Buying

Renting to Own

Flat Fee's Rob Foley quoted in Pittsburgh Post Gazette story regarding "lease to own".

Comments

  1. Oscar on

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    Benefits and Pitfalls of "Rent to Own"

    Leasing to own or more commonly known as "rent to own" is in essence the "layaway" of real estate. However, unlike setting aside consumer goods, renting real estate to eventually own presents a number of practical and legal challenges not found with consumer goods.

    In the rent to own situation, the buyer and seller typically enter into a purchase and sale contract that stipulates the buyer shall be entitled to pre-closing occupancy of the home. One major difference between the rent to own contract and your standard purchase and sale contract is that the seller will likely require a much larger good faith deposit from the buyer. The reason for a larger deposit is that the seller is being asked to bear greater risk than in the normal context because of the longer duration between the execution of the contract and the closing.

    In addition to a purchase and sale agreement between the parties, the buyer and seller typically enter into a lease agreement. The creation of the landlord-tenant relationship between buyer and seller is the second major difference between the rent to own contract and the standard purchase and sale contract. It is this difference that creates the greatest practical and legal challenges.

    From a practical perspective, the buyer essentially gets to take a long term "test drive" of the home that they are supposed to purchase. The buyer may discover after living in the home for a time that they really don't care for the home or there are particular issues that they just rather not address as the eventual owners. Unlike most buyers that may suffer slight buyer remorse, a buyer that rents prior to owning can suffer from tremendous buyer remorse. If this happens then it is likely that both the landlord-tenant relationship will deteriorate and so to will the buyer-seller relationship between the parties.

    From a legal perspective, the rent to own situation can lead to unusual situations not found in your normal purchase and sale. For instance, if the buyer and seller in a non-rent to own situation disagree, the two parties can simply part ways. In the rent to own, this is not possible. If a dispute arises in the rent to own situation, given the legal protections of tenants under most state laws, then the seller will need to begin an eviction to terminate their relationship.

    While there are negative implications in the rent to own scenario, there are of course benefits. This type of situation is particularly beneficial where the seller has already moved because they get a party to occupy the property and cover the carrying costs while knowing that in most circumstances they will eventually be selling the property to their tenant.

     

    If you're still curious about rent-to-own, or have any other questions for Flat Fee or Rob Foley, contact us here.

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    Exploring the Radon Issue

    Earlier this week one of the principal real estate brokers of the largest firm in Burlington suggested that my company's Radon Addendum "incorrectly states that 2 pCi/L is the US EPA recommended acceptable level for radon. The actual level recommended by the US EPA is 4.0 pCi/L."

    I would understand if a junior agent made such a comment but for a principal of the largest local firm to make such a statement stunned me. Here is language directly from the EPA's website: "EPA recommends that Americans consider fixing their homes when the radon level is between 2 pCi/L and 4 pCi/L."

    Clearly the EPA does not think that 4pCi/L is an acceptable radon level and our Radon Addendum correctly states the EPA's position.

    I urge all real estate professionals to educate themselves so that they know of what they speak. To learn more about EPA's radon regulations, click here.

    If you still have questions about radon or any other housing regulations, contact us here.

    Comments

    1. Concerned on

      From the EPA Radon Site: EPA Recommends Test your home for radon — it's easy and inexpensive. Fix your home if your radon level is 4 picocuries per liter, or pCi/L, or higher. Radon levels less than 4 pCi/L still pose a risk, and in many cases may be reduced.
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        • John on

          Is smoking that bad for you? Is there a "science-settled" link beewten smoking and cancer?I have been a smoker for about 25 years. No cancer. My pulse and BP are the same as they were when I was a teenager and have never varied in my life.My grandfather was a heavy smoker all of his life. He died after his 90th birthday ... not cancer.I'm not saying that smoking doesn't cause cancer. I'm just not convinced that it does either. Seriously - when did any government agency present anything other than their declaration that they have determined an industry (a big one) was bad for you and should be heavily taxed and regulated?

