Drew Peterson

(Stick with us for a brief history of real estate law before we hit the meat of this blog.) Way back when, the seller was king. Real estate agents only represented homeowners, home inspections were unheard of, and the burden was on the buyer to make sure he was purchasing a sound investment.

What's that? The roof leaked the day you moved in? Too bad. Once you closed on a home, it didn't matter what you found. The house could collapse the next day and you were stuck holding the bill.

Fortunately, that has changed over the last few decades. The protections for buyers have been expanding, with more of the burden being transferred to the seller. Today, homeowners are required to disclose all latent defects that materially affect the value of the home. Latent defects include a leaking roof, mold, termite damage, past hurricane damage, and so forth.

However, and this is a big however, sellers are NOT required to disclose functional defects. Included in this category are doors that open into each other, garages that are too small to fit anything other than a compact car, doorways that are too small for moving in furniture, cable outlets in awkward places, etc. Inspectors won't look for them, and sellers won't tell you about them (assuming they even know about them in the first place).

When shopping for a home, make sure to take a second or third look at any properties you think you might ultimately purchase. Check for these functional defects. Measure rooms and doorways. Ask the owners if you can pull your cars into the garage. You never know what you might find.

Warm weather, beautiful beaches, and...foreclosures. It's not exactly how the Florida Tourism Industry would describe our state (well, at least the foreclosures part), but it is increasingly the perception of Florida in the media and around the water cooler.

Depending on which study you ask, we rank somewhere in the top 5 states with the highest foreclosure rates. Exponential gains in housing prices, loose lending practices, and the popularity of Adjustable Rate Mortgages (ARMs) have combined to push a growing number of homeowners into precarious financial situations. Unable to re-finance and facing a large adjustment in their interest rates, these unfortunate souls have but one good option; the short sale.

A short sale occurs when a lender allows a homeowner to sell a property for less than the loan balance. For example, let's say I owe $300,000 on a property I purchased 2 years ago. Now, that same property is worth $280,000. I don't have the $20,000 (plus closing costs) it would take to make up the difference, and my interest rate is about to adjust to a number I cannot afford.

My first call is to my mortgage company to inform them of my situation. We exhaust all other options and determine a short sale is in order. My lender sends me a short sale packet containing forms and questionnaires I must fill out about my income, assets, debts, etc. They also tell me to list the property with a Realtor (most, if not all, lenders will require the property be listed with a Realtor before even considering a short sale).

After listing the home with a competent professional, I receive an offer for $270,000. That offer is immediately forwarded to the lender for review. Since the offer is fair, the lender accepts it and tells me I must be out by the closing date. The $30,000 the lender has lost ($300,000 loan minus the $270,000 purchase price) is considered forgiven debt. Sounds pretty simple, right?

DISCLAIMER: Yes, it might sound easy, but this is a much oversimplified version of what really happens. It's important to speak with a professional about the various pitfalls of short sales. Unless you have exhausted all other options, doing a short sale could unnecessarily harm your credit and saddle you with a large tax liability.

Welcome to our blog series on the Top Ten Realtor Myths. Last Monday, we addressed the myth that Realtors are hired to "sell" homes. If you missed that installment, you can read it by clicking here. Now, let's move on to myth number two.

Once upon a time, Realtors were hired based on their marketing skill. Newspapers and home magazines were the primary means of advertising a property. Therefore, one or two photos and a brief description was all potential buyers had to go on. Realtors fielded phone calls, selling the features of their listings using flowery language and not a little exaggeration.

Buyers, for their part, had little or no access to information. They had to rely on the Realtor's description of the property and neighborhood when scheduling a showing. Once the perfect property was identified, a typical buyer had to rely completely on the Realtor to estimate its value. The information, and therefore the power, was in the hands of the Realtor.

Then Al Gore invented the internet and everything changed.

Now, buyers interested in a home can cruise through multiple photos, check out a virtual tour, view an overhead photo shot from a satellite, and pull up independent estimates of the property's value with the click of a button. Although the buyer still needs his Realtor's assistance with some aspects of the sale, the balance of power has clearly shifted to the buyer.

The rise of the internet also drastically changed the way buyers search for properties. A National Association of Realtors study found that just by advertising a listing on the Multiple Listing Service (now entirely internet based) and on a few key websites, a Realtor could reach over 60% of buyers. Put a sign in the yard and tell the neighbors, and you're well over 80%.

All Realtors have access to the MLS, major real estate websites, yard signs, and neighbors. Therefore, there is little differentiation between Realtors when it comes to effective marketing campaigns. Sure, a Realtor can offer to advertise your home on the front page of Sunday's paper or on a billboard across from I-4, but it won't be effective. It'll be done just to make you, as the client, feel like the Realtor is doing something.

So, if marketing no longer sets Realtors apart, what does? In this market it starts with pricing. Great Realtors thoroughly research a property before determining its value. They know the communities and how they compare. They have a well-thought-out pricing strategy designed to attract multiple buyers.

Next, great Realtors know how to negotiate. They know an attractive price is just the start and it's overall value to the buyer that matters. They know how to ask questions that probe a buyer's inner motivation for choosing a particular house. They know everything is negotiable.

