Articles from Industry Experts
Profit From Your Vacation Dream Home
Excerpt from the book: Profit From Your Vacation Dream Home, Kaplan Publishing
By Christine Hrib Karpinski
Where to Begin?
Get ready for this uniquely hybrid venture that combines the romantic idea of owning your own vacation home with that of renting it out to others (the secret to affording that second home). In the process, you’ll make decisions based on financial and emotional considerations – both in how your vacation home can bring in profits and how you feel about it as a getaway place.
Remember when you bought the home you live in now? Did you make a strictly financial decision? Of course not. In addition to being in the right location, your home needed to have a certain “feel” before you took the plunge and made an offer. Particularly, it had to have the right number of bathrooms and bedrooms, as well as details such as a garage, basement, fireplace, kitchen cabinets, the right décor... an endless list of things that mattered tremendously. After all, you’d live in this house, play in it, relax in it, and entertain friends in it. Quite possibly you’d raise your children and gather for family holidays in this home too. The choice you made clearly involved a lot more than finances. I recommend you adapt that same mind set and enthusiasm when buying a vacation property. But don’t get too caught up in finding all the things on your wish list. You may have to make some compromises.
Start With a Plan
If you’ve ever started a business, you know it’s wise to start with a business plan. Similarly, think of buying your vacation property as starting a business. If you feel nervous about this process, don’t get overwhelmed. No doubt you’ve created plans for social events at work or at home. What did you do to get started? Perhaps you created a list and wrote down your goals. As you pulled together details, you added to your list, which evolved into a plan. Now apply the same approach to purchasing your vacation home property.
These questions will help you get started:
- Where would you ultimately like to purchase a property?
- How much do homes cost in that location? Are
- they affordable relative to what you are willing to pay?
- How do you intend to use this property?
- Primarily as a second home for your own family?
- Long-term lease? Full-time rental? Vacation rental? Combination of these?
- What are your financial goals for this property?
- What are your expectations for the future of this property?
You get the picture. Add your own questions... The answers will help you build your plan.
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Novation – Success Is in the Details
By David Lovenvirth
It looks like another successful residential transaction. Your buyer’s offer was accepted, escrow has been opened and financing locked in. All of the disclosures have been provided. Inspections and the appraisal have been completed. Now, with the closing three weeks away, your client tells you that, because of some family issues, they’ve asked their sister to take over the purchase of the house. This sounds like the time for a Novation.
Unlike an Assignment, in which the assignor retains secondary liability in the event of default, in a Novation the new party will relieve the original party of all obligations and liability. A Novation is usually thought of as the substitution of one agreement for another. A more specific form of Novation, however, involves the substitution of one party to a contract for another, with the terms of the agreement remaining unchanged. For example, the substitution of one buyer for another after the offer to purchase has been accepted by the seller. In this case, all rights and obligations are transferred to your new buyer.
There can be many reasons for a Novation to arise in a residential real estate transaction. A family member may desire to transfer ownership to another family member before the transaction is concluded. One party’s failure to qualify for financing can also enter into the decision.
If your transaction is to proceed smoothly, there are some issues you need to consider:
- Any Novation amendment to the existing contract must be agreed upon by all of the parties to the original contract. In this case, the parties will be the original buyer, the new buyer and the seller. Unless this is done, the escrow cannot close satisfactorily. Have the Escrow Officer review your documents before the scheduled closing date. Make sure that the amendment specifies that the terms and conditions previously incorporated, in the original contract, are accepted by the new buyer.
- Although your original buyer qualified for the financing, the new buyer must be approved for the assumption of the debt if the lender is to release your original buyer from any liability.
- The appraiser was given a copy of the original contract. In accordance with Standards Rule 1-2 of the USPAP standards, the appraiser must be able to confirm the identity of the new client through a copy of the Novation amendment.
- Your original Agency Disclosure is no longer valid. A new Agency Disclosure must be signed by the new buyer.
The transaction proceeds to a successful conclusion. The buyer and seller are happy.
And then, there is your commission...
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Choosing the Right Home Inspector
By Don Norman & Mitch Sudy
Do you need help when recommending the right home inspectors? In today’s real estate market, virtually every agent and broker knows the importance of recommending a home inspector to their buyers. But do you know that you could be putting yourself at risk? Even if you recommend one, two or three inspectors, giving the buyers a list of all inspectors in your area could still result in a poor inspection.
Training – Home inspection training is just as important as experience. Many “old timers” were carpenters, electricians or builders in an earlier life and learned to perform home inspections “on the job”. As a less physically demanding profession, home inspections looked like an easy transition. However, there is no single trade that qualifies someone to move into the field of home inspection without extensive training. Make sure you look for an inspector who has been professionally trained by a qualified training school such as Kaplan Professional Schools, Inspection Training Associates (www.home-inspect.com). A professionally trained inspector from a recognized training school increases the odds of a quality inspection and reduced liability.
