If your client, or someone you know, is in the business of short sale investing, meaning they intend to purchase short sale homes and immediately turn around and resell them for a profit, there are legal questions that go along with the process, many of which have never been addressed, but will undoubtedly come to light in a court of law at some point in the foreseeable future.

While buying a short sale home at a bargain and turning around and selling it at its regular price, or slightly less than its assessed value is completely legal, the term 'fraud' is being tossed around lately and it may behoove the serious investor to make every effort to offer full disclosure, or at least a modest modicum of disclosure to all parties involved.

The scenario

Imagine this scenario: You're a homeowner who has fallen on hard times. You or your spouse may have lost his or her job and despite your best efforts, you can't keep up with the mortgage payments. You are facing the barrel of foreclosure and work out an agreement with your lender to go ahead with a short sale. You know your home is in great shape, the lawn is meticulously maintained and you added a new kitchen and bathroom.

You have no choice but to let go of this home because you want to buy another one as soon as you recover from your financial setback, so the short sale seems fair. Several interested buyers flock to your house immediately and within a few days, maybe even that same day, you have an offer on it. The bank agrees and you sell the home, getting out from under your financial burden.

Two weeks later, you learn that your home suddenly sold for near full value. Perhaps forty thousand dollars more than you sold it. This is enough to feel as though you were taken advantage of. Maybe it's enough to consult a lawyer. After all, if your home sold for its assessed value two weeks after the short sale, you could have made that sale directly.

Putting yourself in someone else's shoes is the best way to determine what level of honesty should be used during the process.

Letting the homeowner know the truth

In most cases, homeowners who partake in short sales don't have a choice, so whether you are going to turn around and sell their home at a profit or not, they don't have the luxury of hanging onto any longer. Being upfront may sting for the homeowner, but you are protecting yourself legally.

The same holds true for the lender. Mortgage lenders make loans based on long-term earnings through interest rates. If they are aware of the intention to flip the house, there are some lenders that would not be willing to make the loan. Posting a statement of your intentions within the contract (which, as we all know, can be upwards of 100 pages or more), will cover you legally. Remember, loan officers don't tend to read the contract thoroughly. You're covered nonetheless from any legal action that uses the phrase 'fraud' in the future.

No legal obligation

While investors intending to flip short sale homes are under no legal obligation to disclose their intentions, most, if asked, wouldn't want to become the guinea pigs in a legal dispute over a fraud allegation. Full disclosure is always a safe bet.

David

The technology that I’m talking about here isn’t new, not by any stretch of the imagination, but that doesn’t make it any less powerful, nor does it soften its impact on the industry as a whole.

The Internet

Let’s all take a moment and consider the technology of the Internet and how it affects and impacts our world of real estate. For many of us, the Internet has been a boon to our business, but for a majority of those in the real estate business, it poses a greater long-term threat than most of us have been made aware. While the technology of the Internet has opened up doors for us, connected us with clients and potential listings that we otherwise wouldn’t have found, the very things that make the Internet such a powerful tool also makes it a competitive monster.

Consider the brand name of the real estate agency or brokerage firm that you work for. That name has been built over years and years of positive interactions and sales, closings, and deals. People within your local community know and generally trust the name for real estate listings. May be your company has been using the Internet for years to spread its influence and brand out wider.

Well, now you are no longer competing with just local affiliations, local agents or brokers, and more; you are competing with anyone who has a website, and a license, from anywhere in the state and perhaps even in the country, or worse –the world. Competition is about to become much tougher than it ever has been in the past. Are you prepared for it? Are you ready to deal with it?

Government’s slow feet

You can’t expect the government to step in and regulate this technological advance. Not this year and not next. Maybe within the next twenty years to government will stop dragging its feet, staying well behind the pace of technology and actually pass laws that will work to the local business’s advantage, but that’s simply not going to happen now, or anytime soon.

We cannot wait for justice or fairness to take effect; we need to step up to the plate and swing at the pitches that technology is serving us, whether they are legal or illegal, and keep our businesses alive and well fed. We can’t stop, even for one minute, and complain that something is unfair.

The competition will come from everywhere

With the ever-changing and rapidly expanding technology, we are going to be faced with a plethora of competition. Many of these new competitors won’t live in our communities, but will be representing home-buyers,relying on local agents to show houses and using other proxy versions to be their physical faces to their clients. 3-D virtual tours will continue to evolve and become visually stunning depictions of homes, realistic enough for home-buyers to buy without setting foot within the homes.

The technology can be expensive, but the cost of failing to keep up with it can be far more expensive in the long run. It’s time to embrace technology and if you’re not willing to do so, then it may be time to seek out a different career. The Perfect Storm will continue and even when its over, the technological race will have altered the real estate landscape forever.

David

Not even the band of wagon jumpers could rain on that parade and we, as an industry, were so caught up in the positives that most of us refused to see, or simply missed the signs, that it would come to an end someday. After all, when times are wonderful, why would we want to think about what might go wrong?

