Chapter 21 NINE IMPORTANT STAGES OF SUCCESSFUL REAL ESTATE TRANSACTIONS Flashcards
1
Q
What is the goal of the chapter on successful real estate transactions?
A
To provide a fine-tuned checklist of critical stages important to the real estate buying and closing process.
2
Q
What are the nine stages of a real estate transaction?
A
- Laying the foundation to buy
- Getting the maximum benefit from the real estate profession
- Selecting a property to buy
- Negotiating to win
- Offering/contracting to buy to maximize your future gain
- Conducting detailed due diligence
- Getting the approvals needed with time to implement them
- Restructuring or fine-tuning the deal
- The closing
3
Q
What is the significance of understanding your goals in real estate investing?
A
Without a clear understanding of your goals, you have a random chance at success.
4
Q
True or False: Buying real estate is a guaranteed route to wealth.
A
False
5
Q
What does the term ‘purchase-itus’ refer to in real estate transactions?
A
Indecision on the part of the buyer or ‘sellers-itus’ experienced by sellers.
6
Q
What role does time play in real estate investing?
A
Time is crucial for learning about the area, turning an investment into a profit, and understanding potential roadblocks.
7
Q
What should be included in the preliminary due diligence list?
A
- Researching time needed for investment
- Understanding people involved
- Anticipating necessary approvals
8
Q
What can cause time delays in real estate transactions?
A
- People getting in the way
- Local bureaucratic infighting
- Partners or lenders causing delays
9
Q
What are some common setbacks in real estate investing?
A
- High unemployment affecting rental projects
- City projects causing temporary loss of tenants
10
Q
What is the importance of building relationships with real estate professionals?
A
It helps streamline success and access better opportunities.
11
Q
What is the difference between a realtor and a non-realtor broker?
A
Realtors are members of the National Association of Realtors and adhere to a strict code of ethics, while non-realtors may not.
12
Q
Why is it beneficial to work with a realtor?
A
They provide wider access to property listings and adhere to professional standards.
13
Q
What should you look for in a real estate sales agent?
A
Someone with whom you can develop rapport and who prioritizes your interests.
14
Q
Fill in the blank: The great healer of making a bad real estate investment is _______.
A
[time]
15
Q
What factors should be analyzed for a successful real estate acquisition?
A
- Time needed for approvals
- Financial resources required
- Potential roadblocks
16
Q
What mindset do successful investors have towards failure?
A
They embrace failure as essential to advancement and success.
17
Q
What are the six elements of success in real estate investing?
A
- Knowledge
- Enthusiasm
- Motivation
- Perseverance
- Clear goals
- No fear of failure
18
Q
What can be the consequence of moving too quickly into the next stage of a transaction?
A
It creates a gap that may lead to indecision or setbacks.
19
Q
What is the impact of local politics on real estate transactions?
A
Political environments can change and affect transaction plans unexpectedly.
20
Q
What is meant by ‘high flyer’ in real estate investing?
A
A risky deal that can lead to significant loss or gain.
21
Q
True or False: Successful real estate investing only requires knowledge.
A
False
22
Q
What should you prioritize when selecting a real estate sales agent?
A
Find a sales agent with whom you can develop rapport and who prioritizes your interests.
A good sales agent should be knowledgeable and have a wide range of satisfied clients.
23
Q
What is a key method for finding a good real estate sales agent?
A
Ask friends for recommendations and visit several real estate offices to meet brokers.
A broker can introduce you to suitable sales agents based on your needs.
24
Q
What should you communicate to a potential sales agent before working with them?
A
Inform them that you want to find a sales agent to work with long-term and that you do not want them to spend time until you are ready.
This avoids wasting time for both parties.
25
What are three traits of a salesperson you should avoid?
* Does not ask you questions
* Talks without listening
* Rushes to make a sale
26
List four traits of top real estate salespeople.
* They listen
* They are prompt
* They ask pointed questions
* They are constantly learning
27
What is a critical attribute of great real estate salespeople?
