The Escalation Clause Rendered Useless

“In other words, an entire new world is pointed to, by this….It is authentically a new thing on the face of the earth.  Pieces such as this….” he picked up the pin once more briefly. Closing the lid he returned the box…”can be mass-produced….” The Man In The High Castle, Philip K Dick

We marvel at a new idea, something so special, perfectly suited for nearly no one, yet remarkably powerful for a bold and brave few. Being useless to the masses, its unique appeal makes the authentically new thing sensationally valuable. And then, because everyone wants one, we strip away its authenticity, its most powerful attributes, and render the idea useless. We  did this in the mid ’90’s with a brilliant marketing strategy known as Range Pricing and we just did it again with the Price Escalation Clause.

Savvy, capable real estate buyers, seeking a negotiating strategy to acquire property at a price more than they planned to spend, but at a price less than they are willing to lose the house over, hit upon the Price Escalation Clause (EC) It’s a simple and powerful clause shifting risk from the seller to the most qualified or boldest of a bevy of buyers.

The authentic EC looks like this: “This Offer price is changed to $1,000.00 over the purchase price, of any bona fide Offer Seller has in possession at the time of binding acceptance of this Offer. Said purchase price of this Offer shall not increase above $______________, regardless of the purchase price of said other bona fide Offer. Seller to notify buyer of the purchase price by written notice to buyer with acceptance of this Offer. Buyer agrees to pay any difference between purchase price and appraised value in cash at closing as necessary to satisfy mortgage financing requirements.”

The well versed seller sees safety in this remarkable offer of commitment from the bold and confident buyer. This buyer is a person the  seller wants to be in business with. This buyer knows what she wants and is willing to assume some risk to acquire the property. She fears nothing. She uses a tool that satisfies her desire to prevail.

Unfortunately we’ve lost sight of the purpose. No longer is the EC written as a tool to acquire a property, we’ve turned to mass production and churned out a contingency for the faint of heart who think they can eliminate competition to clear the field for their safety and security. The remarkable piece of authentic art the EC was, is now a plastic charm. In the hands of the unknowing user, what’s being represented as an EC is a useless garble of hidden security terms complete with a poison pill.

We’ve rendered the EC useless, and that’s not really a surprise. However, the smart Realtor and courageous buyer, there is an alternative. I hope you find it.

 

 

 

 

Falling Oil Prices and Real Estate

Oil at $146 per barrel gave us gasoline over  $4.00 a gallon in 2008.  Today I filled up at $1.49 per gallon and oil went to $26  barrel. Cool. Remember 1974 and the Arab oil embargo? Gas prices doubled to 55 cents a gallon. I looked this up, that 55 cents is $2.81 today. The $1.49 I paid today is equal to 29 cents in 1974.  Twenty nine cents! In 1974 I put a gallon of gas in a snowmobile for a quarter and I probably had an extra 3 or 4 quarters to spend on soda, candy, and maybe a burger.  I thought those days were over.

High oil prices cause a slowdown in production and delivery of goods. Anything we buy is impacted by the cost of fuel so prices of groceries, clothes, and toys cost more. Less goods and Less money to spend on anything other than gas, means less buyers in the stores but that’s OK, there are fewer employees needed to service those customers who will not be buying what they want and only what they need. Can we expect oil prices under $30 a barrel will translate into increased spending?  I think so.

OK, you can see I’m not an economist but I know $17.00 to fill up my car is better for me than $48. I’ve got $31 dollars to save or spend.  Effective Mortgage Company Blog explains how these low gas prices could be good for the housing market. Or, low gas prices might not be good for the housing market if you live in an area where oil production plays a big part in the local economy. Madison is not a big oil producing city. Shoot, we’re not even a big gas guzzling city with everyone driving a Prius, van pooling, taking the bus, or riding a bike.

Here’s where the economics become tricky. Apparently oil prices impact bond prices and bond prices move mortgage rates. We were told in December to expect rates to reach 5% by the fourth quarter of this year. If that happens the economists will have an explanation. Probably will have something to do with Greece, China, North Korea, or some uncertainty about the economy somewhere in the world.