Then the wheels came off

Ultimately, though, the old adage proved right once more –what goes up must come down. The market took hits from more than one front and they came at us in waves, one after another, and continue to beat down on the market and as we look back, all we can do is summarize what’s transpired during the past few years as the perfect storm. The storm that simply refuses to relent, move on, or let up.

Defaulted mortgages, adjusting rates, and property values plummeting was the tip of this proverbial iceberg. Unemployment rising and an economy that seems destined to stagnate for a long time have continued to pound the market, removing millions of potential buyers from the market, leaving sellers and foreclosed homes stuffing the market with under-priced and under-valued homes.

Too many cooks in the kitchen

And still, with all the trouble the industry is facing, it seems that there are more cooks in the kitchen for the dwindling market and revenue. As millions of Americans have lost their jobs and are seeing a bleak work market, many of them turn to the real estate market as a potential way to take control of their financial futures. They hear to promises from Washington, D.C. about how the market is rebounding, how the incentives for people to buy are coming, how TARP is working, and all that political rhetoric.

They don’t see the reality; times are changing and when people don’t change with them, then the trouble continues to brew for those stagnant souls. The reality is that even through all of these fires, through these ragingly difficult times, we could survive. The strong real estate agents and brokers, the ones with experience and perseverance, would survive, and we have. But now we face the next wave of the Perfect Storm and this one can threaten all of us.

Technology sticks it nose into the fray

As if times weren’t bad enough, the traditional agents and brokers who have worked so hard to build their clientele and identities, who work for the biggest and most reputable names in the industry, are facing a technological shift that can leave us all reeling, even long after the long-touted ‘recovery’ actually begins. This article is not about the technology –that is covered in more detail in the next article- but rather how technology is the silent killer, the wind that is ravaging the calm, or the illusion of calm.

If you haven’t noticed the impact that the Internet has had on businesses across the world, then it’s time that you woke up to this reality and faced it head-on. If you’re a dinosaur and still want –or need- to compete in our modern society, then you can no longer hide from technology. The Internet has changed how people shop for and buy goods and services, and it’s changing how they find homes.

When you add up all that we’ve endured for the past three years, and you’re still kicking in this business, then consider yourself a survivor –you will endure. But it’s time to face the next phase of this storm and if you don’t have a web presence or are not technologically savvy, then you might very well be in trouble in the future.

David

While this is unfair assessment, one cannot alter public perception with a simple wave of the hand. Yet flipping is still alive and well, though not openly advertised, as it was before. Look to any number of short sales and then follow the home ownership of those homes several months down the road. People are still flipping and making money flipping houses, and as new people dive into the practice, there are some pointers that you can share with them to help them maximize their profits (and drive some business your way).

Money is made in the purchase, not the sale

Many people buy short sale or bank owned homes, invest some money on fixing it up, then selling it only to find that what they make on the deal wasn't what they planned. In some cases -more often than need be- these individuals actually end up losing money. The reason is not in price they sell the house for, but in the price they paid for it.

The money in flipping a home is made at the purchase. If they pay too much for a home, then odds are that they are not going to get that money back. The market is not rebounding as many industry experts had predicted and now those same experts (as well as many others) are not expecting any real, measurable rebound for at least another year, perhaps two. Or more.

Buyer beware: when planning on flipping a home, take into consideration how much you plan to invest in repairs or remodeling and how much the market will allow you to sell the home in its renovated condition. Then, determine how much you want to earn for the flip and then make sure that you don't pay too much for the house up front because that's where the money is really made.

Don't do the work yourself

You may be handy, you may be gifted at electrical or plumbing, but you aren't going to be as fast as a professional contractor. In order to make money flipping, you need to turn over the home as quickly as possible. Besides, any electrical or plumbing work needs to be done by certified professionals, and your inspection will notice shoddy or improper work that doesn't live up to code and you will end up having to do it all over again.

Set your selling price 1 to 2 percent below market value

Remember, the money of a flipped house is made on the purchase, not the sell. It is also made on how fast you can flip the home. If you buy in May and don't sell until the following January, then you've been paying on that home for seven months. If, on the other hand, you sell in August, or July (even better), then you can end up flipping two or three more houses in that time before January, meaning you will make two to three times more money in your flipping enterprise.

Right now there are countless bank owned and short sale homes available that make flippers drool. If they know the keys to making money at it, then they will continue to do business. If you're the one that helps them maximize their investment, then they'll be coming to you every single time.

Not a bad business model, is it?

David

And the small stuff includes closing gifts for clients.

Why closing gifts for clients? What’s the idea behind that?

It can be easy to think that closing gifts for clients are not even worth considering, especially given that they will be spending their time and energy and focus on their new home, moving in, getting rooms painted to their personal tastes, or any number of other activities that help make a house a home, so why even bother with this little, almost insignificant step?

The answer is simple: impact. While the closing gift doesn’t have to be any great shakes, clever and thoughtful items will mean that the client will think of you for weeks, and months, every time he or she steps into his or her new home. This will lead –in more cases than not, for certain- to the most important and impactful marketing technique available, which is word-of-mouth marketing.

