Serving Professionals is a Choice

First sentence I read today: A professional is going to buy from someone like you. (I believe you Seth Godin).

A professional has a process, asks unique questions, is curious about unique ideas, and knows how to be to discover your service, product, does or does not improve their situation. Seth wrote, “A professional isn’t going to think she can do it herself…”. Amateurs typically don’t follow the same principles. Amateurs ask friends for advice. Amateurs compare you to whatever they know and they compare your price to free.

We’re all amateurs in somethings, and by amateur I mean we think we can do what professionals do for less. (Hang drywall, put in a faucet, paint, change oil, drop a tree, you know, easy stuff.) Amateurs buy and sell real estate. They don’t know what they don’t know so anything they do looks like success. I once was told, “We’re not using a Realtor, our price is $220,000 and we’re not negotiating.” My client bought the house for the asking price and instantly gained $55,000 in equity.

Building a business to serve professionals is worth the effort. Knowing you’re going to meet with an amateur when you’re expecting a professional is easy to do. So, why do we still hope the amateur is not who they told us they are?

Windchill. When bad is not good enough.

Twenty four below zero is cold; noticeably colder than 2 below. It’s bad. But there’s worse. Another weather report reads “-57 by 6:00 PM”. The rest of the story tells us with wind chill it will feel like minus 57. Is there anything you would do outdoors at minus 24, but at minus 57 it ain’t happening? What freezes at minus 57 that doesn’t at minus 24?

A forecast of an 80% chance of six inches of snow is something to pay attention to. Another source forecasts 12 inches for the same expected storm. Which source do we pay the most attention to? I think we are more likely interested in hearing from the 12 inch source…until we discover that the 12 inch prediction is a 10% probability.

Bigger, badder are attention getters. Both might be true statements missing some valuable information to determine if they are bad. Or do they just sound bad? Given the choice of representing something one way or another, it’s not always a question of truth. But it is always a question of intended consequences. What did the inspector write is one question, another is why.

Real Estate Valuation. Art or Science, or neither?

Thirty years is enough time to change your beliefs more than once. When it comes to reasonable expectations of real estate appraisals, the pendulum swing is immune to the laws of physics. Conservative outcomes last for a while until they swing back to a more liberal result. There is no reason to expect the swing right to equal the distance of the swing left, and there is no reason to expect the pendulum to swing back when it appears to stop moving in one direction. Picking up speed in the same direction upward requires some additional force. It’s that force that’s not readily apparent.

Objectivity is a factor in arithmetic, opinion is not. Appraised valuation has room for arithmetic and subjectivity is a factor. In the run up to the collapse of the real estate industry and human crisis it caused we saw homes coming on the market at prices unheard of in high demand areas. Buyers rushed to compete with offers at these inflated prices and above. Rules of underwriting were disregarded to approve loans where the appraiser reached beyond the limits to satisfy the banker, buyer, and real estate agent. As the crisis unfolded, we expected the trend to reverse and move back to guideline compliance.

With two consecutive years of inventory shortage the trend began a slow move toward the liberal interpretation of underwriting guidelines. As of the end of last year, trend has picked up the pace and appraisals appear moving ever further from conservative practice to liberal subjectivity. Or maybe, something else is happening. The evidence is the evidence. Homes for sale at prices unsubstantiated by comparable home sales in a neighborhood received Offers at prices driven by competition, not by recent sales. I expected to see more sales derailed by low appraisals as had been the issue in recent years. That may not be happening. Either appraisals are supporting the price, and underwriting is accepting the appraisal, or buyer’s are making up the difference by increasing their down payment…and not by a little.

As we get underway in 2019 I’m going to be careful about being certain of anything related to valuation. Rules are rules and we all can read. But subjectivity and common sense are unpredictable and as long as facts can be are overridden, it’s best to be open minded to possibility.

Advantage Buyer Client, T.O.E?

Time is of The Essence. T.O.E. In your contracts, has time ever been not of the essence…for any contingency? Attorney at Von Briesen and Roper, S.C. published an article last January pondering the question …But Should it Be?

Whether or not time should be of the essence apparently is not always considered appropriate and reasonable for deciding a missed deadline is automatically a material breach of the contract. Attorneys Jenny, West, and Siehr discuss this question from the perspective of how a court might decide a case where one party claims injury as a result of a breach by the other party. That’s a bigger issue than we’re qualified to comment on, but there is an area where understanding the clause in the contract will give our clients an opportunity to enhance their offer for their benefit. I’m thinking of buyer-clients.

