Final Course Grades and Blog Post Grades Posted to BlackBoard

FIN 182 final course grades and you blog post grades have been posted to BlackBoard.  Since campus is closed this week, if you have any questions please call me at 559 325-4732.  Have a good break!

Final Exam Grades Posted

The final exam grades have been posted to BlackBoard.  The posted grades have been curved.  The average grade was 76%.

I am still working on the blog posts.  I will make another post when these grades have been posted to BlackBoard.

Ethics of Subprime Mortgages

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Ethics of Subprime Mortgages

By James Smith

There are few individuals throughout the United States and in worldwide business who do not know what Subprime mortgages are and what effect they have had on the worldwide economy. Subprime mortgages can essentially be defined as loans given to individual with insufficient qualifications with an impossibility of being paid back. When the world started to realize these mortgages were going to have detrimental effects on the world’s economy the loans couldn’t even be distinguished because they had been bundled and sold so many times (Barnes). Why were these loans made? Why did people accept them? Was it ethical to make these loans?

These loans were given and accepted for many reasons; in 2002 the economy began to rapidly expand, home values began to rise dramatically and interest rates were very low. It also seemed that the American dream of owning a house was attainable for anyone willing to sign on the dotted line, even for those with little or no down payment and often less than ideal credit. These mortgages were often lent with the adjustable rate attached to the loan, which showed low monthly payment; unfortunately it was only temporary. Many banks made these loans without enough hesitation because they were securing most of their profits on the front end of the loan; the individuals taking out the loans figured the value of their home would never stop increasing they had nothing to loose (Barnes).

Thomas Kostigen from marketwatch.com states “Exploiting those in need never gets any one ahead of the game in the long run. Sure, short-term profits are there to be made, but ultimately repentance prevails.” He said this in an article he wrote about subprime mortgages and the ethics involved around them. This statement seems to sum up the whole cycle of the affects of these types of loans, yes there was much money made on these loans, but now, in the long term many people and entire companies are paying the price. Kostigen also warns about companies that scheme for quick money typically do not have a solid ethics base vs. good performance comes from good ethics throughout companies.

In contrast to poor ethical decisions made by many banks John Allison, recently retired CEO of BB&T ( a bank based in NC with around 1,500 branches and 143 billion in assets (Hemingway)) explains “Subprime mortgages were bad for the people who took them out. That went against BB&T’s philosophy.” This bank has been able to stay out of financial trouble and away from government money by following its solid time proven philosophies. Allison is still out to make money and is a supporter of capitalism but he has shown through his actions that one is better off in the long run being honest; and looking out for both the company and the clients yields better profits and relationships in the future.

Now that the dust has settled perhaps individuals both involved and those who watched from the sidelines will take another look of how important ethics are. People are in business to obviously make money and it seems that those who had strong principles and ethics did just that.

References:

Barnes, R. (n.d.). The Fuel That Fed The Subprime Meltdown. Retrieved November 18, 2009, from Investopedia.

Hemingway, Mark. "Objectivist Philosophy for Fun and Profit." National review online. 30 Apr. 2009. Web. 5 Dec. 2009. .

Kostigen, Thomas. "No surprise here Shaky ethics of subprime lending lead to shaken investors." Market Watch. 27 July 2007. Web. 6 Dec. 2009. .

Final Exam Reminder

The final exam is on Tuesday, December 15th from 5:45 to 7:45 PM.  The final exam will cover chapters 9, 10, 11, qualifying the buyer blog posts, and one question from our speaker.  Please note that chapter 12 (property management) will not be included.  The exam will be primarily objective questions.  Please bring pencils, calculator, and Scan-tron answer sheet.

Property management

Property Management-- Mike Kremko, Mark Silva, and Daniel Fiero

Real estate can be used for its investment value including apartment complexes, offices, or shopping centers. For property owners it is often necessary to hire a property manager to supervise the operation since it can be tedious and the property may often be located in a different city. The property manager has duties including: accounting, maintaining equipment, accepting rent, and responding to any issues a tenant may have. A property manager may be a licensed real estate salesperson, but generally they work under a licensed real estate broker. They act as a buffer between property owners and tenants. Should any issues arise, the property manager will more than likely bring them to the attention of the property owners in an attempt to remedy the issue, but some issues can be easily resolved without the owner’s involvement. We will be discussing property management from the landlord’s point of view covering such things as possible income properties, the job of a property manager, perspective tenants, and contracts with tenants.

Residential Property Management

Screening prospective tenants is an important thing a landlord should always do to protect their investment and to also prevent any unnecessary problems. Since the turnover rate is typically high in the residential market, it is best to do a thorough check to prevent a vacant unit and any legal issues. One of the first things to do is have them fill out a rental application. Be sure to get full names, copy of their driver’s license/identification card, social security numbers, and employment history with a recent check stub. A small fee should be charged to cover the expense of checking their credit report, which can now be done easily on various websites at a small fee. Getting a credit report will determine if the prospective tenant has been consistent about paying their bills and their debt to income ratio is not too high. If they have met your criteria, it may be reasonable to think the perspective tenant will be able to pay you the amount agreed for the duration of the lease. If they have not been responsible in the past, it may be a risk to assume they will pay you and will either require you to choose the next applicant or require a cosigner for the current applicant. Next it is crucial to get fairly recent references. If possible, get numbers to old landlords and speak with them. This will be a good way to get their rental history or learn of any issues they may have had in the past (Haupt & Dorsey). At this point you would want to schedule an appointment with the prospective tenant to explain your expectations of them. This will provide a way to see how they react to those expectations. Also, it invites questions from both sides to clarify any ambiguity. Once terms have been agreed on and the interested party decides on the property, it is time to sign a lease agreement.

A lease agreement must comply with state and local laws. Depending on the area, lease agreements may have some differences. It is a good idea to have an attorney review your lease to make sure it is compliant with local and state laws, as well as enforceable in court. The lease will all have some major components such as: name of tenants, lease term (typically one year), payment of rent, deposit, fees, user responsibilities, pet clause, security deposit clause, and access to premises (Lopez). The lease will also include information on what will happen if the tenant is late on a payment or if they refuse to pay.

In California the eviction process is complicated and sometimes costly. The eviction process begins with a 3-Day Notice to Pay or Quit, 30-Day Notice to Vacate, or 60-Day Notice to Vacate (Marsh). If the tenant doesn’t move out by the specified times, the landlord may file an unlawful detainer. In an unlawful detainer, the landlord is the plaintiff and the tenant is the defendant. Usually within 1 to 10 days the tenant is served with summons papers. At this point it may be a good idea for the tenant to seek legal advice. The legal process is very complicated and lengthy. In the end the court could rule in favor of the tenant. In which case, the tenant may continue to reside in the rental unit and the courts may award the tenant his legal fees as well as damages. The court could also rule in favor of the landlord. In this case, the court orders a “writ of possession” and awards the landlord legal fees and unpaid rent. The court clerk will issue the order to the Sheriff. Within 1 to 3 days a peace officer will deliver a 5 days’ notice to vacate the property or be evicted. If the tenants do not comply the peace officer will physically remove the tenants and return the property to the landlord’s possession. Although the eviction process rarely occurs, it is best to understand how to handle the process.

 

Commercial Property Management                               

Screening perspective tenants in commercial real estate differs for the process done in residential. Unlike residential properties, there is a fairly low turnover rate in commercial properties because businesses become synonymous with a certain location. Property management companies usually will put together a detailed packet of information for potential renters, which include traffic studies, demographics of the area, and land reports. Due to the troubled economy the turnover rate has gone up in commercial real estate and there are more vacant storefronts and office buildings in cities across the country.  When applying for a commercial space a few more factors are taken into consideration. A typical application will have you include a full balance sheet of the company, any liquid assets or collateral possessed by the company or their owners in the event that the rent is not paid, and information on any cosigners of the property. Additionally, the perspective tenant will have to have either enough cash or a loan from a banking institution in order to complete any work on the property. Once the application has been processed and accepted, the lease agreement is covered.

