and costs associated with obtaining the loan - APR represents a rate based on a buyer's net loan proceeds >> loan amt - cost of credit - when calculating .. lenders who offer below market rates must accoutn for the higher index rate that will be charged in the future

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The APR- annual percentage rate

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- most ARM's have caps that protect borrowers from increases interest rates or mothly payment beyond an amt specified in the note - lenders also allow borrowers to convert an ARM to a fixed rate loan

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Caps on an ARM

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limits the interest rate increase or decrease from one adjustment period to the next

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Periodic Cap

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overall cap - limits the interest rate increase over the life of the loan

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Lifetime Cap

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- usually has both a periodic and an overall interest rate cap - drop in the index does not always lead to an immediate drop in mothly payments - may lead to an increase - even if the index rate has stayed the same or declined - the rate on a loan can go up at any scheduled adjustment when the index plus margein is higher than the rate before the adjustment - pmt caps limit only the amt of payment increases and not interest rate increases >> pmts sometime don't cover all of the interest due on the loan >> results in NEGATIVE AMORTIZATION = mortgage balance is incresing >> interest shortage in the pmt is added to the loan - interest may be charged on that amt

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An ARM ..

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banned in CA as of 2010

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NEGATIVE AMORTIZATION LOANS

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- are adjustable rate loans where the borrower has the option of making the pmts neccessary to amortize the loan or to make minimum payment that is less than the interest - paying just interest >>result is negative amortization with the amt due on the principal increasing each mont - at a stated future date (ie 5 yrs) the borrower must start making pmts that will amortize the loan - low minimum pmt of the option ARM allows borrowers to easily qualify for a loan - lender risks>> make option ARM's not common

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Option ARM's

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banned by Govt Schwarzenegger by signing emergency legislation in CA

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2009 Negative Amortization

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- a clause that allows the borrower to convert the ARM to a fixed rate loan at designated times - when the borrower converts - the rate is generally set at the current market rate for fixed rate loans plus at least .375 of 1% as a servicing premium

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Convertibel ARM's

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- the majority of ARM's are assumable - but the lenders normally place conditions on the assumption of the loan - some lenders only allow one assumption - other lenders allow assumption but adjust the overall cap or the margin to the rate in effect at the time of the assumption

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Assumable ARM's

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- in comparing loans - you must also compare loan costs so the consumers will understand exactly what they are paying for - no matter what the fee or cost is called - the bottom line is the total of loan costs - these costs can be added to the overall loan cost

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Loan Costs

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- An itintial application fee - a flat fee in additoin to loan points - loan points - loan escrow costs - title insurance - document fees - private mortgage insurance - a # of charges developed by diff lenders - processing fees

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Calculating Loan Costs

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- likely will want an overall lower interest rate - will be willing to pay higher loan origination costs to obtain that rate

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Borrowers who believe they will remain in a property for many years

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- likely will want a loan that can be prepaid w/o penaltyand that has low loan origination costs - will be willing to pay higher interest rate to obtain lower origination costs

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Borrowers who expect to remain in a prop for only a few years

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- are likely to want a longer term fixed rate mortgage

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Borrowers who believe interest rates are about as low as they will go

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- will want a oan w/o prepayment penalty, a short term loan that can be rewritten at a futre interest rate, or an Adjustable Rate Loan that can be converted to a fixed rate loan

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Borrowers that beleive interest rates will are likely to drop

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- will be interested in loans having a high Loan to Value Ratio - FHA or VA and loans with PMI

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Borrowers with low down payments..

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- likely will want an ARM with low initial payments, a longer term loan, or an interest only loan

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Borrowers with low income for loan qualifying purposes

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- now possible on the internet - various websites provide interest rates, points, APR's for various types of loans - agents can complete a loan applicaiton on the internet and can get loan approval before the client leaves your office - competition on website mortgage loan origination = lower costs for the borrower

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Computerized Loan Origination

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a charge, typically points, by a mortgage banker that exceeds what a lender woudl charge - websites avoid the possibiltity that the borrower's would be charged an overage

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Overage

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1. Qualifying the Borrower 2. Qualifying the Property 3. Approving and Processing the Loan 4. Closing the Loan 5. Servicing the Loan

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Financing Process

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- lender requirements are dictated by secondary mortgage markets - lenders use the 3 C's for screening: Character, Capacity, Collateral

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Qualifying the Borrower

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- lender's consider their attitude toward financial obligations as evidenced by their track record of borrowing and repaying loans evidenced by credit reports - Desire to pay -- shown by their FICO score

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Character - Qualifying the Borrower

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- in considering a borrowers' capacity - lenders want to know their ability to repay the debt - capacity is strengthened by an occupation that ensures a steady income - level of present debts and obligations also is a factor - too much debt = prevents a borrower from discharging a new obligation - lenders may consider a second job income if the job applicant has a history of a second income - may take overtime into consideration - some will consider both spouses' wages in computing the gross income even if only one spouse is applying for the loan - COSIGNER - a person w/ addtl capital who agrees to share the liability for the loan - to strengthen the borrower's application - lenders may reduce the down pmt with a cosigner - lender verifies the applicant's ability to make timely monthly pmts and his/her employment history - lender will want to know the down pmt before determining the loan amt - to qualify the borrower - the lender will use the Front End Ratio and the Back End Ratio - pg 443

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Capacity - Qualifying the Borrower

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Mortgage Payment / Borrower's Gross Income conforming loans require this to be 28% or less

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Front End Ratio

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Total Payment / Gross Income conforming loans require this to be 36% or less

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Back End Ratio

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COLLATERAL - the value of the prop depends on the property location, age, architecture, physical condition, zoning, floor plan, general appearance - lender will have an appraisal done by the financial institution's appraiser or by an outside appraiser - when an appraisal is less than the purchase price - it requires the seller to lower the price or the buyer to come up with a larger down payment bc the amt of the loan will be reduced ^^ purchaser doesn't have enough resources for a larger down pmt usually ^^ many offers include a contingency that the appraisal wil be at least the amt of the purchase price>> avenue of escape for buyers

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Qualifying the Property

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- involves drawing up loan papers, preparing disclosure forms regarding loan fees, issuing instructions for the escrow and title companies - loan papers include promissory note and security instruments

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Approving and Processing the Loan

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involves signing all loan papers and preparing the closing statements

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Closing the loan

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after the title has been transferred and escrow closed - loan servicing portion of the transaction begins record keeping process once the loan has been placed goal of loan servicing is to see that the borrower makes timely pmts so that the lender makes expected yield on the loan - keeps the costs of the entire package at a minimum

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Servicing the Loan

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a situation where a broker offers a one stop shopping for a many broker controlelled services - financing arrangements, home inspection, title insurance, property insurance, escrow must have its own employees and cannot contract out its services or it would violate RESPA provisions that prohibit kickbacks for referral services

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Controlled Business Arrangement CBA

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- English meaning - a deed, a bond, money or a piece of property held in trust by a third party, to be turned over to the grantee only on fulfillment of a condition - French - escroue - scroll, roll of writing - activities of an escrow agent have been expanded - escrow agent is an impartial third party/stakeholder who receives and disburses docs, money, papers from every party involved in a transaction - the escrow operates as a neutral depository

