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Turning Lemons Into Lemonade

By R. Kevin Brown No Comments

Addressing the Relative lack of Attorney Involvement in Residential Real Estate Transactions

Imagine having purchased a brand new car.

That first few weeks of driving are glorious.  Quick take off. Smooth acceleration.  You can get lost in a sound system that rivals the acoustics of Heinz Hall.

The new car feel

Then it happens. Already late for a settlement conference involving your client’s suit for fraud and negligence in a residential real estate transaction, the engine starts to sputter. You pull to the side of the road and immediately call the dealership. Already sensing your level of frustration, the manager reminds you that Pennsylvania has a ‘lemon law’.

 

Your emotions having been eased by that reminder, a feeling of ironic reflection hits you as you realize that there is no such thing as a ‘lemon law’ for the purchase of residential real estate.

Save for extremely rare circumstances, there is no real means of “returning” ownership to the seller if there is a problem after closing…….even with a receipt.

Since a buyer of a home is not armed with a post purchase “lemon law” for protection, common sense would dictate that any buyer hire the best professional possible for advocacy and representation of his/her interests….namely a lawyer. In theory, that lawyer would be able to represent him/her throughout the entire process, from initial contract to closing.

However, in the fast paced world of metro Pittsburgh residential real estate, it can be highly impractical for a lawyer to be involved at the outset of negotiations. Emotions run very high. Homes can often go under agreement as late as 1 AM. Multiple bids can be the norm. If a buyer really loves a house, and takes the time for any offer to be reviewed by a lawyer, he/she runs the risk of losing the home to another buyer.

Instead of lawyers, for all practical purposes, the “representation” of buyers has been essentially left to real estate licensees through the use of forms. The general forms used in the overwhelming majority of the residential real estate transactions in metro Pittsburgh are published by the Pennsylvania Association of Realtors® (PAR). In and of itself, this status would not be so potentially problematic…….except for the existence of “dual agency”.  Pennsylvania allows for dual agency.

Dual agency permits the same brokerage (even the same agent) to “represent” both the seller AND buyer, in the same transaction.  An offshoot of dual agency, known as “designated agency”, allows for the regular creation of “barriers” within the SAME brokerage, such that one “agent”, can “represent” the seller and another “agent”, can “represent” the buyer. All the while, the broker of record remains, still, a dual agent.

As one can imagine, conflicts of interest, both existing and potential, abound…..much to the potential detriment of the buyer.

What is a buyer to do?  While it is possible for a buyer to find and hire an exclusive buyer agency at the outset of his/her home search (thereby virtually eliminating the pitfalls presented by “dual agency”), companies such as this are rare.

Yet, there is a point in time where a lawyer can have an impactful role which goes way beyond the mere cursory review of the buyer’s loan documents, deed, title policy and CD at closing.

That point in time is immediately once an agreement of sale is signed.  Often, dual agency, in some form, has attached and the buyer is now, effectively, left with no advocate. A lawyer, as that advocate, can make sure the buyer stays on top of the due diligence time periods, so no inspection is inadvertently waived for lack of action.  Most importantly, a lawyer can help the buyer re-negotiate terms of the agreement, thereby relieving the buyer of having to “rely” on the advice of a real estate agent who may be in a compromised position.

Other states go to great lengths to ensure attorney involvement in the residential transaction. The “standard” agreement of sale form in New Jersey includes a contingency for “attorney review”.  South Carolina and Georgia go so far as to actually require attorney involvement, to some degree, in every residential real estate transaction.

At this point, Pennsylvania is not there.  So, buyers are not going to be required to knock on a lawyer’s door for help. Yet, with adequate marketing, home buyers can be made aware of the vital role an attorney can have in the home buying process, even if it is limited to the time immediately after a home is put under agreement. That guidance from a lawyer may help insure that the buyer does not get stuck with a “lemon”.

 

 

 

 

 

 

 

 

 


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Dual Agency Can Harm a Seller As Well

By R. Kevin Brown No Comments

On any given day, there exist a finite number of homes that are for sale.  The overwhelming majority of them ( easily over 90%) are in the local MLS. This creates a great liklihood that dual agency may occur.

When a brokerage takes a “listing”, that brokerage has a financial incentive to “sell” that home to a buyer which the brokerage also “represents”.  The dangers of dual agency are often discussed in terms of harm to a buyer.  However, inherent in the term “dual” is the word two.  So, the limited representation affects the seller as well.

