Legal advice offered on fix-and-flip properties

If you plan to sell a home after renovating or remodeling it — commonly known as a “fix-and-flip” property — a Valley lawyer recently offered a few tips on ensuring you don’t entice a lawsuit from the buyer after the sales contract is signed.

Attorney Patrick MacQueen, a 16 year veteran real estate lawyer of Macqueen and Gottlieb, PLC told a webinar audience this week that he has handled about 235 cases involving fix-and-flips in the past four years, accounting for approximately 40 percent of his client caseload.

There are five major allegations a buyer can accuse the parties involved with the sale, MacQueen said. The first is “common law fraud,” meaning an “outward statement” about the property’s condition that is “an out-and-out lie.”

The second is fraudulent misrepresentation is “fraud by omission,” MacQueen said, such as when a question about the property comes up, but the seller or seller’s agent “fails to say anything” despite a known problem with the home with respect to the question. Such can be the case of non-disclosure of mold in the property.

Third is “Consumer fraud” typically has to do with statements or representations made in advertising materials, MacQueen said. “For example, if the MLS listing says the home was a ‘complete remodel’ but not everything was redone,” he explained.

The fourth is “Negligent representation” which involves a statement made to the buyers about the subject property that you didn’t know was false, and the buyers relied on that information. For example, if the seller tells the buyer all needed permits were obtained in the construction of a major addition but one necessary permit was never granted, that would be negligent representation, MacQueen said.

MacQueen said he also sometimes sees breach of contract claims filed against sellers if a claim made by the seller in the signed contract is found to be untrue.

MacQueen said the best practice in selling a fix-and-flip property is to avoid adding superfluous “as-is” statements in the sales contract, because standard Arizona real estate contracts already include a standard as-is language.

Further, MacQueen urged that sellers “disclose what you know” in the Seller Property Disclosure Statement (SPDS) that is typically included in a sales contract, rather than try to avoid using the SPDS when they are selling a property they never occupied.

“Disclose everything,” when selling a fix-and-flip property, MacQueen concluded.

For a Buyer purchasing a fix-and-flip property, MacQueen offers advice. Conduct a third party inspection, request contractor information, warranty, receipts and confirm verbal representation via email through your Realtor. So, when the Seller claims that the contactor who completed electrical repair is licensed, have this confirmation in the form of an email.

Following these tips could reduce the risk of facing a potential and costly law suit.

Ibuyers offer “Convenience”, but at what cost?

We’ve all seen or heard the ads, because they’re everywhere. 

 

Opendoor, Offerpad. Zillow — all “iBuyer” companies that want potential home sellers to bypass the traditional sales process and accept their cash offer in the name of “convenience.”

 

My first thought about all these ads is that a lot of money is being spent to get all that attention. Think about some of the other categories of goods and services that blanket the airwaves with advertising: Automobile manufacturers and insurance companies come to mind — two products that are very expensive for consumers at least partly because of these corporations’ big marketing costs. 

 

These iBuyer services purport to be the quickest, most convenient way for a person to sell a home. According to a representative from one of these companies who spoke at a recent local real estate continuing education session, a prospective seller can contact the company, send them some photos, and they will respond promptly with a cash offer based on what they say is a proprietary formula — which includes a look at what similar houses have sold for recently.

 

If you, as a seller, want to accept that offer, the company sends a member of its staff (not an appraiser, not an independent inspector) to assess the value of the home first-hand.

 

Any repairs or other issues that need mitigation will be reported back to you, along with a choice: Let the companies’ contractors come in and, for example, fix a leak in the roof or the toilet — at a deduction to your offer price — or have contractors of your choosing make the repairs and show proof of satisfactory completion.

 

As for convenience, this particular company charges all home sellers a 1 percent “convenience charge.” Yes, that’s exactly what they call it. 

 

That’s on top of a buying agent commission ranging from 2.5 to 3 percent; 0.1 to 0.2 percent “listing costs,” and a range from 2 to 6 percent for “holding cost and risk.” The company’s “cap” on the total fees charged to a seller, it was noted, is 14 percent.

