Friday, September 30, 2005

Agency Not As Simple As It Looks

It's about that time of year when people start reviewing their professional lives and determine if they want to continue down the same vocational path -- and that thought process leads a lot of people to sign up for real estate classes.

Many real estate agents I've talked to say they made the decision to get into real estate after having purchased a home and seeing a seemingly easy job performed by someone with as much intelligence as they have and then walking away, it seemed, with a big wad of cash.

Now that they have started selling, they have realized that while the job of an agent is not difficult, it does require very hard work (kind of like the job of a ditch digger -- while the concept isn't hard, your back aches at the end of the day). The challenge of agency involves working days on end without any pay; having to fund most of your own business expenses; burning up a lot of gas and spending time with people who eventually don't buy anything; and questioning why you got in this business in the first place when the time between deals (pay checks) is weeks and months at a time.

The average agent in the U.S. in 2003 made about $45,640, according to the U.S. Bureau of Labor Statistics, while their broker counterpart brought in about $74,100. The funny thing about averages in this field, however, is that the rule of 80/20 definitely holds. While you may have a market selling $15 billion, about 20 percent of the agents sell 80 percent of it. Meanwhile, more and more people want to get their hands on the money, so more people are getting into the business every day and that means the pie is getting cut into smaller pieces.

As you seek out your new career in real estate sales, you'll invariably come across want ads in your local paper that read something like this:

"Real Estate Sales Your destiny has come knocking! Entrepreneurial challenge, creative passion, economic oppty. Outrageous splits and training that create super earners. New approach. Technology-driven advantage. Ongoing mentoring. Free software."

(By the way, the above is a real ad I saw in New Jersey.) However, the subtext should read something like this:

"Real Estate Sales (Work as long or little as you want). Your destiny has come knocking! (Yeah, go ahead and quit your day job, leaving behind health insurance, the matching 401K plan, paid vacations and sick leave.) Entrepreneurial challenge (Commission-only income, long hours, including nights and weekends, working with fickle clients and people who are also working with another agent without telling you), creative passion (create your own fliers, marketing materials and promotional stuff), economic oppty. (You only get paid if you come in 1st place, but the income is unlimited -- meaning there's no maximum you can make -- but there's no minimum either).

Outrageous splits (Fantastic -- as long as you actually sell something) and training (we'll point you in the right direction, then you have to do all the work) that create super earners. New approach (we have a new web site). Technology-driven advantage (we have a new web site). Ongoing mentoring (a really busy, successful, but tired agent OR one of our new agents who's had a few deals under his belt). Free software (here are some pirated copies of what I bought)."

Yes -- my comments are tongue-in-cheek, but I guarantee agents around the country are saying, "Yep, he's exactly right." The best thing about a career in real estate is the flexibility. The worst thing about it is -- flexibility. To be a six-figure agent requires hard work, business planning, consistent prospecting and learning how to close the deal. If you have these skills or are willing to learn them, then a career in real estate may be right for you.

Next week, I'll bust the myths about how "cheap" it is to get into the business and what kind of expenses you'll face while building your business.

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." His column appears locally in the Washington Times' Friday Home Guide and worldwide via

When Is It A Sellers' Market?

The ever elusive bubble that the media discusses has pretty much yet to evolve. I did some research and found the first mention of over-inflated properties back in 2001 when columnist Broderick Perkins interviewed several real estate bubble watchers to find out their definition of a sellers versus a buyers market.

Simply put, you know you're in a sellers market when the buyers have little or no power in the negotiating arena during the sales process. These bubble watchers were defining a buyers market as a market where there was a certain amount of inventory on the market -- generally upwards to nine months of homes. Some brought it down to as low as three months and others pegged it right in the middle at six months.

I would default to the lower end at three to six months of inventory. At this level, while buyers are not in absolute control of the market, if sellers prepare the house well and price it right, they'll find multiple buyers at the door; however, all things being equal, it will linger on the market and sellers are more willing to provide subsidies and drop prices.

The way you determine this supply of inventory is by dividing the number of homes on the market in a given month by the number of houses sold that same month. Example: 5,000 houses on the market; 2,500 of them sell. This equals a 2 months' supply of homes, meaning that if no other houses come on the market, all the houses will be sold within 2 months.

Generally, here are the characteristics of a sellers' market:

Booming local economy. Local businesses are hiring at a brisk pace. New companies are opening up shop.

Low existing housing inventory. More jobs are coming into a market where there's not enough inventory to house all the workers, thus creating financial pressure on local resale units.

Builders are not producing enough homes to fill the job base. In the Washington, D.C. market, for instance, the local economy is pumping out more than 80,000 jobs in 2005, yet only about 35,000 houses are coming on line during the same period of time.

