Sellers, if you are looking to either downsize or upsize in the local market, your home should be marketed, “will consider House Trade.”  Briefly describe the criterion that would cause you to be interested in your next home.  For example, you might want to purchase a home in the Blackman School zone, sized 1800-2500 sq ft and priced in the $180,000-$250,000 list price range.  This may spark interest from Buyer prospects who already have their homes listed for sale and who may also be searching to buy a house just like yours!  Additionally, Home Owners who maybe on the sidelines for various reasons (e.g. who have yet to list their home for sale) oftentimes will inquire about your house when they  see the words “house trade” in your advertisements.

Most recently, I was involved in a successful House Trade this past spring.  The Buyers did not have their home on the market because they didn’t want the inconvenience of multiple showing appointment requests because of their very busy family lifestyle (3 young boys, etc).  They were “cramped” however, in their 2200 sq ft sized house and desired a larger house with a pool.  Hence, that Buyer saw the House Trade Marketing data on one of my listings that had 3700+ sq ft, and the rest is history.  My Seller was looking for a 2000-2500 sq ft house, and now both are happily living in their “new” houses.  Success through House Trading!

What are some key characteristics to know when determining if a house trade is likely to work out:

1. There must be some “equity” in the respective properties.
2. Both properties must appraise for the purchase price or greater.
3. Both homeowners must “match” their home purchase search criterion.
4. If financing is required, the Lender must have the expertise necessary to close this type of loan(s).
5. A Realtor, such as me, must have the experience necessary to properly manage the house trade process through a successful closing.

In spite of being cautioned about the downside risks associated with Lease/Purchase Agreements (see previous Blog articles), this Seller, like many others are prone to do, rolled the dice in hopes that all would work out.  Unfortunately, it did not work out and reality hit…and hit hard!

A “red flag” immediately went up when the tenant stopped paying their rent and was non responsive to the multiple attempts by the landlord to get the tenant caught up with the agreed upon rental payments.  What happened next was that Law Enforcement Officers (police, including S.W.A.T. team members) were breaking into this house with subpoena in hand because of the reasonable cause to suspect that large amounts of illegal drugs were being sold at this residence.  Unfortunately for the Seller, damage was done to the property by the tenant and the police which now forces the Seller to spend additional monies to go to court to seek economic remedy over this matter.

Incidentally, the police found a considerable amount of “pot” on the  premises as well as confiscating over $100,000 in cash!  Fortunately for the Seller, what would have been even worse is if their residence had been turned into a highly toxic meth lab.  Had that been the case, the entire house may have been required to be razed.  The fine print contained in many Homeowner Insurance policies may even exclude such claims for property damage.

Again, if you are a Seller considering a Lease/Purchase in Middle Tennessee, do your due diligence on prospective Renters/Purchasers.  Even then, know the risks that you are taking in such Agreements.  Have an experienced Principal Broker like me to guide you through complicated real estate proceedings such as what is described in the foregoing.

For example, how would a new Home Buyer feel when he/she turns in a property damage claim (for roof leak, etc) two months following closing only to learn that their Homeowners Insurance was denying the claim because it was discovered that the previous Owner had pocketed the monies intended for a new roof (but failed to have it replaced).

Other considerations often times overlooked by many Buyers include… how would a Buyer feel when one week before closing a flood certification required by the Lender revealed that flood insurance would be required?  They Buyer has the financial ability to still get the loan but is unhappy with the additional $50-$100/month required for flood insurance and has no ability to terminate their real estate contract because a flood zone contingency was not even considered during the offer negotiation process.

How about this scenario… a Buyer closes on their “dream home” only to learn from a neighbor down the street that they are living next door to a convicted child molester… one who spent seven years in jail for sexually violating a child similar in age to the Buyer’s own children!

Or, how about this… a Buyer just bought a house in the perfect neighborhood but learned three months after closing that a neighbor complained that the subdivisions covenants and restrictions are being violated because the Buyer’s hair salon home business is prohibited!

These and other “unpleasant discoveries” could have been avoided with an experienced Broker who was truly acting in their Buyer client’s best interest by discussing contingencies that could be included in an Offer to Purchase and subsequent Negotiations.