          The Inherent Conflict of Buyer Agent Pay

          Most agents that represent buyers require the buyers to pay them a percentage of the purchase price as their fee for assisting in the purchase of a new home. There is an inherent conflict in this model.

          A buyer agent has a fiduciary obligation to act in the best interest of their client. However, because the buyer agent requires their client to pay them a percentage of the sales price, the agent's interest is actually in conflict with the buyer's interest.

          The buyer's interest is to pay as little as possible for the home. In contrast, the agent's interest is to get paid as much as possible for each transaction. Because the agent gets paid more if the buyer pays more, there is a divergence in the interest of the client and agent.

          Arguably this inherent conflict is itself a breach of the fiduciary obligation an agent owes to its buyer clients. We recommend that buyers fully discuss this potential conflict with their agent before signing any agreement.

          At Flat Fee, we do things differently. We charge lower fees and will set you up with exactly what you need. Don't want a full service agent? At Flat Fee, you don't have to pay for one. To learn more about what makes Flat Fee different from other real estateagencies, check out our website.

          If you want real estate done different, go with Flat Fee. Contact us here.

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                                                Don't Be Bought

                                                Because of the emotional aspects of homeownership, it is natural when selling a home to believe that your house is better than any other comparable property on the market and as a result is worth more than any other comparable property.

                                                Real estate agents are very cognizant of these feelings and some unscrupulous agents will prey upon these emotions to help secure your business.

                                                Some real estate agents will intentionally provide a homeowner with an unrealistic valuation of their home when trying to secure their listing. The theory is that if the agent can secure the initial listing that they can later convince the seller to reduce the listing price to a more realistic one.

                                                It is normally easy to convince sellers to reduce the price after the initial inflated listing price because the seller sees little activity at the unrealistic price. The agent will say something like, "in a good market your home would have sold quickly at this price, but because we are in a challenging market I think you need to reduce the price to help stimulate activity."

                                                The practice described above is known as "buying a listing" and it is unethical. Please "Don't Be Bought". Thank you.

                                                If you want a real estate company you can trust, contact Flat Fee.

                                                The Zillow Effect

                                                While the internet has made the process of buying and selling homes much more efficient, there have been a few drawbacks associated with the ability of buyers and sellers to easily access volumes of property information online.

                                                One notable drawback has been what I refer to as the "Zillow Effect".

                                                Zillow is a popular website that allows buyers and sellers to look up listings of homes and then determine an estimate of the home's value. Zillow, like other desktop appraisal software, bases its values on recent sales from databases of public information.

                                                Zillow is very good at giving broad general estimates of value. However, Zillow does a poor job of providing a detailed analysis of value based upon a particular home.

                                                Zillow does not have the ability to judge the interior quality of a home. It also has no way of knowing whether the home has large items of deferred maintenance or needs immediate repairs. As such, Zillow's estimate of value can be off by more than 10% in many cases.

                                                The problem with sites like Zillow is that sellers have started relying upon the values provided as the absolute accurate fair market value for their home. In many cases, the estimate provided by Zillow creates unrealistic expectations for sellers. This unrealistic expectation of value and sales price is the "Zillow Effect".

                                                Sellers need to understand that Zillow is a great tool for getting a general sense of the market but a poor tool for determining exact value for a home. Zillow is simply processing readily available public data of sales. It does not process the quality of individual homes. As a result, sellers need to take Zillow's estimates with a grain of salt and need to understand the other market factors that drive prices.

                                                At Flat Fee we do things different. We send real people to our properties and use our real estate expert's opinions toappraiseproperties. If you're tired of automated everything, try a company that is, too. Contact us or visit our website to learn more about Flat Fee and how we do business.