 

Unlike residential leases, a commercial lease will be a long-term contract with various different clauses. One main difference between residential and commercial is that the commercial property is leased out by total square footage and could also have additional monthly fees based on their monthly income. Another clause in the lease is a tenant improvement allowance or TI allowance for short. Many commercial properties are leased as an open floor plan, which allows for tenants to design their property in a way that is beneficial for their business. A tenant improvement allowance is usually given once the work is complete and is paid out by the owner per square foot. The tenant improvement allowance covers the construction costs of any fixed items that will continue to be in the property after the tenant leaves (Schwellinger). Typically with a commercial lease, the repercussions of defaulting are much greater. The property owner could keep the security deposit, restrict you from entering your property, and will more than likely sue you for all rent for the duration of the contract.

 

 

California Eviction Guide For Tenants and Landlords

Prepared By: Melissa C. Marsh, Los Angeles Landlord-Tenant Attorney

http://www.ehow.com/articles_4827-property-management.html

 

Schwellinger, Brian. "Questions and Answers about Tenant Improvement Games." 20 APR 2005. Web. 20 Nov 2009. http://www.realestatedec.com/artman/publish/article_49.shtml

 

Haupt, Kathryn, and Megan Dorsey. California Real Estate Practice. 4th. Rockwell Publishing, 2009. Print

 

Lopez, Carrie. "A Guide to Residential Tenants’ and Landlords’ ." July 2006. California department of consumer affairs, Web. 18 Oct 2009. 

http://www.dca.ca.gov/publications/landlordbook/catenant.pdf

 

 

 

Loan Qualification Requirements and Ethical Lending Standards

Loan Qualification Requirements and Ethical Lending Standards

Cherise DeLucia
James Dallas Smith
Matthew Ringel

The overall health of the economy is gauged by many factors; growth, unemployment, interest rates, the economic environment of individual business sectors and many other components can all impact the economic constitution. The current economic crisis was a perfect storm of interdependency within business sectors that eventually lent itself to a worldwide economic down turn.

The sub-prime mortgage crisis was the result of a blend of low interest rates, inflated homes prices, excess foreign capital, deregulation of lending markets, and ultimately, poor lending decisions made my banks leading to poor borrowing decisions made by consumers. With the use of sub-prime lending vehicles -like adjustable rate mortgages, zero down lending, and stated income loans- banks lent money to people that could not afford the given terms, and consumers were often sucked into loans they did not understand or took on more debt then they could actually afford. We will review the impact of sub-prime lending on the current economic climate and lending markets and examine loan qualification requirements, ethical lending standards, consumer education, and the impact of these cornerstones on the economy as a whole.
When the real estate market was booming it was too easy to obtain a mortgage; on the other hand, when it is down in the slums -as it has been for most of the country through these recent tough economic times- you may have to jump through hoops before seeing any satisfying results. One of the biggest reasons for driving the real estate market down was the extremely loose lending standards and requirements practiced by many mortgage lenders over the past decade. No longer is that the case since the tightened pre-approval lending requirements and unstable economy have put a lot of people looking to purchase a home in a bad position.
In an article written by Lisa Scherzer on SmartMoney.com, she goes through what she calls her, “7 Tips for Getting a Pre-approved Mortgage.” At the top of the list she explains the importance of obtaining a letter of pre-approval, which is simply a letter from a mortgage lender stating they have verified that the would-be borrower is approved for a mortgage for a certain amount over a given period of time. Most real estate agents, and sellers for that matter, won’t even deal with potential buyers unless they have been pre-approved. It’s pretty simple, the letter shows exactly how much the buyer can borrow and lets them know right off the bat what houses in what price ranges they should look for. When it comes to the seller, the letter proves that the potential buyer can indeed afford their home should they decide to purchase and therefore the seller and the seller’s agent can put forth more effort in attempting to close a deal.
One of the next “tips” that Lisa Scherzer has to offer is for the buyer to prepare their financial biography. This step would obviously come before the pre-approval letter since it includes the documentation a lender would need to see in order to pre-approve, but nonetheless a very important step. What this biography allows the lender to do is review and confirm the borrowers income, credit and assets to ensure that they will be able to make the necessary monthly payments in order to fulfill the mortgage requirements. It is most important in times like these to have the proper paperwork put together to allow your potential lender to conduct a thorough pre-approval analysis. Although your lender should let you know what paperwork is necessary, Ms. Scherzer included 5 absolute musts to include: W2 statements, federal tax returns for the past 2 years, bank statements for the past few months, recent pay stubs and proof of any other income, and finally proof of investment income (Scherzer, 2009).

Historical lending parameters usually include a solid credit history benchmarked with a quality FICO score. A FICO score, or “Fair Issac Corporation” score, is a mathematical composite to determine credit risk. It takes into account a consumer’s payment history, current level of indebtedness, types of credit used, length of credit history, and new credit and then assigns a numerical rating to reflect their credit worthiness. FICO scores can range between 300 and 850, with a higher score resulting a more favorable lending status.

Buyers have traditionally been required to come up with a down payment of 20% of the value of the home to qualify for a mortgage. FHA loans can offer smaller down payment requirements, but it was not until the advent of the sub-prime loan that borrowers could attain a loan with little to no down payment. With the popularization of the sub-prime mortgage, consumers were encouraged to take part in the American dream at a risk that ended up detrimental to the economy as a whole.
Converse to the construct of traditional lending standards, sub prime mortgages are essentially loans given to individuals with poor credit and little or no down payments; in which many instances the individual with the loan only pays towards the interest for several years. This was the main reason for companies lending the money in the first place because they are securing most of their profit on the front side of the loan. Due to the struggling economy pre-2001 after September 11, 2001 the Federal Reserve cut interest rates, which in turn expanded the economy and encouraged borrowing. Soon after this, the economy and property values began to skyrocket with no end in sight. Because of this companies and Wall Street were eager to purchase and or sell packaged loans even if they contained less perfect, higher risk, subprime loans.
In 2002, mortgage rates were at a 40-year low, which yielded a very cheap source of equity enticing borrowers (Barnes). More and more people were purchasing homes whether they had the money or not throughout 2006 and into 2007. These subprime mortgages were very appealing because of the low or no down payment required, low interest rates, and a temporary low payment. At the time, another appeal was if the payment did rise an individual could pull equity out of their home to pay it down because of the drastic increase in value that was expected. Ethics play an important part in this situation because lenders were giving money to individuals who could not afford to pay it back. Today there is a concise opinion that millions of people did not know what they were getting into; the blame lies not only with the home buyer but also with irresponsible lenders. This situation lead to the current status on many people losing their homes and or filing bankruptcy because they were too upside-down to ever pay back their mortgages.
On a larger scale these sub prime mortgages yielded a worldwide economic slowdown. All of these loans were bundled up with A+ ratings and sold to investors around the world so when the bottom fell out it affected everyone. The banks/lenders sold these loans in order to free up their capital so they could lend even more money to people via sub-prime adjustable rate mortgages, and with home rates doubling who could blame them. As long as home values kept increasing these sub-prime mortgages would not have a negative affect on anyone’s liquidity. When interest rates began to rise and home purchasing began to slow, individuals with adjustable rate mortgages began to see their monthly payment dramatically increase which lead to defaulting on mortgages. This turn of events also presented problems for the companies who purchased bundled loans, as they were not able to collect on their A+ investments. These subprime loans became toxic to the portfolios they were in although they could not be identified because they had been bundled and re-sold so many times. The subprime mortgage seemed to have collected the whole world economy and millions of people rode it all the way up only to come crashing down.


