We all know the upside.  There is no yard and most owners,  drive home,  push the garage door button, drive in and they are home.  In the morning,  they reverse the process.  And,  they tend to be newer,  larger and less commute compare to houses.  But what about the downsides?

The first one is financial.  With most HOA fees hovering around $350-400 per month,  this is deducted from your buyer’s ability to qualify.  $400 per month,  will service about $50K in mortgage payments.  Meaning that if you buyer is looking at $350K condos,  you can show your buyer $400K homes.  So,  is a condo right for your buyer?

The biggest disadvantages the restrictions.  Yes,  they are well meaning and designed to keep the prices up in the neighborhood but you need to warn your buyer about these limitations on their quality of life.  Here’s a few:

• They may want a canopy to cover their patio but the HOA says no
• They may be a guy who like to fix his own car,  but the HOA restricts this
• The HOA may not allow homeowners parking in the Guest parking but the buyer’s teenager also has a car
• The top condo might be disallowed from having hardwood floors
• If your client is a free soul,  they might be bothered by the fact that the HOA decides what color the outside of the house or front door can be painted
• They will decide how loud your stereo can be
• They will decide what time you can use the pool
• They will decide what pets you may have and even if allowed,  what size
• They might restrict political signs
• The list goes on and on

This is why it is so critical for your buyer to read the HOA docs so that they aren’t shocked once they move in.  And, when they do,  it is very easy to blame the agent.  So,  have this very serious discussion with your buyer “before” they go into contract,  not after closing.

• Water Conserving Plumbing:  The TDS will be modified to include a question as to whether the property has water conserving fixtures (shower head, toilet, etc).  In addition the law includes a couple of other issues that you should understand.  After Jan. 2014,  if a house is remodeled ,  a homeowner must upgrade to water conserving fixtures to get a final permit.  And,  by 2017,  ALL houses will be required to to have these fixtures in their home.

• Owner’s right to rent Condos or tow homes:  A homeowner association can only restrict renting one of these units if the restriction existed when they purchased the unit.   And,  HOA docs are supposed to clearly describe any restriction that exist.
• Recycling:  An owner of an apartment house of more than 5 units must arrange to provide recycling services for the building.  Also, a landlord can require their tenants to separate their recycle their waste.

• Domestic Violence:  A tenant who is a victim of domestic violence may terminate their tenancy  if done within 180 days of the incident.

• Tenant Smoking Ban:  A residential landlord can prohibit smoking inside or outside the building if it is included in the rental or lease agreement.

• Real Estate Office Managers: A broker can legally appoint someone else to supervise and manage the office.  Under the new law (B&P Code 10164),  the office manager is subject to disciplinary action by the DRE for failing to properly supervise the day to day operations of their agents.

• DRE fines: The DRE can issues fines up to $2500 if they believe the Licensed person violated DRE rules or if an unlicensed person engaged in licensed activities.

• Tax Delinquency:  If a person fails to pay their taxes to the state of California,  DRE may suspend or refuse to renew an agents real estate license.

For more laws and a better description of these i have mentioned.  click here to go to Mark’s newsletter.  You also may want to signup for his monthly newsletter.  It is always informative.

More next time.

Guy Berry,  the industry’s risk manager.

Http://www.guyberry.com

The big change is teams and using social media to drive leads to the agents.  Keller Williams in the book,  Millionaire real estate agent,  shows an agent how to grow their business by hiring the right team members,  starting with an executive assistant ….not a $10 per hour gofer to run copies.  In fact,  KW offers a 2 day and 4 day class on Recruiting,  hiring and motivating your team.  Since KW agents work at a 100% commission plan after X dollars,  what other company would help you build a team?

Another announcement was that KW paid $30 Million or so in profit share back to their agents in 2011 and have paid over $350 million since the program began.  Our leader,  Gary Keller,  ask the question.  What if they had taken the $350 million and used it to BUY companies like the currently largest company has.  INTERESTING QUESTION.