Home sales prices are escalating. Over the last several years, the national increase has been in the five to seven percent range. In a seller's market, it's not unusual to experience double digit increases. Some communities could double in price in just a year or two.

Buyer contracts begin to come in non-contingent. Buyers want to purchase a house, period. They no longer offer under list price, ask to sell their house first before settlement, or try to buy without financing already approved. There is no negotiating for the "perfect" terms. Getting the house, is the perfect term.

Seller subsidies disappear. While buyers used to ask for some sort of assistance -- lower price, points paid, closing costs -- the buyers must come to the table without any help from the seller.

High down payments become the norm. Buyers benefit from high appreciation and begin bringing down payments such as 25-plus percent to the transaction.

Appraisals are no longer needed to qualify for the purchase price. With down payments of $100,000-plus, there's plenty of equity coming to the table to ease the risk factor for most lenders so that the appraised value is not as important as the actual purchasing price. If the appraisal comes in $20,000 less than asking price -- that's okay, because the buyer has enough cash to compensate for the lower value.
When you're looking at the other end of the spectrum, the buyers' market would look like this:

Job growth eases or turns into job losses. Local companies are closing, a particular sector goes bust (telecom, manufacturing, etc.) and there are no longer enough people in town to support the local housing inventory.

The above situation creates a higher standing inventory, thus more houses appear on the market as people move out of town to find jobs elsewhere. Builders, who may have been building homes in the tail end of a seller's market, may find that they are now stuck with speculation homes they can't sell.

Foreclosures increase as the local job market softens. This creates a new venue of market with investors moving in to find good deals.

Home prices begin to depreciate and some homeowners will find themselves "upside down" in their property -- owing more on the house than what it's worth.

Some sellers may have to come to the table with money to sell the house instead of reaping a large amount of equity. Meanwhile, other sellers will option for a short sale where they take action to return the property back to the lender instead of filing foreclosure.

A first-time buyer market emerges as the once high prices drop to a level where some can afford to purchase now. This will bring about the use of low- to no-down payment mortgages in a market where they can negotiate the use of such mortgages.

Seller subsidies increase. Whereby the buyers once had to turn over first-born children to the sellers, now it's the other way around. Price drops, closing costs assistance, and other seller subsidies become the norm.
If you noticed, interest rates and the prices of houses did not determine a sellers' or buyers' market. Some of the hottest markets in the past existed in high priced and high interest rate environments.

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Post your questions and comments at Anthony's blog.

Tuesday, September 20, 2005

Are You A Homeowner or A Thief?

A story in This Old House magazine this month details the stealing of a whole house by thieves who deal in used building parts. The crime, in Lindale, Texas, took place, obviously, over several days, in broad daylight and while the hardworking thieves waved to neighbors walking by, assuming the men were just a couple of workmen doing some tasks for the owner.

Antique housing parts -- chandeliers, doorknobs, mantles -- can be very expensive to install or replace and that's why, many times, owners who are selling their homes can turn into thieves when they decide to dismantle such items after the sale of their house without getting permission from the new owners of the house.

Attached items in a house are, indeed, personal property. And though they can be removed, they generally go along with the sale of the house to the purchaser.'s online legal dictionary, defines this type property as chattel -- "an item of personal property which is movable, as distinguished from real property (land and improvements)."

If an owner has decided to take a piece of chattel along with him once he sells the house, it's best to just remove it before the house goes on the market instead of trying to label it as "does not convey" with postcards or a post-it note during showings and open houses. I've heard home sellers defy all logic when this is suggested by saying, "But it makes the house looks so good." Right. Then why snatch it from the buyers' hands right after they write a contract. If it's a selling point, then it should stay.

A colleague of mine had buyers who fell in love with an older home and especially liked the pewter hardware on the doors throughout the dwelling. And guess what was gone -- not even replaced -- just gone from the house during walkthrough? Have you priced out antique pewter lately? An average 4 bedroom house can have up to 20 interior doors -- these type doorknobs can go for about $35 each – that's $700 worth of hardware if you install all of them yourself. The other challenge presented by snatching chattel at the last minute also angers the buyer and plants a seed of doubt in their mind as to what else is missing and what else the seller has hidden from them in the process?

The removal of chattel explains why most residential sales contracts have a check-off section where traditional chattel items are inventoried. This includes items such as all appliances, ceiling fans, garage door openers and remotes, playground equipment, window treatments, alarm system, etc.

As the purchaser fills out the contract, the buyer agent will check off the items they saw in the house -- the seller should check over this very carefully, just to make sure that they agree with what the buyer believes he's getting with the house. In addition, it could be the buyer has listed items that don't even exist -- such as a refrigerator with an ice maker when no ice maker exists. If the listing agent doesn't notice this and the transaction goes through -- the seller (or agent) could be responsible for a new icemaker installation for the new owners after settlement day.