The ability to absorb the heat generated between the buyer and seller.
## Footnote
This helps in diffusing tension during negotiations.
28
What is the first step in selecting a property to buy?
Constantly review your goals and ensure the property fits your timeline.
## Footnote
Adjust your plan as necessary based on your goals.
29
What should you do if you find a property you like?
Recognize that you may change your mind during negotiations based on price and terms.
## Footnote
Be open to considering other properties that may better suit your goals.
30
What are eleven key factors to consider when finding a property to buy?
* Review your goals
* Stick close to your backyard
* Know your abilities
* Stretch your economic capability
* Understand risk
* Look for property you can improve
* Have property inspected
* Ensure you can afford and like the property
* Avoid overanalyzing
* Recognize visible trends
* Learn from history
31
What defines a seller's market?
A situation where demand to buy is greater than supply, giving sellers the upper hand.
## Footnote
Prices are usually firm in a seller's market.
32
In what situation should a buyer be cautious during negotiations?
In a seller's market, as being too demanding may lead to losing the deal.
## Footnote
Consider the overall market conditions before making offers.
33
What is the impact of a buyer's market on property negotiations?
There are more sellers than buyers, which may provide better opportunities for negotiation.
## Footnote
However, buyers should still evaluate their own goals.
34
Fill in the blank: Avoiding personal confrontation during negotiations is essential for _______.
[successful negotiating]
35
How can learning about the other party's goals aid in negotiations?
It allows you to help them reach their goals while also achieving your own.
## Footnote
Understanding motivations can lead to better deal-making.
36
What should you do if you encounter emotional influences during negotiations?
Review your goals to ensure they remain clear and do not get clouded by emotions.
## Footnote
Rationalizing away your best plan can lead to poor decisions.
37
What did the seller want to do with the money from the sale?
He wants to get a summer home in North Carolina.
## Footnote
This reflects the importance of understanding the seller's motivations in negotiations.
38
What was the buyer's profession who made an offer on the lot?
Builder in Asheville.
## Footnote
This highlights how the buyer's profession can influence negotiations and potential exchanges.
39
Why is it important for a broker or salesperson to dig for information about the buyer?
The more you know about the other party, the better you can negotiate.
## Footnote
Knowledge about the buyer's financial situation and motivations can facilitate better negotiation outcomes.
40
True or False: Knowing more about the seller is more important for the buyer than vice versa.
False.
## Footnote
It's generally more important for the seller to know about the buyer.
41
What should sellers ask for when they are asked to hold secondary financing?
Financial information on the buyer.
## Footnote
This helps sellers assess the buyer's ability to complete the transaction.
42
What is a key trait to maintain during negotiations?
Be flexible but firm.
## Footnote
This approach allows negotiators to adapt while still holding their ground on important terms.
43
Fill in the blank: If the deal is all cash, the only place where there is any flexibility left is in the ______.
price.
## Footnote
This emphasizes the importance of understanding where flexibility can be applied in negotiations.
44
What is the risk of holding out for a better offer?
You may lose the potential from reinvesting that capital.
## Footnote
Sellers should consider the time value of money when deciding whether to hold out for a better price.
45
What should you do if you lose out on a property?
Move on to the next deal.
## Footnote
It's important not to dwell on lost opportunities and to learn from the experience.
46
What is a common mistake sellers make in negotiations?
Turning down offers that are never bettered.
## Footnote
Sellers should be cautious not to overestimate future offers.
47
How can time influence profit in real estate?
Time is a key factor to profit.
## Footnote
Delays in decision-making can lead to missed opportunities.
48
What are the four basic forms of offers in real estate negotiations?
* Verbal
* Letter of intent
* Standard form agreement
* Lawyer-drafted agreement
## Footnote
Each form has its own effectiveness depending on the situation.
49
True or False: A verbal offer is legally enforceable in real estate transactions.
False.
## Footnote
Contracts must be executed in writing to be legally enforceable.
50
What is the purpose of a letter of intent?