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Escrow

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the business that conducts the escrow

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Escrow Agent

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the individual who handles the escrow in the office of the escrow agent

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Escrow Officer

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- 1st requirement - the buyer offers a sum of money to the seller and the seller's acceptance is transmitted to the buyer - a binding contract is formed - escrow is created on the conditional delivery of transfer instruments and money to a third party - closings are primarily handled by a third party escrows or title companies in CA

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Escrow Requirements

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- escrow agent holds all money and docs during a transaction - when conditions agreed upon by the buyer/seller are met - the deed and money involved are disbursed concurrently to the appropriate parties - these funds must be GOOD FUNDS before they can be disbursed - includes cash, cashier's checks, and personal checks that have cleared

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Escrow Responsibility

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- once escrow inst. have been signed - the escrow acts in a dual agency capacity to carry out the instructions of the buyer/seller - the broker has duties too -- broker should track the escrow to make sure the escrow is receiving what it requires, when it is required - problems concerning escrow -- broker should notify the parties and attempt to resolve these problems - broker should monitor the loan application and keep in contact with the lender to avoid/resolve any problems

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Broker Responsibility in Escrow

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Buyers - buyers performed in full - they're entitled to a deed transferring title subject to encumbrances agreed on by both parties - while title search is being conducted the buyer's deposits are held in escrow

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Parties to an Escrow - Buyers

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Sellers - sellers may have a firm contract to sell their property - they do not want to give up title until they are certain of receiving their money - they retain legal title to the prop as security until they have the money in hand - seller's legal title is transferred by deed - title is placed in escrow until buyers have produced full purchase price for the property - Seller dies before trans. completed -- seller's right to the unpaid part of the purchase price may pass to heirs - Buyer dies - the heirs may be required to continue with the purchase - loan may be affected owing to qualification

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Parties to an Escrow - Sellers

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Lenders - lenders do not want to commit their funds w/o assurance that titles to the properties are clear - impartial third parties hold money, deeds, other docs until liens have been paid off and clear titles have been confirmed - escrow's responsibility to see that the proper disbursements are made

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Parties to an Escrow - Lenders

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Brokers - RE agents (unless principals to the trans) are not parties to the escrow - the should still understand escrow procedures so they can monitor the escrow to avoid delays and to be able to explain escrow procedures to their clients - escrow has been opened -- escrow may not make any changes to the escrow instructions based on orders of a RE agent unless authorized by principals - escrow instructions might provide for payment of the commission out of escrow and say that broker's commission rights can't be cancelled

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Parties to an Escrow - Brokers

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- in CA - escrow comps licensed by CA Dept of Corps must be structured as corporations ^^includes companies conducting escrows using the internet - individuals can't be licensed under the escrow law but certain organizations and individuals are permitted to act as escrow agents without licensure --- banks, attorneys, RE brokers, Title and trust companies, Savings associations

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Parties to an Escrow - Escrow Agents

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- escrow transactions are handled by TITLE INSURANCE COMPANIES - they usually process the escrow and issue the title insurance policy together - there are some separate UNILATERAL escrow instructions for each of the parties

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Northern CA areas

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- ESCROW COMPANIES handle the majority of escrow transactions with a title company issuing the title insurance seperately - the parties sign joint BILATERAL escrow instructions

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Southern CA areas

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the parties to the escrow determine who shall be their escrow holder RE sales agreement - the buyer identify's the escrow and the seller accepts the agreement and the escrow

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Selection of Escrow Holder

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- a broker can act as an unlicensed escrow only if the broker is a principal or represents the buyer or the seller - the escrow function has to be incidental to the broker's business--not their only business - broker may charge for their services - large offices have escrow services as a separate profit center for their operations - a RE broker cannot advertise that they conduct escrow business unless the broker specifies that these services are only in connection with the RE broker business - escrow funds held by a broker must be placed in a special trust account and be subject by periodic inspections at broker's expense - broker conducts 5 or more escrows in a calendar yr or conducts escrows totalling $1 mill or more - broker must file an annual report with the BRE as to the # of escrows conducted and dollar amt - or face penalties and revocation of license

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Broker as Escrow

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Pay an app fee, background check, meet financial requirements, meet min experience requirements, furnish a surety bond, arrange for fidelity bonding of employees, be a member of Escrow Agents' Fidelity Corp, set up a trust fund for all money deposited in escrow, keep accurate records subject to audit, submit to an independent audit annually

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Requirements for DOC Escrow Licensure

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No escrow agent may ... disseminate misleading or deceptive statements referring to its supervision by CA, describe any transaction that is not included under the definition of escrow in the CA financial Code, pay referral fees to anyone except employees, solicit or accept escrow instructions or amended or supplemental instructions containing any blanks to be filled in after signed, permit any person to make additions, deletions from escrow instructions unless signed by all parties more info on pg 459

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Laws Governing Escrow

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-limited agency relationship governed by the content of the escrow instructions - the escrow holder acts only on specific written instructions of the principals as agent for both parties -when escrow closes - the escrow holder becomes agent for each principal w/ respect to those things in escrow to which the parties have become entitled

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Escrow is a ...

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- order preliminary title report - conveying preliminary title report to buyer - ordering beneficiary statement or payout demands handle receipt and disbursement of all funds - facilitate handling, prep, and signing of all docs - comply with all govt regulations - act as communicator w/ parties to the escrow as well as broker and lender - ensure that all conditions of escrow are met - satisfy lender conditions and that a clear title will be conveyed to buyer - accept fire ins policy - make all pmts and fees - secure title insurance policy - inform parties when escrow is ready to proceed - prepare closing statement - authorize the release and recording of all docs and disbursement of funds MAINTAIN HIGHEST LEVEL OF TRUST AND CONFIDENTIALITY OF THE ESCROW

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Escrow Procedures

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- are written directions from the principals to the impartial third party (escrow agent) to do all the necessary acts to carry out the escrow agreement of the principals - all principals in the escrow agreement sign identical or conforming instructions that fully set out the understanding of the parties to the transaction - they delier the signed instructions to the escrow agent - a Title or Escrow Company use preprinted forms for instructions - a Bank or other authorized agent may issue instructions by letter - when both parties sign >> they are both contractually bound to their agreement

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Escrow Instructions

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- if changes are necessary to the escrow, both buyer and seller must agree to amend the escrow instructions - neither buyer nor seller can unilaterally modify the escrow agreement once it is signed

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Amending the Escrow Instructions

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1. A statement showing the condition of the indebtedness and the unpaid balance of the current loan is requested from the beneficiary, the lender - they must respond w/in 21 days of receipt of the request 2. When the escrow agent has received all funds, docs, and instructions to close the escrow >> they make any necessary adjustments and prorations on a settlement sheet 3. All instructions pertinent to the transaction are then sent to the title insurance company for recording 4. The title search runs right up to the last minute of the escrow recording to ensure that nothing has been inserted in the record -- no changes occured >> the deed and other instructions are recorded on the next morning -- a title policy can be issued with the assurance that no intervening matters of record have occured since the last search 5. On the day the deed is modified - the escrow agent disburses funds to the parties, according to instructions 6. After recording, the escrow agent presents closing statements 7. The title insurance company goes to issue a policy of title insurance on the day of recordation 8. The recorded deed is sent from the county recorder to the customer