 

Fourteen percent. Compare that to the typical and negotiable 6 percent commission a Maricopa County home seller will pay to have his or her property actively marketed and listed by a Realtor. So, for example, on a home sold for $280,000 — the current median home price in the Metro Phoenix market — the 6 percent commission would be $16,800. If a homeowner’s fees to sell to one of the iBuyers reached 14 percent, the cost would be $39,200. That’s a $22,400 premium for a “quick” sale in a market that has rarely seen quicker turnaround than exists today.

 

The reason the market is currently seeing quick sales transactions in general is that the Phoenix real estate market has a very low supply of homes available, as well as heavy demand — Arizona’s population growth is the fastest in the nation, up 2.21 percent to climb to over 7.1 million residents last year. 

 

That high demand means homes are sold more quickly — current average days on the market, according to the Cromford Report, is 56.48 days — the fastest since August 2013 (58.73 days on average). More proof: On Oct. 1, 2019, there were 17,535 active listings on the MLS. On the same date a year ago: 20,292 listings. In 2017: 21,804 active listings.

 

What does this mean to prospective home sellers who are trying to decide between contacting an “iBuyer” program or reaching out to a Realtor with a fiduciary responsibility to work diligently on clients’ behalf to market and promptly sell their home at the best possible price? 

 

It means looking up a local Realtor before contacting one of the “iBuyer” companies would be a very wise move.

Is Selling a home through Offerpad or Opendoor better than hiring a Realtor?

For many months in the Phoenix metro area, alternative services to real estate agencies and Realtors  like OfferPad and Opendoor have been aggressively advertising and promoting their alleged advantages to selling a home “a different way.”

I recently visited  one of these websites to find out how much they would offer to purchase my own house.  As a Realtor, I have a strong sense of where my house should be priced at to sell. The resulting offer was a price about $10,000 lower than what I would sell my house for in today’s market.

However, that wasn’t the end of the story. On top of the $10,000-below-market-value offer, the service deducted 9 percent from its offer price to be applied towards their holding costs (utilities, HOA fees, and maintenance) until they sold the house to another buyer, and also covering their sales commission to sell the house, plus other miscellaneous administrative costs.

Finally, in addition to the holding costs, the service noted that it would deduct repairs or replacement costs after an inspection. These items included, but were not limited to, the air conditioning unit, roof, water heater, appliances or structural flaws.

Will customers receive more money for the sale of their house if they go with one of these services instead of selling the home the traditional way by hiring a Realtor? Below is an example that shows the comparisons:

                                                         Alternative Home Buying Service            Realtor

Sale Price                                             $360 ,000                                                              $370,000

 

Commission/holding cost/           -$32,400 (9%)                                                     -$25,900 (7%)*

Closing cost deductions

Repair/Replacement cost             -$2,000 (estimate)                                           -$1,000 (estimate)

Net Profit                                            $325,600                                                              $343,100

Difference in Gain                           – $17,500                                                              +$17,500

In summary, hiring a Realtor to sell a home in my area would result with the homeowner pocketing well over $15,000 more than using the alternative service.

However, for some sellers, the convenience of selling their house “as-is,” not having to show the house to buyers or waiting for a buyer to make an offer, plus the sometimes lengthy closing process may be enough reasons to justify the a more than $15,000 reduction in profit.

Like any investor, OfferPad or Opendoor will give you less money in exchange for convenience.  The choice is yours.

 

Why is the Listing Agreement Important When Selling Your Home?

by: Maria Hass, Chandler and Gilbert Realtor

A seller in her senior years approached me wanting to relist her house with me. She is not happy with her current Realtor from Keller Williams. She showed me the listing agreement, and to my surprise, the listing agreement expired more than a month and a half ago, but the Realtor didn’t inform the seller and continued to conduct open houses at the seller’s house even though they were no longer authorized  to market the house.

I talked to the listing agent and she said they had a verbal authorization to continue listing the house past the listing’s expiration date.

Whether or not this is true, EVERY agent should know that a verbal agreement does NOT change any terms of the written agreement. Everything has to be in writing.