To ascertain if a meeting of the minds on the basic terms of a transaction can be obtained.
## Footnote
It serves as a preliminary agreement outlining key terms before a formal contract.
51
What should a letter of intent include?
* Purchase price
* Method of payment
* Other critical terms
## Footnote
The letter can be less detailed than a formal contract but should cover essential points.
52
What does a letter of intent indicate about the buyer's intentions?
The buyer is interested in purchasing the property based on outlined terms.
## Footnote
It is not a binding contract but shows serious interest.
53
What should buyers do to demonstrate seriousness in their offers?
Present a cash deposit with the written contract.
## Footnote
This increases the likelihood of a positive response from the seller.
54
What is the purpose of the letter of intent?
To indicate interest in proceeding with a sale and to approve the price and terms outlined.
55
What is the fee amount the seller must pay at closing according to the letter?
$350,000.
56
True or False: Acceptance of the letter of intent constitutes a legally binding contract.
False.
57
What should happen if the letter of intent is not accepted within a specified number of days?
The approval shall automatically be withdrawn.
58
What is a common practice to strengthen a letter of intent?
Placing a deposit with the broker.
59
What is the standard form of deposit receipt contracts used for?
To facilitate real estate transactions.
60
What common elements do standard deposit receipt contracts include?
Conditions protecting both buyer and seller, details on deposits and defaults.
61
Fill in the blank: A contract dealing with _______ can often be simpler than one dealing with improved real estate.
vacant land.
62
What is the significance of using a Board-of-Realtors-approved standard form?
It ensures the form is up-to-date and meets local needs.
63
What might be added to a standard form contract to accommodate specific transactions?
Additional terms or provisions.
64
What is the maximum number of days for the seller to cure title defects after being notified?
90 days.
65
What type of deed is used for conveying title according to the standards for real estate transactions?
Statutory Warranty Deed.
66
What happens if the mortgagee does not allow the Buyer to assume the existing mortgage?
The Buyer may cancel the Contract and receive a refund of all monies paid.
67
True or False: The seller must provide a statement from the mortgagee detailing the mortgage terms.
True.
68
What must a purchase money mortgage provide for?
Insurance against loss by fire with extended coverage.
69
What is the consequence of a default on a first mortgage?
Acceleration after 30 days default.
70
What is the time allowed for the Buyer to have the property surveyed?
Within the time allowed for delivery of evidence of title.
71
What must be done if a survey shows encroachment on the property?
It shall be treated as a title defect.
72
What is required for Buyer’s performance regarding a new mortgage?
It is contingent upon obtaining said mortgage financing.
73
What is the purchase price detailed in the contract example?
$1,800,000.
74
What personal property is included in the sale as per the contract example?
* Carpets
* Drapes
* Kitchen appliances
* Built-in bar
* Pool table
* Master bedroom furniture
75
What is the total amount of deposits mentioned in the contract?
$100,000.
76
What special clause is included in the contract example?
Subject to the Buyer’s approval of a Subsoil Test.
77
What is the closing date mentioned in the contract example?
On or before June 1, 2011.
78
What rights does the Buyer have regarding property surveys?
Buyer may have the property surveyed at their expense. If encroachments or covenant violations are found, it is treated as a title defect.
## Footnote
The survey must be conducted within the time allowed for delivery of evidence of title.
79
What inspections can the Buyer conduct at their expense?
Buyer can conduct:
* Termite inspection
* General inspection (roof, seawall, pool, electric, plumbing)
* Personal property inspection
## Footnote
Seller is responsible for repairs if defects are found.
80
What must the Seller provide if repairs are not completed before closing?
Sufficient funds must be escrowed at the time of closing to effect repairs.
## Footnote
This applies to treatments, replacements, or repairs required from inspections.
81
What happens if the Buyer and Seller's inspection reports disagree?
Both parties may agree on a third inspector, whose report will be binding.
## Footnote
The cost of the third inspector is shared equally.
82
What is the Seller's cost responsibility for repairs?
