Residential Real Estate Lawyer – Do You Really Need One?

Some states require lawyers to participate in residential real estate transactions, especially at closing or settlement. Notice how I said, “some states require…’” not simply that you need a real estate lawyer. The majority of states are known affectionately (by real estate lawyers) as, “non-attorney” states. In those states, conducting real estate closings is not considered the practice of law, so you are not required to have a real estate lawyer. The rest of the country resides in either, “attorney” states or states that have mandated the participation of real estate lawyers either for the entire closing or for some parts of the closing. (The parts where you need a real estate lawyer are usually defined by the clear as mud description, “those instances requiring the use of legal discretion and profound legal knowledge.”) Since choosing the right real estate lawyer can save you a lot of aggravation, you want someone who is:

Licensed and in good standing. Many states have web sites where you can look to see that the real estate lawyer you are considering is both licensed and in good standing.

Experienced. Word of mouth can be the best recommendation. If a friend or relative has been well served and satisfied with a real estate lawyer, chances are you will be also.

Real Estate Savvy. This is a specialized area. Just as every midwife might be capable of handling a simple birth, every lawyer might be capable of handling the so-called simple closing, (in California and other “non-attorney” states, people generally do not even use lawyers for residential transactions.) It would be nice, if at the beginning, you could know if yours will be one of those simple transactions. However, since most of us cannot see into the future, if you decide to hire a lawyer, you’ll want one well versed in real estate law and its peculiarities.

In your area. It is important that the real estate lawyer you hire be familiar with local rules and ordinances as they can have an enormous impact on how smoothly your deal flows.

That you can work with. There is no point in hiring someone you either do not like or do not trust. What good does it do you if you cannot rely on the information she gives you or, just as bad, you cannot stand talking to that person? A real estate transaction is not brain surgery; there are plenty of good real estate lawyers who also have pleasant personalities. You do not want to hire someone that does not play well with others. Your lawyer will be dealing not only with you, but with your buyer. You want someone who will help get the job done while protecting you.

How Can You Tell If Your State Is An “Attorney” State?

The easiest way is to log onto a website, such as [http://www.legalwiz.com/escrow.htm] which has a list. In addition to that, you can call your local bar association, your local title insurer, your local mortgage lender, or your local escrow agent. Using the word “local” is no accident. All real estate is local and all real estate laws are local in the sense of being governed by the state law of the state where the property is located.
If your house is located in an “attorney” state, adding a real estate lawyer to your team is both necessary and prudent. You’re going to have to have one anyway, so you might as well get her or him on the team early.

Do I Need A Real Estate Lawyer In A “Non-Attorney” State?

If the house you want to sell is in one of the majority “non-lawyer” states, you might need a real estate lawyer at some point if things get complicated, but there is no rush. In “non-attorney” states, closings usually take place through escrow. Although the escrow agent does not represent you, they are usually very knowledgeable and they are obligated to follow the directions you outlined when the escrow was set up.

If you do hire a real estate lawyer, she can be your second most valuable player. From advising you on such matters as the contract, disclosures, title, inspection issues, to holding the earnest money and handling the closing.

REMEMBER: Even in “attorney” states, real estate lawyers are not deal makers. Their job is to make sure the contract is properly executed. They may or may not be involved in the actual negotiations.

TIP: In some areas, real estate lawyers make a large chunk of their money from the title company they work with. As the seller, it will be your responsibility to bring down title. Therefore, working with an real estate lawyer who has a relationship with a title company, could be to your benefit.

© 2007 Complete Books Publishing, Inc.

Residential Real Estate – Its Rise and Fall and the Role Non Conforming Mortgage Loans Played

Had someone told me a couple of years ago that a poorly thought through loan program aimed at putting marginal buyers into a home would bring the banking and investment brokerage industry to its knees and threaten to sink the economy I would have thought that person was crazy. Even today, when that is exactly what has happened, it still seems inconceivable.

A capitalistic economy is based on innovation, finding new and better ways to do things and exploiting opportunities in the market place all in the pursuit of profit. Home ownership is one of the main fundamental supports to our economy, it empowers people, and gives them a stake. Typically banks will only lend 80% of the value of a house requiring a 20% down payment. FHA makes it possible, with as little as 3% down for many people to buy a home. In essence, FHA provides most of the equity portion of the loan by guaranteeing that it would be paid. To compete with FHA, private mortgage insurance was established, which made conventional financing competitive with as little as 5% down and provided the same guarantees as FHA.

