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Saturday, July 9, 2016

“Stacked Sales” – a new reality in Real Estate Market…

The phenomenon of “stacked sales” – one home sale contingent upon the sale of another home and that one contingent, too - is a new reality in the local real estate market. It a great extent this is the result of the very tight market, with low inventory and few rental properties available. The stretched out mortgage process just adds to the problem.

A stacked sale scenario starts when someone decides to sell their house and starts trying to plan for
where they would go if it sold. Most sellers don’t have a second home that they could occupy even temporarily. Many are selling to downsize in their retirements or maybe to upsize to accommodate a growing family.  So they (we’ll call them Seller “A“) put their home on the market and start looking around for a new place to live. Along comes a buyer (we’ll call him Buyer “B” for clarity later in this piece) who might be one rung below them on the real estate ladder and he decides that he wants to buy this bigger house. The only problem is that Buyer ”B” currently has a house, so he puts it on the market, too. He now becomes Seller “B”.

Let’s assume that Seller ”B”’s house is a nice little starter house and that he priced it properly for the market . Buyer “B” gets an offer quickly from a first time buyer and accepts it. The first time buyer is moving out of an apartment, so he has nothing to sell. So, Seller “B”, with accepted offer in hand resumes his role as Buyer “B” and rushes back to Seller “A” with an offer to buy the house of Seller ”A”, contingent upon the closing of the sale on his (Buyer “B”) house.

Seller ”A” and his agent look over the deal and decide to accept the contingent offer. Now Seller ”A” has a real reason to become Buyer “A” – his house is “sold” and he needs a place to live.  So he goes out into the market and find the perfect place that is listed by Seller “C”. Buyer “A” makes an offer that is contingent upon the sale of his hose closing with Buyer “B”. IF Seller “C” accepts we now have stacked sale that are three sales deep. It’s sort of like lining up dominos and watching them all fall down when the first one and the head of the line is pushed over.  By the way, what do you think Seller “C” is going to do? Unless he is moving into a retirement home, he’s going to need a place to live; so he becomes Buyer “C” and may add to the stack.

All of these buyers and sellers are, of course, going to be trying to pull off this string of sales with the minimum amount of personal disruption to their lives; so they’ll try to coordinate the closings such
that everybody gets up and moves one house to the right without any delays or gaps. That is unlikely to happen, but they’ll try anyway. The more likely scenario is that one or more of the buyers will have to find a temporary place to live and will have to store their belongings for a short period.  Finding that short term rental place to live is a real challenge in this tight market, so many may end up living with family or friends for a week or two.

What’s the solution? There is no easy answer for that question.  When the market was not so tight and the mortgage process was less stringent, sellers could count on having time to look for a new place to live after they had accepted a contingent or non-contingent offer. These days that time pad is pretty much gone and contingent offers are more prevalent. One “solution” is for sellers not to accept contingent offers; however, in certain price bands the market is slow enough that any offer must be seriously considered.

Most of the time these convoluted sales work and all of the sales close; however, it only takes one glitch somewhere in the chain of sale to mess the whole thing up. The chain works best of the buyer furthest down the chain is an investor or a totally unencumbered buyer, like a first time buyer just out of college or moving from an apartment. In today’s market it is a lot harder to say no to an offer in certain price bands, even if it is contingent. When a property has been sitting on the market for a long time almost any offer looks good to the seller. The real estate agents involved will try to evaluate risk in the whole chain of sales before making recommendation to their clients and will often caution against accepting an offer, no matter how good the price seems to be.

What should you do as a seller? I certainly advise that you have a plan for a variety of potential scenarios.  Have a plan for what you would do if the place sells quickly and the offer requires a quick close and immediate occupancy. Do you have a place to go and a place to store your stuff? Have a plan for contingent offers. Will you accept a contingent offer and what will you do to plan for your one move? Do you need post-closing occupancy or can you be out at closing? Are you flexible on the timing of the close and willing to pull it in or stretch it out a bit to accommodate the buyer, if needed?
 How will that change in timing impact your plans?