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Closing the Escrow - Basic Steps

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- Escrow cannot be completed >> the parties must agree to release the funds (less costs and fees) - if a party refuses to agree to release the funds when there is not a good faith dispute as to who is entitled -- that party can be liable for treble damages - a buyer's deposit may be released only if the parties agree - the matter is settled in arbitration or a judgement is rendered regarding the dispute

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Failed Escrow

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Impound account costs for taxes and insurance

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Recurring Costs

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- when a RE loan is made -- monthly pmts for taxes and fire insurance are required - lender estimates the funds needed for taxes and insurance which vary from year to year - these funds are placed in a special reserve trust fund called an impound account - sale of property final and loan paid off -- seller is entitled to the unused portion of the impound acct plus interest earned

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Impound Account

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- if an existing loan is to be paid off or assumed by the buyer -- the escrow agent obtains a beneficiary statement showing the exact balance due from teh one holding the deed of trust

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Beneficiary Statement

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- indicates the amt due to the lender from escrow if the loan is to be paid off - it could indicate a prepayment penalty

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Demand Statement

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- if the seller has a loan that is not being assumed by the buyer -- the loan must be paid off to clear the title - seller instructs the escrow agent to pay off the loan -- then the seller receives a deed of reconveyance - a reconveyance fee is charged to the seller for this service - the sum due to the lender is entered in the seller's escrow instructions as an estimate - the total figure will not be known until the final computations are made by the escrow officer at time of closing

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Reconveyance

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- the sum that the seller and buyer have to pay beyond the prchase price - consist of fees charged for the ... mortgage loan, title insurance, escrow services, reconveyances, recording docs, trnasfer tax - costs vary from area to area, institution to institution - change with fluctuations in the economy - certain costs are customarily charged to the buyer - some to the seller - this is negotiable however

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Closing Costs

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- the adjustment and distribution of costs to be shared by buyer and seller is called proration - includes taxes, interest, insurance, prepaid rents - costs are prorated in escrow as of the closing of escrow or an agreed upon date - generally the buyer is responsible for the day of closing

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Prorations

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- generally based on a 30 day month and a 360 day year - ie banker's year - other states base it on actual # of days

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Proration of Taxes in CA

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- is charged on a true per diem basis and is not rounded to a 30 day month

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Mortgage Insurance Proration

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- are levied annually - July 1 to June 30 is the tax year - paid in two installments - often require proration

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Property Taxes

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Fire insurance is normally paid for one year in advance If the buyer assumes a fire ins. policy that has not yet expired - the seller is entitled to a prorated refudn of the unused portion

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Insurance Proration

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- if a loan of record is being taken over by the buyer - interest will be prorated between the buyer and seller - interest is normally paid in arrears ex - closing on the 15th of the month and buyer assumes a loan w/ pmts due on the 1st of the month - seller owes the buyer 1/2 month's interest

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Interest Proration

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Prepaid rents will be prorated in cases involving income producing properties Rents are generally prorated on an actual day basis (calendar year using 365/366 days)

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Rents Proration

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- doesn't follow usual bookkeeping formulas - seperate statements are issued for the buyer and the seller - each settlement sheet includes debits (amounts owed) and credits (amounts entitled to receive) - on the SELLER'S settlement sheet - all the credits to the seller are added > any debits owed by the seller are then totaled and deducted from the credits > the difference is entered as a cash credit to the seller and the escrow agent forwards a check for this amount at the close of escrow - on the BUYER'S settlement sheet - the buyer is charged (debited) with the purchase price of the prop >> the loans the buyer has obtained are credited to them > cash is credited > prorations are debited or credited and escrow fees and closing costs are debited >> the difference between total debits and credits usually is required in cash by the escrow agent which becomes an additional credit and forces the account to balance - because of the forced balances, the totals on the buyers' and sellers' statements will be different from each other and from the purchase price - the BUYER'S and SELLER'S closing statements are different

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Procedure for Closing Statements

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- the RE broker's final duties are to meet with the buyers or sellers and explain the closing statement to help them understand all charges and credits from the statement - and to verify that they have received the correct amt from escrow or paid the correct amount into escrow

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Broker's added Responsibility

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- cash pmts over $10,000 must be reported to the IRS on form 8300 - gross proceeds to the seller are reported on IRS form 1099S

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IRS Reporting

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- could be held liable for its negligence or breach of duty - escrow companies don't have any duty to warn a party of possible fraud or point out any detrimental fact or risk of a transaction - if the escrow agent is a broker - they would have these disclosure obligations

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Liability of an Escrow

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- an abstract of titel is a recorded history of a property - it includes a summary of every recorded doc concerning the property - an attorney reads the abstract and gives an opinion of title based on what the abstract reveals - abstracts don't reveal title defects

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Marketable Title is shown by an Abstract

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- insures the ownership of real property against any unknown encumberances and other items that may cloud the title (usually these claims are made by a third party against the property) - title insurance is paid for once at the time the title passes from one owner to another > it remains in effect until the property is sold again - prop owner dies - title insurance still protects the owner's heirs - buyer doesn't buy title insurance - the buyer is not protected even if a prior owner had title insurance - 2 basic types - CA Land Title Assoc. CLTA POLICY and American Land Title Assoc. ALTA POLICY

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Title Insurance

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- CLTA policy - usually used by the buyer in CA - covers matters of record and specified risks not of record INCLUDING: forgery, lack of capacity of a grantor, undisclosed spousal interests, failure of delivery of a prior deed, federal estate tax lien, deeds of a corp. whose charter has expired, deeds of an agent whose capacity was terminated - EXCLUDED: defects known by the insured and not disclosed, zoning, mining claims, taxes/assessments not yet liens, easements and liens not a matter of record, rights of parties in possession, matters not a matter of record that would be disclosed by looking at the property, matters that would be revealed by a correct survey, water rights, reservations in govt patents - title ins. may include an exception to a particular problem

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Standard Policy

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Seller pays for the standard policy of title insurance

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Southern CA Title Insurance

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Buyer pays for this coverage

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Northern CA Title Insurance

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- generally purchased for the benefit of the lender - buyer pays for this lender protection - insures that the lender has a valid and enforceable lien - insures the lender for the amount of the loan (not the purchase price) 3 basic ALTA policies: 1. deals with omes described by lot, block and tract 2. deals with homes described by metes and bounds or govt survey system 3. deals with construction loans - protects lender only from the risks covered - INCLUDES protection for: unrecorded liens, off record easements, rights of parties in physical possession, rights and claims that a correct survey or inspection would disclose, mining claims, water rights, lack of access - DOES NOT COVER: matters known insured and not disclosed to insurer, govt regulations/zoning, eminent domain, violations of the map act

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ALTA Extended Policy

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- issuer issues a preliminary title report prior to the issuance of a policy of title insurance - designed to provide interim response to an applicaiton for title insurance - identifies the title to the estate or interest in the prescribed land - contains a list of defects, liens, encumberances, and restrictions excluded from coverage if the policy would be issued on that day - provides the opportunity to seek the removal of items referenced in the report that are unacceptable to the prospective insured

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Preliminary Title Report

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1. is an offer 2. is not an abstract of title reporting a complete chain of title 3. is a statement of the terms and conditions for the offer to issue a title policy

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A preliminary report ...