Soon after FHA came on the scene in 1934, there was a significant increase in demand for housing, which strengthened pricing and contributed to the economy as new homes were built to satisfy the strong demand. Fast forward to the 1990’s. There was still several segments of the population that were not being served, the self employed that had trouble substantiating their true income, buyers with marginal credit and people with no money. These segments were addressed with no income verification loans, no asset verification loans, and sub prime loans. The first two required strong credit and money down, and the latter put borrowers with marginal credit into a home, often with virtually no money down. These types of loans do not conform to the standard guidelines, hence the name “non conforming”.

Many sub prime mortgages were the adjustable kind, the interest rate during the first two years was a little above the standard rate with a prepayment penalty during that time. After two years it became adjustable and the rate soared. The borrower was encouraged at the time the loan was originated to get their credit issues corrected and refinance at the two year anniversary to avoid the new much higher rate. Reality check… most people with bad credit are either not able or not willing to do what is required to fix their credit problems. Some times the credit problems are caused by events out of their control, but most of the time they are caused by unwise spending habits which are hard to change. If making the mortgage payment at 8% is tough, can you imagine what it would be like at 14%?

The new loan products did what FHA backed loans did when they came on the scene, cause a housing boom. With housing in great demand, prices rose. Sub prime loans and the other exotic loans provided a great way for borrowers that otherwise could not qualify for home ownership to get into a home and build equity. They also provided solid profits for the lenders. They were high yielding loans with a default rate only slightly higher than traditional conforming loan products. When defaults did occur, the collateral had appreciated nicely, so the cost of the foreclosure and original loan were usually recovered as the market demand for housing was strong. Part of the reason the defaults were relatively low is that borrowers who needed to move or were having trouble paying the loan could sell the house, pay off the mortgage and put a few bucks in their pockets.

What happens if the real estate market stops appreciating? I don’t think that was ever factored into the equation. Every investment category has its ups and downs, so in theory real estate should be no different. For instance, real estate had a rough time at the end of the 70’s and early 80’s, mostly because of skyrocketing interest rates, which made it hard to afford. Foreclosures rose and houses were hard to sell. However, pricing was not badly impacted due to high inflation during that time. In the 1990’s when the creative financing started to become popular the high inflation, high interest rate environment of the earlier period probably seemed like an anomaly. My guess is that the greed factor prevented the industry from asking, ‘what happens when real estate values decline’ and plan accordingly.

Historically, residential real estate appreciates at the rate of inflation. When it appreciates at a rate that greatly exceeds the inflation rate for long periods of time it is almost a sure bet that it will seek to return to the inflation rate or its equilibrium point. All investment categories share that behavior, seeking a return to the equilibrium point, whatever that may be. Residential real estate’s equilibrium point has remained fairly stable from the late 1940’s to the late 1990’s. The equilibrium point changes only when there is a major change in supply and demand. The period in the 40’s when FHA loans were spurring demand as the country was emerging out of the Great Depression is an example. A chart that illustrates this point and shows just how speculative the market had gotten can be found below just above the “About the Author” section. It is from a very interesting study by Yale economist Robert Schiller. The very right of the chart shows a chilling development, a parabolic rise in pricing fueled in part by the increased demand generated by sub prime and other non conforming mortgage loans. What isn’t shown, and can only be left to imagination, is the future return to the old equilibrium point as the demand created by those loans evaporates.

Normally these excesses take time to correct. The chart ends at the peak in the market and my guess is that a good part of the excess has been already been eliminated by the decline in real estate prices and the higher than normal growth in inflation. The rest, assuming real estate prices don’t continue to fall, can be absorbed by a period of below average price growth. Not the ideal real estate market, but definitely not the end of the world.

By 2005, the demand for real estate peaked. Everyone that wanted a house had one. As demand wanes so does pricing. When pricing falls to a point that homeowners that need to sell can’t because they won’t net enough to pay off the loan, defaults rise. Making things worse is that many of the homeowners with sub prime loans have nothing in the transaction, so they have nothing to lose by walking away.