People want to feel as though they are thought of as more than just a client, more than simply a number or a means to achieve a bonus or a paycheck or some other monetary measure. They want to feel unique and special and when they do, the impact can have a long-lasting effect on them and the people around whom they surround themselves.

Imagine the following scenario: Your clients are hosting their house warming party. Fifty of their closest family and friends are attending, viewing the house, complimenting them on what a great, special deal they got, and when they start talking about the process and the people involved in it, they talk mostly about you. Whether you’re an agent, or a broker, or another rung in that proverbial ladder, your name comes up first and foremost and they glow when they talk about you.

“Oh, you have to see what he (or she) got for us as a closing gift. Totally unexpected and it made the entire process so enjoyable.” Followed by, “When you’re ready to start looking for a new home, you must contact him (or her).”

Simple gifts, not extravagant

We’re not talking about extravagance here, we are talking simple, inexpensive closing gifts that will have that memorable impact on your clients, especially when they finally settle into their new home. Many people will immediately think of champagne as the perfect closing gift, but will that have the same impact as something else? Probably not. Champagne is meant to celebrate a wondrous event, such as buying a new home, but they won’t by popping the cork in your office, nor should you expect or encourage that.

What do most homeowners need when they settle into their new home? In the modern environment of home ownership, many do-it-yourselves turn to Home Depot or Lowe’s for additions, new appliances, or paint or other necessary items that will make their new home their own. Gift cards of $30 from these places can have an impact on a person; it’s thoughtful, it’s personal.

How about a gift card plus a six-pack of toilet paper. This isn’t exactly a pricey item, but it is certainly something most people need when they move into their new home (imagine all of the new homeowners who bring in their first round of boxes and furniture, turn to one another and ask, “Dear, do you remember where you packed to toilet paper?” and the look of lost confusion that follows. This kind of gift will be remembered.

How about a self-inking stamp with their name and new address on it. What a great way to welcome them into their new home, and new address and a way that they’ll remember and think of you every time they send out a letter.

It only takes a small gesture None of this is about large, expensive items, but rather smaller gestures. That’s what matters when it comes time to close on a home. If you want to be the one that’s remembered long after the closing, then a closing gift is the way to go.

David

The general concept in America for the past two decades has been to accumulate more debt, whether it was through credit or home loans, assuming that the value of their home would continue to increase, which it had through most of that period. Now the concept of saving is taking precedent.

Cash-outs reached their peak during the last decade, culminating in 2006 in which the rate of cash-outs hit 88 percent of home refinances. Taken into context, that number is nearly nine out of every ten homeowners who refinanced. These figures come from Freddie Mac, the mortgage giant that monitors refinances on a quarterly basis. When these homeowners cashed-out, they increased their mortgage balance by at least 5 percent, on average.

Then we all know what happened next. Between 2005 and 2009, the American homeowners lost more than $7 trillion in equity, according to Federal Reserve estimates. This evaporation of wealth was unprecedented and few populations or locations were spared. This has led to a shift in the psychological makeup of the average homeowner who is now looking for ways to reduce their debt burden. Last quarter, according to Freddie Mac, 33 percent of homeowners actually put cash into their refinancing loans to decrease their mortgage balances as well as aim for lower interest rates.

A great advantage to cashing-in on refinancing is that for homeowners who, for example, have a LTV (loan-to-value) ratio of 80%, will have to pay private mortgage insurance premiums and may also be subject to higher interest rates. Cashing-in and paying down the LTV to, let's say 75%, the homeowner can avoid those costly private insurance premiums and also qualify for lower interest rates.

The rationalization for cashing-in on refinancing is simple and makes perfect sense, though it is not always clear to homeowners or mortgage brokers at the outset. First, with interest rates in the economy overall being as low as they are, money that is held in savings accounts are not earning much at all. Money market funds are not fairing all that much better, either. Paying down a home loan right now actually offers a better investment.

Cash-ins are, in essence, a more disciplined form of savings, though many homeowners still feel nervous about removing their liquid assets in a tight economy. Understandably with so much volatility in the economic and financial climate, with jobs still being shed and new ones being slow to evolve, tapping into a savings account may appear to be a risk on the surface. Yet the long-term savings by cashing-in on a refinance will far outweigh that of keeping it in a bank account.

What's not clear yet about cash-ins is whether this is the beginning of a serious trend or merely a current plan of some homeowners to take advantage of sound financial advice. In 2007, cash-ins hit 9 percent of all refinances. By the final quarter of 2009, the number had jumped to more than 33 percent.

This trend may also be due to a tighter financial lending atmosphere, making it more difficult for homeowners to cash-out. It may also be a temporary, conservative approach until interest rates begin to climb once again. Whatever the case, if a homeowner has savings to tap into, then cashing-in may be a valuable, cost-saving option in the current mortgage and financial climate.

David