Continuing Education – Even well trained inspectors must continually update their skills and knowledge. As an example the American Society of Home Inspectors (www.ashi.org) requires a minimum of twenty continuing education credits each year. The housing industry is always changing and it takes ongoing education to keep up. Beware of an inspector whose knowledge is “stale”. Look for an inspector who spends time and money to upgrade their training.
Insurance – Insurance is a critical part of any business operation and never more so than in the field of home inspections. Along with General Liability to cover property damage caused by the inspector and Workman’s Compensation Insurance for injury on the job, Errors & Omissions Insurance is a vital component to the protection of the client, real estate agent and home inspector. Inspectors should be able to provide you a copy of their E&O policy upon request. If a home inspector does not carry this important form of protection, scratch them from your list!
Association Membership – While not required in most states, inspectors who have made the commitment of time, training, testing and money to belong to a professional home inspection society are generally more professional and concerned with doing a great job for your buyers. An association such as ASHI requires members to follow a nationally recognized Standard of Practice, adhere to a strict Code of Ethics, maintain continuing education, pass the National Home Inspection Exam (www.homeinspectionexam.org) and complete 250 fee paid home inspections to the Standards of Practice before becoming a full member. While not guaranteeing a great home inspection, referring someone from a nationally recognized home inspection association such as ASHI increases your chances for a quality home inspection by a qualified home inspector.
A proactive approach to choosing the right home inspector is to pre-screen each inspector with a comprehensive questionnaire. Below is a sample of a recommended letter and questions to ask.
Dear Home Inspector,
I recognize that a home inspection is an invaluable part of the home buying process. Whether performing a “Listing Inspection” for a seller who’s looking to make the selling process easier by avoiding last minute challenges or a Pre-Purchase Inspection for buyers as they seek to remove contingencies, a quality home inspection provides all the vested parties with the critical information they need while reducing liability for all involved. I am looking for up to 5 inspectors to recommend to sellers/buyers. If you would like to be considered for this list, please take a moment to answer the questions below. Feel free to provide any additional information that you think is relevant to stating your qualifications.
- What formal home inspection training have you received?
- What applicable background and experience makes you a good inspector?
- Have you passed the National Home Inspector Exam or other applicable national or state examinations? (identify others)
- How many inspections have you performed?
- How many years have you been performing property inspections?
- What applicable certifications or licenses have you earned?
- What professional associations do you belong to?
- Please provide proof that you currently carry General Liability and Errors & Omission Insurance?
- Please provide a copy of your inspection agreement/contract and a sample inspection report for review?
- Do you provide the client with the inspection report in the field at the time of inspection or later following the inspection?
- Does your firm have more then one inspector and if so will the person with the qualifications, experience and licenses identified above be performing the inspection, or another inspector who works for the company?
- Is the inspector available to answer questions after the completion of the report?
- When inspecting the attic and crawlspace (when applicable) do you enter and inspect the entire area or do you limit your inspections to the view from the access opening?
- Have you had any insurance claims or lawsuits within the past 5 years? If so, please explain.
- Does your firm also make repairs to inspected properties?
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How to Take a Vacation When Your Clients Need You
By Steve Oxman
When was the last time you took a vacation? I mean a real one. Not just a long weekend at the pool in your backyard (with cell phone handy), a massage session at a day spa, or a quick, required trip to a family wedding. When was the last time you traveled out of the country? When was the last time your cell phone was out of range for more than a week? When was the last time you really, truly, felt refreshed and restored?
Because real estate is a service profession, and because it’s commission-based, agents tend not to take time off. But studies have shown overwhelmingly that people who take regular vacations are more productive than those who don’t. Everyone needs to turn off for a while, relax, share an adventure, have fun.
The question is: how? There’s always a seller whose listing requires attention, a buyer who needs to start a new job and find a place to live by a strict deadline, closings to attend, escrow issues to negotiate, deals to hold together and problems to solve. If you’re successful, you’re juggling many transactions at once, and there’s never going to be a 2-week period that’s appropriate “down-time.” So you need to make that time and then manage your client base. The key is proper planning.
When is the right time?
Sure, there are natural times of year when the market is slower than others, but when the market is slow your clients often need even more of your marketing expertise and attention. So don’t wait to take a vacation until the perfect time for your business; there isn’t one. Plan the vacation for the perfect time for you and your family, and then make it work for your business.
Who will fill in for me?
The first step in making sure your clients are taken care of is selecting the colleague, or colleagues who will fill in for you. You want to choose experienced folks; this is not the time for testing out the skills of a new licensee. You should do that when you’re there to back them up, not when you’re out of reach. Consider a semi-retired colleague, someone highly experienced, reliable, and a calming influence who for personal reasons hasn’t been marketing for new clients.
When do I tell my clients?