In a Seller driven market, modifications to the advantage of the Buyer, if identified by the other side could be detrimental to the appeal of the Offer in the mind of the seller. But, where a buyer has the advantage, a Time is of the Essence exception might be the last little safety the client needs to complete their due diligence without deadlines lapsing. An inspection contingency, appraisal, an approval by government agency, lab test results, financing commitment letter are all contingencies which a Buyer might exclude from the T.O.E. Where there is a chance the deadline might be a bit too short, an exception to T.O.E. for that condition could keep the buyer safe from a Notice of Breach for being a day or two late on satisfying the contingency. (Again, that’s a bigger issue than we can address, but you get the point. It’s an option a buyer could negotiate.)

For a person to know if having an exclusion to T.O.E. is worth including is a question for a person’s attorney. Here’s the contingency as it appears in the Residential Offer to Purchase. Maybe make an appointment to talk to your real estate attorney to get her opinion on the implications of the choices for your client. (If you’re the listing agent and you get an offer with exceptions to T.O.E. be sure to bring them to the attention of your client, so they can get legal advice.

Facts Matter

Things are better than we think according to the author of  Factfulness   Hans Rosling.

Experience and history influence our feelings, and our feelings contribute to our conclusions. Thinking about situations being better than we think as it’s applied to real estate work, two areas where we go quickly to experience and history are assessing the coming market conditions, and pricing. If Hans Rosling’s theory plays out in our business, our industry’s perspective of the coming market conditions might be less accurate, in a negative way, and our opinions of value may be a bit low when experience is given more value than facts.

What does the real estate industry tell the public every spring? Buy now because interest rates are going up. Sellers? Sell now because the market’s going to take a dip. It’s easy enough to look at the factual historical data and see if we’re right more than not (I think not).

How diligent are we at scrutinizing the facts, as they relate to appraised valuation, when answering a question of our opinion on value? The outcome of a transaction is affected by the conclusions buyers and sellers reach influenced by our opinions. How costly is it to the parties when one of us offers a value opinion based on what we think rather than what we know to be factual? Learning to make value adjustments, and then applying that exercise before speaking might be worth the effort.

Use Days to Change Days, Dates to Change Dates.

Months of meetings turn into years before form committees birth a document and name it WB-11 Residential Offer to Purchase. Eight years is old for a WB-11 considering how much change happens after birth. Expect to see a new WB-11 introduced to our world in 2019. To say every word that makes it into a form is scrutinized might be an exaggeration, every word in the document matters when a problem arises.

The WRA attorneys stress the importance of precision when drafting contracts and still common deficiencies show up when things go wrong as they sometimes do. We can do better. This suggestion is simple to implement and you will want to use it when you understand the difference.

Always use number of days to change numbers of days, dates to change dates when amending or countering an Offer to Purchase.

The Financing Commitment, Appraisal, Inspection, Closing of Property, and Secondary Offer contingencies use “X” number of days to establish deadlines. When the deadline is approaching and it’s clear the chore that needs to be done is not going to be done prior to the deadline, changing the deadline by “X” days keeps the contingency making logical sense.

As an example let’s say the Inspection contingency on an Offer accepted January 10th was to be deemed satisfied unless Buyer, within 10 days of acceptance, delivers to Seller a written Notice of defects. Today is January 14th and it’s clear the Buyer now needs more than 10 days to satisfy this contingency because the inspector can’t get there sooner than January 21. We know 10 days ends on January 20th. The Buyer needs to request more time to have the inspection, review the findings, and Notify the Seller if there are defects to which the Buyer objects. Buyer would like to have 5 days after the inspection for the deadline. The request goes from Buyer to Seller via an amendment. (Nope, we are not going to ask the listing agent if it Okay.) Your amendment will be concise and keep the term of the contingency exactly as agreed when you write your amendment like this:

Inspection Contingency. Lines 410-433. Line 421, change “10 days” to “15 days”.    

Say no more or less and the buyer and seller and all the agents know the only change to the Inspection Contingency is that number on line 421. Ten days is now 15 days. The Buyer has 15 days from the date of acceptance to send a Notice of Defects to the Seller.

We put too much extra into the job of amending offers when we change from number or days on the WB-11 to dates and the amendment. And for that extra work we have a potential disagreement. For example we see something like this often: The inspection contingency is extended to January 25th.

What’s the problem you ask. The deadline date is January 25th by changing the days to days and by changing the discussion of days for a deadline to a date. Or is it? Maybe not. By changing the number 10 to number 15 the Buyer has through the 15th day (1/25) to deliver the Notice. (Within ___ number of days is defined in the Offer) By changing the conversation to include a date the deadline is arguably midnight January 24th. Seller argues the “to” in “to January 25th” as the moment January 25th starts and January 24th ends. The Buyer delivers Notice on the morning of January 25th and the Seller responds by saying the contingency expired the moment the second hand passed 11:59 am January 24th. Until. You disagree? Who decides?