Selling a home doesn’t have to be a stressful process, but it does take planning and some thought about the various alternative scenarios that can occur. Stacked sales are a new reality of the marketplace, so they need to be dealt with and not just avoided. You should have good answers in mind before accepting any offer to these questions -
Where am I planning to go from here?
  • How much time do I need to be able to move out? Do I need post-closing occupancy? How much?
  • How will I get my stuff moved out of my current house and into storage or to another house and what does that cost? DO I rent a truck and the move myself or hire it done?
  • What would it cost for temporary living or temporary storage of my belongings?
  • What happens if any of the contingencies is not met? Have I made sure that I did not backed myself into a corner on a new place?

Sit and discuss those “what if” scenarios with your Realtor before they pop up and demand a quick decision.

Wednesday, July 6, 2016

Don’t let the bad guys get your money…

There are always crooks and other bad guys out there trying to figure out how to rip people
and companies off and they don’t even need a gun. In our age of connectivity via electronic devices and the internet, a growing number of them are figuring out how to steal your money electronically.

In the real estate industry almost all transfers of fund is done electronically these days. Only smaller transaction still use Certified (or Cahiers) Checks. Most are completed using wire transfers from the mortgage company or from the buyers’ bank (or both). In all cases the instructions to the banks or mortgage companies about where to wire the funds come from the buyer or the buyers’ lender.  

The most popular method of stealing these days involves the bad guys gaining access to the email accounts of the buyers, the buyers’ real estate agents or the buyers’ title company escrow agents. Those are the people that the buyers and agents have been dealing with all along, in most cases by email, as well as phone calls and messages. They are trusted people in the transaction.

The bad guys watch the emails in the accounts that they have hacked and when the instructions for where to wire the funds for the sale come through they are ready to pounce. Usually right near the closing time, the bad guys send a fake email, using the valid agent or title company email addresses that they have hacked. In that email, they will ask the buyer or his bank/mortgage company  to change the address of where to wire the money to an account somewhere that they control.

So, you get that email and it appears to be from someone that you’ve been emailing back and forth with about the closing and the wire transfer. You make the change with your bank and get ready to head out to the closing. Maybe your bank is a small, less sophisticated institution with little experience with this type of fraud, so they react to the email from you or from the tile company (remember it’s really the bad guys sending those emails) and change the address that they send the wired funds to.

If that last minute change is not caught by alert agents or title people or the banks the money is wired to that new account where it vanishes almost immediately. It can be nearly impossible to track what happened to the money and it is a long battle to try to get the money refunded by the parties involved, if that can be done at all.

So, the California Association of Realtors (CAR) has put out a Wire Fraud Advisory (WFA) with helpful tips on preventing this type of fraud:

The WFA makes 5 specific recommendations.
1.   Obtain the phone number of the Escrow Officer at the beginning of the transaction.

2.    DO NOT EVER WIRE FUNDS PRIOR TO CALLING YOUR ESCROW OFFICER TO CONFIRM WIRE INSTRUCTIONS. ONLY USE A PHONE NUMBER YOU WERE PROVIDED PREVIOUSLY. Do not use any different phone number included in the emailed wire transfer instructions.

3.    Orally confirm the wire transfer instruction is legitimate and confirm the bank routing number, account numbers and other codes before taking steps to transfer funds.

4.    Avoid sending personal information in emails or texts. Provide such information in person or over the telephone directly to the Escrow Officer.

5.    Take steps to secure the system you are using with your email account. These steps include creating strong passwords, using secure WiFi, and not using free services.

The electronic systems that we’ve all become dependent upon are convenient, but they are also easily used by bad guys to defraud us. Be extra cautious when wiring money for a real estate closing is involved and make absolutely sure that the address that you are wiring funds to is a valid one that was supplied by the title company escrow agent. It is much better to be overly cautious that it is to be sorry for letting yourself be fooled. Assume that the bad guys are after your money and protect yourself.