In addition, the listing still shows “Active” in the MLS indicating that the listing end date entered by the Realtor in the MLS was not the same date that was agreed upon in the listing agreement.  Otherwise, the listing status would show “Expired” a month and a half ago.

The Seller has the option to pursue a code of ethics violation with the Arizona Department of Real Estate, an MLS violation for dishonest conduct and incorrect entry and an appropriate fine could be sanctioned against the Realtor.

What is the moral of the story?

1. Read the listing agreement before signing — Ask the Realtor to send you a blank copy of the listing agreement a few days before you meet so you have time to read the terms and conditions and ask any questions before signing.

2. Know your listing period by heart and mark it on your calendar.

3. Ask for copies of ALL the documents you signed showing your signature, not just a blank copy. This way you have a copy of the executed agreement.

4. Know your right to cancellation. The Arizona Association of Realtors (AAR) listing agreement, which is the standard form used by Realtors for resale homes, gives the Realtor a “unilateral right” to cancel. But it doesn’t give the Seller an automatic right to cancel. So, every Realtor has different terms when dealing with seller cancellations. Some Realtors charge a $500 upto $3,000 marketing fee to release the seller from the listing early. Other Realtors don’t charge anything to cancel.

Find out the Realtor’s cancellation policy before you sign.

5. The listing period varies by Realtor. It can be anywhere from two months to a year. The longer the listing, the longer it takes to get out of it if you are unhappy with your Realtor. A six-month listing period in Arizona is standard.

Protect yourself by taking time to read the listing agreement. Once you sign the agreement, you are bound to follow the terms of the contract.

How Accurate is Zillow.com?

by: Maria Hass

By now most people have heard of Zillow.com – a website where home buyers or home sellers can go to find out the worth of a property. But is it really accurate? My answer is a resounding NO! In fact, there is usually a huge difference between the home value calculated on Zillow.com versus the true market value of the home.

Why is Zillow.com not accurate?

1. Zillow.com determines a home’s value based on tax records, which are hardly accurate nor updated. I tried experimenting on my old home to see what the site has to say. Zillow.com estimated my home at $223,000. I was able to sell it for $250,000. Zillow’s estimate showed that my home was only a three-bedroom without a pool when in reality it was a three-bedroom plus a den with a Pebble-tec pool and built-in barbecue. Home buyers visiting my home without the help of a Realtor would argue that the home is only worth what Zillow says it is. Well, in the real estate industry, Realtors don’t give Zillow’s estimates any respect.

2. Zillow.com provides a comparative market analysis of your home based on what sold in the last year. Real estate agents typically pull up homes that sold within the last three months because the market is constantly changing. We also look at what is pending and active to get an idea of what the future sales look like. Zillow does not do that.

3. Zillow.com does not have specific search criteria. The website does not take into consideration the condition of the home, any upgrades to the home, the number of levels of the home (single-level, two-story, with or without a basement), the direct and indirect competition of the property for sale and any additions to the home. Zillow does not distinguish whether the home that sold backs out to a main street or to a lake. This property description alone can add $20,000 more value to a home on a lake and a lot less to a home that backs to a busy street. It does not know if the home that sold has an extremely big lot or extremely small lot. Again, this can add a greater value to a home with a huge lot. Zillow does not identify whether a home that just closed is bank-owned or a regular sale. The type of sale matters to real estate agents because distressed sales normally sell for a lot less than regular sales. So, your four-bedroom home will be compared to all the four-bedroom homes close by, regardless of valuable property features, condition, upgrades, etc.

4. Zillow’s estimate is computer-generated. There is no human intervention to identify the changing market conditions. It does not have the eye to see the condition and competition of the home for sale. Zillow.com is one big misleading home search website. It is a quick and easy way to find a home’s value, but is far from being 100 percent accurate. If you are serious about finding the value of a home, take time to call a trusted and knowledgeable real estate agent. Realtors have the tools and expertise at their disposal to find out what your home’s value really is. If you need help with determining the value of your home, feel free to contact me for assistance.

Every Realtor is Different

by Maria Hass

There is a growing misconception that if Realtors belong to the same real estate company, then they all perform the same way.