The other announcement was that Keller Williams is on track to become the largest company in North America in 2012.  This combined with statistics showing that KW actually grew in unit sale,  dollar volume,  sales per agent and several other categories,  while other company (and the entire housing market) was down substantially.  Interestingly,  well respected REAL TRENDS reported that Realogy,  owner of Coldwell Banker,  ERA,  Century 21 and Better Homes and Gardens decided to wait to release their 2011 numbers until after the Keller Williams Family Reunion events.   Hummmm.  Bad news to report?

I am madly in love with Keller Williams for the way their treat their agents,  their integrity and their motto …”GOD, FAMILY, BUSINESS,  in that order”

Contact Guy Berry 408-690-2998 for further information.

• Failure to point out red flags: The reason that an agent reviews the disclosures is to see where the mine fields are.  Many agents tell me that instead of sending the disclosures to their client as they receive them,  they wait until they have them all.  Then,  they schedule a sit down meeting to review all the disclosures and inspections together.

• Tips of the iceberg? What I mean here is look for those things that seem minor but could be hiding a much bigger issue.  For example, a buckled floor in the bathroom gets bid by the Pest Company for $400,  which is the cost of  replacing the vinyl and minor under-lament.   The truth is that it might be thousands, if the damage goes into the structure or under the tub.  And,  was it caused by a leak?  Is there mold?

• Seller Disclosure Docs: Lots of issues show up here.  Are the form complete?  Did the seller explain why they answered YES?  Do they disagree with the inspection reports?  Do the disclosures agree with each other? (An example might be the TDS says no history of flooding,  while the pest report shows evidence of prior water).

• Did you point it out to the client? Too often,  the disclosures and inspections are sent to the client with the question,  “Do you have any questions? ”   Most clients don’t see the things you see, so it is your job to spot the issues and point them out to your client.  And,   if you are a listing agent,  you should spot the issues upfront and get them corrected,  instead of waiting for the buyer’s agent to find them.  And,  remember,  many of these cases happen many years after COE,  so make sure you document your disclosure so we can prove you actually did point out these issues.  Thank God for email.

• How did you follow up ? and,  it is not enough to point the red flags out.  California case law says that an agent should discuss the ramifications of the issue,  then give sound advice of what to do next.  That might include a further inspection,  a bid from a contractor,  checking governmental authority records, inquiring of the seller,  or a visit with an attorney.

A good majority of lawsuits would go away and I would not be able to be an expert witness if agents would follow these simple rules.

For more information,

I saw a recent interview with a CEO of a major company who stated that he spends up to 20% of this time,  working on defending litigation.  So,  instead of running the company,  they are wasting 1/5th of their time on lawsuits….not to speak of the legal costs involved.

How ridiculous…..and scary. This affects you in another way.  In my capacity as an expert witness, I have seem my share of crazy cases and you are always the target with a claim of negligence or fraud.

What I think is most puzzling is not that some people get crazy ideas that someone one else is to blame for their dysfunctional lives but that an lawyer actually takes the case.  Think they are doing it for free?  I doubt it.  But,  even if  they find a lawyer to take their case,  why doesn’t a judge simply throw out the case and sanction the attorney for malicious prosecution ?  Oh,  I forgot.  Judges are attorney also. And,   judges never  want to be embarrassed if they throw out a case and are later overturned on Appeal.   Never good for their career opportunities.

No matter what the reason,  this should be unacceptable.  So,  when you hear people discussing LEGAL REFORM,  it is not only trying to limit settlements on medical cases.

Click here to link to the full article.

In real estate, there are agents who are competent in residential sales,  who may occasionally do a 4-plex.  But they would not consider doing a commercial sale or lease,  raw land sales,  making loans,  selling a business,  apartment houses,  syndication, or any other of the areas where agents legally are allowed to operate.  The reasons are simple.  Could they do it?  Yes,  the could.  Will they do as well as an agent who specialized in that part of our business.  Of course not.