As the economy continues to recover and the lending markets continue to tighten, more emphasis will be placed on ethical lending standards and conservative mortgage qualifications guidelines. A balance between profits of mortgage brokers and banks is necessary for a stable financial market place and for the financial health of consumers. It is also the responsibility of the buyer, to understand what they can afford, versus what a mortgage broker may offer them. The mortgage crisis created a demand for ethical, quality lending standards and guidelines, as it proved to the entire economy is tied to the success of the lending industry and with that comes responsibility of stability.

Reference:

Barnes, R. (n.d.). The Fuel That Fed The Subprime Meltdown. Retrieved November 18, 2009, from Investopedia.

Collins, J. (2009, October 3). O.C. property investor seeks bankruptcy rescue: Mammoth Equities' defaults are just the latest development in mounting commercial real woes. The Orange County Register.

MSNBC.com. Fed says banks tightening mortgage standards: Both traditional and non-traditional loans are harder to qualify for. http://www.msnbc.msn.com/id/30563498/

Scherzer, L. SmartMoney.com. 7 Tips for Getting a Preapproved Mortgage: http://www.smartmoney.com/personal-finance/real-estate/7-tips-for-getting-a-preapproved-mortgage/

London, A. (2009, August 8). Fed offers mortgage search tips. News Journal,B.2. Retrieved October 1, 2009, from ProQuest Newsstand. (Document ID: 1825954401).

Fha.mortgageloanplace.com/FHA-Loan-Qualification.html

www.searchlightcrusade.net/2009/04/loan_qualification_standards_l_3.html

Real Estate Negotiating with Ethics

Jose Alvarez, Jose Villarreal and Luis Ramirez

On a daily basis we negotiate for daily resources; like choosing a gas station with the right price, what to spend on dinner, who has the better happy hour? Yet there are certain fields in which negotiating may have more impact on you and your cost of living, like real estate. In real estate every party involved wants to get the best price. With several parties wanting more and not going by the rules, it gets harder and harder to get a fair deal. When making a purchase the buyer and seller enter into something that is called a negotiating process. Both parties want the best out of the deal, the seller wants the highest price and the buyer wants the lowest price. In order to find a common ground, ethics and merit in real estate must be considered to be the primary source to negotiating. Although when dealing with real estate, several parties might argue that there price is right, if you don’t argue using merit and good ethics you may not be successful in reaching an agreement.

CAN ETHICS BE TAUGHT?
When making a purchase the buyer and seller enter into something that is called a negotiating process. Both parties want the best out of the deal knowing that they are making the right decisions. On a daily basis we negotiate everyday but theirs certain fields in where negotiating goes deeper. In real estate every party wants to get a fair deal with several parties wanting more and not going by the rules. Ethics and merit in real estate can be consider to be the primary source to negotiating successfully while on the other hand dealing several parties might argue that if you don’t have good ethics you may not be successful. Professionals say that ethics is important and that indeed it is something that can be taught. Many say that individuals that are entering college are known to have ethics within them at this stage. With good ethics good decisions follow and with that a successful negotiation process will follow.

Negotiating is the key to a successful deal and many parties may want to negotiate and others may just look around it and avoid it in the best way that they can. If a seller wants to sell a property and not include merit while negotiating the buyer might see that he is not fair with him and might not want to come back to make deals with him again. “Ethical considerations of real estate investing do not get much airtime, but they're hugely important on many levels, both altruistic and pragmatic” (Smith). This is very important when dealing with real estate because it’s important to have great ethical behavior when negotiating merit decisions. For example many can argue that ethics can’t or can be taught but can they for those that argue that it can be. “You’re either born with ethics or you just don’t have them” is what many individuals might argue but believe it or not several professionals say that ethics can be taught. There have been several organizations that teach ethics in their facilities because they want the best out of their workers so that they can be more productive. Ethics consist of what we ought to do in order to be successful. There was a recent article in a famous editorial, the Wall Street Journal where there it stated that ethics courses are useless because ethics can't be taught. For an article to state this, this can be very important in many ways because with this publish many would say that only proof would solve this conflict. In an article by the Santa Clara University it states that, “Almost 2500 years ago, the philosopher Socrates debated the question with his fellow Athenians. Socrates' position was clear: Ethics consists of knowing what we ought to do, and such knowledge can be taught” (Velasquez). “History tells us that over 2,000 years ago, the philosopher Socrates debated this issue with his fellow Athenians. Socrates believed that ethics consists of “knowing what we ought to do,” and that this knowledge can be taught” (Carroll).

Ethics is a process that many professionals would like that colleges and universities implement ethics classes in their course systems as an option to teach to students. Ethics is important in every professional field but when dealing with real estate we can say that it is a must in order to have the best decision for all participating parties. Some even say that in the real estate industry theirs a lack of ethics and that it is one of our greatest national scandals. Also, that it is a hidden scandal because thousands of consumers don’t realize how they are being hurt. Many consumers are purchasing a property with little references to that property. Several individuals don’t take the time to do research in the real estate market and compare properties before purchasing and because of that a seller might be so good at selling that when he realizes that he’s selling a house to someone who is not that very knowledgeable in real estate, the seller tends to take advantage. When this happens the seller happens to not use his ethics skills and tries to focus more on getting a better deal for himself. Recently, looking at our real estate market situation, there is a lot of speculation that the cause for the real estate bubble and burst was due to unethical lending practices on many aspects of the mortgage loan market. From the mortgage lender who sold homes to those who could not afford the adjustable rate mortgage or did not predict that property values would drop below the amount owed within a year’s time. To financial institutions purchasing toxic mortgage backed securities sold by companies who did not know what the securities actually contained.

STEP BY STEP OF NEGOTIATING WITH ETHICS:
In negotiating with ethics there are a few steps you want to take into account. The first is to separate the people from the problem by focusing on what’s fair for both parties as opposed to one side. One might say, “To walk a mile in someone else’s shoes would give you better perspective on why they see things the way they do.” This requires taking a neutral position on negotiations by promoting a position that is better for both parties as opposed to one. Looking for the maximum outcome for each party using compromise presents a win/win. Selecting a neutral position requires developing objective criteria.

Objective criteria can be market value, precedent, scientific judgment, what a court would decide, moral standards, equal treatment, cost, etc. Using market value as an objective criterion would be to allow the current market value of a particular real estate property dictate the listing price as well as what consumers will pay. Precedent focuses on recent or past sales in the neighborhood or similar home. What using objective criteria does is allows a negotiation to take other things into account besides what each party thinks. When negotiating a real estate transaction, if you were looking to purchase a property and were told a selling price that was hire than you anticipated, you would ask what is dictating the asking price. If you were told that this is the current market price and precedent also confirms the price, you may consider it. Although if you were told that the property has sentimental value to the seller and there is no other reason why the property is listed as such, you would not be as open to buying that property. When negotiating real estate, using facts that can be proven is your best evidence to why your price on the property is more accurate. Not to mention that disputes regarding real estate usually end up in court so you might as well start building your case from the beginning.
While using objective criteria in negotiations you will begin to invent options that have mutual gain. Using market value can ensure that the buyer is not being over charged and can also provide the seller a quick sale. Inventing options for mutual gain is when you suggest common solutions that can benefit both parties. Using this strategy can not only provide for a smooth and happy negotiation but can also lead to increased and repeat business. Consider the homes that sit on the market for longer than preferred, they typically are either over priced or do not convey a value to the buyer. If the seller consider reducing the price to something the buyer sees more reasonable or even add some features like including furniture, they are more likely to sell the home. Otherwise they may not sell the home if they are insistent on not reducing the price of the home.

NEGOTIATING WITH ETHICS PROS AND CONS:
There are numerous advantages or pros that could be derived from negotiating with ethics or, also called, principle negotiation. For starters, separating the people from the problem allows more energy to be focused on the actual problem rather than the people involved. It also keeps the parties involved from mixing in any relationship aspects while negotiating (Funken). Principle negotiation’s focuses on the interests of the parties and therefore provides a path for mutual adherence along with creating more results for the parties’ interests. It challenges each party to think outside of the box by looking for more options to solve the root cause of their problems (Funken). In addition, principle negotiation builds a foundation to enhance the party’s relationship, getting each party to take into account emotions and future involvements amongst the parties involved. Moreover, it takes into consideration legitimate standards (Funken). By providing authoritative standards the parties do not have to compromise but rather conform to the bylaws. Enforcing such authoritative standards distinguishes any conflicts and cohesively meets one or both parties’ interests. However, principle negotiation does have some disadvantages also.