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- construction lender policies - policies for vendees (purchasers under real property sales contracts) - policies insuring leasehold interest - policies for oil, gas interests

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Special Title Insurance Policies

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- title insurance companies ar precluded by law from providing kickbacksto brokers for referral business - they must charge brokers the same as other customers and make sincere efforts to collect any premium due - Rebate Law extends to escrows and title insurers - receiving a rebate from a title insurer is considered commercial bribery and subject to a licensee to up to 1 yr in jail and a fine

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Rebate Law

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- Real Property Taxes are ____ - means according to value - Real Estate tax rates are a percentage of the property's full cash value - RE Taxation cannot be evaded - person doesn't pay RE taxes >> the levying body can foreclose on its tax lien to satisfy the taxpayer's obligations - Property Taxes are fully deductible on a homeowner's income tax return

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Ad Valorem Taxes

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Potential customers may hesitate to purchase property

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Property Taxes High

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- they are assessed and paid on a fiscal year - July 1st through June 30th - November 1st - first installment Due - December 10th - first installment becomes delinquent - February 1st - second installment Due - April 10th - second installment becomes delinquent - If taxes are paid through lending agency >> the county sends a tax bill to that agency and a copy to the owner - If taxes are paid by owner >> the original bill is sent to the owner for pmt - Unpaid taxes become delinquent - a penalty is charged even if taxpayer never recvd a notice

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Property Taxes Assessment

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Includes: Identifying Parcel # Breakdown between land assessments and improvement assessments Tax exemptions such as homeowner's exemption The full amount of the tax Itemized or separate payment cards with the full tax equally divided into 1st and 2nd installments

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Typical CA Tax Bill

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- in the 1st yr of ownership they will receive two or three tax bills: the regular tax bill and one or two supplemental tax bills - they are issued because property is reassessed as of the sale date - the sale triggers a reassessment of the taxes - it takes time after a home purchase for the tax collector's office to issue the new property tax bill based on the new assessed value >> the assessor puts new values on a supplemental assessment roll from the completion date of construction or the change of ownership date ^^ if the new value is higher than the current assessed value -- a supplemental tax bill is sent to the property owner that reflects the higher value for the remainder of the tax year

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Supplemental Tax Bill

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- cities/counties/special districts can (by a 2/3 vote of the electors of the district) impose special taxes on districts - special assessments are levied for specified local improvements - the voter approved bonded indebtedness varies by county

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Special Assessments

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- enacted in 1978 - objective >> keep property taxes as low as possible - newly acquired RE or new construction will be assessed according to the fair market value and taxed at a max tax rate of 1%-BASIC LEVY - assessed values of properties acquired before 1978 wil be reduced to the amt shown on the 1975 tax roll - addtl money up to 1% are added to the basic levy--causing the tax rate to range from 1%-more than 2% depending on the area - the assessment value may be increased up to 2% each year--as long as the consumer price index CPI is not exceeded (CPI measures inflation) - this 2% increase in the assessed value represents the max amt the county assessor can increase the property's value each fiscal year

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Proposition 13

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- provides transfer of real property between spouse or domestic partners and transfers of the principal residence and the first $1 million of other real property between parent and child are exempt from reassessment - Prop 193 extended the exemption to people who inherit from a grandparent when both parents of the grandchild are deceased - to receive this exclusion >> a claim must be filed with the county assessor - the statement must state whether the prop is the transferor's principal residence

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Proposition 58

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- purpose was to encourage older people to move to less expensive housing w/o having to pay higher taxes bc of reassessment on a new home - for homebuyers 55 and older and taxpayers who are severely and permanently disabled - stipulations: both houses must be in same county, transferor must be at least 55 yrs old as of date of transfer, original residence must be eligible for a homeowner's exemption at time of sale, new home must be of equal or lesser value than the old residence

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Proposition 60

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- extension of Prop 60 - allows the purchase of the new home in a different county in CA - the county the homeowner is planning to move into may reject Prop 90 - only counties who have accepted 90: Alameda, Los Angeles, Santa Clara, San Diego, and Ventura

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Proposition 90

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- any person acquiring an interest in property subject to local taxation must notify the county assessor by filing a change in ownership statement w/in 45 days of the transfer/recording of transfer

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Change in Ownership Statement

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- each residential prop that is owner occupied is entitled to an annual tax homeowner's exemption of $7,000 from the full cash value - homeowner needs to apply only once if from year to year there is no change in ownership of and residency on the property - homeowner must have been the owner of record on or before Jan 1st and have occupied the prop to claim this exemption for the upcoming tax yr beginning on July 1 - allowed to claim only one exemption at a time - once its been filed it remains in effect until terminated

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Homeowner's Exemption

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- CA war vets may receive a $4k veteran's exemption on the full cash value of their homes - a person can't take both the homeowner's exemption and the veteran's exemption - a totally disabled veteran or their surviving spouse may be eligible for a higher exemption

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Veteran's Exemption

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- a homeowner who is at least 62 yrs old as of Jan 1st may have the State of CA pay all or part of the real property tax on his or her home - people who are blind or totally disabled and meet the income requirements are also eligible - taxes are postponed and are not repaid until the property is sold or the claimant no longer occupies the property

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Senior Citizen's Property Tax Postponement

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- counties may adopt a documentary transfer tax of 55 cents for each $500 or fraction therof of consideration - cities and counties who have adopted the tax may add an additional tax - parties may negotiate the tax but usually: ^^ the seller pays in Southern CA ^^ the buyer pays in Northern CA ^^ in Central CA - it can be a combination of both - the county recorder won't accept taxable conveyance for recording without a Doc Transfer Tax Declaration

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Documentary Transfer Tax

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- before 1997 - capital gains were taxed at a 28% max rate if the capital assets were held more than 1 year - the 1997 act reduced the rate to 20% for long term gains - capital gains tax will remain at 15% for 2013 (except for high income taxpayers-still 20%) - tax payers in the 10%-15% tax brackets -- long term gain was cut to 5% - page 489 for more info

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Capital Gains Tax

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- is a method of accounting for the wear that results form the use of a capital good (equipment/building) - doesn't last forever - used to reflect the replacement cost of a capital good - land can't be depreciated - ONLY investment and income property can benefit from depreciation - ONLY improvements to land may be depreciated - RESIDENTIAL property is where people live - personal residences can't be depreciated - NONRESIDENTIAL property incl: industrial, commercial, office buildings, etc - since Jan 1 1987 - ALL REAL PROP is depreciated using the STRAIGHT LINE METHOD

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Depreciation

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- the value of the property is depreciated in equal annual amounts over the depreciable life of the property - RESIDENTIAL rental property must use a useful life of 27.5 yrs - NONRESIDENTIAL prop must use a useful life of 39 yrs ^^ either can elect to use 40 years

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Straight Line Method

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ORIGINAL BASIS - is used to determine the depreciable basis and adjusted basis DEPRECIABLE BASIS - is used to determine the amt of allowable depreciation ADJUSTED BASIS - changes as time progresses - is required to calculate the gain on the disposition of a property