                                                Comments

                                                1. Tba on

                                                  Great little article, but it also goes both ways. So much of a house or property are the intangables. For example if you border govt. land, a huge private estate, or a park where no one can build and it provides shelter and other things for you, if your house is well situated in regards to other neighboring houses, the view, valley or hill, weather patterns, etc One thing that is obvious is home structure. Build it like a football team, with a strong offensive line ie foundation. If you have that and of course a sick location, forget the NYSE, RE is the way to go IMHO. Good luck.
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                                                    Monopolies and Lobbyists

                                                    Have you ever wondered how the oil industry has been able to maintain its monopoly of selling gasoline in the United States when advances in technology have led to cheaper and more efficient alternatives? Not only are the alternatives cheaper and more efficient, the overwhelming majority of Americans support these alternatives because they have grown sick of being forced to use only one form of fuel for decade after decade.

                                                    Despite overwhelming support for cheaper and more efficient alternatives, oil companies have been making greater profits than ever before thanks in large part to the rises in gasoline prices. You would have thought that with cheaper and more efficient alternatives available that the prices would have come down rather than go up. In my opinion only one thing can explain this continued dominance, it is efforts by oil industry lobbyists to intimidate the competition and discredit their alternative models.

                                                    It is unfortunate in this Country that there are business groups that still support monopolies such as the one that the oil industry continues to maintain. Instead of lobbying for policies that protect their monopoly, the oil lobbyists should explain to the American people why oil is better than the alternative models. Unfortunately, the oil lobbyists cannot do that because they know the alternatives are better and that the public desires the alternative fuels more than oil.

                                                    Because they cannot convince the public that oil is better, they instead focus on efforts to discredit the alternative forms of energy. For instance, for years the technology has been available to have hydrogen fueled cars. Despite public demand, efforts have been slow to develop and provide this technology to the public in part because the oil industry has engaged in a campaign to discredit hydrogen fuel. The oil industry has created the perception that hydrogen fuel is volatile and thus unsafe for the public. In essence, the oil industry has portrayed itself as the proven historic safer model.

                                                    I believe that any group that must rely upon lobbyists to discredit the competition should be ashamed of themselves. Instilling fear and discrediting cheaper and more efficient models offends the principles of our American economic model. America has progressed thanks to healthy business competition and if groups are allowed to stifle that competition, it will harm our economy and our ability to improve as a Country.

                                                    At Flat Fee, we think outside the typical realty box. We are about our community and the environment in which we live. If you want a sociallyconsciousrealtor, contact Flat Fee.

                                                    Substance vs. Style

                                                    There was a day where a real estate agent would distinguish the quality of their services based upon their knowledge and experience in real estate transactions.

                                                    Today most agents no longer even attempt to distinguish their services upon substance. Instead they rely upon style to try to win over clients.

                                                    While there are many agents who do not fit the stereotype, I would venture to say that a majority of real estate agents fit the public's stereotypical image of one. It is a person in an expensive suit driving a luxury car with vanity plates that read "Realtr" or "Mony". It is a person with an enormous ego who brags about themselves. It is a person who is overly chatty. It is a person that acts like you are now their new best friend from the moment that they meet you.

                                                    Essentially real estate agent marketing has become much like a campaign for Prom King or Prom Queen. The agent is the "cool kid" who pretends to befriend the kids whom they believe are "less cool" just in order to win their vote. They pretend to provide real companionship and advice but the companionship and advice is hollow. It is intended simply to keep their vote until the Prom is over and once it is, they go back to being relative strangers.

                                                    The real question is: why do real estate agents feel the need to market their image rather than their knowledge, experience and quality of advice? The answer is simple, a vast majority of real estate agents have little substance beneath the style of their facade.

                                                    Instead of relying upon their own knowledge and experience, most real estate agents now rely upon computer programs, form documents and other professionals to provide the advice and counsel historically provided by agents. Here are some examples:

                                                    Price Analysis - In years past, agents used to pour over recent sales and comparable active listings to provide clients with advice regarding the estimated fair market value of a home. Instead of looking critically for themselves today, most agents now simply rely upon a computer to tell them the estimated fair market value. While this approach often results in faulty or unrealistic estimates, it is significantly quicker for an agent than pulling the data themselves and critically analyzing it.