This is what I know: There are historically few homes on the market, interest rates are low, home prices are up (simple supply and demand) and if you have a house to sell and want to buy another, you may need to park yourself at an extended stay motel or the house of a friend. If you can sell your house and not find one to buy you become, well, homeless. Just my opinion, expect to see people who want to sell stay put and that means fewer homes for the consumers to buy. If you can’t buy a house, I suppose you can take the extra cash and drive around the country for the summer, after all gas is only about a quarter a gallon. Maybe we’ll see the opening of drive-ins again, and jobs for car hops.

 

 

 

 

It’s Never Been A Problem Before

A real estate licensee may sign a contract on behalf of a client or principal.

What’s a missing qualifier to that bold statement? How about: As long as the licensee is prepared to personally fulfill the obligation or is prepared to defend herself and her broker from financial liability in court, at a high cost in legal fees the licensee might but shouldn’t sign anything for anybody. Signing on behalf is a bad practice to start because one day something will go wrong.

The liability risk is serious and still we see licensees picking up pens and signing documents we should never touch. A review of files in every real estate office may find more than a few offers to purchase, listing contracts, amendments, counter offers, and closing statements executed by well meaning licensees who thought they were out of harms way.

Attorneys, and title company closing agents who don’t represent the Realtor,  know a document signed by a party without proper authority and protection places liability on the Realtor and his Broker.  Even if that liability is the right to appear in court and defend his rights to immunity, the licensee will spend money and time finding out how much money this simple signature is going to cost him.

These are all too common situations:

A closing agent at a title company needs seller’s signature on the closing statement and the seller isn’t present. She passes the document to the listing agent and says, “We do this all the time. Sign it on behalf of the seller. We’re fine with that.” The well meaning licensee who has the best interest of her client in mind, not wanting to appear fearful or unhelpful picks up the pen and signs her name, “Jane Doe, on behalf of James T. Smith, seller”.

An attorney for a buyer instructs her client’s buyer agent to prepare and send a counter offer but, “just sign it on behalf of the buyer. He’s a busy surgeon and he can’t sign today”. The licensee signs the counter offer “John Doe, Realtor on behalf of Mark Anthony, as directed by attorney  Lisa Ward”. That should do it, he thinks and sends off the counter offer which is promptly accepted and made binding by the seller.

That’s an ugly one. Realtor John Doe is exposed to liability and the seller’s broker may be tied to the same sinking boat. Harmed parties will line up all of the usual suspects giving them their right to defend themselves.

Best Practices are better explained by lawyers and there are publications written by lawyers available online.

Be safe. Regardless of what anyone tells you, you are at risk of expensive liability when you sign on behalf of any party to the contract. A legal document prepared by your attorney protecting you as a legally authorized person to sign on behalf of anyone, without liability to any party may be a measure of protection. My advice is to pass the paper back to the  person who said it’s OK to sign,  and say, “It may never have been a problem for you, but it’s never going to become a problem for me. I’m not authorized to sign.”  I promise you will appear wise and prudent. And if anyone thinks differently of you, they have the right to their thoughts no matter how wrong they are.

 

 

 

 

 

 

 

 

 

Values and Admiration

Politicians may exist to show us what we look like when the wind of other people’s opinions fills our sails. Values are our rudders. Life is the wind.

Values—Martin Luther King and Malcolm X lived true to their values. They raised attention to issues they believed in to change a wrong. They attracted love and following because they inspired people to higher values. They had no seat to win, no job to secure…they were free to live to mean something to life. Politicians drift from vague commitment to even greater confusion depending on what they have to gain.  Which recent past president do we honor for their commitment to a cause? Who is a profile in courage—and don’t say JFK.

To see how this thought relates to real estate, think of the questions that person in your head asks you as you ponder owning a home. ” Where should my kids go to school? Where do my co-workers think I should live?  What neighborhood will my friends approve? What house style will look best on me? How will I explain to my parents?” With a committee of dozens constantly meeting in our heads, it’s not surprising we move from home to home like no other generation of Americans.