While you would hope cool heads would prevail over such a small item if a mischeck occurs, however, let's say the above icemaker is checked and during walkthrough the purchasers find it's not in the refrigerator, but it was listed in the contract -- the buyer could demand the seller purchase a new one for them before going through the transaction.

Keep in mind chattel can be used as a negotiation item, as well, which could be why a buyer would request an item that's not even installed in the house at the time of contract.

For instance, if the house has a garage, but no garage door opener, the buyer could write up that they will buy the house, but they want the seller to install a garage door opener as part of the sales contract, thus, that piece of new chattel would have to be installed by settlement.

The biggest thing about chattel is that everyone needs to know what's staying and what's being removed. The avoidance of surprise is the main item to avoid.

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Questions can be posted at Anthony's blog.

Teardown Housing Becoming Larger Option for Homeowners

When does a house outlive its use and is better torn down than repaired? This question is creating controversy across the country where a shortage in the housing pool has forced this type of infill development.

A teardown is a property that is purchased with a house and then the house is demolished, followed by the construction of a newer, bigger, hopefully, better home. To the new homeowner, the teardown provides an established neighborhood feel in a new home property. In addition, teardowns become more popular in a tight market where land and homes are scarce.

Because the home buyer is purchasing a property at its peak value, it's not an inexpensive venture, either. While the buyer has purchased what is usually a perfectly good house at market price, now he has to absorb the cost of demolition and building a completely new home. One of the most expensive teardowns occurred in Westport, Connecticut earlier this year at the price of $14.6 million. The website keeps track of the Teardown of the Down, which logs the purchasing and tearing down of Westport's aging housing pool.

The teardown phenomenon has even launched a sub-market in the real estate industry where companies establish themselves as go betweens for builders seeking re-buildable lots and buyers who want a teardown property.

So, when should you consider tearing down instead of rehabbing? That was the question I received from a homeowner who had moved into a property that sounded like it needed to be torn down. His list of defects included:

Sagging roof from 3 layers of shingles

Flooding crawl space

Electrical safety hazards throughout

Items that keep creeping up the more we look
The owner is estimating that it will cost about $90,000 to fix up a house on which he already owes $150,000 and that is worth $260,000. Meanwhile, he's priced a modular bi-level home for $125,000 -- but that doesn't include plumbing, electrical and sewer hookup.

Thus, he can either put in an additional $90K or place a new house on the lot and owe more than what the property is worth today, hoping for growth in the equity over the next few years. As you can see from his situation, a teardown could be either a solution or bigger problem. It can also come down to being plainly a financial decision.

One of the most controversial issues that faces local jurisdictions is in the area of urban renewal and how a community's historic character will change with the influx of infill development. Some local governments have established infill surveys or analyses sheets that look at each proposed project to determine its viability and ultimately its approval.

If you're looking to carry out a teardown, your local jurisdiction may have criteria that must be met, such as the city of Davis, California. The municipality's Infill Guidelines, Consistency Analysis report asks questions such as:

Does the project:

Contribute to the development of complete and integrated neighborhoods?

Contribute to a mix of uses in the neighborhood?

Contribute to the variety of housing types, densities, prices and rents, etc.?

Enhance and not erode the existing neighborhood character (this is a real big factor.)?

Create a compatible use with the adjacent community?
The city's website has a really cool that documents with Flash animation the growth of the city over the last 90-plus years.

As communities move forward with land limitations for development, the concept of infill redevelopment will become more prominent. Citizens/homeowners will need to be more aware of the ins and outs, as well as pluses and minuses of this type development as it creeps into our neighborhoods and changes the way and look of how we live.

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Questions can be posted at Anthony's blog. Real Estate News and Advice

Outside Factors Determine Leveling Market

Which way is the market headed? And what directs which way it will turn, up or down? These are questions real estate professionals hear on a consistent basis -- especially in light of unprecedented market appreciation across the country.

Currently, the average sales price of a home in the U.S. stands at $219,000 (14 percent more than the same period as last year, according to the National Association of Realtors). So everyone, from the hotdog stand operator to the corner CEO is concerned about what's going to happen.

Frankly, I'm counting on historical growth, national population growth, and the regular cycles of business to take care of any angst I might feel about the market. Nevertheless, there are various factors that effect any real estate market and you'll find all of them at work when the market is moving upward or downward.

Supply and Demand

The first, of course, is supply and demand. If there aren't enough houses to meet the demand, generally, your prices are going to increase, homes are going to sell in a record pace and every Tom, Dick and Harry is going to get a real estate license. In our local market in the Washington, D.C. area, we are seeing an amazing amount of job growth. In the last five years, more than 287,000 jobs have been added to this region's economy -- nearly 100,000 more jobs than the second highest location (Miami), according to George Mason University's Center for Regional Analysis.