Seller is responsible for costs up to 4% (or 3% if specified) of the purchase price.
## Footnote
If costs exceed this, either party can choose to pay the excess, or the contract may be canceled.
83
When must all inspections be completed?
Inspections must be completed on or before five days prior to closing.
84
How is the insurance premium handled at closing?
The premium on hazard insurance will be prorated between the parties or canceled as per the Buyer's choice.
## Footnote
Seller must provide all insurance policies to Buyer before closing.
85
What documents must the Seller provide regarding leases?
Seller must furnish copies of all written leases and estoppel letters from tenants before closing.
## Footnote
If estoppel letters cannot be obtained, Seller may provide the information in an affidavit.
86
What does the Seller need to certify regarding mechanics liens?
Seller must provide an affidavit stating there are no claims or liens, and that all bills for work have been paid.
## Footnote
If improvements occurred before closing, releases or waivers from contractors must be delivered.
87
Where will the closing be held?
Closing will be at the office of the Buyer's attorney or closing agent in Broward County, or at the Seller's attorney's office if not.
88
What expenses are the Seller responsible for prior to closing?
Seller pays for:
* Abstracting
* State documentary stamps
* Recording corrective instruments
* Intangible personal property taxes
* Recording the purchase money mortgage
## Footnote
Buyer pays for recording the deed and related expenses.
89
How are taxes prorated at closing?
Taxes are prorated based on the current year’s tax if known, or based on previous year’s tax if not.
## Footnote
Adjustments are made for any new improvements and exemptions.
90
What happens with special assessment liens at closing?
Certified special assessment liens as of the closing date are paid by the Seller. Pending liens are assumed by the Buyer.
91
What is the risk of loss clause related to property damage?
Seller may restore damaged improvements within 60 days or Buyer can take the property as is or cancel the contract.
92
What maintenance responsibilities does the Seller have before closing?
Seller must maintain the property in its condition as of the date of the contract, except for ordinary wear and tear.
93
What is the procedure for escrow of sale proceeds?
The deed is recorded at Buyer's expense, and the cash proceeds are held in escrow for up to ten days.
## Footnote
Buyer can demand a refund if the title is unmarketable.
94
What happens in case of disputes regarding the deposit?
The party holding the deposit may hold all funds until an agreement is reached or a court judgment is made.
95
What are the rights of the nondefaulting party in case of a default?
If Buyer defaults, Seller retains all money as liquidated damages. If Seller defaults, Buyer gets a refund or specific performance.
## Footnote
Seller also owes the Broker's fee.
96
Who is bound by the covenants of the contract?
The benefits and obligations in the contract bind the heirs, personal representatives, successors, and assigns of the parties.
97
What is the final agreement clause in the contract?
The contract represents the final agreement, superseding any prior agreements not incorporated into it.
98
What is the consequence of a subsequent disposition of Real Estate for the Seller?
It is of no consequence to the Seller
## Footnote
This does not waive the rights of Cummings Realty Inc. to collect a commission.
99
What type of condition do sellers prefer for the real estate being sold?
In an 'as is' condition
## Footnote
Rather than having repair conditions for damage.
100
What should sellers be cautious about in repair agreements?
Conditions that require them to repair items not working or any damage
## Footnote
This can lead to legal disputes.
101
What is the typical seller's perspective on repairs?
The seller may argue that not all items need repair just because they are old.
102
What should sellers consider when making a counteroffer regarding repairs?
They should count on spending up to the total maximum percentage of the price for repairs.
103
What is a common expectation when making an offer to buy a property?
Anticipate the seller making a counteroffer.
104
What strategy can buyers use to focus the seller's attention during negotiations?
Highlight a single item they are flexible about.
105
What is a suggested approach if the seller's maximum exposure for repairs is $35,000?
Reduce the offer by that amount and negotiate the removal of the repair section.
106
What is a savvy tactic for buyers to make offers more acceptable to sellers?
Include terms that can be removed as face-savers for the seller.
107
What is the advantage of being a buyer during negotiations?
