Lessons from a Real Estate Agent

Lessons from a REALTOR.....
Wow. What I've seen over the past few years was never taught in real estate school! It's true, most of what we learn is taught from real life experiences. I'd like to share a few of these real life experiences with you - as a real estate buyer or seller - to help you gain some insight into these very challenging times we are in.

1. Tax Free Exchange - the IRS allows us to make money on the sale of one property - tax free - as long as we reinvest that money into another property of greater value. A simplistic view of this complicated tax strategy. In order to accomplish this - we can NEVER touch the proceeds that we generated from the sale of the first property - instead that money has to go to a "qualified intermediary." In essence - the money is held by a third party until you are ready to use that money to buy the replacement property. There are time limits and other constraints but they are irrelevant for this story. Follow me so far?

For example, a client of mine sold an out of state investment property on his own and made $100,000 profit on the sale. You don't want to pay taxes on this money if you reinvest that money into another like-kind property. And you can not touch that $100,000 – it must be transferred directly to a third party intermediary - and for this example let's call that 3rd party, LAND AMERICA. When you are ready to close on the new more expensive property, the $100,000 is transferred from Land America to your attorney that will be handling the closing.

Now, here's the scary part. When you go to arrange this transfer you find that while you were waiting to close on the new property - (and you have up to 6 months to close on this new property) - LAND AMERICA fraudulently invested your $100,000 somewhere else - LOST IT ALL - and then declared bankruptcy. How about that? What do you do now?

Meanwhile, Mr. Seller of your new replacement property that you are supposed to close on has your $10,000 earnest money deposit and is expecting you to close in a matter of days. And the final kicker here is that because you probably can not close now that you've just lost your $100,000 - the IRS expects you to pay taxes on that $100,000 that was never reinvested into the replacement property that you intended. You just lost $110,000 plus the amount of taxes you now have to pay.

DON'T LET THIS HAPPEN TO YOU!!! if you are intending a tax free exchange - choose your third party intermediary wisely - and find out EXACTLY what that party does with your money while you are waiting to close. I can guide you through this.
2. Bank Foreclosures - Yup, we all know they're out there - and more than ever. What's the first word that comes to your mind when you think of "bank foreclosure”?
Here's the thing - bank owned property is always sold AS-IS -WHERE-IS - have your inspections but the bank is not going to make any repairs for you or give you any repair money to make the repairs. And yes, there are always repairs that are needed. Next, the home is almost always stripped down to the bone - appliances removed - sometimes light fixtures - wall outlets - electronics - built-in speakers - ceiling fans - smoke detectors - plumping fixtures - you name it - if it's not nailed down – many times it's gone. I've even seen it where the homeowner removed a half dozen PALM TREES from their yard!!!

The list price on a bank owned property is ALREADY priced below market - and even if you paid what the bank was asking on day one it'd be a good deal. But of course, no one is going to do that. It's a buyer's market and the home is a foreclosure - so why not offer several thousands of dollars LESS than the asking price - why not??? But wait...

The bank has a process - and they do NOT stray from that process - they will make price reductions on a SCHEDULE. A bank owned home that has been on the market over 30 days is your best bet - the longer the better. Take a look at the listing price relative to the tax value and it should be substantially lower than that (more on tax assessed values later). If it's new listing, then do not expect the bank to negotiate much as they stay fairly close to asking price with in that first 30 days.


One thing to keep in mind - while there are hundreds of homes on the market - let's say that 30% of those homes are bank owned homes - and of that let's say that half have been on the market longer than 30 days - and of that let's say that 1/4 of those homes are actually decent homes that you would want to live in or own. Any other buyer in that price range will ALSO be focusing on those same properties - so you can end up with a multiple offer situation - even in this down market. Which leads me to the next example.


3. When you do find that bank owned home that you want to own – buy it!

Here is my advice - if you've looked at several homes and finally found the home that is livable and that you want to own - and it's a bank owned home - and you've had me research comparable sales data - formulate a realistic offer - NOT just a low ball offer with no justification - if there are no other offers on the table then maybe you go lower BUT if there are other offers make sure you submit your highest and best offer to the bank. They are under NO obligation to respond or make a counter offer to anyone but ONLY the offer that THEY feel is best - so you may NOT get a second chance to make a better offer. If you really want it - feel good knowing that the list price is already very fair and below market and make your offer accordingly


4. PRE-QUALIFICATION!!! - Do it - talk with your lender and get pre-qualified BEFORE you even start looking at homes. Lending guidelines have changed - have a lender qualify you - they can do it over the phone in most cases - find out how much you can comfortably afford to invest - the down payment requirements - the interest rates - the mortgage points - and your closing costs based on that loan amount. You will need a pre-qualification letter for ANY offer that you submit on a bank owned home - so prepare now.

5. Get your counter offer in writing - ESPECIALLY with bank owned property as all the bank really cares about is selling that home and who buys it is of little concern to them.

The bottom line - as an experienced agent - seasoned in strong AND weak markets - I am your best line of offense and defense in helping you obtain that property. You are not expected know what to look for and how to go about the negotiations – that is why having a Realtor on your side is key. I learn something new every day and this is what I'm trained to do - so stick with me - and together we can make it through these challenging times.
Rick Drumm
Outer Banks Realty Group
www.rickobx.com