So, in a dual agency situation, assume the buyer presents an offer that is contingent on the sale of a home.  How does the agency fully inform the seller about the potential pitfalls of such a situation? Can the “dual agent” actually let the seller know about the pitfalls ?

Likely, the answer is no.  Why ?  For to do so is arguably against the interest of the buyer, who clearly wants to purchase that house.

Thus, the seller is compromised relative to obtaining professional advice in a dual agency situation as well.

CASE IN POINT

In the now famous 2016 Horiike Dual Agency case in California, the danger of dual agency to the danger and negative outcome to the buyer was buyer is obvious. In Malibu, a buyer relied upon “inaction” from a dual agent who kinda failed to let the buyer know that the livable square footage of the home was actually about 8700 sf, as opposed to the advertised 15,000 sf.

EXAMPLE COMPROMISE SITUATIONS OF SELLER

However, many a seller can have his or her situation compromised by dual agency situations as well.  What happens if 2 or more buyers are presenting competing bids on a seller’s home?  Whose independent advise does a seller rely upon at that point ?

What if the buyer has told the “dual agent” he/she is willing to pay up to 10% more for the home ?  The dual agent cannot explain that to the seller.  That would compromise the position of the buyer.

So, unless one wants to end up in court like the one pictured above, be careful about the real estate agent you chose.

 


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Do Sewer Line “Protection” Policies “Deliver”?

SEWER LINE “PROTECTION” POLICIES

Take a look at this article about one person’s experience with a Sewer Line Protection Policy. This type of policy falls under the general category of home warranty policies.  Often, these types of protection policies fail to actually fully cover what the title of the policy suggests it will. As the saying goes, if it seems too good to be true…..it usually is.

A home buyer should always be cautious with any home warranty “policy”.  The sewer line policy is one such type. RARE is a 100% safe haven for unforeseen problems down the road with one.  Always read the fine print.

Often, the best “policy” is to have a sewer camera inspection done during the due diligence period of the inspection.  It is best to have an independent camera company perform the task.

Why ?

It has to do with bias of opinion relative to the camera operator.  If you have never seen the video of a “blocked” sewer line, there are plenty of them on YOU TUBE.

An independent company is one that will NOT also bid to replace the sewer line.  Rather, generally, all such a company will do is perform a camera inspection. If warranted, it will simply clean out of the line.  NO BID for replacement work.  This total service can cost around $300-$500.

Often, plumbers who DO do pipe replacement work offer a camera inspection for “FREE”. Because it is extremely rare for a camera inspection ( especially for older terra cotta pipes) to NOT show some type of root intrusion, pretty much ALL such lines can be deemed “in need of replacement”.

Then, the homeowner is stuck paying $10,000-$25,000 and up to replace a line that, for all intents and purposes, requires either 1) a water jet clean out or 2) a blade cutting clean out.   All for +/-$500.


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California Real Estate Agent “self dealing” Law Suit

By R. Kevin Brown No Comments

“Agency law” matters in the real estate brokerage business.  Fiduciary duties, company wide, to a client, matter. We, at Praedium Real Estate Services, strive to avoid conflicts of interest. One of those self evident conflicts revolves around “self dealing”.

A law suit, recently filed in California, brings to light when a real estate “agent” is alleged to have crossed the line.  Baghdasarian versus Cortazzo illustrates this situation. This article well describes the background behind a well known real estate listing agent who ended up becoming the buyer of one of his own listings.

Often, the lines of representation are blurred in a real estate transaction. This is especially true when a dual agency occurs.  Dual agency is actually put on steroids when the buyer ends up being the agent who was FIRST hired to represent the sellers.

It will be interesting to see how this plays out.  Mr. Cortazzo is also the defendant in a breach of fiduciary case that is presently before the California Supreme Court.  The case is commonly referred to as Horiike  .  It is to be argued in San Fransisco September , 2016.  A decision is due as early as December 2016.

 

 

 


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Fall Foliage Viewing in Pittsburgh

By R. Kevin Brown No Comments

This is a useful link for where to go within and around Pittsburgh for Fall foliage viewing.  It is just around the corner.

Pittsburgh Fall Foliage

See what is up at  Friends of The Riverfront

 

Enjoy !


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What is a “Good” First Offer ?

By R. Kevin Brown No Comments
Making a deal on "point"

Making a deal on “point”

As with many things in life, the answer to “What is a “good” first offer?” is “It depends”.

There are many Praedium axioms.  One is, “it is not just the real estate, itself, that is important. It is the situation from which it is being purchased.”.