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Basis

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Original Basis = Purchase Price + Buying Expenses on acquisition ^^ OB=PP+BE BE - buying expenses - nonrecurring closing costs associated with the purchase ND - Nondeductible items - impound accounts

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Original Basis

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Depreciable Basis = Original Basis - Land Value - the original basis minus the value of the land - it is the cost basis of the improvements

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Depreciable Basis

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ASSESSED VALUE METHOD - the county assessor's prop tax statement now lists the full cash value of both the land and the improvements - assessor's determination of the part of the purchase price that represents improvements APPRAISAL METHOD - a professional appraiser appraises the building and land - they may give a more or less favorable ratio than the assessed value method CONTRACT METHOD - the buyer and the seller determine the relative values of the improvement and land and designate these values in the contract, deposit receipt, or escrow instructions - the determination must be at arm's length and reasonable - owner should be prepared to justify the value in an IRS audit

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3 ways to determine the value attributable to the land

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- its the amount that the client has invested in the property for tax purposes Adjusted Basis = Original Basis + Improvement - Depreciation - basis is the beginning point for calculating the amt of gain or loss on the sale

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Adjusted Basis

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the price paid for the property

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Basis by purchase

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the donor's adjusted basis plus the gift tax paid, not to exceed the fair market value at the time of the gift

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Basis by gift

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generally is the fair market value at the time of the owner's death

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Basis by inheritance

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- the basis is the beginning of computing the gain or loss on the sale - numerous adjustments to the basis always are made during the ownership period - some of the costs that increase the basis include: title insurance, appraisal fees, legal fees, cost of capital improvements, and sales costs on disposition - accrued (past) depreciation is deducted from the basis - result is the adjusted basis

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Computing Gain

question

- Compute the original basis - Determine allocation between land and building - Compute the depreciable basis - Determine whether the property is residential (27.5 yr table) or nonresidential (39 yr table) - Divide the depreciable basis by 27.5 (residential) or 39 (nonres) -- this gives you the annual straight line depreciation

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To Compute Depreciation

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- the capital gains tax rate for gains attributable to depreciation is the rate for regular income - with a max of 25%

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Capital Gains Due to Depreciation

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- debt forgiveness on the principal residence resulting from loan restructuring, short sale, or foreclosure to be excluded from income - been extended through 2013

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Mortgage Foreclosure Debt Relief Act of 2007

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- is part of federal tax law -- IRS Section 1031 - allows for exchange of personal property - an exchange allows the owner to delay taxes and have more money to invest in a new property - because of refinancing - many owners don't have enough equity to cover their tax liability ^^ an exchange allows them to defer tax liability

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the 1031 Exchange

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- often 3 parties are involved - widely used >> buy-sell exchange 3 people involved: 1) exchanger (person wanting to exchange) 2) the seller (the person who wants to sell property and doesn't want to retain any property 3) the buyer (a person who wants the property of the exchanger) - buyer offers to buy the exchanger's property, they don't have property to exchange >> exchanger needs to find another property (the prop they want to acquire) >> when the buyer buys the property from the seller, the buyer has a property to exchange with the exchanger - to satisfy the IRS - the buyer will buy the seller's property and exchange it with the exchanger - done in escrow w/in minutes - when a client wants a 1031 tax deferred listing, a statement that the client wants to make this exchange should be on the listing and in the MLS - helps convince the IRS that the client intends to make a 1031 exchange from the beginnning

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Tax Deferred Exchanges involving at least 3 parties

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- to qualify for a totally tax deferred exchange - the exchanger needs to trade up in value and put all of their equity dollars into hte new property or properties - the new property must be equal to or greater in value than the old property - if the exchanger withdraws cash - the cash withdrawn will be taxable - is a taxable gain - an exchange may be partial but the client won't have a totally tax deferred exchange

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Buy Up Rule

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- the way the exchanger holds property going into an exchange is the way the exchanger must hold the property coming out of the exchange

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Entity Rule

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- comes from IRS code Section 1031 - - no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment - a personal residence isn't held for productive use in a trade/business/or investment ^^ a person can't have a tax deferred exchange on their residence for business or investment property - Inventory can't be exchanged Taxpayers want to call all of their property investments IRS classifies property as inventory ^^ no clear answer

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Investment Property Rule

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- determined by the taxpayer's intent and actions - collecting rents and taking depreciation on a property over 2-3 yrs shows intent and actions of investing - an asset built is considered inventory when it has not been held for two or three years to show intent of investing

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What is Investment vs What is Inventory

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- exchanges of property must observe the like-kind rule - personal and real property are not like kind Personal property for Personal property - must be exactly the same in character or have the same nature Real property for Real property - any piece of real property exchanged for any other piece of real property

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Like-Kind Rule

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- if an exchange qualifies as an exchange, it must be treated as an exchange - if the RE transaction was structured as an exchange, the gain must be deferred

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No Choice Rule

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- if a RE transaction qualifies as an exchange - a loss can't be recognized - losses must be deferred along with gains

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No Loss Rule

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- to be a valid exchange, the exchanger can't have control of the buyer's money - an accommodating party is a third party that has control of the buyer's money in a delayed exchange

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Money Control

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- the property must be identified within 45 days and the exchange completed within 180 days of transfer of the exchanged property - Identification of the exchange property must meet 1 of 3 guidlines: 1. ID of up to 3 properties of any value w/ the intent to purchase one of them 2. ID of more than 3 properties as long as the combined market value doesn't exceed 200% of the market value of the property relinquished 3. ID of more than 3 properties with a combined market value exceeding 200% of the market value of the relinquished property but you must acquire 95% of the market value of all of the properties ID'd

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Delayed Exchange

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- the replacement property is acquired prior to the property owner giving up their property - an exchange accommodation titleholder takes title to the property the exchanger wishes to acquire and holds the title until the sale of the exchange property can be arranged - removes the problem of acquiring property w/in an amt of time - the sale must be within 180 days

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Reverse Exchange

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- Unlike Property in an exchange = BOOT - boot is taxable to the person receiving it - property needs to qualify as like kind only to the person seeking the tax deferred exchange - boot can be classifed as CASH BOOT or MORTGAGE BOOT

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Boot

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- is a result of the balancing of equities - defined as all other unlike properties: cash, paper deeds/notes, personal properties (cars, boats..)

