All Forum Posts by: Bob Galivan

Quote from @Drew Sygit:

@Wil Townsend

Owners mistakenly ASSUME all PMCs offer the exact SAME SERVICES and PERFORM those services EXACTLY THE SAME WAY, so price is the only differentiator

Hi, Wil...

@Drew Sygit comments are spot on. I am a "nano" broker in the Cleveland market, and provide property management services to a captive set of client/investors in this market (I am not soliciting your business). There is a saying in the real estate business that you don't know if you have a bad Realtor until it's too late - same with property management. I just inherited a property owned by a foreign investor who had a national brand property management company. He has close to $3,000 in unpaid water/sewer bills, a stolen furnace, and no insurance, a property he owned for three years and had exactly two tenants, one for two months, the other for six(but paid only three months) and now has a dilapidated property that he's going to sell at about a $30k loss. 

The best advice I can give you is this: Being an out-of-state investor, you obviously have to rely on local property management. Please take the following to heart:

1. Ohio law requires that property management be conducted by a licensed real estate broker and that property management services are provided by a licensed real estate agent. Make sure of both.

2. As @Drew Sygit mentioned, get copies of several contracts and make sure they cover the services you will need. Have an attorney review them and do not be afraid to negotiate terms and conditions - even using one contract to extract concessions from another. 

3. Make SURE that you have a target tenant in mind and that the property manager knows what that tenant type is. Most property management contracts put the tenant selection process in the hands of the property manager and can easily leave you out of the process. If that is what you want, OK, but in my opinion, it's your ***(et) so you certainly have the right to review tenant applications. The ideal situation for a property manager is having a tenant that comes to them without representation the day after a property is listed. They have no time invested in showing and get to collect 100% of the commission. That is a recipe for disaster. 

4. QUESTION EVERYTHING that the property manager tells you! Verify invoices, expenses, charges, etc. It is very common for property management contracts to charge for every and any service they provide - which is OK, if they provide the service. But nickels and dimes add up to a lot of profit, so it's easy to start stuffing bills with services that were not rendered or ineffectually so. 

good luck!

An email from Bigger Pockets popped into my inbox yesterday, and one of the titles caught my eye: As an investor, becoming a real estate agent can be a smart move..." That linked to an article by David Greene entitled "How to Become a Real Estate Agent: An Investor's Guide." That article provides a fairly comprehensive look at how to get a license and at the work of being an agent, but it did not address the question posed in the email "Should an investor get a real estate license?"

My answer to that question is usually "no" for a number of reasons. First, because pretty much all of the multiple listing services in the country have opened their databases to third-party sites like Zillow, Trulia, Realtor.com, et. al., the illusion of exclusivity is pretty much out the window. The old reason of getting your license so you had access to the MLS is moot. You still hear as a come-on to get a license, with the idea that getting the data from the horse's mouth gives you a jump on the competition; that the data provided by the third-party sites can be stale or out-of-date by a couple of days (which is true). But consider this: if the market is so hot that the MLS data is out of date within that short period of time, few investors are going to want to be in that market, because the prices are going to be going up, up, up.

The second reason that I often suggest investors forgo a license is that it creates a significant burden of compliance. There are laws on the books in every state that govern the sale of real estate that are incumbent on private investors. When you obtain a license, you are immediately held to a "higher standard" with regards to the sale and marketing of real estate than you might otherwise be as a private person. Agency laws that are present in most states make selling your own property a high-wire process, and may actually prevent you from selling or renting a property to a prospect unless they are represented by another agent.

The third reason is that once you place your license with a broker (as you must do), that broker is going to want compensation. You will see brokers advertising that you can earn 100% commission, or that they are a no-fee broker, but the broker is going to have a hand in your pocket. Some years ago, I was with a full-service broker on an 80% split. The 20% they collected paid for office, phones, clerical, etc. As my production ramped up, I started looking at other options and ended up with a broker and a 95% split.I was selling 50-60 homes per year, so it was high volume, and when I dug into my numbers, I found that no matter what broker I went with, my cost of doing business was running 10%-15% of my commissions - that's with broker fees, out-of-pocket expenses, etc. As an investor, the cost of the broker comes off your bottom line, no matter what. 

Some investors will work with an agent to get mls info as it appears, and will sometimes negotiate for multiple properties through an agent. The agent gets a commission, the investor gets the property. The trend I am seeing is that more an more investors find that neither the agent nor the license is really necessary in the current info-rich environment.