Here's the downside, while the region has averaged job growth of 60,000 jobs each year the last 20 years, we've only put up an average of 35,500 houses each year (again, GMU's Center of Regional Analysis numbers). The lack of local plans to allow enough construction of more affordable housing structures has created a housing deficit of which forecasters see no end. In a world of smart growth, local jurisdictions better listen to their Economic Development Authorities in determining development plans, not no-growth advocates who are not anchored in economic reality.

Interest Rates

Though many homebuyers desire prices to drop, this may not always mean lower payments. Again, in the DC market area, a summer leveling off of prices would seemingly provide potential homebuyers with a break on housing affordability -- not so fast.

For instance, in Arlington, the first Virginia suburb outside of Washington, D.C., the median housing price has dipped $20,000 (from $520,000 to $500,000) through the summer, according to the local MLS statistics. Sounds great -- but the interest rates have increased by a quarter point as well, from 5.25 percent to 5.5 percent. Assuming a 20 percent down payment for either mortgage -- the $520,000 purchase with a 5.25 percent interest rate (June's average) would have cost $2,297.17 (principal and interest) per month; while the $500,000 purchase with a 5.5 percent interest rate (August average) will run $2,271.16. The $20,000 price drop saves the buyer a whopping $26.01 per month because of the increased interest expense.

Vacations & Weather

This past Independence Day nearly 13 percent of the DC population left town -- that was 600,000 people, according to AAA. Keeping in mind that at any given time about 7 to 10 percent of home dwellers are looking to move, that means that if the averages held, the Washington area lost anywhere from 42,000 to 60,000 buyers for a week during that holiday season. When buyers leave town, that naturally creates a slowing in the market.

In talking with the Director of Public Affairs at the Mid-Atlantic AAA, John Townsend, his feeling is that we have fewer residents in town this summer than in previous summers. They're finally leaving for vacation and that means fewer buyers in town to purchase, longer times on the market and dropping in prices (though minuscule) until the buying herd returns.

Also, weather can play a large part in what happens in the market. Particularly, weather that shuts down a region, such as a hurricane or snow storm, can reduce the number of buyers flowing through open houses and checking out inventory.

When looking at the effects on real estate, as you can see, it's not always the market. Sometimes it just means everyone's gone to Disney World.

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Questions can be posted at Anthony's blog.

Thursday, September 01, 2005

Slow Market? Sell The Deal, Not House

If you find yourself with a house on the market and it's just not moving, there are several strategies to put in place to speed up the sale and get going with your next purchase.

Psychologically, the seller has to first prepare himself for selling the house -- not marketing it, not holding out for a higher price, not defending your price, not blaming your agent for not doing enough, etc.

Granted, all the above is important and you do want a professional agent with a viable marketing plan to draw as many buyers as possible. Just like any other commodity -- a lot of buyers trouncing through your house is a good thing, because more buyers means more potential offers. Thus, the seller needs to hire a company/agent that's going to create such an environment.

But let's say you've done that. You've even fixed up the house better than anyone else on the block and it's just not moving. Then move from selling the product to selling the deal.

We see this strategy in plenty of other products. The auto industry is famous for it -- zero percent financing, $500 above invoice, employee discount price … none of these items have anything to do with the product -- they are enticing you with the deal.

The Deal for real estate has everything to do about the buyer. Forget that you may still be in a sellers market and you're in the drivers seat. If your house is sitting on the market and you have to move in 45 days -- you're not so much in the drivers seat anymore. Get off your haunches and get the job done.

You could drop the price, but in reality, this doesn't help the buyer as much as cash back at the settlement table.

For every $10,000 you drop on a loan at 6 percent, the buyer saves only $60 per month in a mortgage payment. Is that really enticing enough? Think about it, they're borrowing $250,000 -- a quarter of a million dollars -- and you're dropping the price by $10,000 reduces their principal and interest payment from $1,498 to $1438. Is that one move enough to get me excited?

Let's turn that around and offer $7,500 (3 percent of the loan amount) over to the buyer -- at a full price contract -- and see what it does for the buyer. They could use it for closing costs, which could be a lot of money in their pocket. They could use it to make payments over the next several months (nearly five months worth of payments at the above mentioned payment amount). Is that really more beneficial than $60 per month?

By dropping your price $10,000, it would take them more than 10 years worth of monthly payments to gain the actual financial benefit of simply handing over $7,500 in closing costs to them at the settlement table. Plus, you get to keep the remaining $2,500 for your own bottom line.