Cons or arguments of principle negotiation include being to generalized, interest focused and the hard bargainer. Generalization is having a general idea with a general application (merriam-webster, 2009). The parties are being constricted to the four principles outlined in the principle negotiation process, and not allowed to venture in other possible negotiating steps or styles. There may be incidents when the negotiations could be concluded in more efficient ways than those listed in principle negotiating. For instance, by allowing the parties to be creative or by incorporating other negotiating styles (Funken). “Moreover, Provis warns that the focus on the concept of ‘interests’ flattens out the complexity of human interests, values and beliefs. He points out that often negotiations hinge on people's values and perceptions, rather than on their interests” (Funken). If the parties tend to focus on the interest alone and not the perceptions and values of the people then there may be possible barriers that may arise. Furthermore, principle negotiation states to use negotiation jujitsu when dealing with a hard bargainer, but what if the other party has other motives. Some possible motives can be revenge, an intelligent advantage, or the thrill of negotiating (Funken). I understand these may be a tad extreme but they do exist in some cases and should not be completely omitted going into a negotiation. The stated pros and cons discussed are only a few presented by experts in the negotiating field, and are not intended to discredit principle negotiation, but rather provide information to better assist individuals while negotiating.

REFERENCES:

"Generalization." Merriam-Webster Online Dictionary. 2009. Merriam-Webster Online. 26 November 2009http://www.merriam-webster.com/dictionary/generalization

Funken, Katja. “The Pros and Cons of Getting to Yes.” n.d. Web. http://200.14.84.223/apuntesudp/docs/cfi/ (CFI8225) Negociacion_Crisis_y_Conflicto/ (2003-03-25) _378_the_pros_and_cons_of_getting_to_yes.pdf 30 Oct 2009.

Smith, Christopher. “Ethics play important role on all fronts for real estate investors.” Bizjournals.com. Houston Business Journal, 27 Oct. 2006. Web. 17 Oct. 2009.

Velasquez, Manuel, Andre, Claire, Andre, Shanks, Thomas, S.J., and Meyer, Michael J. “Can Ethics Be Taught”. Scu.edu. Santa Clara University, 1987. Web. 17 Oct. 2009.

“National Fair Housing Training Academy Gets Permanent Home”. http://www.appliedlearningsolutions.com/ Patricia Roberts Harris: National Fair Housing Training Academy, n.d. Web. 17 Oct. 2009.

Hejl, Roselind. “Top 7 Ways To Negotiating the Real Estate Contract”. top7business.com. Christopher M. Knight’s Top7Business, n.d. Web. 17 Oct. 2009.

Fisher, Roger and William Ury. Getting to Yes: Negotiating Agreement Without Giving In. New York, NY: Penguin Books, 1983.

Carroll, Archie B. “Can ethics be taught” Copyright 2003 University of Georgia. 17 Feb. 2003 http://www.uga.edu/columns/030217/news12.html. 30 Nov. 2009

What Every First-Time Homebuyer Should Know About the Federal Tax Credit

By: Kelsi Kelly & Kelly Vang

The housing industry is a critical part of today’s current economic condition. Housing accounts for 16 percent of the U.S. economy. Since the recession, over 6 million jobs were lost, 1 million of which are in housing construction and associated fields. This has also caused the housing inventory to reach 4 million homes. Therefore, the government has formed the homebuyer tax credit to improve the housing industry and recover the market. (NAHB, 2009)

With The Worker, Homeownership, and Business Assistance Act of 2009, President Obama has extended the first time homebuyer tax credit, allowing first-time buyers an extended tax credit that can exceed up to $8,000. The new time frame is November 7, 2009 to April 30, 2009 (Realtor, 2009). This pertains to sales that are signed by May 1, 2010 and have until the end of June 2010 to actually close the transaction (Mullins, 2009). First time homebuyers are classified as people who have not owned a principle residence in the past three years (Realtor, 2009). The tax credit asserts income limits as follows:

After 11/06/09
Single taxpayers: $125,000
Joint taxpayers: $225,000

On/after 01/1/09; on/before 11/06/09
Single taxpayers: $75,000
Joint taxpayers: $150,000

Individuals whose income is beyond the limit may receive partial tax credit. The first-time home buyer tax credit is a part of the American Recovery and Reinvestment Act of 2009. After the success of the first part of the tax credit for first time homebuyers, people were pushing for an extension of the date to allow more people to qualify for the credit; the new tax credit lengthens the deadlines and income limit; however on the downside document requirements are more stringent (IRS, 2009).

Homeowners have the opportunity to get a tax credit if they have lived in their home for 5 years in the past 8 years and will receive up to a $6,500 tax credit for a house they purchase between November 7, 2009 and April 30, 2010 (Realtor, 2009). Now with more additions to the act, there are plenty of people who qualify for the tax credit. The home being purchased must be the primary residence and be up to $800,000 (Realtor, 2009).

The tax credit is calculated by the owner’s income and 10 percent of the purchase price of the home not surpassing $8,000 (Realtor, 2009). The tax credit does not need to be paid back if the owner lives in the home for three or more years after; if owner sells it before three years, then they will have to pay it back (Realtor, 2009). According to a California Association of Realtors research, 40 percent of first-time homebuyers surveyed said they would not have purchased a home without the federal tax credit and 70 percent said the tax credit was very important in deciding to buy a home at this time (Netchaev, 2009).

This tax credit can be claimed on the purchaser’s federal income tax. It is important for the buyer to complete an IRS Form 5405 to first verify their tax credit quantity and make sure they meet the criteria before they claim the tax credit total on their 1040 tax return form, indicated on line 67.

Other essential details buyers should know about the tax credit is:

-You can only claim tax credit once
-You have to be a US resident to claim tax credit
-You can go to the state housing finance agency to access the money allocable to the tax credit more rapidly instead of waiting to file their tax return; this fund can then be use as a down payment for the home and/or for closing costs
-You must be over 18 years old
-You may also qualify for the tax credit, if you construct your own home-If you are married and if either you or your spouse has previously purchase a home, the tax credit does not apply (IRS, 2009).

The tax credit has proven to have a good economic impact; it has strengthened the housing demand and encourages the economy revitalization. The National Association of Home Builders (NAHB) has generated an economic analysis which has indicates the economic benefits the homebuyer tax credit will have on the country within the time frame of one year:

•”Increases home purchases by 383,000
• Increases housing starts by 8,000
• Create nearly 350,000 jobs
• Generate $16.1 billion in wages and salaries and $12.1 billion in business income, and
• Yield tax revenues of $8.4 billion for the federal government and $3.2 billion for state and local
Governments (NAHB, 2009)”

In summary, now is the perfect time to be a part of the American dream with purchasing a home with a great incentive from the government. Homes are more affordable than ever, and with so many house varieties (inventory) to choose from, builders as well as sellers are offering big discounts, while mortgage rates are historically low; this is definitely a buyer's market. For a better understanding of the extended tax credit for first time homebuyers, you can view the following video : http://www.youtube.com/watch?v=nPNEk14qvo0

References:
1.IRS. (2009). First-Time Homebuyer Credit. 2009. www. Irs.gov. Retrieved on 11/28/09 at http://www.irs.gov/newsroom/article/0,,id=204671,00.html.
2. Mullins, Luke. (2009). Expanded First-Time Home Buyer Tax Credit Becomes Law. Retrieved on 11/28/09 at http://www.usnews.com/money/blogs/the-home-front/2009/11/06/expanded-first-time-home-buyer-tax-credit-becomes-law.html.
3.Realtor. (2009). The Basics: Extended Home Buyer Tax Credit 2009/2010. 2009. http://www.realtor.org/. Retrieved on 11/28/09 at http://www.realtor.org/home_buyers_and_sellers/2009_first_time_home_buyer_tax_credit. 4. NAHB. 2009. Homebuyer Tax Credit Proposal: Economic Impact Analysis. 2009. http://www.nahb.org/. Retrieved on 11/28/09 at http://www.nahb.org/fileUpload_details.aspx?contentID=127117.
5. Netchaev, Irina. 2009. $8000 first time homebuyer tax credit extended…awaiting Obama’s signature. Retrieved on 12/2/09 from http://www.irina4realestate.com/8000-first-time-home-buyer-tax-credit-extended-awaiting-obamas-signature/.