“What does that mean?”, you might say.

Let’s take a look at one of the most important “situations” …….seller motivation.

An “good” offer on the same home that has just hit the market and is “priced correctly”, is a totally different situation than if that same home has been on the market for a few months.  Even though you, the buyer, are viewing the place at the very same price point, an offer for a home that just hit the market may likely be higher than an offer on that same home if it has been on the market for a while.

Why ?

Seller motivation relative to effective buyer interest is critical.  A properly priced home in a desirable area will likely garner the interest of a number of buyers.  Keep in mind that you are ( whether you actually know it or not) are competing with other buyers.  So, it is best to keep that in mind.  There is much less chance that, in THIS situation, you are negotiating in a vacuum.

Conversely, if that same home has been market exposed for a few months, and has also seen a price drop or 2, that seller is going to be a bit more motivated than the seller who has just put his/her place on the market.  So, you could possibly initiate with a slightly lower dollar amount than with a just listed home, as the seller may have been softened a bit.

Rare is it that a seller puts a home on the market NOT wanted to put it under agreement that day.  Thus, the situation dictated by the likely seller attitude plays a great deal in factoring what dollar level of offer to initially make.

Regardless of the situation, however, keep in mind that a low ball offer, no matter what the situation, tends to be met with a negative reaction.

A good first offer should, at least, get some type of counter offer.

Never forget….you never get a second chance to make a first impression !

 

 


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How to Win a Competitive Bidding Situation: First Impressions Matter

With the start of the new year here in 2015, there is a good chance that buyers will run into a competitive bidding situation ( i.d. “bidding war”) for the same property.  We have had 2 in the last month:  One at the tail end of 2014 and one this first week of January, 2015.

Common sense suggests that the strategy for winning a “bidding war” stars once a buyer is alerted to the fact that there is a competitor to the initial offer.  The full truth is that the strategy should have started with the initial offer.

As the saying goes, you never get a second chance to make a first impression.

So, the first thing to do, as a buyer ( with the assistance of your Praedium EBA), is to research the actual “range of reasonableness” of value for the home; seeing if the listing price has any basis in reality. This can be done by looking at recent sold data ( as well as listing data ) for comparable homes in the area.

If the list price is not too high, it is BEST to make an offer that fits within the “range of reasonableness”.  Often, without care as to what the listing price is relative to its actual value, buyers will make an initial offer based on some pre-determined percentage “off” the list price.

So, if a house is listed for $200,000, an initial offer might be based on a predetermined 15% off the list.  Hence, that offer would be $170,000.  Yet, the data strongly suggests that a purchase price of $185-$190,000 is very reasonable.  You, as the buyer, know this.  You are perfectly happy with a purchase price of $190,000+.

So, if you, as the buyer makes that $170,000 initial offer, there is some truth to the perception that the seller may be “insulted”.  The seller decides to wait to counter.  Then, the next day, another offer comes in.

You, as the buyer, are alerted to the “bidding war” scenario.  Because you are comfortable offering $190,000+, you offer $191,000.  However, ( though unbeknownst to you ) the other buyer made an initial offer of $182,500.

BOTH of your Highest and Best offers come in.  Yours is $191,000.  The other is $190,000.  All other terms are pretty much the same.

The seller picks the $190,000 offer !!!  Why ? The seller rationalizes that you only went up to $191,000 as a result of competition. Hence, the seller fears that, as the situation unfolds, you may develop cold feet and try to pull out of the transaction.

Because the other INITIAL offer was significantly higher, the seller feels more comfortable dealing with THAT buyer because that buyer was more “into” the house from the beginning.

Sellers want the closing to happen.  They do pay attention to other items about an offer than just price.  So, while you, the first buyer, think that you should win the bidding war because your offer was higher, that first impression you made with the “low ball”, predetermined offer, led the seller to ultimately pick the perceived more sure thing in the form of the other buyer’s offer.

 

 

 

 

 

 


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Who Cares if There is Off Street Parking ?

By R. Kevin Brown No Comments

On a number of occasions over the last 19 years, we have had clients who enjoy urban living in the City of Pittsburgh. One characteristic many of these buyers have is their propensity to predominantly walk and/or ride bicycles pretty much everywhere. So, when we initially meet with potential clients, I often hear ” We do not care if there is off street parking.  We can park on the street, anyway. Plus, we like to mostly walk and ride our bikes to places.”.