It's like this. If you're about to take a hit on the sale of your house, it might as well benefit someone, and the buyer who gets $7,500 at the table is going to get a lot more excited than the one who's price dropped $10,000.

Be sure to check with your mortgage professional to make sure the loan program your buyer is using will allow you to provide this much cash to the buyer.

One last thing. If you decide to market the deal, make it a lot more appealing than "closing costs to buyer." How you say it can be just as important as what you're saying: "No payments for 4 months," "$7,500 back to decorate your house," "Seller will pay off buyers debt (up to $7,500)," are three ways of saying, "Closing costs to buyer."

Which one gets you excited?

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Questions can be posted at Anthony's blog.

Meeting the Seller Could Affect Deal

Realtors must take care how they approach the buyer and seller client of another real estate professional. To contact a seller directly, for instance, when the seller has listed his or her house with another agent, could be construed as "going behind the sign," as it's called in the industry and violates the National Association of Realtors' Code of Ethics.

On the other hand, it's not uncommon for buyers and sellers to meet each other and talk real estate, the transaction, moving plans, remodeling -- er -- be careful about that last one. It's true -- all the topics above may or may not cause a hubbub between a buyer and seller, but when you start discussing remodeling plans -- buyers beware.

Let's put it this way -- talk about what you love about the house: "The new carpet is exactly what I wanted." "The kitchen is so large. I can't wait to have a party." "Oh, I loooove your garden in the back. We've always wanted to eat our own gourmet vegetables."

When you start discussing remodeling -- you've instantly told the seller you don't like what they've done to the house and, in fact, you're going to change it. Before you may think, "What does it matter? It's going to be my house in a few days." It's not your house until settlement has occurred and keys exchanged.

Many buyers and sellers have met and it sealed the deal. "They were such nice buyers -- let's sell it to them." You never know what can make a seller like one buyer over another when comparing offers. If you have two close offers, it could come down to which buyer was friendlier.

One buyer agent told me of how her buyers wrote a letter about how the sellers had decorated the dining room -- just the way they wanted it. But to really make the letter have merit, the buyer had flowers matching the d├ęcor right when the listing agent was arriving to present all the offers to the seller. Obviously, the seller knew the buyers wanted the house -- but they really appreciated the sellers' efforts to make the house a home for themselves and this buyer demonstrated she was going to continue the tradition.

But the meet and greet isn't always the best thing. A colleague told me about a buyer couple in California was so excited that his sellers had accepted their offer in a competitive bid. On a weekend before settlement, the buyers were driving by and noticed the sellers in the yard.

After introducing themselves, the sellers were excited to see how they loved the house. "So what are you going to do when you move in?" the sellers asked. The buyers replied without hesitation -- "Well, we're going to redo the landscape and take out all those rose bushes."

Unbeknownst to the buyers -- the sellers were champion rose growers. Rose growers who then called their agent and called off the deal.

If you don't like something -- keep it to yourself. I'm not condoning lying to the sellers, but a "don't ask, don't tell" policy could be a good bit of advice if you happen to run into your sellers before settlement. Instead, rave about what you like about the house -- location, lot, style, established neighborhood, pet friendliness, friendly neighbors -- something other than the fact that you're about to rip out the gazebo in the backyard. You know, the gazebo where their three daughters all got married over the last 4 years? Yeah, that gazebo.

In a competitive market, meeting the sellers could be a good strategic move that puts your contract on the top of the pile. If played right. Otherwise, your remarks could send it straight to the circular file.

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Questions can be posted at Anthony's blog.

Professionals Help Get Gain With No Pain

During my last workout at the gym, I watched a professional trainer attempt to instruct a very amateur member in how to build more muscle and prevent injury. The amateur just wouldn't listen, it seemed. Instead of dropping his dumbbell down to 45 pounds in each hand, he argued with the trainer that he wanted to do 60 pounds in each hand to build muscle.

The trainer explained that the lighter weight with higher repetitions would provide him with a complete range of movement and provide more even definition. Again, the man said, "Oh, I can do 50, I'm just doing 60 pounds to build up."

The trainer walked away, shook his head and just chuckled, "Some people just think they know it all." With his expertise and the body to show it, exchanging advice with a string-bean seemed like a waste of time at the least and an insult to his obvious learning and expertise at the worst.

There are many times in your life when doing something yourself, or the way you want to do it, just doesn't make sense. Real estate is no different. You need professionals when it comes to investing, maintaining and selling real estate to make sure you don't commit costly mistakes in regards to your money, energy, and time.

Most professional investors I know have no problem hiring the right person for the job. If the house needs painting, they pick up the phone and find a good, professional painter. They don't have time nor expertise to do it themselves. It's in the world of private owners who are dealing with their personal residence that I see many consumers try to fix up, sell or buy their home on the cheap.