This is absolutely incorrect! Here are some reasons why

The real estate firm does not move the transaction

Real estate companies like HomeSmart, Keller Williams or ReMax do not manage the transactions. The individual Realtor does. From the time the listing is marketed to when an offer is made, negotiated and closed, the Realtor oversees every step to completion and solves problems, if any. On the other hand, the firm provides Realtors educational training, technical support, broker support, marketing assistance and and processes commission checks. None of these matters directly affect your individual transaction.

Every Realtor is Different

Realtors differ in the way they conduct business, including their style of communication, marketing strategies, knowledge of the area, years of experience, personality and work ethic. Some Realtors may know the area better than other Realtors and can better price a house to sell. Some Realtors are more honest than others. Some Realtors may use technology more than others and will communicate better via email than a phone call.

Go with Performance and Do Your Homework

As a client looking to hire a Realtor, you need to gather as much information as you can about the Realtor before setting up an appointment with him or her. With online exposure, this information is not hard to come by. I’ve lost out on a listing in the past because the seller went with a referral recommended by their adult child. The house sat on the market for three months with no offers because it was $40,000 overpriced. The Realtor they hired has done multiple open houses pretending to work to sell the house, but in reality is looking to attract buyers as clients. No house will sell if it is overpriced $40,000. An honest and knowledgeable Realtor will know how to counsel the seller to list at fair price. I don’t have a problem selling a house in 30 days or less but I feel sorry for Sellers who hire the less qualified Realtor and see them go through the agony of house selling.  My philosophy is…“You hired me to Sell your house, not to list it.”

 

 

 

With thousands of Realtors to choose from, which one should you hire? 

1. Get recommendations from trusted friends and family.
2. Find out the closing statistics to determine Realtor’s results.
3. Check the Arizona Department of Real Estate to find out if the Realtor has any complaints on file.
4. Find a Realtor that you trust and fits your expectations and produces RESULTS! After all, this is the reason why you needed a Realtor in the first place.

 

Lennar Homes at Layton Lakes Review

by: Maria Hass – I had the opportunity to place three clients with Lennar Homes at Layton Lakes in Gilbert, AZ, and I’m delighted to say that all three experiences my
clients and I had with Lennar Homes were extremely positive. Here are some reasons why:

1. Communication: The Builder’s representatives Kristi Rae and Jessica work well together. Their communication
with the field supervisor, clients, myself, mortgage and title companies were streamlined from start
to finish. And everyone involved in the correspondence was copied so that everyone was on the same page and
aware of what was taking place every step of the way. They kept me involved in the whole process from contract signing, inspection, walkthrough and closing. This is different from my experience as a Realtor with other builders. Many Builders only keep me involved in contract signing but cease to update me moving forward. I would like to act as counsel to my clients and guide them every step of the way. It is difficult to do this, when the Builder’s employees don’t include you in their correspondence with your client.

2. Efficient: The builder’s representatives were on top of things. They sent notices and reminders ahead of schedule
and prepared my clients to know when to expect important events to happen.

3. Construction Supervisor: Kyle Wolf went out of his way to accommodate my client’s request to move the fence in front of their living room window instead of behind the window for privacy. In order to do this, the outside faucet had to be replumbed and the wall had to be retextured. Lennar Homes redesigned their plan to ensure my client was happy. Most builders would not make any changes to their original plan because it requires more work, time and communication. Instead, Lennar Homes listened and accommodated my client’s request without hesitation
and for that my client is grateful.

4. Title company and Mortgage Company: Nicolette of Universal American Mortgage Company and Michelle Musgrove of North American Title were efficient and closed escrow on time in all of my transactions.