Contact me so that I can help you avoid many of the “problems” described in the foregoing.

Buyers and Sellers often times are confused as to what Lender terms and descriptions really mean (PreQualified, etc).  Why is it important to know the difference?

If you’re a Buyer, you should know that none of the above statuses guarantees that you will obtain loan approval and close a real estate transaction.  For example, to get PreQualified, one only has to call a Lender and after describing income and debts over the phone, the Loan Officer can convey a ballpark estimate of a Buyer’s maximum purchasing power.  Most Lenders prequalify Buyers for free.  This step, at a minimum, is recommended to better ensure that a Buyer is in the right purchase price range that their income would likely support.

A PreApproval step is even better and more reassuring for all, as the Buyer will have had to have submitted documentation and will have their income, credit, and assets all verified.  Typically, a specific loan amount and type will be cited by the Loan Officer.  Again, this step often times is provided at no charge by the Lender and is a highly recommended action to take prior to submission of an Offer to Purchase.

A Loan Commitment is the strongest position that a Buyer can expect to attain through a Lender.  Typically, a conditional commitment letter will be generated 20 days following a contract’s Binding Agreement Date.  That time frame allows ample time to confirm that an appraisal has been ordered, the Buyer has the funds to close, the Buyer’s credit is deemed acceptable to their Lender, and the Buyer has the employment and income necessary to obtain said loan.  It should be noted, however, that even this step is not a guarantee that a Buyer will obtain loan approval.

What could go wrong, you may ask?  Well, many things, such as:  an Underwriter who pulls a final credit report the morning of closing discovers that a Service Provider reported a “slow payment.” Or, a first time home buyer, who became so excited about the prospect of closing on their first home, subsequently purchased $10,000 worth of furniture on their credit card… Oops, the Buyer “forgot” that Underwriters will undergo a final check of their debt to income ratios immediately before closing.  More often, one sees instances where the formally “Solid Buyer” suddenly gets laid off or otherwise experiences a reduction in income (sometimes by occupational injury, illness, etc).

Let me help you (or those you refer to me) through the entire real estate process.

Sellers may want to negotiate a contract with a delayed possession of lets sat three days, to assure themselves that the Buyer was in fact able to close their loan.  Some may have been “burned” in the past when they discovered the morning of the scheduled closing that an Underwriter had denied the loan resulting in the contract going “south”.  The Seller may have incurred a large amount of expenses to move their household goods back into their recently vacated house, ect.  It’s easy to understand that, that scenario could and does happen.

Potential issues for the Seller in a delayed possession start with ensuring adequate insurance for household belonging.  At that point, the Seller is either a Paying or Nonpaying Renter who should have Rental Insurance after closing has occurred.  Further, any such Temporary Occupancy Agreement should be in writing and clearly state such things as:

1. Is a rental payment expected and if so, what amount?
2. Will a damage deposit be held by the new Owner and if so, what amount?
3. What happens if damage ensures after closing but before possession is given?
4. If damage is caused by the negligence of the Seller (ie grease fire in kitchen) who is responsible for repair?
5. What party is responsible for Utility costs, ect.?

I’ve seen examples from two insurance company representatives within the same company; one stating damage was covered under the new Homeowner Insurance Company’s policy and another who stated the claim would be denied.

From the Buyers perspective… The Buyer likely would have conducted a final walk through inspection prior to closing to ensure that the property was in the same condition it was in as of the Binding Agreement Data.  However, what happens if someone vandalizes their house or damage occurs due to a hail storm, or the Seller trips and falls one day after closing and breaks their back?  Once again, whose insurance will handle such a matter?

There is also a very distinct possibility that the Buyer would not have discovered a big hole under the couch during the “final” walk through.  When the Buyer takes possession three days later their new “dream home” becomes something very less because of some unknown defects that are now discoverable.  Problem is, closing means closing and remedies may be difficult in these scenarios.

Have a trusted real estate advisor help you avoid mistakes that can cost you thousands of dollars!  Call me today!

It’s true that Lease Purchase(s) can turn out to be an acceptable option for both Buyers/Renters and Sellers/Landlords.  However, statistically, only a small percentage of such agreements wind up to be a successful closing.  Far more wind up in court!  Why?