The ability to make multiple offers and counteroffers.
108
What should sellers keep in mind about their initial offer?
It is essentially their first offer and should provide 'room to play.'
109
What is the recommendation regarding lawyer-drafted agreements?
Keep it simple and use standard forms with necessary changes.
110
What can complicate deals when using lengthy lawyer-drafted documents?
They can lead to disputes between lawyers and delay the process.
111
What is a potential benefit of using a standard form for agreements?
It can speed up the process of negotiations.
112
What should be included in a contract to ensure legal review?
A provision that the attorney must approve the legal format prior to it becoming binding.
113
What psychological aspect should be considered during negotiations?
The mental release of the property by the seller.
114
What is one caution regarding verbal offers?
Talk is cheap and memories may not align with reality.
115
What should buyers beware of regarding returned drafts of offers?
They may contain changes that significantly alter the original offer.
116
What is the risk of a non-standard standard form?
It may contain one-sided phrases that do not benefit the user.
117
How should sellers respond to low offers?
They should not be insulted and understand that buyers may be testing the market.
118
What is often the best response to a very low offer?
Simply thank the buyer and suggest they check around.
119
What is comprehensive due diligence in real estate?
A thorough inspection process by a qualified company, which can be simple or costly depending on the transaction size.
120
What can cause qualified buyers to abandon a project?
A city council vote against their proposed project.
121
What should later stages of due diligence focus on?
Potential political situations and local approvals.
122
List some elements to include in the due diligence process.
* City and county code violations
* Environmental inspections
* Zoning and building codes
* Steps to obtain approvals
* Potential for denial and alternative plans
* State laws protecting property rights
123
What is a 'Plan B' in the context of due diligence?
A strategy to adapt if the project is turned down.
124
True or False: A building permit is almost always turned down.
False.
125
What is the potential consequence of a city-imposed moratorium on building permits?
It postpones applications rather than outright denials.
126
What should a seller be aware of regarding their property’s development rights?
The potential for misrepresentation if development is denied despite zoning allowances.
127
What can trigger renegotiation of a real estate transaction?
Changes in financing options, delays in approvals, or new local regulations.
128
What is the significance of a 'hard' date in a real estate contract?
It locks in the buyer's deposit, ensuring the seller is compensated for delays.
129
What are the four divisions of the closing stage in a real estate transaction?
* Due-diligence period
* Preclosing period
* Transfer of title
* Postclosing
130
What should buyers check regarding advance deposits?
A detailed check of any advance deposits and credits owed to them.
131
Why is checking for asbestos important during due diligence?
Asbestos removal can be expensive and critical for remodeling plans.
132
What should be included in the bill of sale during a property transaction?
Values of personal property items being transferred.
133
What is one critical aspect to check regarding building codes?
Compliance with current and upcoming building codes.
134
What can result from code violations discovered during due diligence?
They may indicate minor issues or major catastrophes affecting property value.
135
What should be verified about the condition of title?
To ensure there are no factors contributing to a bad title.
136
What is the purpose of careful computer analysis in property transactions?
To determine if computers are outdated, old, or not working properly, and to ensure all software disks are available.
137
What factors can contribute to a bad title?
Some factors can be cleared quickly, while others may take years to resolve.
138
What are dedicated easements?
Easements that may restrict property use, such as gas lines running through the property.
139
What should you check regarding deed restrictions?
Look for any covenants in the deed that may impose restrictions on property use.
140
Why is drainage important to check before building?
To ensure the property can support the intended construction without major land work.
141
What is dry wood rot?
A potential problem in many areas that can be extensive or expensive to remedy.
142
What should a property survey indicate?
Any easements that exist on the property, including utilities and access for emergency vehicles.
143
What must be inspected prior to closing regarding elevators?
Elevators must be inspected and have a maintenance log reviewed.
144
What do estoppels to leases indicate?
They show the terms of the lease, including start dates, termination dates, and any violations.
145
True or False: Fire alarms must meet code and be operational.