Finally, great Realtors keep their clients' best interests in mind. They know the standard contracts backward and forward. They stay intimately involved in the closing process, anticipating problems before they arise. They fight to achieve the best possible outcome for their client.

If you are planning on interviewing Realtors to sell your home, don't focus on marketing. Instead, ask the Realtors about their pricing and negotiation strategies. Ask how they plan on making sure they achieve the best possible outcome for you. Listen carefully to the answers and then make your decision.

Thank you for reading this installment of our blog series on the Top Ten Realtor Myths. Check back on Thursday when we'll bust the number one myth. As always, your feedback is welcomed!

Welcome to our blog series on the Top Ten Realtor Myths. We took a brief hiatus from the series this week to post our monthly Market Update (click here to read it). Prior to posting that update we busted myth five, that Realtors are generalists and can sell just about anywhere. Let's move on to number four.

Myth: Realtors hold open houses because they are effective marketing tools.

Fact: Realtors hold open houses to find new business.

Open houses are one of the most misunderstood aspects of the real estate industry. Most homeowners see them as effective tools in the marketing of their home. They've been done by Realtors forever and are generally considered a mainstay of the business. Unfortunately, they're largely ineffective.

The National Association of Realtors conducts a survey of home buyers and sellers each year, publishing the results in a comprehensive report. One question in the survey asks buyers where they first saw the home they ultimately purchased. Among the most popular answers were the MLS, yard signs, and the internet. Open houses did not appear anywhere on the list.

Another question in the survey asks buyers which information sources they used in their home search. Interestingly, just under half of all buyers said they used an open house as a source of information. In other words, buyers visit open houses with the intention of learning, not buying.

So, why are open houses so common? Simply put, Realtors hold open houses to prospect for business. For starters, all those buyers looking for information are potential clients. That's why you typically see a registration form as soon as you enter the front door. Additionally, curious neighbors will often visit open houses, allowing Realtors to potentially pick up future listings.

Our primary problem with open houses is not that they are ineffective, or that Realtors use them to generate business, it's that the homeowner is misled to believe the open house is being conducted for his or her benefit. Because the seller believes the open house might actually sell the home, she will spend hours cleaning, de-cluttering, and putting away valuables and prescription drugs. All this work will be done without her ever being fully informed of the risks (stolen or damaged property, liability for injury, potential thieves "casing" the home, and so on.)

Once again, we're not bashing open houses. We're simply advocating full disclosure of the risks vs. the rewards. Realtors should make it clear that, although there is a small chance the house will sell as a result of the open house, it's far more likely the open house will result in new business for the Realtor.

Thank you for reading this installment of our blog series on the Top Ten Realtor Myths. Check back on Monday when we'll bust myth three. As always, your feedback is welcomed!

Each month, the Orlando Regional Realtor Association publishes its Market Pulse, a report containing essential market data. Here is our breakdown of the April edition (you can read the full report by clicking here):

First, the bad news:

1.) Interest rates have been rising over the last couple of months and are the highest since November of last year at 5.94%. This is occurring despite the Federal Reserve's aggressive attempts to influence the market. A higher interest rate reduces buyers' overall buying power, thereby reducing the number of available buyers.

2.) The total number of expired and withdrawn properties remained fairly low. 1,791 listings expired, while 1,704 were voluntarily removed from the market. This is an indication of sellers' continued stubbornness in relation to the market.

3.) Only 1,080 sales closed in March. Last year, that number was 1,779. Although there has been a steady increase in sales over the last four months, it has not been to level we need.

Now, the good news:

1.) The total number of new listings decreased from 4,811 in February to 4,398 in March. This is a step in the right direction, especially since there were 6,426 new listings last March.

2.) The total number of new contracts rose to 1,679, the highest it's been since July of last year. New contracts should continue to rise over the next two or three months since we are in the heart of the buying season.

3.) The total number of properties under contract rose to 2,398, also the highest it's been since July of last year.

Those of you that have read this Market Update in the past might notice something missing. We didn't mention overall inventory (the total number of homes listed for sale). Simply put, there's not much to say. Total inventory did decrease by about 500 from February, but it's still sitting at around 25,000. Therefore, it's more neutral news than it is good or bad news.

Overall, the numbers for the entire year have been pretty consistent. Each month has had about an equal share of good news and bad news. Nothing surprising or shocking has occurred. Therefore, there's no indication that we're getting worse, but there's also no indication that we're solidly on the road to recovery.

We're going a new direction this month with our advice to buyers and sellers.

Sellers in the lower price ranges (less than $250,000) will find a large pool of available buyers. With financing becoming increasingly difficult to obtain and interest rates on the rise, however, that pool could shrink at any moment. We would strongly recommend you list your property now if you are considering selling anytime soon. If possible, sellers in the upper price ranges ($250,000 and up) should hold onto their properties until the market picks back up.

Buyers need to be buying. It's as simple as that. Interest rates are rising and loan programs are disappearing at an alarming rate. We've seen some funky things (it's a technical term) happen in the last four or five deals. Lenders have made ridiculous requests of appraisers, reduced loan amounts days before closing, and required huge amounts of documentation, all resulting in delayed closings. In the future, those delays might simply turn into cancellations. For now, the risk of waiting outweighs the potential benefits.

*If you are interested in market data for your specific zip code, contact us for more information.