The most content people I meet in this business, clients and other realtors, are people who believe what they believe and move forward on a beam of values. Not everything they do is accepted, supported, admired, or tolerated by everyone. What matters is their commitments matter to them. They bring enthusiasm to their endeavors. They bring happiness to their decisions. They bring joy to their commitments. They don’t waiver and quit because someone says “That won’t work, or that’s not what I would do.”  Values ground us in a way a desire to be admired can’t.

Wherever I hang my hat is my home. 

Seller Videotape & Electronic Monitoring of Buyers and Realtors. Is this legal?

Video taping and photographing properties has long been used by buyers to gather and retain information about the many homes they visit. Sellers provide photos and video tours of their homes to appeal to would-be buyers. Now, a new use of recording technology is making its way into the real estate conversation: Seller recording and monitoring of buyers and their realtors on their premises. Not unlike public places, sellers are placing recording and monitoring devices in their homes to watch, listen in, and record the activities of buyers and their agents while they tour the seller’s property.

Unlike public places, the seller is not always placing the electronic device in plain sight and not disclosing to visitors that they’re “being watched”. Is this legal? According to Cori Lamont, Director of Corporate and Regulatory Affairs for the Wisconsin Realtors Association, “…nowhere in Wisconsin law is information that strictly prohibits the use of surveillance devices in this context.”

Sellers contemplating surveillance, especially if they intend to not disclose, would be wise to seek legal counsel first. Real estate licensees who know secret monitoring is being done would be prudent to discuss the situation with their Broker. While the law may not strictly prohibit the electronic monitoring, I would not want to test my immunity in court at my own expense. Technology is becoming common place but acceptance of being monitored without warning is not.

Title Insurance Blanket Exceptions Banned in Wisconsin

No risk to the insurer title policy. It’s a pretty good gig if you can get (away with) it, title insurance with a blanket exception costs the same as title insurance that might cover something.

Tom Larson, VP of Legal and Public Affairs for the Wisconsin Realtors Association reports in the August 2014 Edition of the Wisconsin Real Estate Magazine a ban on Blanket Exceptions in Title Insurance.

The kind of blanket exception we see in Title Insurance Policies effectively limit the liability of the Insurance Company and leave the property owners and lenders at risk. The blanket exception is vague enough to leave the coverage open to interpretation of the attorneys representing the title company and the folks who though they had insurance.

Read Tom Larson’s Article Keeping Them Honest.   The Wisconsin Office of Commissioner of Insurance issued a bulletin prohibiting the blanket exception practice.

Buyer Agency. The Purpose Is Not About Getting Paid

You’re a Wisconsin real estate licensee. What’s most important to you, (a) getting paid, or (b) being on the right side of the law? I know you said “B”, being on the right side of the law. That’s the reason we do buyer agency service right? No? What?

Somewhere along the way to providing buyer agency service the notion that buyer agency contracts are about getting paid took a hold of our industry and has not let go. I could be wrong, I sometimes am, but it seems that the purpose for Buyer Agency is inherent to the consumer demand that made Buyer Agency Service relevant. That demand came from two places: First, the buyer who wanted the licensee on their side for the insight the licensee could share for the buyer’s benefit, and second, the broker who wanted to fill the demand.