Mr. Hunter: You wrote a post that - in my reading - that dealt with how you didn't get a good deal on a cabin. How much did you offer? What was the market value of the property? How far below market did you offer? Why didn't you get something in writing at that moment to cement the deal? Were YOU committed to doing the deal? What would have happened if the contract came with terms you didn't like? Did you guarantee to the owner that you were going to purchase the cabin? You keep trashing the guy based on the fact that he was a Realtor, and now with righteous indignation, bring to the table evidence that he's a ****. But as I pointed out in my second post, we only have your side of the story.

It may be that he acted in bad faith, but as I also pointed out, this is an investment forum, and without a written contract, the owner of a property would be an idiot to not jump at the chance to make top dollar from his investment.

I also do not appreciate your categorizing me (or other agents) as dishonest or unethical. The more I read the post and your comments, the more I feel like it's a case of sour grapes on your part - you failed to act in your own best interests, and find it easier to trash the other guy, rather than to admit that you blew it by not getting it in writing. If you are an investor as you claim, that would have been a pretty relevant bit of knowledge to have. 

Fascinating thread. Name calling, moral uprit-it-tude, ethical indignation. Covers the gamut. I say with utter certainty that every person on this thread, including Wilson, if they found themselves in the position of the browbeaten cabin owner - of having agreed to a price that he later determined was under-market, would have run for the exit as well. And, if there had been a written contract and it came to light that the price was under-market, every person on this thread would have looked for any opportunity to exit the contract.

What's missing here is the following

• We have Wilson's side of the story, but not the cabin owner, so it's easy to create a narrative about his abhorrent behavior. Was he looking to sell the cabin? Or did some guy wander in off the street and offer to buy it?
  
• Most posters also missed the fact that Wilson is a willing participant in an investor's forum. Meaning that one would expect that he has some knowledge of the market and investing - the fact that the cabin owner was a Realtor does not make him a savvy investor. I know a lot of Realtors who have zero knowledge of this facet of real estate. Did Wilson offer a low-ball price, hoping to get a deal?
• Both sides erred in not getting something in writing. Wilson's an investor and the other party was a Realtor, so both would have known that if it ain't in writing, it ain't a contract. The cabin owner would have had the same concern about Wilson's going forward with a contract - you can imagine the owner posting here that "some jerk came by my cabin and offered me a great price, but when I sent him the contract, he dropped his price by $10,000.00"

What's really unfortunate here is the response by the community to the post. Many of the responses trash the real estate industry (of which I am a member) without considering the entire picture. The post condemns someone after hearing half of the story - one that is quite biased in its perspective.

It might be useful to get in contact with the other party to this conversation - the voice unheard - and see how he describes the encounter. That would be an interesting conversation!

Every state in the US requires that real estate contracts be in writing in order to be valid. It is unfortunate that you left thinking that you had a verbal agreement, but put yourself in his position: suppose they were your cabins, and you made a verbal deal with someone that drove in with the promise that you'd send a contract later. Thirty minutes later, another guy drives in and offers $10,000 more than your previous buyer did. Would you say, sorry, I just promised another guy I'd sell to him for $10k less than you offered? It's more likely that you'd see the opportunity to make an extra $10k.

Your seller assumed that you would go through on your end, just like you assumed that he'd go through on his. He faced the same risk - what if you got cold feet? What if he did turn down another offer and you got cold feet?

What should have happened is that you and he both should have insisted on a written agreement. If it was not convenient, you could have drawn up a simple written agreement that bound both of you to the sale, with contract docs to be sent within a few days.

Over the past year or so, we have been using GoSection8.com (now AffordableHousing.com) as a source for estimating rental values for units that we were opening to subsidized housing customers. A constant source of irritation has been the disparity between the numbers that the website came up with for rent and the offer of rent made by the housing authority in our area. Several calls to their "support" department (and I use that term as loosely as i possibly can) yielded no satisfactory results. 

We finally found out the issue: when a user goes in to the program to obtain a rent estimate, they are able to input the address of the property and the number of beds to be offered. The system delivers four numbers: within proximity of the unit, in the same zip code of the unit, plus wider area numbers that have no bearing.

When the housing authority uses the app, they have a different input matrix, including bedrooms, bathrooms, parking, - apparently nine factors that are used by HUD to estimate the rent. Those factors are significant, as they refine the comparable properties selected for the rent estimates. If the system is looking at the same 100 properties as comps for both myself and the housing authority, my estimate might be based on the average for some or all of those properties, without regards to any amenities, but the housing authority's estimate is going to extract a narrower set of values, rendering a far more accurate estimate.

The issue, then, is that there is no way to determine if the estimate presented to the landlord has any validity whatsoever. This is a problem because in working with traditional renters, the process to identify and qualify a tenant can be fairly rapid, and if the property is well priced for the market, the landlord may have a surplus of tenants to choose from. With a voucher tenant, once a rental package is accepted, everything stops until that package is submitted and vetted, and an offer of rent is presented. In Cleveland, that process has been taking 60-90 days which means that if I am relying on the rental projection from the GoSection8 site, if the offer of rent from the housing authority is below what I can accept, or below market (which is sometimes the case), not only have I lost that market time, but I also have to restart the process of finding a tenant.