It's the professionals listed below that I see more homeowners try to do themselves and realize many times it would have been worth the effort and financial investment to hire the right person:

General contractor: This is the big one. Most homeowners like to think that they are a bit handy with the toolbox. The thought goes like this: "How hard could it be to fix that dry rot, anyway? Cut it here, insert new wood there, paint it. Why pay someone to do that?"

If your house needs a lot of fixing up, a general contractor can bid out all the different jobs, supervise the work and watch your budget for you and get it done faster than you doing it yourself.

Carpet layer: It's amazing how many people want to take this one on themselves. I saw a house once that had a beautiful curving stairway with white carpet. I guess the owner wanted to preserve this virgin floor covering, so he placed a clear runner down the stairway -- fastened down with roofing nails.

Painter: While most people I know could handle a paint job in their house, this task is fraught with accidents ready to happen: splattered paint along the floor, on the trim, and ceiling; spilled paint buckets; different colors (that were supposed to be the same) painted on adjoining walls -- all of which has happened with paint jobs I've done myself. Why torture yourself?

Plumber/Electrician/HVAC Technician: These three are probably the ones that most homeowners will default to immediately if something goes wrong in the house. Nevertheless, I have seen some finished spaces that homeowners completed themselves without the assistance of these trade specialists. The problem comes when you're home is being inspecting during your sale and the inspector asks for the county permits and certificates. These pros come with certification and specialty training -- it's best to leave such projects to those who know exactly what their doing.

Realtor: Well, you know I couldn't get through a "hire a professional" column without laying this one out there. In many a hot market, a lot of homeowners want to try this one themselves. But just like all the other professionals mentioned above, a good Realtor is worth every penny.

Most homeowners simply don't have the time, negotiation skills, expertise or training to sell their house themselves and maximize their bottom line -- which is the most important service a real estate agent (who's doing her job) brings to the table.

Regardless of the job you need to complete to purchase or sell your home yourself, at least consult with a professional before tackling the job yourself and possibly making a mess of things.

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Questions can be posted at Anthony's blog.

Eviction Notice Part of the Investment Process

Chris stroked his beard and shook his head, saying: "It's not fun." He was talking about having to walk up to the door of one of his rental properties recently with an armed sheriff and serve eviction papers to one of his tenants.

The couple had been living there about a year and suddenly the check didn't come. He gave notice, per the lease, and the check still didn't come. After meeting with the husband, he was given assurances that the back rent would be paid and that he would make sure his payments would be on time in the future. Another month later, Chris knew he was going to have to evict this man, his wife and children -- not a comfortable thought.

All Chris wanted to do was rent out good, clean, affordable properties to good tenants, now he was having to exercise the "heavy" part of the lease: tell the renter they were no longer welcome to live there, change the locks, put all the furniture outside and go to court for money owed -- even though he knew he would probably never see it. What followed was an emotional explosion from the wife toward her husband (who she thought had settled the debt).

If you ever have to face evicting a tenant, all sorts of thoughts float through your mind. First of all, an investor never wants to believe that the person they were so happy to rent their dwelling to a few months before is not someone they will be walking up to the door with law enforcement and telling (not asking) them to leave.

Second, since most investors have properties leveraged with a mortgage, you start worrying that you won't be able to make the payments on that mortgage and that the lender will start making some threats of his own.

Third, as you enter the property you are clinging on a thin strand of hope that maybe, just maybe, the house doesn't need a lot of repair, causing even more financial setback.

If you ever face evicting someone, the process differs state by state, even county by county. In Chris' case, he had to serve notice five days after the check was late and from that point, he was going to have to wait three weeks before the court met to hear the case (as it does every month). In the meantime, the sheriff calls and sets up a time to visit the tenant's house and serve notice of the court date. As you may calculate, by that time, your tenant may be two months behind in rent and you're two months behind in mortgages to your lender.

In between the filing and court date, he attempted to work out finances with the tenants, warning them that eviction day was coming. (He was, of course, promised that all the household goods would be moved out by then.) Once the court date came and the judge gave approval for the eviction, he then joined the sheriff and walked up to the door to change the locks and inspect the property.

In this case, the worst happened -- all the furniture and belongings were still in the house and the wife never knew what was happening. Chris was the one to break the bad news. She sat there and cried and apologized profusely, promising to pay him back (and payments have begun).

Nevertheless, the furniture had to be moved out and fix up on the unit begin -- which was taking longer and costing more than Chris had anticipated.