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Cash Boot

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- its the difference between the loans on the conveyed property and the loans on the acquired property - aka Debt Relief - if the client assumes a mortgage larger than the one that they convey -- they have paid mortgage boot - if they assume a mortgage that is less than the one that they convey -- they have recieved mortgage boot/debt relief

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Mortgage Boot

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- by using an installment sale - the investor can spread the tax gain on a sale over 2-more years -- Guidelines include: 1. total tax to be paid in any one year may be reduced by spreading the payment amt and the gain over 2 or more years 2. the seller pays tax in future years with cheaper inflated dollars 3. the seller doesn't pay the entire tax until after receiving the entire amt of the purchase price - no more than 30% of the sales could be rcvd in the taxable yr of the sale to qualify for the installment sales treatment 4. installment sales method is automatic unless the taxpayer elects not to have the install. sale treat. apply

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Installment Sales

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- property is sold with provisions for the seller to continue occupancy as a lessee SELLER/LESSEE Advantages... -can gain the advantages of getting property exactly suited to their needs w/o tying up working capital in fixed assets - more capital can be raised than by borrowing for the seller - leases are not long term liabilities - Rent is Tax Deductible - writing off total lease payments is better than depreciation bc land can't be depreciated - removing a significant mortgage can remove debt from balance sheet - gives a positive impression on lenders and purchasers of corp stock - rent on land is a deductible expense and improvements can be written off w/ depreciation deductions BUYER/LESSOR Advantages... - obtains a long term carefree investment and appreciation in the value of the property - convenience of built in tenant - yield on a sale-leaseback is higher than on a mortgage - lease pmts will pay off the original investment and lessor will still have title to the property - the investment will not be paid of prematurely - investor won't have to go out looking for another investment to replace the one prematurely paid off - lease terms give the lessor a claim against other assets of the lessee in the event of a default - better security protection than a trust deed

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Sale Leaseback

question

=Primary Personal Residence >> the dwelling in which a taxpayer lives and which taxpayer occupies most of the time - can only have one principal residence at a time Includes: single family house, houseboat, mobile home, motor home, trailer, condo, coop housing .. in a multi unit dwelling - the unit is your principal residence - RE that is a homeowner's personal residence receives special tax treatment

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Principal Residence

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-Taxpayers primary residence = the place occupied more often than any other - all others are secondary residences -Secondary Residence gets favorable income tax treatment but doesn't qualify for universal exclusion treatment

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Primary or Secondary Residence

question

- residence includes improvements and land - vacant land can't be considered a personal residence - large tract of land with a residence on it - how much of the land is included with the principal residence?? - no clear cut answer - determined based on the use and the intent of the taxpayer - not on the amt of land involved

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Land

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- a seller who has owned and used a home as a principal residence for at least 2 of the last 5 years before the sale can exclude from income up to $250k of gain - $500k for joint filers - can be only used once every two years - doesn't apply to a home sale if w/in 2 yr period ending on the sale date there was another home sale by the taxpayer to which the exclusion applied - married couples filing jointly in the yr of sale may exclude up to $500k of home sale gain if either spouse owned the home for at least 2 of the 5 yrs before the sale - both spouses must have used the home as a principal residence for at least 2 of the 5 yrs before the sale - 2 yr occupancy need not be continuous - CA has adopted the federal universal exclusion of $250/$500k - if a sale meets the Fed exclusion it meets the CA exclusion

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Universal Exclusion for Gain on Sale of Principal Residence

question

- taxpayers are eligible for certain income tax writeoffs while they own their homes - ownership transfers when title is transferred or buyer is given the rights of possession - whichever first - these tax deductions work if the taxpayer is the legal owner or equitable owner of the home - land contract -- the owner has equitable title - a buyer who has possession of the property (equity) owns the property and receives all the tax deductions of the property - during ownership - owners taking itemized deductions may write off RE taxes and mortgage interest in the yr they ar epaid - paying money into an impound acct isn't the same as paying them to the agency to which they are owed - money paid into an impound acct are not deductible - only money pd from the impound acct to the proper authority are counted for deductions

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Tax Benefits

question

- Jan 1 1987 - new tax laws placed limits on interest - if the loan is secured by a home or a second home - the interest is treated as home interest - taxpayer should understand that the loan must be secured by his or her home - interest on primary residence and second home will be treated as home mortgage interest on mortgage amts of up to $1mill - interest on addtl secondary homes will be treated as personal interest - personal interest isn't a deductible expense - interest for primary/secondary homes are called home mortgage interest or qualified residence interest 2 types of home interest - acquisition indebtedness and home equity indebtedness

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Home Interest

question

Taxpayers may deduct interest on home acquisition debt of $1mill or less for first and second homes

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Acquisition Indebtedness Interest

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Taxpayers may deduct interest on up to $100k of home equity debt - money borrowed on property to use for other purposes

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Home Equity Debt Interest

question

- recording amts spent for home improvements and retaining any and all receipts are important to homeowners - improvements may be added to the homeowner's basis making the adjusted basis greater and reducing the gain at the time of sale Adjusted Basis = Original Basis + Home Improvements Home Improvements: Electrical, Floors, Heating Units, Partitions, Pipes/Drainage, Roof, Walls, Room Additions, Patios, Pools, Fencing, Landscaping, Sprinkler Systems Maintenance Items - not home improvements: Painting, Papering, Carpeting, Drapes, Furniture, Replacement of built in appliances

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Home Improvements

question

- a relief provision may apply to some taxpayers who sell their principal residence but fail to meet the once every two years rule for use of the exclusion - the excludable portion of the gain that would have been tax free had the requirements been met are computed proportionately ex. forced sale in the 18th month - the person gets 3/4 of the exclusion

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Relief for Forced Sales

question

- forgiveness of a legal debt would normally be taxed as income to the debtor - the Mortgage Forgiveness Act of 2007 - forgives the taxation on gains realized by the forgiving of debt on a purchase money loan on the taxpayers personal residence - CA law conforms to Fed law as to the forgiveness of debt relief from taxation income

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Debt Relief

question

- a taxpayer may use a capital loss to offset a capital gain in the year of the loss - if a taxpayer lost $100k on one capital sale but made $100k on another sale in the same year - there would be no capital gain tax - to take advantage of a capital loss - a taxpayer should consider selling another capital asset where a profit would be made in the same year as the property loss

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Capital Loss

question

FIRPTA - became law in January 1985 - before 1985 a foreigner could purchase property in the US and later sell it, and then move back to their homeland and not pay income taxes on the sale of the property -- impossible to collect delinquent taxes from that individual **Federal FIRPTA - requires that a buyer withhold estimated taxes equal to 10% of the sale price in transactions involving real property in the US sold or exchanged by a foreign person **Cal FIRPTA requires that a buyer withhold taxes of 1/3 of the amt required to be withheld under FED FIRPTA (3 1/3% of the sales price) - the Fed 10% must be reported and paid to the IRS within 10 days after close of escrow - if the buyer fails to withhold the est taxes and the seller fails to pay taxes on the sale - the buyer is subject to a penalty equal to 10% of the purchase price or the seller's actual tax liability plus interest and penalties - whichever is less - for personal residences - FED F. only applies to sales prices of $300k or more - if a buyer states that they will use the property for a personal residence and its price is under $300k - the buyer is relieved of withholding estimated taxes - all other property requires withholding when a foreign person sells the property - more than one person owns the prop and some are US citizens and some aren't - the amt of withholding is prorated on the basis of the capital invested

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Foreign Investment in Real Property Tax Act

question

- Burden falls on the buyer - only a few measures that will relieve the buyer of the obligation to withhold - seller must provide the buyer with an affidavit of non foreign status -- and seller must provide a US taxpayer id # and state that they are not a foreign person - CA has adopted this same law

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How is the buyer to know if the seller is a foreign person?