The same applies to the attorney field.  They are even more specialized than agents.  I never will forget conducting a class,  when an agent raised their hand to ask a question.  Without pause,  I answered his question.  He said, “That is the same answer I got from an attorney but the only difference is that he charged my client $600 to get it.“  Of course,  the room all laughed.  Upon inquiry, I found that the client had randomly contacted an attorney,  who obviously wasn’t a real estate expert.  Clearly,  the attorney didn’t know the answer so he was charging the client for the research time he spent finding the question.  When a real estate attorney would have answered it without thinking or research  because it was so basic.

So,  the point is that when you or your client needs an attorney,  it is always best to find someone who does a lot of real estate.  But,  it is more complicated than that.  First, what is the nature of the matter?  There are attorney who are experts in the various kinds of real estate.  Some are experts in dealing with Homeowner Associations,  while others work with developers of raw land.  So, just finding an attorney who tells you they do real estate is not enough information.

If you called me to have an attorney draft a real estate partnership agreement or draft a lease option agreement, I would send you to a different attorney than if I thought you were headed for litigation. Litigation is a specialty and many attorneys rarely go to court.  And,  finding an attorney with lots of real estate experience,  especially in small towns,  is especially difficult.

This doesn’t mean that the General Practitioner attorney is a bad attorney  but his or her world revolves around doing a divorce case today,  writing up a will,  creating an LLC or new business,  handling a dispute over a car accident,  fighting a DUI and the hundred of little things that attorneys handle.  I have a fiend who calls this Door Business……meaning,  whatever walks through the door.

In my cases,  it pains me when I see an attorney who is totally out of their league and didn’t bring in a competent expert witness to help them figure out what their case is really about.  And,  at $300-$400 per hour and the typical real estate litigation costing $80K to $100K in attorney fees on each side,  your clients can’t afford to make a mistake.  You would be surprised how often the attorney who hires me is the second attorney on the case.

Here are some steps to consider before sending your clients to an attorney

• Never let the client go to a friend or someone they sat next to last week at the Rotary Club meeting
• If not sure who to call,  you can go online to www.martindale.com.  Put in your city and choose real estate.  Look up the resume of recommended attorneys.
• If you are in a small town,  you will have go to the largest near city to find an attorney who is primarily real estate
• You,  not the client, should call several attorney offices
• Ask which attorney does real estate in that office
• If more than one does,  ask to speak to their secretaries or a junior attorney who works with them,  not the attorney themselves
• Explain the general nature of your case to them
• Ask what percentage of their practice is real estate (should be 50%)
• As if they consider themselves transaction attorneys or do they also do litigation
• What % of their practice is litigation  (should be 50% or more)
• give them the names of  the seller,  buyer,  and agents and ask that they do a conflict check,   in case the attorney represents one of the parties or has in the past
• Ask them if there anyone else in the legal community that you might also interview?  Note:  just like agents, who know other good agents, attorneys know other good attorneys
• Find out if they charge for the initial consultation.  Note:  don’t choose the attorney based on price.  A talented attorney can accomplish much more in less time that an average attorney can at a much lower fee.  Also,  ask if you go forth with litigation,  how much is their retainer?
• And, most of all,  be sure that you go with the client on the first meeting.   You will be much more likely to be able to explain what did and didn’t happen than the client will.
• Another hint.  You must be impressed with and like the attorney.  If you don’t like them,  neither will the jury

And,  if this is too much work,  call me.  I can help you find a good one. Yes,  Virginia,  there are good ones.

Most agents and managers have never heard of this law.  It is a very short law, compared to others.  In fact, it is only about 80 words.  But,  it has major impact on Listing agents and comes up quite frequently in real estate litigation. Here is the code:

1088.  A listing may not be placed in a multiple listing service
unless authorized or directed by the owner in the listing.
   If an agent or appraiser places a listing or other information in
the multiple listing service , that agent or appraiser shall be
responsible for the truth of all representations and statements made
by the agent or appraiser of which that agent or appraiser had
knowledge or reasonably should have had knowledge to anyone injured
by their falseness or inaccuracy.

It is basically two parts.  First an agent may not put anything on MLS without the Seller’s authorization.  Duh!   Secondly,  is the scary part.  An agent is responsible for the TRUTH of any representations made on the MLS that harms the buyer.  And,  the test is did the agent know or should they have known?   As an agent, you are held to that higher standard. …not just did you know.   And,  I am pretty sure that a clever attorney could easily convince a jury that the agent could have inquired of the seller,  made a few phone calls, etc, etc and easily have found out.