                                                    Paperwork - Not too long ago, real estate agents had to generate their own paperwork for clients. As a result, they needed a keen understanding of the documents and their various provisions. Agents needed to explain the implication of each provision. Today, most agents simply utilize forms created by the Realtors Association or their office manager. Most have little to no understanding of the various provisions or the implication of those provisions for their clients. The forms are accessed via computer programs that simply require the agent to fill in the blank or check boxes. If pressed on all provisions in the documents, most agents cannot provide knowledgeable answers. Thus, the agent simply becomes a paper processor rather than an adviser to the client.

                                                    Knowledge About the Process - Most agents have never taken the time to learn how the process of buying and selling has developed over the years. Most agents today are simply provided a checklist by their office manager and go through the steps on their checklist. If a buyer or seller questions the agent about the history of the checklist item or why it is required most cannot answer. A perfect example of this in Vermont is when agents involved in the sale of a condominium unit request a copy of "Smoke Certificate". Had agents taken the time to understand and learn about the process, these agents would know that under Vermont law a "Smoke Certificate" it is not required for the sale of a condominium. Despite this fact, agents request it because it is on their checklist.

                                                    Advice of Other Professionals - Most agents today simply defer to answers and opinions provided by others during a transaction without ever asking critical questions of the professional that might benefit the client. For instance, almost every transaction involves a property inspection. Because of their cautious nature, most property inspectors will raise issues with the property. In many cases, the property inspector will make mistakes or improperly characterize an issue that causes a buyer to worry. Instead of questioning the inspector, most agents will simply take the inspector at his or her word. In some cases, this will lead to the buyer prematurely terminating the contract unnecessarily. At a minimum agents should be able to understand the advice being provided from other professionals and question the other professional if they believe the professional has made a mistake.

                                                    These are just a few of the many examples of why agents rely so heavily upon their style and not their substance. I believe it is time for the public to demand that agents start providing substance and do away with their phony stylistic facades. The agents of Flat Fee know the importance of substance. If you want an agent that will give you the information you need to make an informed decision, contact us .

                                                    "My Way or The Highway"

                                                    It always amazes me when someone says to me, "well, that is not the way we do it here." The implication, of course, is that their way is correct and my way is incorrect.

                                                    While I can respect a person who believes their method is the correct way, people who say, "well, that is not the way we do it here" typically do not respect any other point of view or methodology for doing something.They are basically saying, "it is my way or the highway."

                                                    If people never challenged conventional thinking or methodologies then there would never be any progress.It is important to always look to see if there are more efficient or effective methods for doing something.That is how progress occurs.

                                                    The real estate industry, more than most, seems to be filled with individuals who take the "my way or the highway approach.As a result, the industry seems to cater less to what the public wants and more to what they think is best.

                                                    If the "my way or the highway folks put aside their ego for a moment and listened to the public they would hear that some of the conventional thinking is outdated and that the public wants better methodologies implemented.Here are some examples:

                                                    1. Compensation - The public is tired of the 6% conventional compensation model. They think that real estate agents are overcompensated for the services provided. They believe that advances in technology should have led to a reduction in the conventional rate.The public wants the industry to develop a more equitable compensation model that rewards the services provided based upon the time spent by the agent providing advice, not based upon the ultimate sales price of the home.

                                                    2. Scheduling Appointments - Sellers do not want to receive calls from other real estate agents regarding scheduling showings of their homes. Sellers believe that one of the duties of their agent is to be an intermediary for them and to coordinate the scheduling of all showings.They believe agents who do not provide scheduling coordination are lazy.Despite this perception, firms continue utilizing this methodology.