Give Me A Lending Hand

Group Members:

Victor Ramos & Allen Perry

There are many different ways to finance your home and in today’s economy it is key that you find the best mortgage that will fit you. First you must asses what type of loan you are looking for or if you qualify for government aid when financing your home. You must take in consideration the time duration that you plan on living in your home or if it is just a business investment.

When getting financed for a mortgage loan it is advised that you make a checklist to make sure you are well prepared for this big investment. According to http://finance.yahoo.com/ the key basics that you need to make sure that you have covered is first to review your credit. It is important that you review your credit to see if there are any errors. If errors are found it is a must to take care of them before proceeding in purchasing a home. That then leads into choosing what bank or lender you will be seeking to get a loan with. It is important to take your time and research current rates of various lenders to make sure you are getting the best deal. Next you must go and see about getting yourself prequalified . The way to do this is to make sure all debts are paid off. The less debts in your name the more likely that the banks will approve your loan. The last item on the checklist by http://finance.yahoo.com/ is to check into government organizations such as the U.S. Veterans Administration to see if there are any ways of lowering your down payment on your new home. This then leads into finding the right loan for you.

The first loan that we will be discussing is an Adjustable-Rate Mortgage loan. These types of loan’s have interests rates that are adjusted based on the current financial market. You have the ability to sometimes set how long the current interest rate will be in the beginning of the loan which are usually of 1,3,5,7 or 10 years in which the interest rate is then adjusted annually from then on. You may have the option to have the first few years of the loan locked into a fixed rate and once that time period is up the Adjustable-Rates will then begin in affect.

The next type of mortgage that is typical when financing a home is a fixed mortgage. This is a more appealing loan for home buyers because your interest rate is fixed which gives the buyer an idea on what the cost of the home will be for the duration of the loan. This type of loan typically is for a 30 year mortgage in which monthly payments are made for the life of the loan which are fixed at one rate. This type of mortgage allows for the home buyer to plan financially for the future because they can estimate their total cost of the loan as to where an adjustable rate mortgage does not have such a luxury. A very similar loan like the 30 year fixed rate mortgage loan is the 15 year fixed mortgage but with slight differences. The payments for a 15 year fixed mortgage will be higher but this then allows for the buyer to have a lower interest rate because the loan will be paid back to the lender in half of the time of a typical 30 year fixed mortgage. It is good to asses if you can afford this type of loan and pay off you home sooner rather then caring out your loan for 30 years.

If as a home buyer you are able to qualify for a Federal Housing Authority loan or FHA loan, you then might want to take a good look at this type of loan because it can be very beneficial for the buyer. This type of loan typically targets new home buyers because the payments for this loan will require smaller down payments than typical loans from other lenders. The terms of these loans are usually set for 30 years and are targeted for purchases around moderately priced homes. One draw back is meeting the qualifications of this type of loan but if as a home buyer you are able to get this type of loan it could be a very appealing loan. According to http://www.fha.gov/ they have insured more than 37 million mortgages since the year 1934.

Another government loan that requires qualifications by the buyer is a VA loan which stands for Veterans Affairs. This loan is through the Department of Veteran affairs and can be combined with a second mortgage. The payment for a VA loan are typically lower than your average loan and also may or may not require a deposit in order to purchase your home. These mortgages are typically for 30 years and can also be passed on to another person who meets the Veteran requirements of the loan. After taking a look at their website which is http://www.homeloans.va.gov/ , the Veterans Affairs can offer other help to veterans who are searching for a mortgage loan such as educational benefits, survivor insurance and traumatic injury insurance.

If you have the extra money there is a type of loan which allows you to pay extra money to the lender which then lowers the interest rate of the loan. This type of loan is called a Buy Down Mortgage Plan. This loan may have high initial cost but it gives the buyer the option for having lower payments during the life of the loan which is also typically 30 years for this type of loan. This may be an appealing loan because it allows for more flexibility financially for the buyer in the future than a typical loan because you would not have the burden of a large house payment as you normally would in a standard loan.

In order to finance your home you must take in consideration your main goal as a buyer. This will then allow you to pick the right mortgage loan for you. You might want to asses the current market rates and research before you commit to one type of loan over another. In times such as these where the country is economically on a low many people are looking to save more money than ever and finding the right mortgage is a good way to start. Purchasing a home is a big commitment which takes a lot of time and effort by the buyer so educating yourself in the different mortgages will give you an upper had when approaching a lender for a loan.

Sources:

http://www.finance.yahoo.com/

http://www.fha.gov/

http://www.homeloans.va.gov/

Baker, Kay Wilminton NC real estate 2009 http://www.activerain.com/

http://www.wellsfargo.com/

California Real Estate Practice, by Kathryn Haupt & Megan Dorsey,

Published by Rockwell Publishing 4'th edition, copyright 2009

Naming Your Price: How to Evaluate and Price Your Home

NAMING YOUR PRICE

How to Evaluate and Price Your Home

Michael Efird, Patrick Darnell, Kathy Xiong

(www.atlantabesthomes.com/images/pricing.jpg)

You need to sell your home and you have no idea what your house can sell for. Deciding on a selling price for your home is not an easy task in any market. In a seller’s market you might be nervous of “leaving money on the table”. In a buyer’s market you might be concerned with overpricing that could result in not selling at all. Even in a stable market there is the balance of maximizing price with how fast you want to sell. However is there really such a thing as a stable market in California? It tends to be traveling one way or the other.

There are several different methods that can be used to calculate your home’s value and selling price. There is the eyeball method, website calculation, and a CMA (Comparable Market Analysis) from a real estate professional. All of these are methods that are used by homeowners to sell their home. We will discuss each of these and provide explanation on which method you should use and how to insure that method is done correctly.

In the Eyeball method a homeowner does a survey of their surroundings. They take inventory of the houses in their neighborhood for sale. They make a rough assessment on the condition of the houses for sale. Then the homeowner compares the listing prices of the homes in the area along with their condition and derives a value of their own home in relation to the other homes. This method is flawed in many ways. This method only takes into account what houses are listing for and not they are selling for. This method also is based more on personal value and not on what the market will truly produce. Most importantly this method is not being performed by a professional in real estate. In this method there is high probability that your home will not be correctly priced due to the subjectivity involved.

