I thought I’d share with you a bit of negotiation strategy that just helped my buyers secure the property they wanted with 5 other offers on the table…

Like it or not each REALTOR has their own “bag of tricks” (if you will) when it comes to negotiation tactics.  Now, I don’t really mean *tricks* as in the bad, unethical form of the word but rather negotiation tactics which have been found useful and advantageous to representing the buyer or seller in a transaction.   With the competitive seller’s market that has reared its ugly head in the lower end market lately I have found it useful to pull out the ESCALATION CLAUSE from my bag.  Dictionary.com defines ESCALATION CLAUSE (sometimes called an escalator clause) this way:

a provision in a contract calling for adjustments, usually increases, in charges, wages, or other payments, based on fluctuations in production costs, the cost of living, or other variables.

For our intents and purposes it works slightly differently.  Here’s how I might define it:

a provision in a purchase contract allowing for incremental increases in the offer price, up to a predetermined amount, based on and evidenced by competing offers.

Here’s how it might look:

A house is listed at $250,000.  Mr. & Mrs. Buyer would really like to pay $245,000 for it but they are willing to pay up to $260,000 for it.  They offer $245,000 and use an ESCALATION CLAUSE that says something like this, “In the event of a competing offer the buyers will pay $1000 over the highest offer’s net up to a purchase price of $260,000.  In the event of an escalation, seller to provide proof of competing purchase contract with LSR (that’s our pre-approval form here in AZ) or Proof of Funds. Seller represents and warrants that competing offers are true and valid offers.”

Without an ESCALATION CLAUSE Mr. & Mrs. Buyer do one of two things: they automatically increase their price to the highest they are willing to pay for the property OR they offer less than they might actually pay and gamble on what the other buyers are offering.

With an ESCALATION CLAUSE Mr. & Mrs. Buyer are able to offer what they might really want to pay for the house.  Then they use the ESCALATION CLAUSE to offer $1,000 (or $2,000 or whatever) over the highest competing offer up to their maximum.

There are a couple of things to keep in mind when using ESCALATION CLAUSES:

1. Is there any way to really tell if the listing agent or seller is being truthful?  No, probably not.  There are liars and scumbags that exist everywhere.  Plain and simple, we do the best with what we can so make sure you are comfortable with the top price that you offer.  You may be escalated.
2. In my experience banks won’t deal with them.
3. Unless you remove it the appraisal contingency still exists so the property must appraise for the final price.

There you have it!  ESCALATION CLAUSES…the little gem that helped my buyers get the house they wanted and saved them $4,000 in the process.  I’d love to hear your thoughts and experiences regarding them.

Photo Credit: Stig Nygaard, Creative Commons

But what about title insurance? Most people are hard pressed to give a definition of title insurance. Here’s the official definition –

“Title insurance gives you the assurance that possible clouds on title to the property you are purchasing – which can be discovered from the public records – have been called to your attention so that such defects can be corrected before you buy. Additionally, it is insurance that if any undiscovered claims covered by your policy arises out of the past to threaten your ownership of real estate, it will be disposed of, or you will be reimbursed exactly as your title insurance policy provides.”

Let’s look at the two main components – the title search for defects or clouds before you buy and claims that arise in the future.

1.  The title search is done when an escrow is opened. A Commitment for Title Insurance is prepared, and it details any problems or items that must be addressed before a title insurance policy will be issued. Some examples of these items are:

• Release of current deed(s) of trust against property
• Payment of property taxes
• Payment of any HOA dues or assessments
• Release of any judgments
• Release of any federal or state tax liens

The Escrow Officer addresses each item to make sure it is taken care of prior to close of escrow. This allows the buyer to know that they are receiving title, or the deed to that property, free from any clouds or defects.

2.  Claims that arise in the future occur when an item that could not be discovered by the search of the public records is discovered. Examples of these items are:

• False impersonation of the true owner of the property
• Forged deed, releases or wills
• Instruments executed under invalid or expired power of attorney;
• Undisclosed or missing heirs
• Mistakes in recording legal documents
• Misinterpretations of wills
• Deeds by persons of unsound mind
• Deeds by minors
• Deeds by persons supposedly single, but in fact married
• Fraud
• Liens for unpaid estate, inheritance, income or gift taxes

Should any of these items occur prior to the purchase of the home, but become discovered after close of escrow, they are covered under the terms of the title insurance policy.

Title insurance covers the property as long as the owner or the owner’s heirs retain ownership of the property. Unlike nearly every other type of insurance, there is no annual premium for title insurance. It is a one-time policy premium covering the property until it is sold. If any of the above issues occur, simply contact your title company and file a claim.The title insurer is responsible for defending your title, in court if necessary, at no cost to you, and bearing the cost of settling the case, if it proves valid, in order to protect your title and maintain your possession of your property.

Hopefully this sheds a little light on an often misunderstood piece of the home buying transaction. If you have further questions, feel free to send them to Bill Risser at risserb@ctt.com.