As defaults rise and houses are foreclosed, more supply hits the market, moving pricing lower. To exacerbate the problem builders were holding very high levels of inventory, expecting the next few years to be like the last few. Excess inventories move pricing lower. To stem future losses lenders stop originating sub prime loans making a large amount of buyers ineligible to buy houses, thus reducing demand and driving pricing lower. The problem feeds upon itself with the media fanning the flames. You can’t help but read or hear about the “housing crisis”, which further reduces demand by scaring us into avoiding real estate altogether. The end result is that banks and investment houses holding mortgages, especially the risky types, have suffered debilitating loses. Much of the collateral supporting those loans is not worth what is owed against it and what value it has can’t be realized because of its reduced liquidity, no one wants to buy it.

Someone, many years ago made some really stupid decisions, the consequences of which are showing up today. The Federal government (that means you and I) is now called upon to fix it, or let the US economy fall into the abyss. I believe it will be fixed, it has to be. We will enter an era of saner lending practices, lower demand for real estate, due to a reduction in the pool of eligible buyers and pricing closer to the equilibrium point. Much of the current excess will be picked up by investors seeking to participate in the growing rental market, due to a reduction in the pool of eligible buyers. Eventually, we will again enjoy a stable and healthy real estate climate.

Chart

Township Projects – Latest Rage in Jaipur’s Residential Real Estate Market

Jaipur real estate market has been witnessing a host of large township projects, both by metropolitan city developers (such as Delhi, Mumbai) as well as city-based real estate developers. With this the township-style living is something that is slowly setting foot in the city.

As visible all across, the residential real estate at Jaipur is bound to roll out with a suit of integrated township projects, with housing units, lifestyle amenities of school, markets, clubhouses and infrastructure facilities of well laid out roads, landscaping, have been announced by developers likes Omaxe (Omaxe City), Suncity, DLF, MGF, Vatika (Vatika City), Ansal API (Sushant City), Grassfield, Panchsheel Colonizer and Parsvnath which has entered into a joint venture with a Jaipur-based real estate developer.

Besides there are some Jaipur based real estate developers such as Mahima, Narayan group, Narvik Nirman etc who have launched ambitious residential township projects.

These real estate projects in Jaipur are all on the peripheral areas and the average unit cost is between Rs 1500-1700 per sq. ft as compared to Rs 3,500-4,500 a square foot in the city. The Unique group launched a residential township at Ajmer road, 17 kms away from the city centre, last month with 3500 units including studio apartments (8 lakh), 2 BHK (15 lakh) and 3BHK (18 lakh).

Narvik Nirman had launched its township project-Pearl Springs with 2BHK of area 1040 sq ft for Rs 16 lakh and 3BHK of area 1450 sq ft for Rs 20-22 lakh. Ansal API’ Sushant Lok was launched three years back on Kalwad road, which is 12 kms away from railway station.

With rising costs of land in the city, the real estate trends in Jaipur have shifted to the peripheral areas. But this is only true for property developers so far and not the end user for residential property. According to Vivek Jain of Narvik Nirman, “The end user is still not there in these projects so far. Developer after developer has been launching township projects in Jaipur but it is mainly the investor who is making speculative investments rather than the end user.”

He says that their target was the middle class person who cannot afford the expensive real estate costs prevailing in the city. But the end user is not coming to peripheral areas for residential properties as these areas lack connectivity, even basic public utilities and infrastructure.

For the middle income group, city and periphery is like a choice between the devil and the deep sea. The upper income group can afford a car and travel long distances and commute to his office after shifting here but for the middle income group, there is a hardly a choice.

Basic Residential Real Estate Appraisal

Appraiser puts a price to the fair market value (rights of ownership). With the current location, amenities, and condition of the property, the appraisers write a detailed report. The detailed report states the comparison of local homes, imperfection of property, type of home, and danger to property. By the end of appraisal, the appraiser knows more about the property than the home owner.

On the process of applying for mortgage, the lender requires the selling price to meet or exceed the appraise value. The appraise value protects the lender in case of default on mortgage payments. That is why an appraiser is usually a third party with no financial connection to the lender, seller, or buyer.

Common Appraisal Approach

The three approaches to effectively appraise a real estate property are Sales Comparison, Cost, and Income Approach. In Sales Comparison Approach, the appraiser finds comparables or comps. The comparables or comps are another property in the same vicinity or location. There are no two properties exactly the same. So, the appraiser takes notes of the similarities and characteristics.