(http://www.sterlingrealestateinvestments.com,/ 2009)

The website method has become widely used. The age of the internet and information now has driven several websites to do the calculation for you. A popular website for this is Zillow.com. Zillow.com provides you with what is called a zestimate. This is Zillow’s estimate of what your home’s value is. These websites take the personal aspect out of home pricing which is dominant in the eyeball method. The website methods take a straight statistical approach to home values. They take the most recent sales available within a reasonable distance and populate those into a data base along with their square footages. This gives them a price per sq ft. this price per sq ft is then applied to homes of similar size. This method has some perks. The first is time; you can have a “Zestimate” in seconds. You literally can drive around neighborhoods with your IPhone and research home values instantly. This method also uses actual home sales where the eyeball method uses listing price. This method is purely objective not subjective. It merely takes the statistical data of actual events and calculates what your home is valued at. There are some pitfalls to this method. Typically these methods undervalue the property because they do not take into account items that can increase the value of the home. These websites do not take into consideration pools, garage sizes, R.V. parking, condition of home, or other items that will directly influence the amount the home will potentially sell for. In the example given below three houses next to each other have the following values, $241,000, $240,000, and $212,000 (http://www.zillow.com/homes/2814-W.-Newton-Ct.-Visalia,-CA_rb/). The least expensive home is 1,869 sq ft. with price per sq ft of $113. The other two houses are both 2,675 sq ft. with a price per sq ft of $90 per sq ft. The house priced for $240,000 has a large lot, fire pit, R.V. parking, custom cabinets, and many upgrades. The home priced at $241,000 does not have these features yet is valued at a $1,000 more. There is also the difference of $23 per sq. ft. between the other two houses. This method typically does not have the most current data. This method is typically three months behind, according to Marc Paolella of trulia.com. Which in a fast changing market could turn out to be disastorous? This method is getting better as technology and GIS systems improve. However at this time it is not the most accurate best way to price your home. (Paolella, 2008)(zillow.com, 2009)

(http://www.02038.com/, 2009)

The third way is to have a Realtor provide you with a CMA (Competitive Market Analysis). This method is the most comprehensive way of calculating a pricefor your home without paying an Appraiser. This method takes into account all of the processes of the other two methods and expands on it. The CMA is broken into four steps:

· Collecting and Analyzing information about the sellers property

· Choosing the Comparable Properties

· Comparing the sellers property to the comparables and adjusting values accordingly

· Estimating a realistic selling price.

When collecting information about the seller’s property the Realtor will begin by analyzing the seller’s property, neighborhood, and the structure itself. The Realtor will be looking for things that may increase or decrease the value of the home. These items may include the location in regard to schools and shopping, the condition of the other homes in the neighborhood, the condition of the property, and the condition and layout of the home itself. The Realtor will then locate comparable properties both for sale and sold within the same neighborhood. These comparables are adjusted to match the subject property. This is done by adding or subtracting the value of the different amenities and or features that create value. (National Association of Realtors, 2009)

Once this is completed the Realtor provides an estimate of a realistic selling price. At this point the homeowner can make an informed decision on what they would list their home for. This process incorporates not only statistical information but also takes into consideration the subjective information. In interview with Jayne Wills, a Realtor in Visalia, she stated:

“The key to this approach is using both sold and for sale comparables. You need to make sure you price your home competitively but also at a price that is line with homes that are actually closing on the back end.” She went on to say, “it is important that you are using all information that is available to Appraisers. You have to be able to appraise the home for what it sells for or you could lose the sale when the appraisal is less than the selling price.” -Jayne Wills, 2009

This means that the CMA will need to most likely include any foreclosures or short sales. All comparables need to be used with caution. You will not want to use sales that are not typical of the other sales. For instance if the neighborhood has a significant amount of foreclosures and short sales, it would be necessary for them to be included. If there are few of these, then they might be excluded as comparables but still included as part of the CMA.(Wills, 2009)

The Realtor CMA is the best method for pricing your home. However it is not without its own potential drawbacks. The CMA is reliant upon the Realtor performing ethically and in the best interest of the Principle. Sometimes a Realtor might be more interested in a quick sale or in a large commission. In these cases it is possible for a realtor to act unethically by including comparables that slant the CMA one way or the other. This can be avoided by having several Realtors provide you with a CMA before you decide which one you want to sign a contract with. By doing this you can get several perspectives and decide which one works best for you. At the fallowing web address you can find a good example of what to expect in a CMA, http://www.homepricelv.com/SampleCMA.pdf.

Selling your home is not an enjoyable task for most people. It is important that we avoid unnecessary pitfalls and stress during this process. The best way to do this is to use a Realtor and have them provide a CMA so that you will be well informed when deciding how to price your house.

References:

www.atlantabesthomes.com/images/pricing.jpg

NATIONAL ASSOCIATION OF REALTORS CODE OF ETHICS-evaluating and pricing, Chicago, IL. 2009 http://www.realtor.org/MemPolWeb.nsf/pages/COde

Paolella, Mark 2009 http://www.marcpaolella.com/

http://www.sterlingrealestateinvestments.com/blog/wp-content/uploads/2009/05/missing-the-markred1.jpg

www.trulia.com/voices/homebuying

Wills, Jayne: Remax Real Estate Agent, Interviewed by Patrick Darnell, 2009

http://www.zillow.com/homes/2814-W.-Newton-Ct.-Visalia,-CA_rb/

http://www.02038.com/wp-content/uploads/2009/09/nego-price-home-for-sale-MA-9.jpg

Final Post

Never Sell a Used Car to Someone You Know:
The Upside of Intimidating Disclosure Requirements for Real Estate Professionals

By: Randy Jones, Valerie Harper, Jenna Vander Weerd

It seems obvious that if a seller has information that influences how much a buyer will pay for what they are selling; the seller should make that information known to produce a balanced transaction. But what if the seller is never going to see the buyer again? Then the seller is forced to weigh the potential personal, continuing effects of a diminished sales price against future plight of the buyer that the seller will never know about. This dilemma is why everyone knows not to sell a used car to someone they know. If you sell a used car to someone you know there is the potential to know about and feel responsible for problems following the sale. If you sell a used car to someone you will never see again, the potential to even know about problems is diminished if not dissolved.

This principle can be applied to real estate markets. As populations become increasingly mobile and complex, we can no longer rely on participants’ potential to face the intrinsic consequences of their actions in others’ lives as motivation for moral behavior. Increasingly mobile sellers may feel decreasing incentive to disclose material facts to transactions in markets where they will no longer have a vested interest. Conversely, real estate professionals need fair transactions in their market to increase their ability to do their job. While statutory real estate disclosure requirements expressly burden sellers and their brokers and can be intimidating, they are critical tools for real estate professionals to emphasize the importance of ethical behavior to sellers and reminders for brokers to act in the long term best interest of the profession.

Changing Seller Behavior

Problems with real estate that should be disclosed are not a new invention, so the legislature’s perceived need to expressly change the format of real estate transactions must be a response to some other new phenomenon. Historically the courts embraced the idea of caveat emptor, let the buyer beware; however, coming into the 1980s the courts experienced an influx of homebuyers suing sellers under the common law fraud of failure to disclose. The question then becomes, did allocation of responsibility truly change, or did changing attitudes or behaviors of sellers mandate a new response.

In studying the capacity of individual men to act, Niebhur explains, “ethical attitudes are more dependant upon personal, intimate and organic contacts than social technicians” (Niebhur, p. 28). In the same text he explains that as the complexity of societies, or groups of men, increase, and these personal relationships decline and with them the directly correlated ethical attitudes. As there are more participants in real estate markets, and participants are increasingly able to live more of their lives outside the markets where they do transactions, sellers showed their preference of monetary gain over fair real estate transactions, by hiding (via fraud, misrepresentation, and negligence) material facts that should have been considered in calculating the price of the house. It is in the best interest of real estate markets for prices to be fair and accurate, representing the value with all pertinent flaws and information. So this problem’s growth lies in the growing ability of market participants to disassociate their interests from those of the market. This shift is likely what led to the flood of fraud cases in the courts.

Demographic Roots of the Change

It is not an accident that California, one of the largest and most diverse states in the nation, is pioneering the shift toward legislated morality via statutory disclosure requirements. In 1985 California was the first state to expressly require sellers to disclose their property conditions to buyers (CCC section 1102), shortly followed by an agency disclosure requirement in 1987 (CCC 2079.14).

California’s size is one thing that makes real estate sellers increasingly unlikely to know their buyer. In 1980 California had 23.67 million residents, by 1990 that number had grown to 29.22 million residents, and in 2008 the census counted 36.55 million people living in California (Census Bureau, 2007). Immigrants account for a large amount of California’s population growth. In the 1960s and 1970s foreign born individuals represented a low percentage of total population, about nine percent. Coming in to the 1980s that number began to rise, estimated at 15% in 1980, 22% in 1990, and up to 26% in 2000 (Public Policy Institute, 2008). According to Niebhur’s explanation of man’s capacity for morality, increasing diversity not only decreases the chance that a seller will know their buyer, but also decreases the chance that the seller will relate to and feel moral obligation toward the buyer.