question

- as of 2003 - buyers of property OTHER than the seller's PERSONAL RESIDENCE - must withhold 3 1/3% of the net proceeds of the sale and remit them to the Franchise Tax Board at close of escrow - OTHER EXCLUSIONS: prop sold for less than $100k, property sold at a loss, prop involved in a tax deferred exchange, involuntary conversion/foreclosure

answer

CA withholding

question

- tax payers can use RE operating losses to offset RE income without limit - RE losses can also be used with limits to offset active income such as wages - taxpayers w/ an adj. gross income of less than $100k can use RE losses to shelter up to $25k of their active income - taxpayers whose income is between $100k and $150k lose $1 of this $25k for each $2 that their adjusted gross income exceeds $100k - investors that don't actively manage their property- the taxpayer is precluded from sheltering active income - RE professionals can use passive losses from their investment property to offset other income w/o limitations if they devote at least 750 hrs during the tax year to property management activities

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Tax Shelter

question

- Death Tax - is a tax shelter bc it avoids capital gains tax on the increased value of assets of the deceased - the assets may be subject to an estate tax - Inherited Property - the property is valued at the time of the decedent's death - the asset is shielded from any capital gains based on appreciation in value that occurred prior to decedent's death - Decedent's gifted property prior to death - the recipient would retain the cost basis of the grantor and a subsequent sale could subject the grantee to substantial gain taxation - CA no longer has an estate tax altho several states do tax estates - estate taxes aren't levied on gifts to a spouse

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Estate Tax

question

- fed gift tax is taxed to the donor - annual exemption is $13k per donee - married couples with 3 children could give each child $13k each yr making total gifts of $78k each year that are tax exempt

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Federal Gift Tax

question

- is the court approved procedure to pay off the debts of a deceased and to distribute their assets according to a will or intestate succession 3 reasons to avoid probate: 1. the cost of probate 2. reduction of possible estate taxation 3. time -- in CA a $1million esate could be subject to $23k attorney fee and $23k for an executor fee - probate may be avoided - by using joint tenancy, community property or a revocable living trust - Living Trust - the trustor transfers their property to their trust but retain absolute control and serves as trustee - upon death a successor trustee distributes the estate w/o probate expenses

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Probate

question

IREM - a subdivision of Nat. Assoc of Realtors NAR - 1933 - 100 companies met and formed this institute to improve the professional standing of property managers - they certified that they would: 1. refrain form commingling funds 2. bond all employees handling client funds 3. disclose all fees, commissions, or other pmts received as a result of activity relating to the client's property

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Institute of Real Estate Management

question

- in 1938 the IREM changed its policy and developed the CPM to certify individual managers rather than companies that employed them - wanted to ensure that managers have the general business and industry specific experience necessary to maintain high standards w/in the profession - to earn the CPM designation... 1. actively support the institute's rules and regulations 2. demonstrate honesty, integrity, and the ability to manage RE including 3 yrs experience in a real estate management position 3. be a member of a local RE board and a member of the National Association of Realtors

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Certified Property Manager

question

ARM for residential managers - part of IREM

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Accredited Resident Manager

question

- a designation given by IREM to a company To receive this designation... 1. have at least one CPM in charge 2. have property management as a primary activity 3. follow minimum standards and the rules of IREM 4. renew its accreditation yearly

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Accredited Management Organization

question

- is a licensee of a RE office or agency that manages a number of properties for various owners - this manager could be a manager of the firm who spends full time in management, may be self employed as a managing agent, or may be one of several managers in the management department of a large RE company - a person working under direct supervision of a licensed property manager need not be licensed to: show property, accept preprinted rental apps, provide info on rental terms, accept signed leases and deposits

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Licensee/Property Manager

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- manages a single property for the owner and may or may not possess a RE license - usually employed on a straight salary basis

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Individual Property Manager

question

- lives on the property and may be employed by the owner or by a managing agent - doesn't require a RE license - usually qualified by previous management experience or by special training - State law requires a resident manager for property containing 16 or more units and specifies that the resident manager must be a responsible person - mobile home parks having more than 50 units must have a resident manager

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Resident Manager

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- the owner is interested primarily in: 1. the highest return from the property - highest and best use 2. the enhancement or preservation of the physical value of the property

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Property Manager is Administrator for the Owner

question

- under prop management system - the owner is relieved of all executive functions as well as all details connected with the operation or physical upkeep of the property - as an agent - the prop manager must show good faith and loyalty to their principal; perform their duties with skill, care, and due diligence; fully disclose all pertinent facts; avoid commingling funds; refrain from personal profits w/o the principal's full knowledge and consent

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Specific Duties of a Property Manager

question

on Pg 520 - establish rental schedule for highest yield - merchandise the space and collect rents - create/supervise repairs and maintenance schedules - policy for tenant-resident relations - employee policies - maintain proper records and reports - qualify tenants, prepare leases - audit and pay bills and insurance premiums and taxes, hire and maintain personnel/staff - advertise, keep up to date on economic conditions - inspect vacant spaces

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State defined responsibilities

question

1. market the space by advertising and securing good tenants 2. collect rents 3. handle tenant complaints and physically caring for the premises 4. purchase supplies and equipment and paying for repairs 5. hiring needed employees and maintaining good public relations 6. keep proper records and prepare required reports 7. make recommendations to the owner on matters of improvements, changes in use and insurance coverage, and operational changes requiring owner approval

answer

Basic Responsibilities

question

- Effective Rent - often less than scheduled rent if inducements are provided to the tenant (like one months free rent - taken equally off the lease terms) - Rent levels are determined on the premise of scarcity and comparability of values in the area - how much rent is charged will affect the cost and time required to rent the unit, the length of each tenant's stay, decorating costs between tenants, and overall vacancy rate - to set up RENT SCHEDULES - the manager must make a skilled and thorough analysis of the neighborhood ((including character of neighborhood, family size, trends in population growth, availability of transportation, schools, rec, shopping, etc, condition of housing market, current area vacancy, similar desirable rental units available)) - OBJECTIVE - achieve the combo of rent and vacancy that provides the owner with the greatest net rentometer.com ziply.com

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Establishing Rent Schedules

question

- prop manager must know legal rights of tenants, legal procedures to take in notices and evictions, federal and state anti-discrimination laws, laws for sexual harassment, local and state building health and safety codes

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Knowing the Law

question

- the most numerous of the properties subject to prof. management - the housing market is stratified - high vacancy rate at one rental range - low vacancy rate at another rental range - should be familiar with local rent control ordinances to make certain that rents and rent increases are not in violation of law - Allowable RENTAL INCREASES are subject to Costa Hawkins Rental Housing Act - landlords who are subject to rent control are free to establish new base rents for new tenants and sublessees and assignees