True
146
What is the purpose of health code inspections?
To ensure the property meets health department requirements before closing.
147
What should be checked regarding gas lines?
Ensure they are properly installed, meet code, and are operational.
148
What are grease traps used for?
To manage grease residue from cooking and dishwashing in restaurants.
149
What is a common requirement for personal property in real estate transactions?
It should be listed or described in a bill of sale at closing.
150
What does a plumbing inspection typically check for?
The condition of plumbing, especially in buildings over 10 years old.
151
What is radon?
A radioactive gas that is easy to test for and requires mitigation if present.
152
What should be verified about operational licenses when buying a property with a business?
Ensure clarity on requirements for obtaining the operational license.
153
What are squatters' rights?
Legal rights that allow a squatter to claim ownership if they occupy property for a certain period.
154
What is the importance of soil-bearing tests?
To assess the stability of subsoil before construction.
155
What is the purpose of a property survey?
To show encroachments, easements, right-of-ways, and potential boundary issues.
156
What should be checked regarding maintenance records?
To assess how well the property has been cared for over time.
157
What should be confirmed about the roof during an inspection?
Whether it is in good repair, leaks, and meets current code.
158
Fill in the blank: A _______ is needed to ensure the property boundaries are correct.
[recent survey]
159
What happens if the seller has a liquor license?
You may not automatically receive it at closing; verify requirements.
160
What are encroachments?
Structures or uses that cross over property lines or setback lines.
161
What should be inspected about pool equipment?
Ensure it works and meets code.
162
What is the significance of pending assessments?
To avoid unexpected costs from future city improvements post-closing.
163
What are deed covenants?
Conditions or restrictions recorded that may limit property use.
164
What is the risk of grandfathered use in property transactions?
Existing uses may not be allowed to expand if zoning laws change.
165
What is the purpose of a normal property inspection?
To ensure everything seems correctly built and that the building meets code.
166
What are subsoil conditions?
Conditions under the ground, such as muck, sinkholes, oil tanks, or minerals.
167
What should a recent survey show?
Encroachments, easements, right-of-ways, and potential boundary problems.
168
What happens if the seller provides an inaccurate survey?
The buyer may have a case against the seller.
169
What is assessed annually for ad valorem taxes?
The property.
170
Who is responsible for past due and unpaid taxes?
The seller, unless the contract states otherwise.
171
What is a tax lien?
A claim against the property due to unpaid taxes.
172
What should be checked regarding telephone services?
Whether there are telephones, if they work, and if the equipment suffices.
173
What should be inspected for termites?
The presence of the pest and any damage caused by them.
174
What are utility easements?
Rights to use a portion of the property for utilities.
175
What is important to check regarding wall siding?
Condition and code compliance.
176
What should be checked regarding water leaks?
Stains from water leaks and their possible causes.
177
What are yard setbacks?
Prescribed distances buildings must be from property lines.
178
What is zoning?
Regulations determining how property can be used.
179
What occurs during the preclosing period?
The buyer discovers issues with the property and may renegotiate the contract.
180
What does 'as is' mean in real estate transactions?
The buyer accepts the property in its current condition without warranties.
181
What is the typical repair obligation of the seller in residential properties?
Repair up to a certain percentage of the purchase price, often 3 to 4 percent.
182
What happens if repair costs exceed the seller's obligation?
The buyer can renegotiate or exit the deal.
183
What is the transfer of title?
The actual closing date when ownership is officially transferred.
184
Where is the closing usually scheduled to take place?
At a lawyer's office or another agreed location.
185
What are the four steps to a smooth closing?
1. Preclosing meeting 2. Clarify expectations 3. Close early in the week 4. Understand the contract.
186
What should be considered postclosing?
Potential tax bill adjustments and maintaining a good relationship with the seller.
187
Why is it important to be prudent with payments to a former seller?
Sellers may be quicker to call in default than third-party lenders.
188
What is the best part of the postclosing period?
Reflecting on the successful acquisition of the property.
