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Tip for Non-Licensed Real Estate Investors

Note – I buy real estate in Virginia, and the references here refer to Virginia code.  The laws may be similar in other states, but refer to your state’s licensing department for your local requirements.

I can’t tell you how many times I’ve heard investors say they have not become licensed agents because of the “conflict of interest.”  As an investor who is a licensed agent, I have never one time felt as if my license jeopardized a FSBO purchase, or that I was crossing any ethical lines.  Sellers who don’t want to “deal with Agents”, are avoiding the process, not the person.  Those of us who are licensed have to disclose that fact to our sellers.  I explain that as a licensed agent in the state of VA, I am held to a higher standard than a non-licensed purchaser.  This means that if I do anything illegal or unscrupulous, there is a regulatory board the seller can go to for restitution in addition to the regular court of law.  I think it is this “higher standard” that scares most investors from getting licensed.  The reality is that, licensed or not, most of the Disclosures and laws agents follow, are required to be followed to anyone selling a home, regardless of whether or not they are licensed.  Below are some of the common mistakes I’ve seen non-licensed investors make.  Be careful that you become educated about your legal requirements as a real estate seller, regardless of whether or not you ever become a licensed agent.

Using the REIN Contract – All the REIN forms are copyrighted and only REIN members are authorized to use these forms.  Personally, I only use the REIN contract when I’m purchasing through MLS and the listing agent requires it.  My own contract is easier for a buyer and seller to understand and is customized to provide me maximum protection.  If you don’t have your own contract, any local real estate attorney can provide you with one. Our own TRIG President, Steve Gunther, has a great forms CD available that contains every form you’ll ever need to be a real estate investor.

 

Not Providing the Required Disclosures – The Applicability paragraph of Chapter 27 of the Virginia Residential Property Disclosure Act says the Code applies “whether or not the transaction is with the assistance of a licensed real estate broker or salesperson.” While there are some exemptions, most all of the real estate transactions investors are involved in, are subject to this Code of Law.  There are some commonly overlooked Disclosures you need to be aware of if you are entering into contracts for the sale, exchange or lease with option to buy of residential property.

1)    Residential Property Disclosure Statement – This form can be obtained from the Real Estate Board and contains seven different paragraphs of required disclosures.  These Disclosures protect the seller, as they point out many different guidelines that may affect the buyer’s use and enjoyment of the property.  The Statement points out that it is the responsibility of the Buyer to investigate all the items disclosed before purchasing, as the seller offers no warranty regarding them.  If you have never read this form, you’d be surprised at some of the items you are required to warn your buyers about.  Each paragraph begins with “The owner makes no representations with respect to…” and then points out things such as warranties as to the condition of the real property, the restrictions of historical districts, the Chesapeake Bay Preservation Act, and dam break inundation zones.  Start using the Residential Property Disclosure Statement today to offer you one more layer of protection in each transaction.

2)    Required Disclosures Pertaining to a Military Air Installation – Most people know that sellers are required to provide the noise and crash zone information about a property.  Did you know though, that if you accidently classify the noise zone of the property you are selling in a lower zone, and the property is in a noise zone higher than 65, the buyer has one year to seek recourse?  And case history shows the courts are likely to rule in favor of the buyer!

3)    Septic System Waivers – It used to be that if a property had a waiver for the current septic system, the waiver would transfer to a new owner.  This is no longer the case.  If you sell a property that has a septic waiver, the property becomes uninhabitable at closing, unless the reason for the waiver was addressed by the seller before closing.  Sometimes the property has a waiver because an addition surpasses the capacity of the current septic system.  Sometimes the waiver requires a new owner to get connected to the city sewer.  Surprisingly, we even have addresses in populated cities such as Virginia Beach that fall in this scenario.  If your property is not connected to the city sewer system, investigate whether or not a waiver is in place.

As you can see, licensed agent or not, all residential real estate sellers are bound to the Real Estate Code of Virginia, and it actually protects you as a seller to follow the guidelines.  You can review Chapter 27 of the Virginia Code, the Virginia Residential Property Disclosure Act at this web link.

http://leg1.state.va.us/000/cod/TOC55000000027000000000000.HTM

Happy investing!

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Why Do Real Estate Investors Have To Pay So Low? Because It Costs SO Much To Get House Sold!

One of my favorite real estate agents just called with what she thought was an awesome deal on an ugly house for me to buy and rehab in Norfolk, VA.  This happens all the time.  In this case, it was 4 bedrooms, 2 bath brick house that would sell for $260,000 fixed up.  The agent thought I could get it for $199,900.  To most people this sounds like an awesome deal.  To an experienced real estate investor, it sounds like a sure way to lose money.  Coincidentally, just yesterday I bought a 4 bedroom, 2 bath, 2 car garage, brick home in Virginia Beach that will retail for $265,000 fixed up, so the numbers were right on the top of my head.  Here’s how I explained why I couldn’t pay anything close to $199,900.

$260,000 – The price the house will sell for when it is fixed up

$28,600 – What it will cost to sell this house to the end buyer.  We budget 11% for the cost to sell.  It could be a little more, or a little less.  6% goes to the agents, 4% goes towards assisting the buyers with closing costs.  (In our market we have lots of VA buyers, and VA allows the seller to pay up to 6%.)  Almost every realtor contract has a 1% contingency expense added in for flaws found by the appraiser, etc.  That 11% ads up quickly!

$30,000 – The amount it is going to cost to update this house with a new roof, windows, kitchen, baths, paint, floors, and probably HVAC.  Because it is brick, we won’t have to side it, but if the moisture/termite inspection finds anything this $30,000 can go up to $40,000 in no time.

$8,000 – The cost to close it on the buy side and the cost of money to fund the purchase and rehab.

$193,400 – The price I would have to buy the house for to BREAK EVEN, with no contingencies built in for the unexpected.

So, as you can see, what sounded like a super real estate investment deal was a recipe for disaster for a real estate investor.  That said, this would be a great price for a home buyer who wanted to live in a home.  They could buy it, spend their money and invest some sweat rehabbing it over time, having built-in equity from day one.

Want to learn more about real estate investing?  Join your local real estate investing groups.  In Hampton Roads we have Tidewater Real Estate Investors Group that meets in Norfolk (www.meetup.com/trigofva), and the Peninsula Real Estate Investors Association, that meets in Hampton (meetup.com/va-preia).

Want to hang out with real estate investors?  In addition to the formal investor club meetings, HomeVestors hosts an Investors Networking Night once a quarter in Virginia Beach. All real estate investors, and wanna be real estate investors are invited.  Vendors who support real estate investors (mortgage brokers, contractors, insurance agents, etc.), are invited too, but their price for entrance is to donate a door prize for us to give out in exchange for us plugging their business at the event.  Our next event is April 12, 2010.  To learn more about the location and RSVP, click here.  http://www.meetup.com/homevestors/calendar/12918634/?from=list&offset=0 You’ll have to hit “JOIN US” to RSVP, but membership is FREE!

Patti Robertson is a HomeVestors (We Buy Ugly Houses) franchisee in Hampton Roads, VA. She is also a licensed real estate agent and President of TRIG, Tidewater Real Estate Investor’s Group.  To see the houses I have for sale and sign up to be on our investor list, check out our website at www.ptr.homevestors.com.  You can reach me direct @ 757-472-2547.

Happy real estate investing!

Patti Robertson

HomeVestors Franchisee & Development Agent

Licensed Agent

757-472-2547

Ptr.homevestors.com

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