Can we make it more complicated? Sure. Was it the buyer’s intent to extend the “Inspection” or the deadline for delivering notice of defects? There is no Inspection deadline in the Offer as written. There is a deadline for delivering a Notice of Defects, but that’s not what the amendment referred to and if the original language is still in the Offer, the deadline passed with the date of January 20th.

These disagreements are not unusual. Every word in a contract means something to an attorney. Opposing attorneys may disagree on the meaning, and it’s expensive (but fascinating) to watch them argue it out in front of a judge. To avoid the expensive courtroom drama, to keep the transaction from falling apart someone may have to contribute some money to the cause. If I’m the one who created the confusion by something I wrote, making it right might be at my expense.

Your House. Your Offer. Expect More.

All contingencies are negotiable. There are no standard contingencies. There are contingencies commonly included in Offers. Whether or not your ability to close the sale will be subject to any contingency is choice you have a say in.

Expect your real estate professional, attorney or licensee, to discuss each contingency and what it means to you with you. Accept nothing as standard. Before you commit to relinquishing control to any buyer, you have the opportunity to think about the risk the contingency shifts to your side. Just because it’s in the Offer does not mean it’s important to the buyer. Sometimes contingencies get into Offers for no better reason than because they’re there. Expect more.

Owen Conservancy Neighborhoods are Sweet

Fifteen years ago I knew Crestwood would be home one day. The neighborhoods around Owen Conservancy offer a diverse choice in homes. Prices range from $250,000 to over a million for homes within a quick walk into the Conservancy or Lake Mendota. I bought my home in the maple sugar season of 2014. My tiny backyard syrup operation a drew a crowd of curious neighbors, many who now have their own “family operation”. It’s easy to do and well worth the effort; guaranteed to get kids out of the house. Expect to use about 10 gallons of sap to produce 1 quart of syrup. (A quart will last a year because nobody wastes a drop.)

The entire process can be done at nearly zero cost. Sap taps are available new or used, or fashion your own out of wood. I bought my stainless steel buckets from people in northern WI who converted their family commercial operation to a tube system. If carrying buckets is not your thing, tube systems are available.

In Dane County, sap may be running in late February when the day temps go above freezing and the night temps fall into the 20’s for several days. I use wood or LP to evaporate. This month I am building a Rocket Stove to get a more intense direct flame with minimal heat loss (can’t get that over an open fire and windy days are tough on the LP flame).

Chili, hot dogs, friends go great with an afternoon making maple syrup. Be careful though, you’ll get hooked. Let me know if you need any guidance to get started.

Government Shutdown and Your Transaction

Americans are paying a high price for the president’s shutdown (19 days and counting) of the government. Forcing families to go without income to pay bills, mortgages, health care, day-to-day costs of living to get concessions is heartless. Far greater pain is being endured than the inconveniences the shutdown is having on home sales and purchases. But that doesn’t mean we shouldn’t be prepared to anticipate trouble for our buying and selling clients.

Home buyers expecting to use a loan guaranteed by the United States Department of Agriculture should consult their mortgage lender immediately. These loans targeted for designated rural area purchase may not be approved. Owners who have accepted offers where the buyer is using this USDA loan may not be able to close on their sale and subsequently be at risk to close on their purchase.

Check with your lender to see how the shutdown is impacting the turnaround time on Social Security and Internal Revenue Service inquiries. Verification of self-employed borrowers tax returns could be hindered. Definitely check with the lenders to see if FHA/VA inspections are affected before committing to offers with FHA/VA financing.

This shutdown will end. That’s certain. So is the fact that people are getting hurt. If you’re feeling the pain I empathize with you. If you planned to buy or sell and your plans are on hold, let me know. I have some ideas.

Do You Ever Really Need…?

Do you ever really need a real estate agent? At the risk of offending my peers, I ask this question because I think the answer is, “no”. Not because real estate professionals aren’t valuable. I say “no” because real estate transactions can be done without a licensed agent. Agents are not needed. (Hold the phone…read on. You might agree.)

No one needs a drill bit. I have more than a dozen and I’ve never needed one. I have wanted a hole in something many times, and in my shop there are several tools more or less capable of making a hole. When I want a hole to be clean, precise in depth and diameter, in wood, metal, or concrete, the correct drill bit is what I need. If precision isn’t necessary, I can probably get the hole with a nail and a hammer, or a chisel.

I made this blog to share skills with REALTORS and to give people a look into my perspective of real estate transactions. I believe people who see the world in similar ways are likely to work well together to achieve favorable outcomes. What do you think? If this blog looks like something you want to follow, please do. You’re welcome to share this blog with people like yourself. If this isn’t your thing, that’s cool. Thank you for taking a look.