Increasing distance between home, work and social networks further demonstrate the complexity of California’s markets. In the past three decades, as housing prices have increased, workers have move to suburbs farther and farther from where they work and socialize (FHWA, 2006). Census data suggests that the number of times people move might actually be decreasing, but for those who do move, the ability to move long distance is increasing as well as the ability to travel long distances. For real estate disclosure, the critical factor is how likely the seller is to have future interaction with their buyer, and if the seller is moving a long distance away, the answer is not likely.

Common Law Roots of the Change

In their first attempt to legislate incentive for sellers to disclose, the California Legislature acknowledged the preexistence of “obligations of the parties to a real estate contract, or their agents, to disclose any fact materially affecting the value and desirability of the property” (CCC 1102.1 (a)). This broadly encompassing requirement already in place leads one to question what the legislature hoped to accomplish in writing this and subsequent codes.

Case law further demonstrates that the courts, in fact, previously deemed disclosure an important requirement for brokers, agents, and sellers in transactions including real estate. The California Supreme Court’s1968 majority opinion cited six previous cases establishing an “agent is charged with the duty of fullest disclosure of all material facts concerning the transaction that might affect the principal's decision” (Batson v. Strehlow, 1968). This case speaks specifically to the responsibility of an agent to disclose to their principal, but the courts expand the responsibility to of reasonable care to all parties[1]. In Easton v. Strassburger the California First District Court of Appeals upheld the notion that "A real estate broker is a licensed person or entity who holds himself out to the public as having particular skills and knowledge in the real estate field. He is under a duty to disclose facts materially affecting the value or desirability of the property that are known to him or which through reasonable diligence should be known to him." (Easton v. Strassburger, 1984).
The Easton court upheld the 1976 decision in Cooper v. Jevne that a real estate broker/agent must disclose all known facts on behalf of the seller that affect the desirability, value, or buying decision related to the property and established that the broker and seller are responsible to disclose those facts that should have been known. This rule expands the scope of the disclosure problem past fraud to include a seller and their broker’s responsibility to avoid negligence by full disclosure. The majority went further, to say that the purpose of the Cooper rule established in 1976 was to protect buyers from unethical sellers and their brokers. To offer brokers ignorance as a shield from the requirement to disclose would be contrary to the implication of a specialist in the field and would reward under skilled brokers (Easton v. Strassburger, 1984).

While the courts established, enforced, and even expanded the burdens on sellers in or earlier than the 1960s, continuing and increasing lawsuits evidenced that these common law requirements were insufficient to deter sellers from acting unethically by misrepresenting the condition of the property they were selling. The California legislature began to act in the 1980s, expressly and publicly warning sellers of the consequences of unethical behavior.

A Tool for Brokers and Agents

The roots of the problem reveal a critical reason for real estate agents to use embrace rather than shun disclosure statutes. Real estate agents often specialize in a specific geographic area and are likely to do multiple transactions in an area over a long period of time. While a seller socially uninvested in an area may be willing to act in a dishonest or uncooperative manner, an agent who has the potential to do business with these people again will be more motivated toward collaboration and disclosure, and needs their seller’s cooperation in that. For these agents whose ability to do business on an ongoing basis is greater than an isolated transaction, there is a tendency toward equality, which in real estate can only come from full disclosure of material facts (Halpren, 1994, p. 5). A real estate professional, broker or agent, has an additional vested interest in fair transactions, representing all available information from sellers. When a real estate professional needs market information, he will look to past sales prices in the market, if these prices are based on nondisclosure, they will skew the market.








Batson v. Strehlow. Supreme Court of California. 3. June. 1968. Web.

California Department of Real Estate. Disclosures in Real Property Transactions. Sacramento: California Department of Real Estate, 2005. Web.

Halpren, Jennifer J. "The Effect of Friendship on Decisions:." Center for Advanced Human Resource Studies: Working paper Series (1994). Web.

Easton v. Strassburger. Court of Appeals of California, First Appellate District, Division Two. 22 Feb. 1984. Web.

Murakami, Elaine. "Understanding LEHD and Synthetic Home to Work Flows in "ON THE MAP"" Understanding LEHD and Synthetic Home to Work Flows in "ON THE MAP" US Department of Transportation:Federal Highway Administration, 24 May 2007. Web. 28 Nov. 2009. .

National Association of Realtors. "Milestones in Residential Real Estate: 1900-1999." Realtor Online Magazine. 01 Dec. 1999. Web. 16 Nov. 2009.

Niebuhr, Reinhold. Moral Man and Immoral Society. New York, New York: Charles Scribner's Sons, 1932. Print.

U.S. Bureau of the Census. "1981 to 1989 Intercensal Estimates of the Resident Population of States,." Sept. 1995. Web. Nov. 2009. http://www.census.gov/popest/archives/1980s/8090com.txt

U.S. Bureau of the Census. "Annual Estimates of the Population for the United States, Regions, States, and Puerto Rico: April 1, 2000 to July 1, 2007,." 2007. Web. Nov. 2009. http://www.census.gov/popest/states/NST-ann-est2007.html

[1] Duty of care established by Merrill v. Buck, 1962, upheld in 1981 Earp v. Nobmann

Deceptive Sale Techniques and Practices

Deceptive Sale Techniques and Practices

Group Members: Cameron Cairns, Tim Kumse, Roxana Minuz

Deceptive sales techniques have been addressed as a major problem in California Real Estate sales. Deceptive practices are present on both sides of the selling issue involving, the seller, buyer, agent, and broker. The word deceptive by definition means “tending or having power to deceive, misleading” (Merriam, 2009). To deceive means “to cause to accept as true or valid what is false or invalid” (Merriam, 2009).So, deceptive sales practices cause a consumer to accept as true what is not. Though the idea of deception carries a negative connotation, the denotation is not explicitly negative. There are deceptive sales techniques that do not have a negative intent, and there are those deceptive sales techniques that are premeditated with a malicious intent. With this knowledge, it is impossible to measure the moral fortitude of an agent simply based on a deceptive practice, since they may had just overlooked a piece of information that did not seem pertinent or the exact opposite is also possible. It is necessary to look at the situation deeper to truly gain an understanding of the intent of the agent. With recent changes in the real estate market, the process of buying and selling homes has become more difficult for some, leading to practices that may be deceptive. The idea of deception can take different forms from misleading mistakenly to straightforward lies, but in the end they are still deceptive and the agent or broker will be held liable.

A very common deceptive sales practice is simply failure to disclose information about a property to a perspective buyer. According to the Realty Disclosure home page, “under California Law, the seller of real property - or the agent for the seller - must disclose ‘accurate information of material fact’telling whether historical evidence indicates that an event of natural origin is likely to affect the desirability and value of the property, even if the property is listed ‘as is’"(Residential Disclosure Law, 2007). Even if the agent did not mean to withhold any information, perhaps they accidently overlooked a piece of information; it is still a deceptive sales practice. That one fact may have given the buyer a different angle on negotiation, or may have turned the buyer off of the property all together. For example, if the house was painted using a lead based paint, and the agent misses that information and fails to inform the buyer, the agent is firstly breaking the law since it is required to inform a buyer if lead based paints had been used on the home, and secondly taking away some of the buyers negotiating power (Residential Disclosure Law, 2007). If the buyer has this information, they may be able to negotiate the price down to subtract the cost to remove the old paint and repaint the house, request that the seller handles the issue, or just stay away from the entire deal. If the buyer does not have this information, they have been deceived and when the information comes out, legal actions are sure to follow.

http://www.mymoneyblog.com/archives/2008/06/why-do-real-estate-agents-put-their-photo-everywhere.html for image

Another way that agents may be deceptive by mistake is by lacking the proper knowledge, or accidentally giving out incorrect information. This can occur through miscommunication with a buyer or by making an assumption that is not accurate. If a buyer is asking for specific information and the agent misinterprets what the buyer is asking, therefore giving false data, the agent has been deceptive. Even with no intent to provide inaccurate knowledge, inaccurate knowledge has been relayed, and so the agent has been deceptive. If an agent makes an assumption about a property, and the assumption is not backed by the facts and they give the buyer this information, they have been deceptive. If the agent for instance assumes that all the plumbing is in prime condition, when in fact there is a problem with the plumbing, the agent again has been deceptive. It is the agents’ responsibility to make sure they are knowledgeable about the property they are representing, and to make sure that all of the information is disclosed to the buyer and that all the information is accurate. These are a few examples of deception that was not made with the negative intent, however, there are agents that deceive and do so with a malicious intent.

