Current Assessment X Current Mill Rate is only one of the choices for property tax prorating

The Offer to purchase provides 5 choices for the buyer and seller to select from to agree on how to prorate the property tax bill for the current year. Except for closings at the end of December, the actual amount the city is collecting from the owner will be unknown at the time of closing.

Each choice on under Closing Prorations is a simple word problem. One or more of the choices may provide a fair and simple way for the buyer and seller to split the bill. In certain situations, one or more of the options may provide a windfall to one party, or may leave the new owner significantly under compensated.  To know which options may be acceptable to both parties, we can plug the known numbers into the formulas.

A: Net General Real Estate Taxes for the Preceding year (or the current year if known):  Assume the current year bill is unknown. The previous year tax bill may be close to the current year bill. Tax bills tend to increase each year, but the increase when divided over the year is probably minor enough that no one cares.

B: Current assessment time current mill rate: This is a bad choice when the community is in reassessment or the property being sold is new construction.  A reassessment will result in property values increasing close to market value. In the fall to keep tax bills from going through the roof, the mill rate will be adjusted down. Close when you know the new assessment but not the current year mill rate and the seller will leave a large chunk of money with the buyer. New construction built in one year and closed  in the following late winter or early spring before the new assessment is known will leave the buyer with a very small credit compared to the actual amount owed for the days of the year prior to closing.

C: Sale price, multiplied by the muni area wide percent of FMV multiplied by current mill rate.  This one is unusually complicated when compared to the next choice.

D: __________________ Create your own method. I think this is safe. Based on the facts of each transaction, the parties may estimate a tax bill. If bill was $10,000 last year, assume the next bill will be $10,100 or $10,300 or some amount. You will most likely be close because tax bills rarely go down. If it’s new construction, you could multiply the sales price by the known mill rate or if the closing happens in the same year that (a) the lot was vacant on Jan 1, and (b) the construction began after Jan 1 and was completed and closed prior to December 31 of the same year, the value of the lot times the mill rate will give you a number that’s close.

E: Buyer and seller agree to reproprate after closing.  Sounds like a great way to be exact, provided the new owner can collect from the seller, or the seller can collect from the new owner if money is owed.   I don’t want to suggest this option and I don’t want to be asked to intercede at Christmas when one party fails to pay up.

You can teach a guy to fish, but he’s gotta wanna eat.

I was reminded this morning that teaching a person to fish could feed them for a lifetime, but only if they want to eat. The person who wants to be given a fish is not going to fish even, if they have the ability, until they decide that eating is better for them than starving.

The effort of teaching is exponentially magnified in results by the student who finds inspiration to make the learned technique or tool a habit. Never quit teaching because some people don’t want to eat. Teach to the people who aspire to greater heights.

 

 

Be Accurate. Be Better. Be Careful. Verify your work.

My guess is you are more likely to be accurate when you’re not distracted. Where and when do you do your most careful work?

Be Accurate: Home Depot, Fleet Farm, and your local True Value Hardware Store sell 25 foot steel tape measures by Stanley, Milwaukee, and Dywalt. For less than a dollar a foot, you can own one of these tough and ready tapes. Even if you use it on every listing (and I hope you will) one of these could last your entire career.  The 26 foot Fat Max by Stanley measures in Metric also. That could be handy if metric catches on in the USA.

Be Better: When you list a house which I last sold, how can you be sure the measurements and sizes I stated on the old MLS sheet are accurate? Don’t take my word for it. I could have made an error. Measure rooms. Check public records. Look at surveys. We all think we do our jobs well. And we all make mistakes. Be better than the agent before you. Do your own measuring.

Be Careful:  The best place for me to prepare detailed offers and detailed representations of property is in my office with no distractions. My guess is you are more likely to be accurate when you are not distracted, where you have access to all the tools you might need. Where do you do your most careful work?  When are you most careful?

Once you’ve prepared your marketing material (MLS Data, Flyers, Web posts) check for accuracy. Send the material to your client and ask them to review for accuracy. When an error is identified, make the correction promptly.  If you work with an assistant for data entry,  have a system for verifying accurate information is entered and inaccurate information is corrected.

When the Notice or Amendment appears unfavorable, why do we call the other agent?

Working through inspection related contingencies is when the most agent to agent calls (by calls I mean text, email, and phone calls) are initiated.  Why is a call made so quickly in response to Notices and Amendments?  I believe it’s an unnecessary practice.  Here’s why:

The Offer to Purchase is an agreement between the Buyer and Seller. Sufficiently written contingencies (and every licensee believes they wrote sufficient contingencies) include the steps the parties will take when this or that happens. The contingencies define key terms. The parties agreed to these steps and terms. When one party follows those terms by sending a Notice or Amendment, or doesn’t follow those terms, by sending the wrong form or no form, the receiving party has a predetermined course of action. Nothing in the contract or license law states a licensee must, or should, make a call to object, question, debate, or educate the sender.  The approved and understood options include the recipient party responding by Notice, Amendment, acceptance, or silence. Of the  approved forms for licensees, email, text, and phone calls are not mentioned for good reason.