To quote a renowned real estate attorney in Middle Tennessee, “They are a disaster waiting to happen!”  Even an attorney with a predominant Errors & Omissions Insurance Carrier in Tennessee recently (and without hesitation) stated to me; “Lease Purchases are nearly always a disaster!”

To illustrate just a few (of many) things which could go wrong form a Renter/Buyer’s standpoint:

• You may have paid dutifully and faithfully and in full every month of your lease only to discover that the landlord has not been paying his/her mortgage and the bank has foreclosed upon the property.  You likely lose a sizable, non-refundable earnest money and have no legal recourse to recover any part of rental payments that were to be applied to the purchase, etc.  Similarly, some sellers initiate evictions following just one slow or missed payment.  Read the fine print!
• Many agreements will require buyers to accept the property AS IS at the time of the commencement of the lease, while waiving any further right for house inspections at or around the time their purchase option is exercised.  There’s several potential problems with that scenario.  A renter may have to spend several thousands of dollars repairing/replacing HVAC, plumbing, electrical problems, etc.  Will that deplete monies the renter was saving up (i.e. for their down payment)?  Moreover, lender required repairs can upset many of these contracts, resulting in loan denial(s).

How about from a Seller’s standpoint:

• If the renter/buyer possess your house and suddenly stops paying rent, it may take a year with no income coming in for legal eviction proceedings to run their course.  Many sellers do not plan for a worse case scenario like that and as a sudden result, interruption in their cash flow causes many owners to go into a financial tailspin themselves.  Moreover, many times the reason why a renter is not a bonafide, qualified buyer at the commencement of a Lease/Purchase is because of previous credit issues, past judgements, bankruptcy, etc.  Many times those circumstances manifest themselves again in the future which results in loan denial one, two or three years out.
• Sellers, how difficult is it to agree upon a purchase price today, not knowing what the fair price market price will be one, two, or three years out?  It is very likely that a lender will require an appraisal to be as great or greater than the contract sale price.  In a declining market that factor may cause a contract to go “south”.  Conversely, how would you feel if you agreed to sell your property at $150,000 but two years from now, the appraisal turned out to be $190,000?
• If a buyer/renter could not or would not purchase at the end of the lease period, what is the likelihood that the tenant did not or would not spend money on necessary repairs?  The unexpected depreciation of your property can be sizable indeed!

These are just a few of many things to keep in mind regarding Lease/Purchase Agreements in Middle Tennessee.  Probably only 10% of the agreements result in satisfactory outcomes.  My clients have had a 50% success ratio but even I, as a principal broker, strongly recommend to clients and agents that I train that a real estate attorney be consulted and approve of any such Lease/Purchase Agreements prior to enactment because of the increased risk factors cited above.

Stability & Opportunities.

Freedom to Refer Clients & Customers to Service Providers that you feel are best. Red Realty does not coerce it’s affiliates or their clients into using businesses where owners or brokers may have a financial interest.  This may surprise some of you but agents at some local companies are required to use certain Title Companies, Lenders & other Real Estate Service Providers that are owned or partially owned by the real estate company in which they are affiliated.  After reviewing such disclosures which are part of closing documents on the “other side” of transactions involving Red Realty & it’s clients, it has become abundantly clear that some real estate companies are effectively gouging their own clients with abnormally high Lender & Title Company fees.  That practice has enabled at least one real estate company to try to entice agents to join their company with too good to be true, commission splits, etc.  Well, can you imagine what will happen down the road when clients of those types of companies discover that they were forced to pay much higher than customary rates for said services?  Agents within those companies I believe, will likely face the ire (& loss of credibility & future referrals) from past clients who, most assuredly, will discover at some point, that they were duped into paying unnecessary & excessive charges.

As stated in the foregoing three part series, the discussion points expressed are illustrative & not intended to be all inclusive.  Red Realty is open to adding high character affiliates, just like YOU!  For consideration for affiliation at the Murfreesboro Red Realty office, call or text me on my cell phone, 615-519-4040.

