Selling your property “As is”

By Joel Persinger

Unlike selling a bicycle, old book or stuff at the swap meet, selling a home “as is” requires a bit more openness on the part of the seller. California real estate law requires a seller to disclose any material facts that the seller is aware of that affect the value or desirability of the property. But, what exactly is a “material fact?”

Not being an attorney I can’t give you the “legal beagle” answer, so you’ll have to settle for the real estate broker version. In my experience it is best for the seller of a home to consider the definition of “material fact” to include anything that might be of concern to a buyer, past or present, no matter how off the wall it may seem.

About fifteen or sixteen years ago I ran into an agent who told me a nightmare story that had happened to one of his clients. In this case, the agent in question was representing the seller. It seems that the seller believed his home to be haunted. Unfortunately, he never told the agent, buyer or anyone else involved in the sale. The property closed escrow without a hitch and the buyers moved in happy as a lark to be in their new home. A few weeks went by and all was right with the world. Then one day, the buyer was out working in his new front yard when a neighbor strolled by and said, “Hi, you must be the new neighbors. How do you like the house?” “We love it”, said the buyer. “Oh, that’s great” responded the neighbor, after which he asked the killer question, “Seen any ghosts yet?” As you might imagine, the buyers were no longer happy in the house. They got an attorney and went after the seller and the agent. It was a giant mess.

This example may seem outlandish, but I have seen disputes arise over the fact that the seller never told the buyer that the neighbor’s kid played the drums all afternoon, or that one of the neighbors in the cul-de-sac had wild parties every weekend. Conflicts have arisen because the seller never told the buyer that the roof leaked the previous year. Sellers sometimes think these things aren’t important because they’ve hired a roofer to come out and fix it. But then suddenly, a month or two after the sale the rainy season comes, the roof leaks again and the neighbor stands in the driveway and hollers to the buyer, “Getting the roof fixed again? The guy who lived here before had the same problem last year.”

As your real estate dude, here’s my advice: disclose, disclose, disclose and if you have any questions as to whether you should disclose something, disclose it twice! If you know something about the house or the neighborhood that might blow up in your face when the buyer finds out about it, don’t keep it to yourself. If you do, just like the ghost in the first story it’ll come back to haunt you.

Real Estate Contracts: Read before you sign!

By Joel Persinger (Your Real Estate Dude)

It has long been my policy to carefully explain real estate paperwork before asking my clients to sign. You might be as amazed as I usually am to find out that most of my clients have never had anyone take the time to explain contracts to them prior to their experience with me. Even more surprising is the fact that most folks I run into are accustomed to signing real estate related paperwork without ever bothering to read it.

Given the fact that most of my clients have never suffered financially as a result of signing without first reading what they sign, it would appear that a great percentage of the time such trusting behavior does not leave any lasting negative effect. But does the appearance of a low percentage of problems brought about as a result of signing without reading make the policy a good one? I suppose the same question could be asked about the policy of young ladies walking out to their cars alone in dark parking lots late at night. I am sure that most of the time the young ladies make it to their cars just fine. But, most people would agree that making a habit of walking into dark parking lots alone is foolish in the extreme.

I try to stay away from absolutes when giving advice. However, in this case an absolute is warranted. It is always a good idea to read and clearly understand any paperwork before you sign it. The general appearance that things seem to work out for most people regardless of whether they read first does not change the fact that just like young ladies in dark parking lots not everyone escapes unharmed.

I am aware of one case in which a real estate loan “professional” left a wake of destruction involving several families who simply trusted that he was looking out for their best interest and signed whatever he put in front of them without question. Some time later, when the consequences of the deals the lender had struck came to light, each of these families were stunned that the loan broker would put them in such precarious financial positions. Each declared they had no idea what kind of loans they were signing up for.

As a new real estate agent in early 1990, I was present at “training” appointments with sellers during which their agents simply flipped through the paperwork while saying, “Initial here, sign here, initial here, sign there, etc, etc.” The agents never bothered to explain the details and the sellers never asked. It surprised me then and the fact that it is apparently still a regular occurrence with some agents surprises me now. I should probably mention that I was also privy to the “explosions” that occurred when those sellers finally realized what they had signed. In these and countless other examples, it was the clients who were hurt most when things went bad.

I know that we live in a world in which all of us would like to have less responsibility and have reason to point our fingers at the other guy when things go wrong. In the examples I have given we might be justified in doing so to some degree. After all, the other guys in these examples were not as upfront and forthright as they should have been. Just the same, this does not absolve us of our responsibility.

When we sign things we make agreements or promises and you and I will likely be held to those promises even if we claim not to have fully understood them at the time. “I didn’t know” or “He hoodwinked me” are weak defenses at best. My hope is that having read this article, you will be better prepared and more willing to safeguard yourself from such an eventuality by following this age old and simple advice; before you sign it, read and clearly understand it.

Is your rental property an asset or a liability?

By Joel Persinger

It seems that were ever I go someone says, “I understand you’re in real estate.” This last week a fellow said exactly that and began to quiz me regarding his rental properties. As it turned out, he had some rentals which were clearly assets and others which were liabilities and he could not figure out the difference.

In school we are taught that an asset is something that we own and a liability is something that we owe. But, this is not exactly correct from an investment point of view. Somebody once said, “When you’re not working an asset with feed you and a liability will eat you.” I don’t know who said it first. What I do know is that my grandfather must have said it to me a zillion times as I was growing up and I’ve read similar quotes in several books I could mention. The question is, “What does it mean when we apply it to real estate?”