Lastly, the turnover of staff seemed low. I’ve been working with the same people for more than two years. If a company is able to keep great workers, they are doing something right. So the next time you search for a new home, consider checking out Lennar Homes at Layton Lakes in Gilbert. Not only do they have excellent
customer service but they also have a big inventory of move-in ready homes than any other builder in the East Valley at any price range for any size family. Select from over 18 floor plans in four different communities – Horizon, Signature, Destiny and Vision. If a family oriented community with lots of greenbelt, walking paths, basketball court, splash pads, tennis court and a community elementary school interest you, stop by the Lennar Homes Model Center by Lindsay and Queen Creek.
Plus, they give the Buyer 4% towards payment of their closing cost on spec homes.
And remember to bring a qualified buyer’s agent like myself to ensure your best interests are represented.

http://www.lennar.com/new-homes/arizona/phoenix/gilbert/layton-lakes

Real Estate Story 3 – Why Didn’t You Tell Me the House was Haunted?

By: Maria Hass-

I tuned my car radio to 104.7 FM one recent morning when the “Machaca” segment of the Johnjay and Rich radio show came on. This is the portion of the show where the show hosts help a caller solve a puzzling question by tricking another person to confess his or her darkest secrets on the show.

A caller wanted to find out if there was a homicide that happened in the house she currently rents. The caller said she had seen ghostly images appear in the bathroom and felt a presence lying in bed next to her. She hadn’t slept for three months because she was wondering about the story behind this house.

Johnjay and Rich called the woman’s landlord pretending to be from a movie production crew and scouting for a haunted house to film a scary movie for $10,000.

During the course of the conversation, the landlord, owner and Realtor admitted that there was a double homicide and suicide that occurred when the mistress of the husband came to the wife’s bedroom and shot the wife while asleep. The husband came up to the room and saw the wife dead and shot the mistress and later shot himself.

The caller wanted to know if she could break the lease and if the landlord was wrong in not disclosing to her as the tenant that the house was “haunted,” or a site of homicide.

Is Landlord obligated to disclose that house is haunted or a site of a homicide?

The answer is found in lines 25 to 29 of the Arizona Real Estate Agency form provided by the Arizona Association of Realtors.

Pursuant to A.R.S. §32-2156, Sellers, Lessors and Brokers are not obligated to disclose that a property is or has been: (1) the site of a natural death, suicide, homicide, or any crime classified as a felony; (2) owned or occupied by a person exposed to HIV, or diagnosed as having AIDS or any other disease not known to be transmitted through common occupancy of real estate; or (3) located in the vicinity of a sex offender. Sellers or Sellers’ representatives may not treat the existence, terms, or conditions of offers as confidential unless there is a confidentiality agreement between the parties.

Although the action of the landlord may be construed by the tenant as morally wrong, it was legally fine. The tenant can break the lease anytime with penalty, or as described in the lease agreement. If tenant wishes to break the lease without penalty, she could hire a lawyer to stand in her behalf. There are volunteer lawyers that advocate for tenants’ rights, or check with the Arizona Department of Real Estate for resources pertaining to this complaints.

*Maria Hass is a full time Realtor with HomeSmart, the no. 1 Real Estate company in Arizona. She has 5 star reviews from past clients and operates majority of his business by referral only. Contact her at (480) 650-0075.

Real Estate Story 2 – A Lesson Learned

by Maria Hass

“That’s My Chandelier!”

I attended a Purchase Contract Writing class earlier this year. The instructor – let’s refer to him as “Realtor X” — told a story that happened during one of his transactions years ago. This story was meant to let Realtors know how writing contracts is very important in closing deals.

The buyer represented by Realtor X went under contract with the seller of a luxurious home. During the walk through, the buyer noticed that the luxurious chandelier in the foyer of the home was missing. He called Realtor X to get the chandelier back, because this chandelier was key to him making the decision to purchase the house.

Realtor X got in touch with the listing agent to recover the chandelier. The listing agent said that the seller wanted to keep it and that the MLS information mentioned that the chandelier would NOT convey with the purchase of the home, and therefore stay with the seller.

The buyer was not happy. He demanded that the seller return the chandelier or credit him the value of the chandelier in order to close escrow. The one-of-a-kind chandelier was appraised and was worth thousands of dollars.

In order to close the deal, Realtor X and the listing agent gave all of their commission towards the chandelier value, and ended up working the sale for FREE.

Lesson learned: The sales contract should have stipulated that the buyer would take possession of the chandelier at close of escrow OR that the chandelier would not convey with the purchase of the home. Both Realtors failed to write it in the contract.