I am forever amazed at the number of people who tell me they only have one main requirement in a neighborhood: they want a safe one.  It sounds like this:

Would you put your mom in this house?  Would you live in this neighborhood?  I wonder if there are any sex offenders in the neighborhood?

While I would love to be able to tell you that a neighborhood is safe and you’ll never be harmed if you purchase a house in there, I just can’t make those promises:

1.)  Because I’m not allowed -

REALTOR CODE OF ETHICS: Standard of Practice 10-2

When not involved in the sale or lease of a residence, REALTORS^® may provide demographic information related to a property, transaction or professional assignment to a party if such demographic information is (a) deemed by the REALTOR^® to be needed to assist with or complete, in a manner consistent with Article 10, a real estate transaction or professional assignment and (b) is obtained or derived from a recognized, reliable, independent, and impartial source. The source of such information and any additions, deletions, modifications, interpretations, or other changes shall be disclosed in reasonable detail. (Adopted 1/05, Renumbered 1/06)  [my emphasis]

You see, I am only half of those emphasized items: I am reliable and independent but surely not a recognized or impartial source.

2.)  I don’t know -

This is the real key here.  What is your definition of safe?  I have no doubt in my mind that your definition of safe is different than mine, and mine is different than the next person’s.  Safe is very relative.  I have clients who live in a neighborhood that I don’t like going to in the daylight let alone at night and they tell me that they feel the safest there than anywhere they’ve ever lived.

I’ve lived in a neighborhood where I didn’t feel safe (see I can’t even trust myself).  I had neighbors with severe drug & domestic violence issues two doors down.  We regularly had Police helicopters circling (see I told you).  It wasn’t unusual to see the SWAT team moving in with full shields walking across my yard.

3.)  Is perception reality? -

Are the perceived safe areas really safe?  Or are crimes just different or less reported or less noticeable?

Once, when my husband was out of town, in an attempt to escape the afore mentioned neighborhood, I decided to take my young girls and stay with my in-laws in  their high-end, gated, golf course subdivision.  Someone threw a brick through my car window in their driveway.

My current “safe” neighborhood is 1/2 a mile away from the old one.  Is half a mile really enough to constitute safety compared to the fear that I used to feel?  Probably not.

So what’s a buyer to do?

• Check out Arizona Association of REALTORS’ Buyer Advisory.  It is periodically being updated and offers many live links which will offer you various ways to learn about the house and community you are considering.
• Talk to the neighbors.  You know there is always that gabby one who knows the scoop on everything/everybody.  Find them.
• Drive through the neighborhood in the morning, in the afternoon when school is getting out, at dusk and in the evening.
• Google the community name.  See what anyone else has to say about it online.
• Ask the seller why they’re leaving.

While it’s not me flat out giving you the go ahead that you’ll be safe, these items will help you with due diligence and that’s better than taking my word for it anyway.

I was out in Queen Creek showing bank owned houses to a first time buyer this weekend.  One of the houses we looked at had some squatters that didn’t make it through the summer heat apparently.  These little guys (and I use that slight term of endearment very loosely) were found in the Master Bath.

I’m thinking this might be the reason the house hasn’t sold yet???

Note to agents:  make sure to scan the WHOLE house when checking on your listings!

Here’s a quick snapshot of the Phoenix real estate Market as of today: 

Things to make note of include:

• The active listings – see how they are coming down, that means that houses are selling and/or expiring and not being replaced with new listings.
• The pending (under contract) listings – nearly twice as many as this time last year!  The buyers are getting it…
• Sales are up too!
• Months Supply of inventory is way down.  If no other houses came on the market at the rate things are selling it would take 4.3 months to deplete the inventory on the market.  

Things are a-changing…

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What is the definition of a first-time home buyer? 

The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. 

For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.  (my emphasis)

Now is a great time to be a first time buyer.  If you know of anyone who should be taking advantage of the opportunity let me know.

The US Department of Housing and Urban Development (HUD) announced this morning at the National Association of Realtor’s (NAR) Midyear Conference that the Federal Housing and Administration (FHA) will allow it’s lenders to offer first time buyers the opportunity to use their $8,000 federal tax credit toward their down payment.  

This is HUGE!   

Now, if you qualify for the first time home buyer tax credit you don’t have to wait until you buy the house, close on it and then file or amend your taxes to get the $8,000.  The $8,000 will be offered in the form of a small bridge loan that will be paid back after you get your tax credit.  To find out more about the tax credit, check out this informative website. 

With the interest rates at historically low numbers, prices at 10-year lows and an $8,000 tax credit there has never been a better time to buy a home!  And I’m not just saying that because I get paid to.  

If I can help you with your dream of home ownership, please don’t hesitate to ask.

**(Some limitations and exclusions apply, yada, yada, yada…see your friendly loan officer or Realtor for specific details.)