So, when you seller tells you something,  I think you should take my recommended TRUST BUT VERIFY approach before you start throwing things on the MLS.

I can’t tell you how often my work as an expert witness in real estate litigation involved partnerships  that go wrong,  because they wanted to save money upfront.  Not a formal partnership,  but two people who decide it would be a good idea to get in the REAL ESTATE GAME,  while watching a football game.  It is all done with great intentions but somewhere along the road,  it all goes wrong.

The biggest problem usually isn’t the real estate.  It is or isn’t a good deal but that is not what causes the chaos.  It is the fact that the partners did not take the time to go see an attorney and draw up a partnership agreement.  In other words,  thinking through and dealing with the WHAT IF issues.  No one think about what is going to happen if and when the following happens:

• The partners can’t agree on the scope of the project
• Partners don’t agree on when to sell or an exit strategy
• Their spouses don’t agree on the strategies and want out
• The market changes and the deal doesn’t work out
• It takes more money than initially planned  (it usually does)
• One partner can’t or won’t pay  (lose job,  divorce, tired, etc)
• and many, many other situations

Look,  if any real estate transaction is worth doing,  adding another $1000 or so to get a partnership agreement drawn up, isn’t going to change the profitability enough to matter.  Do yourself a favor,  never inter into an agreement with anyone unless an attorney reviews it and warns you of the risks.  And,  if the person trying to convince you to join them, and just happens to already have an agreement drawn up,  consider this a red alert. That document was probably drawn up by HIS attorney and should be reviewed by YOUR ATTORNEY.

If you need a referral to an attorney,  call me at 408-690-2998.

Thousands of homes were built using this drywall,  as well as being sold in home improvement stores all across the U.S.  Builders used Chinese gypsum board as a cheaper alternative to American products but more than 7000 lawsuits have been filed, alleging damage to their homes and many more are expected to follow.

Related articles

• Fla. firm OKs $55M Chinese drywall settlement (seattletimes.nwsource.com)
• Insurers for Drywall Supplier Settle Lawsuit (propublica.org)

To make matters worse,  since the 2007 CAR purchase agreement,  the contract required the Buyer indemnify the Seller by making sure that anyone on the property on behalf of the buyer carry adequate “Liability,  workman’s comp and other insurance.” When’s the last time you told you Buyer about that part of the contract??

So,  why is it in there?   The Liability part is in case the inspector injures someone,   the seller can go after the insurance company.  In the case of workman’s comp, if one of the inspectors employees is injured,  instead of suing the seller,  they will be taken care of by the State Workman’s comp plan.  But what about other insurance?  If it is my inspectors,  they are going to carry E/O.

It might surprise you that few Inspectors actually carry E/O insurance.  Why would you,  as a buyer’s agent EVERY recommend someone without insurance?   I don’t care if you love your inspector with all your heart and have used him/her forever,   your duty is to protect your buyer.

So,  how do you find out?   Call and it should go something like this ….I just found out that our new purchase agreement requires my inspectors to cover certain types of insurance.  I like working with your firm,  can you tell me  ….do you have a liability policy? What about Workman’s comp ? (note only needed if they have employees)  Lastly and most important,  do you carry an E/O policy?

If they say NO,  the game is over and you need to find another set of inspectors and contractors.  If they say YES, don’t necessarily believe them say ….. I am glad you do.  I would like you to send me copies of  your policies so that I can put it in my presentation folder to show my clients that I am complying with purchase contract and the kind of  protections that I provide my clients.

I have been teaching this technique for years and you might be surprised how often Inspectors who first answered YES,  we have E/O insurance come clean when ask to show you a copy.   I will guarantee that if you do this with each one of  your favorite inspectors (roof, home,  chimney, etc) you will be surprised that some of the inspectors that are most prominent in our industry DO NOT HAVE E/O INSURANCE.

Give it a try and comment back on this blog post with the results.