As you consider investing, be sure to look over the good, the bad and the ugly of investing. Look through your lease carefully about your rights as the landlord and the process lined up for taking back ownership of your property and evicting the tenants. Especially consider the tenant-landlord laws of your jurisdiction. While they are created to protect the housing rights of both tenant and landlord, they can also cost you a lot of money and you need to be sure you're able to pay.

Mr. Carr has covered real estate since 1989. He is the author of Real Estate Investing Made Simple. Got a personal real estate issue? Post your questions and comments at Anthony's blog.

Fixer Upper To One Is Cosmetic To Another

I receive emails regularly from people wanting to find the diamond in the rough so they can walk away with tens of thousands of dollars in one transaction like all the people on the infomercials.

Everyone wants the quick fixer upper resulting in the quick buck. In some communities, that's very doable, while others are just unaffordable even when the house is about to fall in. Even I would take such a treasure. I toured one such property recently with a fellow investor and the house truly needed a lot of fixing up.

It had been a rental for several years by the sight of it. The carpet was in a mess with bare spots throughout. It was simply filthy -- there's just no other way to describe it. It wasn't even "broom clean" which is what most contracts require when a renter or former owner moves out.

The walls had needed painting several years ago and the flooring in the kitchen had cuts and gouges all over. On the back deck, we had to be careful not to step too firmly as to not fall through and the back yard (it was a townhouse) was overgrown and unkempt. The fencing was fraught with rot and mold.

The bathrooms were also filthy with rust in the sink and tub, and the faucets needed replacing. The owner had turned off the water, so we couldn't test if it was working or not. There were only a few light bulbs throughout the house so that we could get a good look at the crevices of the dwelling.

In the basement, the ceiling was drooping from previous water damage from above, the carpet needed replacement. There was also a smell of mildew throughout.

We were drawn to the property because the listing remarks said: "Priced below other comps. Needs cosmetic fixes."

Well -- what I was seeing was more than cosmetic. In addition, when you see that the interior is in such disrepair, you have to wonder about all the stuff you can't see in a casual visit -- the attic, roofing, rot around the base of the house, termites, etc.

The investor-owner used the house truly as a commodity and did not take care of the product. However, in our escalated market, the asking price was $359,000. So is this the type of fixer-upper you're looking for? A comparative market analysis of that area today -- 60 days later -- shows properties of that type selling for upwards to $410,000. In a market such as the Washington, D.C. area, such a gamble may be worth it.

The problem with this target property is that the owner was not offering the property up as a fixer upper, but the market showed it could be moving up to that level. The property needed at least $25,000 in repairs and then the marketing costs would be about another $20,000 to $25,000 -- so there goes the equity and your quick-turn profit.

If you're in a more normal market, you need a lot more equity to walk into before being willing to start polishing that diamond. There should be a projected profit margin of at least double your expenses -- thus after fixing up a property and selling it, all those expenses should equal your profit.

Example: You purchase a fixer upper for $150,000, put in $25,000 to fix it up, and sell it for $225,000. Your gross profit would come in at $50,000, subtract commission and closing costs of 7 percent and you're down to $34,250. To be sure that you're going to get the amount of money here that you want, you MUST insist on a thorough home inspection by a qualified (preferably, certified) home inspector. This person will be key in finding out how much money you're about to put out in return for your investment. In addition, you want a Realtor involved who can give you comps of the area so you know what your target price will be.

When it comes time to your first fixer upper investment the key point here is patience and don't let dollar signs in your eyes blind you to the reality of the return on your investment.

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Questions can be posted at Anthony's blog.

Lien Holders Must Get In Line for Payment

A title search is one of the most important activities of the real estate transaction. Without the ability to convey title, a property owner cannot sell his or her home and a buyer would not want to take possession without this most basic exercise.

"Title" is the right to own land. Thus a title or settlement company conducts searches at the courthouse to determine if one owner has a "clear" title so that they can pass the property over to another owner. If a title has liens or judgments against it, then it creates a "cloudy title" and that's not a good thing, unless the liens are the most common sort, such as a mortgage.

Liens are "a charge or claim against a person's property, made to enforce the payment of money," according to my old principles of real estate text book, "Modern Real Estate Practice," published by Dearborn Real Estate Education. These liens are broken down into two major groups: voluntary (you actually created the lien intentionally, like a mortgage) and involuntary (it was forced on you, like taxes or a creditor's lien seeking payment).

Beginning investors need to be careful that when they go to the courthouse steps to bid on a property, that when they "win" they haven't just purchased a bunch of liens, which are attached to the property and convey with the property. Keeping in mind that if someone has allowed their house to go to foreclosure, then they've had financial problems and that means they could have had liens placed on the property from vendors seeking payment.

As mentioned above, mortgage companies place liens on the property for the mortgage amount. Other liens could be placed on the property for taxes, fees outstanding to contractors (mechanics lien), and even homeowners association dues. You may even find liens for utility companies and local creditors.