                                                    3. Assisted Showings - Buyers that hire their own agent for buyer representation do not want seller agents present during a showing.When you speak to buyers after a showing where the seller's agent was present, an overwhelming majority say that the seller's agent made them feel uncomfortable.In thebuyers opinion, they hired their own agent so that they did not have to deal with the seller's agent. Again, the public believes that one of the roles of an agent is to be a true intermediary alleviating the need for them to work directly with the seller or the seller's agent.

                                                    4. Electronic Lockboxes - The public wants agents to utilize the most recent technology to ensure that access to their home is monitored to the best of the agent's ability.Many agents currently utilize electronic lockboxes which can only be opened by digitally encrypted keys.The keys and boxes create a permanent digital record so that the owner knows who accessed their home and when.Despite this technology being available, many agents in Vermont do not utilize it. In fact, because so many showings are done after regular business hours, many agents will leave the keys in an envelope at their office dropbox or at the property itself without ever seeing who is taking the keys.

                                                    5. Closing Coordinators - The public expects that if they are purchasing a property, their agent will be the primary contact throughout and that one of the duties of their agent will be to coordinate the closing.Instead of listening to the public, most firms have a "closing coordinator."These coordinators are typically salaried employees.In some cases they are paid per closing.In either event, if the firm did not utilize a third party closing coordinator then presumably they could charge the client less.Thus, not only does the public not want to have to communicate with a third party, but the methodology is inefficient from an economic standpoint as well.

                                                    6. Print Ads of Listings - The public does not want to see print ads of listings anymore. In our environmentally conscious society and given the fact that all buyers are looking online these days, the public views print ads of listings as a waste of paper and resources. The public would much prefer that firms utilize the internet and spend resources there rather than waste paper.

                                                    7. Pictures on Business Cards - Only would an industry run by "my way or the highway folks still believe that a picture on a business card is a good idea.I cannot think of any other industry where people still include a picture of themselves on their card.I don't think any business card designer today would suggest putting a picture on your card primarily because the public does not want to see pictures on business cards.

                                                    8. Luxury Cars and Vanity Plates - More than any other industry, in real estate there is a perceived need to drive the most expensive car possible.In many cases, agents cannot afford to drive a luxury car but do so anyway.The theory is that the public will equate an agent's track record for successful transactions with the type of car being driven.There also seems to be a theory that a vanity plate on the luxury car adds to that perception.In this day and age, the public does not want their agent to drive a car they cannot afford.The public wants agents to be themselves and drive the car that is right for them.The public is very good at picking up on facades and when they do the person putting up the facade loses credibility.

                                                    9.Buying Listings - There is a practice in the real estate industry known as "buying listings."This is the practice where an agent will tell a seller that their home is worth more than it is simply to secure the listing.The agent will overprice the home initially to get the listing and then when it does not sell, the agent convinces the seller to reduce the price.While this practice is unethical, it happens more than anyone likes to admit.The problem with the practice is that it not only does a disservice to the particular seller, it does a disservice to the public.It hampers the ability of the public to get a sense of the true market value of properties.

                                                    10.Commission Outside the Transaction - The real estate industry is peculiar in many ways, but one in particular is that its participants view their compensation as somehow distinct and separate from the transaction in which they participate.For instance, say that a buyer offers a seller $196,000 for their home. And let's say the seller won't sell for less than $198,000.Assume for a moment the seller's agent is the only agent involved in the transaction and stands to make a 6% commission should the parties come to an agreement and the sale occurs.Instead of reducing their commission from $11,760 to $9,760, the agent will risk losing the sale by telling the buyer they need to increase their offer to $198,000.If the buyer refuses, the agent will let the deal die rather than giving up $2,000.From the public's perspective the commission is integral to the transaction.It is the largest transactional fee to either side and it has the potential to bring deals together.

                                                    At Flat Fee, we do things differently. We work with you to meet your real estate needs. We want what's best for you. We're here to change the way people think of real estate. If you're ready for a forward thinking real estate company, contact us.