The website provider has stated that only a housing authority has access to the full scope of rental data; even paying for a premium subscription does not give me access to any better information. I intend to register a protest with HUD to amend the practice. I would strongly encourage anyone reading this post who has used that site as guidance in the past to do the same.

My normal practice when determining market rent is to use a range of factors, that include GoSection8 data, the local housing authority's published rent matrix, information from Rentometer, from Zillow's rent estimator, and the MLS. The combination of those numbers yields a range of rent for a property that (so far) my pricing has fallen into for voucher tenants. But ultimately, it's grossly unfair to landlords to use two different data sets - one of them invisible - for affordable housing prices.

The reply depends on what state the contract was written in. I did not see that in the post. The contract financing contingency will contain language that deals with loan denial, and in the contracts that I am familiar with (Florida and Ohio), there is language that lets you out after the deadlines. The deadlines are usually to apply for the mortgage and to provide the mortgage commitment. If the property does not appraise or if you failed to qualify and were denied, you should be able to exit without a problem. If your broker is holding the EMD, the release may be governed by state law. If it is held by the title company, you have to go through the courts. You should be getting assistance from the real estate BROKER representing you, not the agent, AND from an attorney. What you need to do, IMHO, is to first notify the entity that is holding the deposit that they are not authorized to release it to anyone. The second thing is to GET AN ATTORNEY. My suspicion is that you will get an "offer" from the seller to "settle" for a part of the deposit, which is BS. The best course of action, if you can manage it, is to tie up the property so he cannot sell it pending the resolution of the dispute. That will require the services of an attorney. Don't delay.

Rich Dad is/was/always will be a scam. That guy has been so debunked I'm surprised his books still exist. Google "Rich Dad Fraud" or "Rich Dad Scam" and read all about it. 

The ability of a buyer to find target properties without the aid of a real estate agent has exploded with the increasing penetration of online providers like Zillow, and most mls systems selling or sharing agent listings with these online systems. Brokerage firms encourage their agents to present buyer-broker agreements to their prospective buyers where the buyer agrees to work exclusively with a particular agent (or broker, since that is actually where the agreement lies) for some period of time. The general structure of these agreements is that the buyer is locked in to the agent; if the buyer finds a home on their own they have to pay a commission to the agent, and in some cases, has to pay the agent no matter what.
The MLS is a system whereby brokerage firms - the listing firm and the selling firm - have a contractual relationship. The listing firm makes an offer of commission through the mls to the selling firm, and is required to pay that commission at closing. While it is the seller's money that funds the commission payment, in reality, the listing agreement requires that the seller pay the listing broker, and that the listing broker pay the selling broker. The agreement sets the commission split, which is not always 50/50. The listing broker, for example, may have a minimum commission of 7%, but only offer the selling broker 3%.
The truth is that because listings are so widely available, we agents are becoming less necessary in the task of finding a home; our value (or that of an experienced agent) comes in evaluating prices, assisting in contract negotiations, and managing the contract timeline through closing. The buyer-broker agreement is an attempt to capture the loyalty of the buyer; I have never used one. My feeling is that if I am not doing a good enough job to engender the loyalty of my customer, that's on me.
Finally, remember that these commission agreements are negotiable! You can cross out the requirement that you pay the commission, change the terms, etc. But you would be better to find an agent that you like and trust, and work with them, rather than be forced into an agreement that has little benefit for you.
Bonus comment <g>: If you are buying in the NYC area, they have their own universe that supports everyone but the buyer. The agents in that market focus only on finding something for you to buy, but they do not have access to all of the properties for sale - only those listed by their own firms or with firms that agree to cooperate. I speak from experience - my wife and I found an apartment from our son by looking at the real estate advertisements after the agent we were working with told us there was nothing else available other than the six properties she came up with. After we did all the work to find something for him to buy and handed it to her, we found out that all she did was hand it off to an attorney to manage. In NY, the contract process is handled by the attorney, not the agent. From my own experience in the City, you will do better on your own with an attorney. You can negotiate the buyer-side commission off the selling price.

I treat vacancy rate and turnover as two separate calculations. In analyzing a potential investment, vacancy is a guess as to my loss when the unit is not occupied. If I am buying a unit with a tenant in place with a lease, the first year vacancy is probably zero. If they’ve been in the unit for 20 years and plan to stay, the vacancy rate might be zero for the next 5 years. Conversely, if the purchase needs substantial rehab that will take 6 months, my first year vacancy rate is 50%.