Our “recruitment” consist of focusing on the positives of Red Realty.  Making disparaging remarks about other Companies, their Agents or their practices is prohibited.  Many have shared instances of certain Agents and Brokers in other companies who are likely to be in violation of the Realtor Code of Ethics due to their unsavory and overly aggressive recruiting tactics or practices.  Not surprisingly, many of those same companies experience very high turnover, as gullible Agents/victims become disenchanted and even angry when things that were promised or represented to be a certain way during their recruitment, turned out to be the polar opposite in actual practice. 

Revenue Sharing which provides the opportunity for residual income each quarter as well as Retirement and Death Benefits from the team that you create and sponsor.  Unlike the limited number of Real Estate Companies who even offer some form of profit sharing, participants themselves state that their “profit sharing” plan is very convoluted, very hard to understand and allegedly, easily manipulated (by their Management), Red Realty’s Leveled Sponsorship Plan, on the other hand, is very easy to understand.  Red Affiliates do not have to attain and maintain a certain commission/sales level to be eligible as is true in one of these types of companies that have “profit sharing.”  Even in a “down” real estate market, Red Realty had distributed well over $100,000 each year to Affiliates participating within the Red Realty Sponsorship Program.

Company Culture which ensures that Affiliates and Staff are surrounded by persons who have excellent reputations and high character.  There are certainly other Real Estate companies that have persons with these same traits, however, many times, those same companies have a large number of Agents and/or Staff that either can not be trusted, have poor reputations, are selfish, unethical, etc.  Red Realty offices are medium in size and better able to facilitate a tighter knit, true family feel.  Decision makers are local, acceptable and able to respond quickly, when necessary, as opposed to some companies that must obtain “approval” from stodgy, bureaucratic. Franchise Companies.  Red Realty truly fosters a caring for one another type of environment.  At Red, there is also a concerted and sincere effort to mesh the needs of the community with the needs of it’s Associates whenever practicable.  You’ll probably come across some agents in other companies who are very open for an office change largely because they are tired of the stress caused by seeing the high frequency of Agent to Agent or Agent to Staff conflicts within their present offices.  Many have simply become disillusioned after seeing the back stabbing, cliquishness and/or seeing favoritism run amok within their current, sick, office environments.  Red Realty, although not perfect, is remarkably free of such drama and internal strife.  In my opinion, Red Realty has one of the best and most positive and pleasant office environments around and is a great place to conduct real estate business. 

Call Lucky Luecke 615.519.4040 for a Confidential Interview today!

   A Phase I study is basically non intrusive as no testing per se is typically performed.  This phase does include a comprehensive analysis and data summary of the subject property, as well as neighboring properties.  An inspector looks for evidence of leaking drums, stains on the ground, floor drains, Material Safety Data Sheets (MSDS) indicating what chemicals formerly had been used, inspection of any oil/water system service, and grease trays.

   Additionally, past owners are typically interviewed, fire department records are checked (to determine if there had been any previous chemical spills) and current photos are cross referenced with historical photos.  Cost for a Phase I study will depend upon the nature and scope of the project but an estimated range should be approximately $2000-$2500 in Middle TN.  An expert in this field that I recommend is Malcolm Pfotenhaven, Principal of Enviornmental, Inc, Nashville, 615-324-3850 direct / 615-512-8496 mobile.

   Phase I costs are negotiable between buyers and sellers.  It is not unusual for buyers to pay for the full cost but it is also common for buyers and sellers who agree to share Phase I costs.  Some sellers agree to pay for all costs, particularly when they feel their property is “clean” and they use that to their advantage when marketing their property for sale.

   Phase II involves intrusive testing of soils, ground water, and air.  This is triggered wieh any recognizable environmental conditions exist as a result of the Phase I study.  As one can imagine, the nature and scope can be far reaching.  One should expect costs ranging from a minimum of $2000 to upwards of $50,000 on major projects.

   Typically soil samples are taken at depths ranging from 8-12 feet.  On extreme soil contaminated sites, soil tests may go down 75 feet.

   You might also be wondering what types of sites are more likely than not to be at an increased level of risk for environmental hazards.  Consider the following: gas stations/convenience stores, termite companies, trucking & car repair/service stations, dry cleaning companies, and industrial companies to illustrate just a few.

   I will address other environmental matters (mold, radon, asbestos, etc.) that buyers should protect their interests, before closing, in subsequent blog articles.