Lawyers may have permission to speak on behalf of their clients. They may have the protection to make representations. Licensees do not have the legal authority of an attorney. A good way to lose the authority we still have to complete forms is to fail to complete forms. Let’s think about this.

A call (text, phone, email, fax) is documentation of a message from one licensee to another. The commitment to the statements is arguably attached to the sender and whomever responds.  There is no commitment to the statements from the principals. A Notice, Amendment, Counter Offer on the other hand, is signed by the principals confirming the words are their words; the promise is their promise; the responsibility is their responsibility.   Documentation is clear when appropriate forms are signed.

If the intent of a call in lieu of a proper form is to speed the process or challenge the other agent, the intent is reason enough that the form is a better choice.

 

 

 

 

 

 

Where’s the evidence? Does limiting the window of opportunity benefit the Seller?

The property was listed on the MLS on Wednesday. Showings were restricted to no sooner than the open house on Sunday at noon.  In the remarks, we are told Offers will be presented to the Seller on Tuesday at 10:00 AM.  What’s the objective?

If the objective is to give the listing firm a leg up on the competition to attract a buyer and earn more money, data exists to show this does or does not work. (I hope the data proves this is not the result.) If the objective is to give buyers a fair opportunity to get their offer considered, or if the objective is to give the sellers more offers to consider, the empirical evidence has not been gathered.

Retail business with thousands, and thousands of potential buyers for a limited product can prove the limited window of buying opportunity increases demand and subsequently price. (Thing Black Friday) The data base is big enough and the evidence is solid for comparison to sales with or without the limitations. That’s not true for real estate. Even in a Seller’s market like we just experienced we probably can not ( I doubt we have tried) accurately measure the effect on price or demand.

The real estate industry works in part because it has the means to expose individual properties to a mass market of buyers…many who are qualified, motivated, and NOT in the community.  A limited window of opportunity may corral a few folks who are nearby at that moment. Those who are not nearby are eliminated; they are effectively blocked from the property.

If this method of squeezing the market to a tiny window of a few hours of time is more advantageous to the Seller and not detrimental to the marketplace, where’s the evidence?

What Do We Want to Accomplish?

 

Seth Godin’s Blog

“Will the seller take a cash offer with no contingencies?”

Offers to Purchase are handshakes. You own this property, and I want to own it. I’ll give you $X and you give me the Deed on this date. The details could be left out if no one ever had a reservation. The details are the exit doors. Our job is to attempt to make clear what everyone intends and expects.

Dishonorable people intent on not keeping a promise will not be impeded by language of a contract.  Seth Godin notes that our future depends on good agreements with good people. What do we want to accomplish? We want to work with good people. The good contracts keep us in business so the good people can benefit from our good work.

Inspection Contingency: Two ambiguous deficiencies you want to avoid

Wisconsin Residential Offer to Purchase page 9 of 9, Inspection Contingency

Deficiency number 1. NOT TESTING.  Line 410 reads: “This contingency only authorizes inspection, not testing…”. To add clarity, lines 395-409 have the definition of the terms inspect and test.  You can inspect, but you shall not test.   It’s agreed, testing can not be done without a specific contingency and the inspection contingency is specifically not for testing.  Or, is it? At least one firm in Madison has an addendum with an additional contingency altering the inspection contingency to apparently permit testing.

“Addition to Home Inspection Contingency: It is understood that if the buyers’ home inspector recommends that additional inspections/test be completed, Seller agrees to that portion of the inspection being extended for ____days…”.  I put the problematic words in bold.  If I’m interpreting this correctly, if a home inspector recommends a radon, mold, lead paint, water, or air quality test be done, the contingency is extended.  I don’t know if the parties are agreeing to permit the test, or just extend the contingency satisfaction deadline.

Practice Tip:  Do not include any reference to testing under the Inspection Contingency. Use a specific testing contingency with stated acceptable levels.

Deficiency number 2, NOT ENTIRE PREMISES. line 412 to 413: “This Offer is further contingent upon a qualified independent inspector or independent qualified third party performing an inspection of________________________________________________________________________(list any Property component(s) to be separately inspect, e.g., swimming pool, roof, foundation, chimney, etc.)…”. Even with the hint telling us to insert components of the property, some licensees are writing “Entire Premises”.  The consequence of the words “entire premises” in the blank where specific components are to be written may be this:  A qualified independent inspector or independent qualified third party may do the inspection of the property instead of a “Wisconsin registered home inspector” as was first stated on lines 410-411.

When a component (fireplace, roof, foundation…) is inserted in the blank line as intended, the contingency is not ambiguous, and we have an agreement by the parties to allow a buyer to have a Wisconsin registered home inspector inspect the entire property, and a qualified third party or other inspector inspect the component stated, such as “the fireplace, the roof, the swimming pool, the shed, etc.”.

Practice Tip:  When in doubt about what might be written in the blank lines, first look to see if the creators of the form offered any hints or suggestions immediately after the blank lines. I can think of two places where they’ve done so in the Offer. If there is no suggestion, and you feel it necessary to insert something, make sure the words you choose complete a sentence and do not contradict the intent of the contingency.