In the beginning, as far as  Wisconsin is concerned,  I put the beginning around 1990-91 when the first buyer agents appeared on the scene guns blazing to advocate on par with lawyers for their buyer clients. To be sure those first agents were all about getting it done for their buyer clients who they captured with a wide net of agency contracts, but taking no prisoners of sellers or their Realtors. The traditional industry responded the way traditionalist are prone to…they rose up to do battle with the Advocates. The generals rallied their troops, sides were taken, lines were drawn, and prisoners were few.  When it became clear that the Buyer Agents would not surrender the cry for help went up, “There Outta Be a LAW!” And one was made. (That’s what happened in Wisconsin where producing laws is a close second to producing cheese. In other states the Realtors cried “There Outta Be an Ethics Code”. Either way, there was a lot of crying) If the advocates would not surrender peacefully, then the law would eliminate licensee advocacy. The advocates could remain, but the behavior was now illegal or worse, unethical or both. Only lawyers could advocate  and that makes sense because they’re just better designed for such confrontational behavior. They are. It’s in there DNA. Without advocating as a reason to be, real estate licensees were offered “facilitating”. But facilitating didn’t sound like anything worth three, or four, or five, or six or seven percent of the purchase price and the industry rallied to remain “Agents”. In the end, the legislature gods gave us our unique brand of agency…and it was good, for about ten years.  Maybe I’m going deeper into this than I should, but the story was a good one…OK, back to the topic.

The purpose of the buyer agency relationship is not about getting paid, it’s all about being on the right side of the law so we can (1) do what we do best without unusual restrictions, (2) give the client a summary of services they can hold us accountable to, and (3) in the end earn our compensation.  If I’m effective at what I do, a person who has reason to trust me will want me contracted with them.  If I want to apply myself and my skills for a person, I will want to contract with them. If the first reason to have a contract is to satisfy my erroneous belief that the contract will give me a better than even chance of getting paid, my motive is way off base and this relationship is off to a rocky start.

I’m going to press the blue PUBLISH button now. If you have strong feelings, or mild ones, let me know. This is just my opinion, I’d like to hear yours.

Being Part of the Solution…Checking Motives

Have you ever caught yourself more than a little to eager for the conflict? If you haven’t, I admire you. It’s said that awareness is the beginning of change and when it comes to conflict resolution, changing from eager for the fight to ready for a resolution change is gonna do me good. My first awareness of my motive being out of bounds was to hear what my head is thinking. On my way to a meeting where conflict was brewing my mind was thinking of what I would say and none of what my mind was offering up as clever was conducive to resolution. It took until after the meeting for me to check my motives and recognize that I arrived at the meeting with too many fight’n words and too few resolution ideas and questions. Right motives to resolve opposed to being right is the higher ground where I want to live. Checking motives is a first thing not a last thing I need to do all the time to be a part of the solution. This is not a sometime thing, it’s an all the time thing as a favorite coach of mine used to tell me back in the mid 1970’s.

Real estate professionals, at our best, are in the business of resolutions. Finding middle ground, asking questions, offering ideas, considering consequences, being a rational sounding board, suggesting avenues of approach, are constructive actions of the right motives. Asking questions is an under valued skill…questions that lead to resolution not conflict that is. On my shelf is a book that tells me the power of questions. Leading With Questions. They can cut through the fog, “What ideas do you have? What would you like me to hear? What would you like to hear from me? What happens if we…?” or they can cut to the bone, “Do you really believe? What are you trying to do? How can you say that? Are you for real?”  

Questions are part of the ingredients for resolution soup, another is statements. Finding the middle ground does not require giving away the farm.  To take the high road to the middle ground in a disagreement you may have to make some firm statements. Again, checking my motives will help me make that statement from a position of care for cooperation instead of threat to conflict. Best example that comes to mind is this one: “You’ll hear from our lawyer!” What’s my motive? Well for one, this is statement to incite fear. Just like, “I’m telling mom” or “Just wait till your father gets home!”. Look, lawyers have a place in solutions in the real estate transaction and while it’s open to debate, lawyers are human too so their motive matters too.  How we bring a higher legal mind into the discussion is important to the outcome. Here’s how a person of right motive raised the lawyer idea in a conversation with me and I felt the difference. “We’re making progress here. The details can be worked out from here with the help of a lawyer. I’ll ask (insert name here) to put some ideas in writing and how about you run them past your attorney? I liked that. It felt more like a cool mist on a potentially hot topic; the other way is lighter fluid on the flame. 

Next time you sense the heat rising, check your motives and resolve to be part of the resolution. You’ll know you have right motives when you’re mind is giving you right questions and smart solutions instead of accusative questions, and harsh statements. Wishing you the best. Change is gonna do us good.