To deceive with a malicious intent is to cause a consumer to accept as true what is not, and to do so purposely with no regard. The goal of these people is self gain first, and help only when it is convenient for them. An example of malicious intent from an agent would be steering the buyer to a particular location or to homes that would offer a higher commission. This could be based on discriminating against their race, religion or natural origin, or even based on level of income. Take for instance a couple who goes to an agent, tells them what they are looking for, and that they have a limit of $300K to spend. If this agent finds many houses that fit the couple’s needs with prices ranging from $200-$350K, but only shows the couple the houses closer to $300K, or only in certain areas, the agent is acting deceptively. Other examples include things such as telling a potential buyer that the commission percentage is a standard rate, or even charging higher rates to people with more money for the same amount of work. All buyers should be treated equal and all should be asked the same questions only regarding annual income, down payment size (Haupt, 2009 p.110). There are standards that need to be followed by the agent, and some do not care to act in a professional manner, and when agents do not act professionally, that is the problem.

In order to move the sale forward, many agents or brokers will misinform the buyer about certain issues or questions he or she may have. This typically occurs when the representative feels that the disclosure of certain material facts about a property could jeopardize the sale, and they cannot “afford” to lose this sale. The house they are trying to sell has a history of robberies due to its location in relation to an alleyway. When asked about the crime because of the alleyway, the agent informs the potential buyer that crime is not a problem in the neighborhood. The actual crime rate of the neighborhood may not be a problem but it is obvious that the house in question does attract some unwanted attention. That is the agent avoiding the question purposely, but phrasing it in a way that makes it seem honest. That is an example of maliciously failing to disclose pertinent information. Also just straightforward lying is also a malicious form of deception. If at any time the agent knowingly gives the wrong information, they have acted deceptive. The only information that an agent should disclose is that which is known to be accurate based on fact. These important issues include any latent defects on the home itself or environmental hazards on the neighborhood. Not mentioning any of this information or inputting false data can make a huge influence of the buyer’s decision to purchase a property, which is why there are consequences for deceptive actions.

http://miamiangelproperties.com/blog/short-sales-101.htm for image on the right.

The consequences for a buyer and seller are kind of similar because they are wasting their time and money with a bad agent or broker. An uneducated or even just an unlucky seller can run into a lot of trouble if they choose a bad agent.There is a large amount of trust that the seller gives to the agent and expects the same back. There are so many problems that can go on from different forms of deceptive sales practices but the majority will waste your time and cost you money. An example of how the seller can be affected from the start is, if their agent does not put the listing in MLS in a reasonable amount of time “24 hours”. From the start the agent is not representing the seller but hoping to make more money off of them. Another problem can be seen in an agent that loves to talk and brings up information that should not be disclosed. They can say a lot to ruin the sale and hurt the seller even if they end up selling the house. The agent may have given away a lot of the seller’s personal information in order to complete the sale. Another factor is not letting the buyers know how to properly set their house up for an open house. A lot can be said at an open house, clutter and personal belongings should not be out in the open. All of these situations can make selling a house a nightmare. It will be hard to trust another agent once you have to deal with a bad agent (Rioux, 2000).

A buyer is hoping to be fully represented by an agent that is looking out for their interest and will help find their ideal home. This is not the case though and many fall victim to deceptive behaviors from their agents. Some agents do not listen when it comes to what the buyer is exactly looking for in a house. Some choose certain houses that are priced higher so they can get a better commission. Some in the same condition believe that they have been in the business long enough and they know what the buyer is looking for. This can also be seen in the form of steering and can really frustrate a buyer. It may be a week or so of driving around and looking at houses when the agent never mentioned to get preapproved by a mortgage company. Unless the buyer was prepared and are trading up to a bigger house or downsizing they will not have any idea on what they can afford for a house. A buyer’s biggest consequence is being frustrated because the agent does not listen and gives bad or no feedback. The time in between the agent communicating with their broker and other agents needs to be handled in a timely manner. Some buyers get “left in the dark” and never hear from their agent that is supposedly representing them (Rioux, 2000).

The consequences for an agent and broker differ from the situation that they were involved in. It is easy to say that if they are found at fault the Department of Real Estate will issue fines and may even suspend their license for using deceptive practices. Depending on the severity of the deception both the agent and the broker may have their licenses revoked.

If you have a claim and have been a victim of some form of a deceptive sales practice, go directly to the Department of Real Estate’s website. Its http://www.dre.ca.gov, they have a specified place on the website where you can get help and there is a step by step process where they will do their best to help you with your claim.

As a homebuyer or seller you have many rights. This is your home, your asset and it can haunt you for many years if the sale goes sour or you find out you were a victim of a deceptive sale. To limit this issue there are a few things that can be done prior to a sale to help you. Number 1, if you don’t trust real estate agents at all, take the time and be a FSBO (For Sale By Owner). If not, do some research on the agent and company that they work for to see what they are about. Google the agent and find some other information about them on sales or other problems from previous prospects. If you have a group of potential agents, have them do a small presentation for you. Get to know the agents to see if they practice in an ethical business manor and if so, can you trust them. Remember the commission is negotiable and you have many rights as a buyer and seller.

Take action and be proactive by doing your research on the agent and the company. Get familiar with them; it’s your responsibility in choosing the agent. So take the time and put in some good effort. If all else fails and you do fall victim of a deceptive sale, take action and be active. Contact the DRE, their website is user friendly and your time and effort to file your claim may save the next victim the pain and suffering that you had to go through.

Resources

Cook, Michael. Great Agents and Bad Realtors. 2007. Retrieved October 19, 2009 from http://buyingsellingahome.suite101.com/article.cfm/great_agents_and_bad_realtors

Department of Real Estate. Filing a Complaint with the Department, 2009. Retrieved October 21, 2009 from http://www.dre.ca.gov/cons_complaint.html.

Do's And Don'ts Of Real Estate Negotiating 2009. Retrieved October 18, 2009 from http://www.squidoo.com/realestatenegotiating.

Heddings, Douglas. 2009. Seller Beware: Is Your Agent Protecting Their Best Interest? Retrieved October 21, 2009 from http://www.truegotham.com/archives/cat-dirty-real-estate-tricks.html.

K. Haupt, M. Dorsey. 2009. California Real Estate Practice 4^th edition. Rockwell Publishing Company.

Merriam-Webster Online Dictionary. 2009 Retrieved October 18, 2009 from http://www.merriam-webster.com/dictionary/deceptive.

Residential Disclosure Law, 2007. Retrieved November 17, 2009 from http://www.realtydisclosure.com/hazards/resident.htm.

Rioux, Pat, Nine Ways A Bad Real Estate Agent
Can Cost You Money. 2000. Retrieved October 22, 2009 from http://www.ired.com/news/2000/0004/badagent.htm.

U.S. Environmental Protection Agency, 2009. Residential Lead Hazard Standards. Retrieved November 17, 2009 from http://www.epa.gov/lead/pubs/leadhaz.htm.