The important element here is to make sure none of your clients feel blind-sided or abandoned at inopportune moments. About 2 months out, plant the seed for prospective clients and current clients you may still be working for. That far out, have it as part of the everyday conversation, not as a formal announcement. Ask them, “Have you ever been to Cabo? I’m taking my family there in March.” Then, about a month or so out, discuss it more specifically with clients.
How do I tell my clients?
Don’t send an email announcement – “Hey, I’ll be leaving the country and won’t be reachable.” This is something that needs to be done in person and in the right context. The fact that you’re taking a vacation needs to be immediately followed by the plan of action. Example: “I want to let you know that in a month I’ll be going on vacation with my family. I believe that if all goes as planned we should be in escrow at that point. I’ve arranged for (NAME) to handle anything that comes up during this time, and I’ll make sure you get a chance to talk to (NAME) when we get closer to the time. I’m sure everything will be taken care of ...” Keep a checklist of your clients you’ve told so you make sure not to forget anyone.
Tell clients when you’ll be unavailable, not when you’ll be leaving.
This is a great tip that more agents don’t consider that addresses one of those predictable truths: the time leading up to vacation is hectic, with packing and trying to finish up any transactions on the verge of completion or break-through. If you’re leaving on the 15th of the month, tell clients you’ll be unavailable starting the 14th. That will allow you to finish what you need to do to get away, and allows you to deal only with emergency issues if they come up.
How do I hand off my transactions?
If it’s possible, introduce your replacement colleague in person to your clients. If you can’t do that, make sure the replacement calls to touch base with them within the first couple of days of your absence. Clients should feel they are being serviced, that someone is there if they need something. Make sure you leave a thorough status summary of each transaction so the colleague can consult it.
How do I minimize the cost?
You need to think of your vacation as a mid-term investment in your business. Be aware, you are sacrificing short-term income for long-term mental health. Your vacation is a priority. That said, you want to do it properly, and to minimize the costs of travel and the impact on your business.
Long-term planning is key. You can’t do this right if you’re doing it on the spur of the moment. Unlike other professionals with regular full-time jobs and vacation benefits, independent contractors need to plan vacations further out for the sake of their clients. This has the added benefit of saving you money on airfare and hotel.
How reachable should I be?
That, of course, is up to you. Your clients should feel you can be contacted in a serious emergency. I recommend providing a single person, perhaps an assistant in your office, with a detailed itinerary with hotel phone numbers. Provide your clients and colleagues with that person’s contact information, to be used if absolutely necessary.
You can also establish dates when you will check your e-mail, so you’re not required to check it every day.
And, finally, even if you’re traveling domestically, you should turn off your cell-phone for the duration.
Remember, you’re on vacation.
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Home Buyers Are Bringing Back the Inspection
By Kirstin Downey, Washington Post Staff Writer
Saturday, March 25, 2006; F12
Like spring buds, home inspections are sprouting anew all over the area.
Home inspections faded from the market from 2003 until a good way through 2005, when sellers ruled the real estate world. Estimates show that in almost half of all transactions, buyers bidding against other buyers made their offers more attractive by dropping the home-inspection contingency from their contract offers.
Sellers reveled in this, because it smoothed the way to an easier closing, with fewer messy questions about whether the roof really leaked or the electrical system was up to snuff.
Now buyers are in a stronger bargaining position and they are insisting on inspections again.
"The market has slowed down for purchases, which is really good for home inspections," said Reggie Marston, owner and president of Residential Equity Management in Springfield. Marston said he performed 28 inspections in February 2005; this February, he did 35 to 40.
"It's the best I've done in the last three years," Marston said.
Arthur Lazerow, president of Alban Home Inspection Service Inc. in Frederick, also is seeing a big increase.
Another change, he said, is that listing agents are once again attending the home inspections, rather than just the buyer, the buyer's agent and the seller. These agents are trying to deal on the spot with questions when the inspectors find structural deficiencies.
Lazerow said many listing agents had stopped attending inspections because buyers seldom balked at problems. Now, he said, they are standing by, vigilant.
"They know it's more difficult to sell a house; each sale is more precious," Lazerow said. "It's like they are there to guard the house."
The pricing of home inspections has changed, too. In the past, when most houses had three or four bedrooms and two baths, inspectors charged set fees for their services, perhaps $250 per inspection.
But many houses have gotten much bigger, so many inspectors now charge a set fee, but then add a premium for additional square footage over a certain base level. Some houses are so big now that home inspections take two people to perform if they want to complete the review in a single day, Marston said.
Lazerow said the pickup in the home-inspection business has been slower in coming than he would have predicted. Many real estate agents are new to the industry, and they are not accustomed to telling their customers that getting a home inspection makes sense, he said.
"They've never done a home inspection, and now they are trying to learn what it is all about," Lazerow said.
Marston said many first-time buyers need to be informed about home inspections.
"Some of these folks are like ostriches -- they want to bury their head in the sand and say, 'I hope nothing goes wrong,' " he said.
Reprinted with permission from The Washington Post, Copyright © 2006.
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