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Residential Properties

question

- individual ownership of condos involves property management - Condo Association Management - heavy on accounting Duties: 1. collect fees and assessments from members 2. issue financial statements to the association 3. ensure homeowner's assoc provide members an annual financial statement and a form (Assessment & Reserve Funding Discl. State.) that spells out current assessments and scheduled assess. 4. contract for hiring all maintenance and repairs 5. enforece CC&R's 6. handle tenant disputes/complaints 7. filing tax returns, workers comp, unemployment, insurance etc 8. seeing that prop is insured 9. making suggestions to the board of directors 10. attend meetings - prop manager doesn't make policy - they carry out policy as directed by the board of directors and the CC&R's

answer

Condominiums

question

- specialty field involving 1. park development 2. public amenities 3. enforcement of park rules 4. approval of lease assignments on sale of units - individual lots owned by mobile home owners >> mobile home park mgmt duties are similar to duties of a condo association mngr - laws governing evictions from rental space parks are more restrictive for park owners than for other types of landlords - park mngr must give tenants a 12 month lease on request at current rent and furnish tenants with an annual copy of CA Civil Code

answer

Mobile Home Parks

question

- account for 30% of residential housing in the US

answer

Multifamily Units

question

- largest single landlord in the US is the collective 3300 public housing authorities - many property managers are employed by federal, state, and local housing authorities

answer

Public Housing

question

- they are the major commercial property - office space requirements and available inventory are related to the economy - larger users of space - banks, savings assoc, insurance companies build their own spaces but provide a large amt of excess space for leasing - most areas have a lot of vacant office spaces - concessions are needed to attract tenants TRADE IN spaces are used - property managers agree to assume a tenant's current lease to encourage the tenant to take a larger space under a long term lease - Advertising is essential - groundbreaking ceremonies, brochures, ads, web sites, mailing lists of prof groups, personal solicitation, model offices, making technical data available readily - extensive maintenance is required: servicing operating equipment, maintaining elevators, cleaning, other routine maintenance and cleaning, compliance with health and fire codes - Protection - of the premises is a mgmt function

answer

Office Buildings

question

- there are many instances requiring single family home management for absentee owners - resort areas - many owners use prop management to care for their properties and to handle short term rentals - might be used for property in probate and for lenders who've foreclosed - single family units require more management time - mgmt charges reflect this greater effort

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Single Family Homes

question

- requires same skills as office mgmt - multiunit commercial properties - manager should consider the effect of a prospective tenant on current tenants - they seek out particular tenants that will contribute to the overall operation of the property

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Retail Space

question

- specialized bc of the skills required - knowledgeable in many areas: fire suppression systems, floor/ceiling load capacities, hazardous and toxic substances, air and water quality, loading dock require, electrical capacity, reading blueprints for modifications, zoning regarding uses allowed, insurance requirements, security and sec. systems, HVAC systems

answer

Industrial Management

question

- is of prime importance to lessors and lessees for all types of property - a property manager should never indicate to tenants that a property is safe or secure - use best efforts to make the premises safe as possible Emergency Evac Plan, Properly marked exits, appropriate landscaping, exterior lighting, interior lighting, circuit breaker box locked, exterior/interior doors and doorlocks, window locks

answer

Security

question

- prop managers who remit rents to a foreign owner must withhold 30% unless exempt by tax treaty - failure to comply could result in manager liability for 30% of gross rent plus penalties and interest

answer

Managing for Foreign Owners

question

- formalizes the relationship between the owner and the manager and points out the rights and duties of each party - main info includes: management fees, contract period, provision for management accounting

answer

Management Agreement

question

Can cover one or a combo of the following: 1. Flat Fees 2. Minimum Fee 3. Min Fee plus percentage of the gross (common) 4. Leasing Fee - flat fee or % of the lease rental 5. addtl fees or % for special services - drafting leases, supervising repairs, remodeling, handling evictions, overseeing contracts, collecting delinquent accts of former tenants - may provide for reimbursement of costs of things like advertising

answer

Management Fees

question

- Section 2830 of the commissioner's regulations requires that a trust ledger for prop management accts be established - as rents come in, they are posted to the owner's acct - as money is paid out on behalf of the owner, its recorded - manager sends a statement to the owner at the end of each month

answer

Trust Ledger

question

- estate from period to period (year to year, month to month, etc) - can be ended by a notice for the length of the rent paying period but for no more than 30 days - 60 days for a person living there for more than 12 months - 90 days for section 8 housing

answer

Periodic Tenancy

question

-created when a tenant obtains possession of property legally but then remains on the property w/o the owner's consent -they need to be evicted from the property and can't simply be ejected as a trespasser - if lessor accepts rent - it becomes a periodic tenancy

answer

Estate at Sufferance

question

-possession given with permission - no agreement made for rent - requires a 30 day notice to terminate

answer

Estate at will

question

tenant pays fixed rental and the owner pays all other expenses for the prop

answer

Gross Lease

question

materially raises the rent when the lease period expires - encourages a new lease signing

answer

Holdover clause

question

- means the owner gets a net amt and property expenses are paid for by the tenant - pmts are similar to an annuity Single Net - taxes and rent paid by tenant Double Net - taxes, insurance, and rent paid Triple Net - taxes, insurance, rent, prop maintenance repairs paid - generally long term leases and found in sale-leasebacks and where buildings are made for a specific tenant

answer

Net Lease

question

- provides for a stated percentage of the gross receipts of a business to be paid as rent - % is tied in with a min. rent and a covenant to remain in business - recapture clause - should a tenant not obtain a desired gross - the lessor can terminate the lease - the greater the markup on goods - the higher the % on the lease

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Percentage Lease

question

- has a fixed rent like a gross lease - it provides for increases at set periods - they could be made predetermined or according to a definite formula

answer

Step up Lease

question

- requires personal info and financial data - requiring last pay stub and calling employers should be done - must check all tenants - could be in violation if you don't - make copy of driver's license to verify they are using correct info and to check previous address - allowed to charge a non refundable screening fee up to $49.50

answer

Rental Application

question

- limits - 2 months rent for unfurnished - 3 months rent for furnished - nonrefundable/cleaning deposits are not allowed - landlord must notify a departing tenant of their right to a prevacancy inspection of the tenant's unit - to correct deficiencies - landlord must notify the lessee in writing as to the retention of any portion of the security deposit unless expenses were less than $125 - any unused portion of security deposit must be returned within 3 weeks after tenancy is terminated

answer

Lease Provisions - Security Deposits

question

- used when loans aren't easily available or the lessor lacks the required down pmt - the purchaser leases the property desired w/ an option to purchase at a later date - portion of rents paid are usually applied to the purchase price

answer

Lease Option Arrangement

question

- tenant agrees to relieve the landlord from all liability for injury or prop damage resulting form the condition of the property or the negligence of the owner - these are invalid clauses

answer

Exculpatory Clause

question

- a residential lease has an ____ - this doesn't apply to problems from tenant cleanliness - applies to: plumbing, heat, lights, wiring, floors, stairways, railings, clean and free of pests, maintenance of common areas, roof

answer

Implied Warranty of Habitability

question

- transfers the entire leasehold rights to a third party - third party/assignee pays their rent directly to the original lessor - assignee/third party becomes primarily liable on the lease - the original tenant/lessee retains secondary liability

answer

Assignment

question

- transfers only part of the tenant's interest - sublessee pays their rent to original lessee/tenant who pays to the lessor - sandwich lease

answer

Sublease

question

- the lease survives a foreclosure and the tenant is allowed to remain in possession until the lease term expires - if the buyer intends to occupy the property - the lease may be terminated with 90 days notice

answer

Protecting Tenants at Foreclosure Act 2009

question

- landlord may evict a tenant and bring an unlawful detainer action against them for failure to pay rent when due steps for eviction: 1. 3 day notice to quit or pay rent 2. tenant fails to heed notice - file unlawful detainer 3. landlord wins - court awards a judgement and landlord asks for writ of possession to evict tenant by sheriff 4. sheriff sends tenant an eviction notice - if failure to leave - sheriff physically removes the tenant

answer

Unlawful Detainer

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