In Cost Approach, the appraisers check how much to build the residential real estate property. This approach plays a major role to new homes in which you can easily calculate the cost to build a new home. For many areas with booming real estate, the shortage of skilled labor drives the cost to build a new home high.

As for Income Approach, the appraiser checks the ability for the property to earn an income. For example, the home owner added a carport. Many tenants are willing to pay extra for the use of a carport. Let us say the home owner transform the carport into another room with kitchen and bathroom. The home owner can rent out the new room. The recent addition to the property increases the appraise value.

Common Use of Appraisal Value

The appraise value plays an important role on mortgage application, mortgage refinance, divorce, estate settlement, employee relocation, and buyer offer. As you are aware on mortgage application and refinance, the home selling price must meet or exceed the appraise value.

When the time comes to partition the ownership of the real estate property, the appraise value becomes important once again. For example, the divorce, or estate settlement are good examples.

An employee may opt to take another position in their company. This happens to promotion. The management positions are usually at the head office. So, the company helps an employee to relocate. The employee has no idea about the fair market value of the new location. With the appraise value available, he makes a correct offer.

The Quick Guide to Starting a Business in Residential Real Estate Investing

Opting to invest in residential real estate has become a popular trend amongst many investors. It is in human nature for investors to invest when the market is rising in terms of stock, gold, and housing and automatically stop investing when the market falls. In true essence this leads to many investors leaving a lot of money that could easily be earned.

If you take the time to understand the fundamental principals that come with real estate investment, you will be able to capitalize on various aspects that many other investors are known to miss out on.

The thing you have to understand is that real estate investing is no quick get rich scheme. Yes it does offer you the opportunity to make some quick cash through flipping houses however the word investment should always be related to long term. This will ensure you are more successful.

While most of the investors will be packing their bags to go home when the market falls, this is where you can utilise on the fundamental principals that you have learnt and capitalize in terms of large profits. You will be able to make money regardless of the market status.

The fundamentals

When the market for real estate is rising in terms of equity, it makes it very easy for any “layman” off the street to even make money in the real estate business. What you have to make sure is that you put your money at the right place at the right time.

No matter how much research you do, being able to predict the market will be impossible. For this reason it is better if you simply opt to understand four various profit centres.

1.Cash Flow – This simply entails of the amount of money your residential income property brings in. Even though it may seen quite simple to calculate, many tend to over look various factors. You need to include all the expenses that are needed to be paid. These would include mortgage payments, repairs, advertising, debts, maintenance etc. It is important you keep a tally of all expenses to give you a fair value of cash flow.

2. Appreciation – It is possible for the market value of your house to increase while you own it. This is seen to be one of the fastest ways to earn really good money. However seeing that the market is quite volatile, you never know what to expect. For this reason it is highly recommended that you keep your residential property for at least a five year period before you decide to sell it off once again.

3. Debt pay down – Now when you own a residential property you would be expected to make monthly mortgage payments. These simply are accumulated over time to reduce the amount of loan that you own to the lending company. Now seeing that we are aiming to look at long term investments there are a few things that you need to keep in mind. Now the common loan system that everyone opts for will simply include a monthly repayment with interest. If you are planning to hold your property for a couple of years, you will see that you are actually paying more than you initially took out because of the interest rate. Seeing that you are going to be looking to sell of your property in the future it is ideal to go for an interest based loan only. This will result to me more profitable for you in the long run.

4. Tax write offs – It is quite common for one to have to pay Alternative Minimum Tax on various real estate properties depending on weather or not you match the criteria. The tax is usually based on the earned income and you may even see your self having to pay short term capital gains tax as well. However there is a possibility that you can have your tax written off which can prove to be quite beneficial for many. The problem with those investors that deal with houses on a flipping houses basis, there income is treated as earned income. This means you would have to pay the full amount of tax that you would do for a 9 to 5 job as well.

If you stick to the strategies and fundamentals that have been highlighted above, you are known to be able to earn a good amount of money regardless of the market change. Any market trend that moves in your favour will obviously boost your profit prospects but even if the market moves in a negative favour, you are still going to be able to “fight” your way through.