Real estate investments come in all shapes and sizes, but for the purpose of this discussion we’ll break them into two categories: short term/speculation and long term/cash flow. Both of these investments can yield a positive result as long as you don’t get them confused.

Short term or speculative real estate investments are like stocks you buy and sell as a day trader. You buy them low and sell them high. Generally, there is a quick turn around measured in weeks or months at the most. This practice is commonly called “flipping” and is basically the practice of buying distressed properties, improving them and selling them. Since these properties are held for a very short time before being sold they are very seldom rented out. They are not really the assets of an investor as much as they are the inventory of a dealer.

Long term or cash flow properties are purchased for the money they generate in rental income. There are also tax benefits, but we’ll get into those another time. When an investor purchases a long term rental property, cash flow is king. The property has to bring in more money in rent than the cost of having it. If the property generates a positive cash flow, it puts money in the investor’s pocket each month after all the bills are aid.

When the market’s hot, some folks buy properties as rentals with negative cash flow speculating that values will go up so they can sell the property in a year or so and make money. What they have done is mix the concepts of long term cash flow and short term speculation. The result is that they have a long term investment that takes money out of their pocket every month and cannot be sold in the short term for profit. As I am sure you can imagine, this is not a good situation to be in.

My advice to you as the new investor is to keep it simple. Throw the get rich quick ideas out the window and buy properties that have positive cash flow. The rent money will come in whether property values are rising or falling and the next time we bump into each other you won’t have a problem in mind when you say, “I understand you’re in real estate.”

FREE Home Buying Seminar - February 24th

Finding and buying a new home can seem intimidating. So, we've put together a seminar that takes the mystery out of the process, outlining in simple steps how to get into your new home.

When: Saturday, February 24, 2007
Where: Mission Federal Credit Union
Time: 9 a.m. to 11:30 a.m.
Address: 5785 Oberlin Drive, San Diego

Here's what you'll learn:
This seminar will teach you how to find your dream home, save thousands on your purchase, and navigate the buying process from start to finish.

To register for this event, call Mission Fed at 858-546-2039 or e-mail carleenj@missionfcu.org. See you there!

New Seminar "Escaping The Debt Trap" March 17

The class is on building your financial future by understanding credit scores And eliminating credit card debt.

With rising energy costs, interest rates, and new bankruptcy laws, many individuals have little remaining in their wallets at the end of the month to meet their credit card obligations. But, missing a payment can be costly and hurt your credit. Attend this FREE seminar and learn:

• Alarming statistics about credit card debt
• How your credit score is determined and ways to increase it
• The facts about zero percent offers


• The negative impact one late payment has on your credit card accounts and how that affects your wallet
• Key signs to recognizing when you are in too deep
• How to maximize cash flow using home equity

Attendees will receive a step-by-step plan on how to pay off credit card debt.

This seminar is hosted by Shanne Sleder (The Loan Dude)

March 17, 2007
10:00 a.m.
13137 Poway Rd
Poway, CA 92064

Please RSVP (760) 294-3789 or ssleder@clarionmortgage.com

Selling real estate short

By Joel Persinger (Your Real Estate Dude)

During the boom market we experienced not so long ago, sellers were reaping record profits and buyers were snapping up every property they could find in the hope of getting into the game before home prices were out of reach. In the midst of that feeding frenzy, loan products popped up that made it possible for people to buy homes they could never have purchased otherwise. Often such purchases were made with no money down.

Some folks who already owned homes used such loans to pull out most or all of the equity from their home so they could “invest” in more homes. Being new to the real estate investment business, many purchased homes as “investments” which had negative cash flow. That is to say that the rental income did not cover the expenses associated with the rental house. This means the “investor” would have to go into his pocket every month to make up the difference.

It was a miraculous time in real estate during which many people I talked to spoke of getting rich quick and riding the boom all the way to retirement. But, as history teaches plainly, after every boom there is a bust. Along with the market slow down has come a long line of troubled home owners. Many are in a financial bind with their personal home, others with an “investment” property and some with both. In many cases, the owner owes more on the property than it would sell for in the current market. The owner cannot refinance because he already owes too much on the property and he can’t sell because he can’t sell it for enough to pay off the current loans. The property owner is truly between a rock and a hard place. Quite often the property has to be sold to avoid eventual foreclosure. When this happens and the property must be sold for less than what is owed on it, it is called a “short sale” or “selling short.”

There are an astounding number of people in this unenviable position at present. I showed some properties to clients a week or so ago in Oceanside and was amazed at how many “short sales” we encountered. Of the ten homes we planned on visiting that day, five were being sold short. The sellers were obviously in financial distress and I am sure they would have loved to have my clients offer to purchase their homes.

The problem is that selling short is a very complicated and challenging thing to do. Among other things, it requires the approval of the lenders in questions. As you might have guessed, lenders are not thrilled about losing money. Gaining the lenders approval can be an exercise in jumping through multiple hoops of fire. There are also potential tax consequences, damage to the seller's credit rating and a host of other issues that must be dealt with in order to get the property sold.

The bottom line is that selling a home short is not for the faint of heart. Neither is it for the inexperienced real estate professional. If you are forced to sell your property in a short sale, my advice is hire a seasoned professional Realtor who has experience with short sales. Don’t forget to also seek both legal and tax advice before you proceed. If you are selling short, you have a perilous road ahead of you. The last thing you want is to get waylaid by unforeseen dangers along the way.