When a house goes to foreclosure, the lien holders must get in line for payment. The first one with a hand out is the government for taxes. This lien is the first in priority, even though the general rule is "first-come, first-served." All other lien holders better hope they placed a lien on the property early on.

For example: Mr. Smythe is ordered to go to foreclosure on his home and is able to receive $275,000. He has a tax lien for $5,000 the current year, a first trust mortgage from 1998 for $125,000, a judgment lien from a creditor for $100,000 from 2003, and a mechanics lien for work done by a contractor on his deck for $20,000 from 2002.

The order of payoff would be as such:

Taxes: $5,000

1st Trust: $125,000

Mechanics lien: $20,000

Judgment lien from creditor: $100,000

Mr. Smythe: $25,000
The seller receives the balance of the proceeds (and that's assuming the creditors have not sued him for the cost of the foreclosure or any fees they've incurred that they are allowed to because of the foreclosure).

If Mr. Smythe goes to foreclosure in a down market and only receives $200,000, the roll out of the proceeds may look like this:

Taxes: $5,000

1st Trust: $125,000

Mechanics Lien: $20,000

2nd Trust: $50,000

Mr. Smythe: $0
In many foreclosure cases, the mortgage company will pay the taxes just so they can get first in line for their own money. The only other way a creditor can move ahead in the line may be through a "subordination agreement" between them and another lien holder to change the priority (you might say these are also considered a "fat chance" agreement or "snow ball's chance" agreements). Not too many companies are willing to subordinate to other creditors if they don't have to.

If you find yourself in a must-sell situation, it's best to let your agent know immediately that you might have liens on your property -- she'll find out about it eventually during the title search. For those facing foreclosure, you may have creditors judgment liens on your house and not even know it. The only way to find out about them is to visit the courthouse and look at your records. Obviously, the only way to remove the liens is to pay them off.

Transaction Management Tracking Moves Online

Your next real estate transaction may be managed from an Internet-based transaction management system (TMS). Plenty of companies are beginning the trek toward being the first in line for servicing the transactions of real estate agents. These TMS providers, so far, include title companies, software companies, real estate companies and multiple listing services.

It's the natural progression for the industry; however, standardization and acceptance by various real estate professionals to use the same system (especially if their own company is designing its own program) will be the key to success for any TMS. The fact that so many type of companies want access to the information is what muddles the development and launching of this highly touted tool.

The basic description of a TMS is a web-based software that manages the transaction, beginning with either the buyer or seller and goes from listing the property or approving the loan through settling the transaction. The system allows service-providers to enter new data into the transaction from any place the internet is accessible. Each transaction has plenty of service providers touching it -- real estate agent, title coordinator, settlement agent, home inspector, loan officer, legal firm, insurance agent, pest inspector, etc. Each would input data about their piece of the transaction into one web-linked file hosted by the TMS company and controlled by the subscribing agent.

The challenge in today's paper-intensive real estate transaction file is to keep up with each aspect of the transaction, while ensuring that each task item is completed according to a legally-binding contract. Most times, this is monitored by paper through faxes and emails back and forth from all the above-mentioned parties.

Who owns the transaction is up for debate -- is it the listing or buyer agent, loan officer, settlement/title company? The objects of the transaction are obviously the seller and buyer -- however, they don't have the access, nor expertise, to keep up with the scores of documents, tasks, scheduling, etc,. necessary to move the transaction from contract to settlement.

The National Association of Realtors has designed a Realtor Secure certification for organizations that use the "best online security practices in the real estate industry." So far, only one TMS provider has received certification for its program -- SettlementRoom.

While this certification may give the Vienna, Virginia-based software/web developer a competitive edge in implementing its program with real estate companies and MLS services, there are so many other TMS providers on the horizon that it will be a messy battle to see who wins out or at least becomes the primary TMS service in any given jurisdiction.

NAR reported recently that "SettlementRoom … is the first transaction management vendor to complete the rigorous Realtor Secure program. SettlementRoom successfully demonstrated that it met program requirements to have policies and procedures in place to protect real estate, employee and customer information from internal and external threats and to prevent business interruptions."

NAR based its certification on security standards from the International Standards Organization and the National Institute of Standards and Technology.

"Realtors are harnessing technology to help consumers and making that technology secure. So it's encouraging to see an industry firm like SettlementRoom demonstrate that it takes seriously the security of data from Realtors, consumers, and others involved in the transaction," said Mark Lesswing, NAR vice president and director of CRT, in a press release on

Of the 42 transaction management sites listed by web directory site, several are already caput while others redirect the click from the original site URL to another entity altogether. The battle is fierce and the field of winners has already begun to narrow.