We are first and foremost interested in helping our clients find a home they LOVE ! Still, a large part or our job is to also counsel our clients as to how important certain GENERAL aspects are of a home, whether this particular buyer cares about such features, or not.  A home is an investment as well. So, it is important to also take into consideration what MOST potential buyers may desire in an urban Pittsburgh home.  You never know when/if you will be selling the place.

In many of the City of Pittsburgh’s 90 neighborhoods, off street parking is at a premium. It is rare, indeed.  Much of the city housing inventory was built on smallish lots at a time when owning a car was the exception as opposed to the rule.  Yet, the norm for most home owners today is to have at least 2 cars per home. It is this vexing situation that led, in part, to Pittsburgh instituting a neighborhood permitted parking ordinance.

In short, off street parking is GOLDEN! Thus, for resale, even a home that requires some level of updating may sell more quickly than a more updated home; merely because the “more drab” home has off street parking. In fact, if that off street parking includes a garage, all the better.  A potential buyer can always update a kitchen and bathroom. Adding off street parking where none exists….Not so likely.  Unless, perhaps a buyer wants to purchase the next door house and knock it down. Yes, I know of people who have actually done that.  It gets pretty expensive.

Besides, who likes walking home in the rain ? Who likes wiping snow off a frigid car in the morning / Not too many people, assuming they have a choice.  By purchasing a home with off street parking, an avid bike rider and pedestrian can have his/her cake and eat it too !!


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Preventing Frozen Water Pipes

By R. Kevin Brown No Comments

Looks like we are in for some more very cold weather in the next few weeks.

Here is a quick video from “This Old House” that gives a good primer on the subject of dealing with and prevention of frozen water pipes in out homes.

Preparing Pipes to Prevent Freezing

Also, here is a sample photo of an insulated outdoor water faucet cover. I just bought one.

Faucet Cover

Absolutely well worth the $2-$5. Home Depot, Lowes, Ace, etc. should have them.

 

 


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New Construction May not be “All” a Buyer Thinks It is

By R. Kevin Brown No Comments

Purchasing a newly constructed home is a dream of many a home buyer. This is especially true with a custom home, where you get to pick pretty much everything you want, from the ground up.

How can anything be wrong with a new home ? For one thing, it is NEW !  Plus, everything will be just as you want it. You will have exactly the color walls you desire. Your kitchen will be everything you had dreamed, including 2 vegetable sinks.. Your built in cabinetry in your new home office will be the envy of all.

Well…….

As we tell all out clients, while you must love your home (new or otherwise) it really is a good idea to still pay attention to the fact that it is a monetary investment as well.  A purchaser of a new home may pay a COST of, say, $600,000, for a brand new home. Heck, it appraised for $700,000. The bank appraiser said so.  What could be wrong ?!!

See what happens when you go to sell it in, say 3-5 years.  To you, the house WAS new.  That had to have been one of the most attractive features of it when you bought it. Right ?  However, when you put it on the market, it is now USED.

Especially in this price range, those who can purchase that price of a home can also probably afford NEW.  So, why would someone necessarily purchase your USED home when that same buyer can buy in that same plan, or nearby, and build NEW ?  Sure, it may cost a bit more, but the NEW house will be just the way s/he likes it.

So, especially for someone trying to sell what was once a NEW home early on in that subdivision’s existence, that Seller may have to sell the home for LESS than the original purchase price. I am staring at a real life example as I write this, January 16, 2014.

There is a 1 year old USED home for sale in one of the northern suburbs of metro Pittsburgh. The original owner paid $570,160, in 2012.  6 months later, the owner was transferred.  So, in June, the home was listed for $634,900. Give it a shot, right ?  In September of that same year, the list price was dropped to a more marketable $599,000.

In August, 2013, MORE THAN a year later, it was relisted at $550,000. Then, in October, it dropped to $535,000. November, it was down to $519,900. By December, 2013, it had dropped to $499,900.

That is nearly $70,000 LESS than the original purchase price NEW. This particular original owner had the backstop of a relocation company who was able to take it over.  However, who is always guaranteed that ?  Plus, regardless as to who controls it now, what does this say about the “value” of that new home, nearly 2 years later than when it was built ?

Is purchasing a newly constructed home always a bad idea, then ?  Absolutely not.  We have helped a number of clients purchase new homes; including those that are speculative as well as those built from the ground up. However, with us involved at the very beginning, we do our level best to position our clients to minimize, if not eliminate, being placed in a scenario as noted above.