Although the MLS mentioned that the chandelier was not to convey with the home, the MLS it is NOT a binding document – the purchase contract is. One missed item in the purchase contract caused both Realtors all of their commission. It is a lesson not to be forgotten.

Realtor Story 1 – Lessons To Be Learned

by Maria Hass –

Real Estate is a very interesting career and many colorful stories come out from it. Here is one of my memorable real estate stories:

A lady – let’s call her “Lady X,”  had been following my real estate career through the years and from time to time called me asking for real estate advice. I did show her a rental property once but she ended up renting a friend’s house  on her own.

I counseled her regarding landlord issues, prequalifying for a loan and more. One day she called me asking for money from me to help her buy a property two houses down from her house. She also said she was pre-approved for a loan. Why would she asks for money if she was pre-approved? That certainly did not add up. So, I asked her to send me the pre-qualification letter from her lender Chase Bank. She never sent me the pre-qual letter.

A few days later she called and said “I purchased a property!” “Where?” I asked. “Down the street,” she replied. She had signed a contract with the listing agent holding an Open House, but then called me to say she was worried about who was representing her.

My first question was, “Why didn’t you call me?” Her reply was that she was just dying to get THAT house and couldn’t wait to sign a contract. Also, she said I didn’t believe her when she said she was pre-approved and that I needed to see the pre-qualification letter. On the other hand, the listing agent didn’t require that. But now she called asking that I represent her if the seller was willing to accommodate a buyer’s Realtor, despite the fact the contract was already signed.

Well, in this case – where a buyer signs a contract with the seller’s Realtor – there is obviously one agent taking care of both the buyer and the seller. The agent becomes a “dual agent,” and will take care of seeing the transaction come to a close. But as a stranger walking in to buy the house, you have limited representation when the listing agent is also representing the seller.

In reality, you, the stranger, will have to watch out for your own best interests and know your rights and resources at this point. This listing agent also gets both sides of the commission. This can be a good or bad thing. Good because a listing agent is heavily motivated to close the transaction. Bad because legal battles often arise from dual representation situations.

A week later after this woman called me, I called her back to find out why the house she signed a contract on was back on the market. She replied, “I canceled it and did a contract on the house that is next door to me for a lower price.” When I asked regarding who represented her on this new purchase, she replied that she was represented by her daughter’s friend, who is a part-time Realtor.

My jaw dropped in awe. Lady X, who I’d counseled multiple times over the years, ran away with my ideas and found someone one else to represent her in the deal within a few days from having the “representation” conversation.

What’s my take on this? It comes to three major factors:

Choices and morals

Counseling a customer doesn’t mean they have an obligation to hire you.  Customers can consult one or more Realtors and use this information against one another. In some cases, a Realtor charges a consultation fee for advice – however, I did not do that with Lady X, or with any of my clients.

Treating People Right

If you treat people right, they will typically treat you well in return. It’s called the Golden Rule. When a person calls a Realtor and says she wants that Realtor to represent her, then turns around a few days later and makes a deal with another Realtor, it’s a classic case of deception and bad faith. In my book, these are people you stay away from because they are either suffering from extreme memory loss or just plainly care only about themselves. People who show respect to the Realtor who takes care of them will be rewarded in kind. Realtors like me will walk an extra mile to reward loyalty.

 

Every Realtor and Client is Different – Find One That is Fit for You

Realtors vary in many aspects of the business – personality, methods of communicating, knowledge, professionalism, experience, etc. Find a Realtor that best fits your needs and personality. Every client is also different. There are those who value service and those that emphasize cost over service. As a Realtor, I qualify my clients the same way as customers qualify their Realtors. It’s a two-way street. I agree to work with clients who understand and value great customer service and my expertise, knowledge and experience. I am repelled by potential customers who want a piece of the commission in order to hire you. Discount Realtors provide discount rates – and usually cut-rate service. Part-time or below-average Realtors may take on this type of client, but Realtors who want to share their service and knowledge and the integrity of the profession do not succumb to – nor do they need – this type of arrangement. That’s why such Realtors become GREAT at what they do.