I’ve been in several multiple offer situations this year and learned of several interesting situations that other REALTORS® have experienced.

First, someone had a great question on myREINspace about how you know if there’s another offer on the table. As an agent we’re required to disclose when there’s another offer. That said, an offer isn’t really an offer until you have it in writing with a deposit cheque. The vast majority of us, as listing agents, will call and tell another interested party if there’s an offer coming in.

There’s a specific protocol to be used for multiple offers and my esteemed colleague Brett Turner, a REALTOR® in Calgary, laid it out very simply:

When a listing REALTOR® receives a second offer they are required to follow protocol set forth by their local real estate board and also overseen by their governing body (the Real Estate Council of Alberta in AB, or the Real Estate Council of Ontario in ON)

Basically it works like this:

1. You put your offer in and you are the only offer currently on the table.
2. Buyer 2 comes along and submits their offer.  They always know there is an offer already in play.
3. Listing realtor is required to notify your agent that there has been another offer submitted after you submitted yours. The brokerage representing them and the agent working for buyer 2 is required to be disclosed.
4. If you choose to change your offer then buyer 2 is notified that buyer 1 has amended their offer.
5. If a third offer comes in then the listing realtor must notify both other agents and tell them that there is a third offer submitted.  Again, brokerage and agent info is required to be disclosed.
6. If you or buyer 2 amend their offers then everyone (buyer 1, 2 and 3) are notified that a party has amended their offer.

This is of course assuming that the listing agent is a pro and is doing their job properly.
So long story short the brokerage and agents representing each buyer are made known to the other parties.  They can be contacted to verify this if you want.

The advise for you as the buyer (or the Buyers’ Agent) is to confirm the status of the other offer. Do they have a purchase contract and at least a copy of a deposit cheque? If not, don’t even think about amending your offer to do something stupid. If they do, then you know you’re actually up against another legit offer that the other Agent has seen and didn’t reject out of hand.

Secondly, be cautious about what you do in the heat of the moment. A friend of mine who is a REALTOR® in St. Albert told the story of a multiple offer situation during the boom where his clients’ offer (one of three) was the only one which had a condition on it, which was a home inspection. The property in question was a $500,000 detached home. The listing agent started laughing at them across the table. Craigs’ a pretty tough guy to shake and one the other agent stopped laughing he said “mind telling us what’s so funny?” The listing agent said “Don’t you know that only a fool writes a conditional offer when there’s multiples?” Craig didn’t miss a beat, saying “Don’t you know only a fool takes a half-million dollar risk with no backup?” His buyers ended up winning the multiple situation in part because the sellers agreed with Craig and his clients!

I’ve written unconditional offers myself before, but that’s never something I recommend to a client unless they have extensive experience buying and selling real estate, doing renovations/construction, property management and VERY deep pockets. Craig’s right – you could be putting $500K on one spin of the wheel and lose it all and more! An unconditional offer can be a great tool, but it can be just as dangerous. Don’t feel pressured to write unconditional offers, but don’t be surprised when you lose out on them.

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1. Can I have the trampoline too? That’s a picture of one of my clients enjoying her...

That’s a picture of one of my clients enjoying her new (to her) trampoline. It cost just a little over $300,000. Included with the trampoline was a very nicely renovated and maintained 1,200 sq ft bi-level in St Albert.

Usually when you buy a house the offer to purchase has space for two types of chattels (i.e. stuff) – included and excluded. The simple rule for chattels when you buy a new home is this – if you can just unplug it and carry it off the buyer doesn’t get it. That’s why listing sheets include a list of included chattels (typically the appliances). There’s a grey area when it comes to articles like very nice front loading washing machines, expensive attached mirrors, built-in shelving, wall mounted TV’s and more fun goodies.

The best way to handle the situation is to list the chattels you want to keep. Don’t leave it up to the sellers’ whim if you’ll be disappointed if they remove the nice shelving unit or the trampoline. Two tips I’ve learned from investing; take a couple pictures when you view the property and on the offer write ‘as viewed on August 5th, 2011′ so there’s no doubt. The latter saved my clients some grief just last week when adding that line brought to light the fact that the sellers were planning to take the very nice front loader washer and dryer out and replacing them with the (still very nice but not quite as nice and not blue) builder-spec appliances from their new home.

But what about the non-standard chattels, like that trampoline in the picture?

First, don’t be greedy. This isn’t a chance to get a bunch of stuff for free. If you’re reaching, you’ll end up overpaying for the property and weakening your negotiating position.

Second, ask, but be wiling to hear a ‘no’. Sometimes sellers have sentimental attachment or have plans for the trampoline/shelving/TV etc at their new home. There’s a positive quirk of psychology that most people will feel bad for saying no, and be willing to give something else back in return.

Third, be polite. Compliment what they’ve done. I’ve always been most successful in getting stuff like trampolines when you spin the explination such that you flatter the sellers. Usually you want the item because it’s perfect for the room/yard/decor, or it’s unique. If people can get the price for the house they want, they’re often willing to throw in just about anything.

Fourth, document exactly what you’re asking for and the condition you’d like it in. There’s been a lot of good discussion lately about just what items are ‘attached’ and sellers often have a different idea of what attached means. I’ll extend that by saying that more listing agents should be putting exclusions on their listings (such as the wall-mounted TV and built in Bose sound system in my listing in Brintnell)

So next time you’re shopping, ask for something out of the ordinary. Chances are you’ll get a deal. Next time you’re selling, throw something in or leave something nice behind!

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I’m sure you’ve all heard about the Federal Government’s January 17th change to CMHC mortgage rules by now (and I missed blogging about it, shame on me). They take effect on March 18th, and there’s one great strategy I’ll share to get some killer deals if you’re out shopping for more real estate right now. Here’s the gist of the mortgage rule changes (via CMT):

1. A 30-year maximum amortization on insured mortgages over 80% LTV
2. An 85% LTV limit on insured refinances
3. Elimination of government insurance on secured lines of credit (aka., HELOCs)

Now there’s going to be some consequences out of this, as always, both intended and unintended. Don Campbell from REIN had a great discussion on his Facebook wall about what those might be, and I’ll summarize them here.

Bank of Canada rate won’t have to rise as quickly

A bunch of ‘panic’ sellers will hit the market in Jan/Feb

A number of home buyers will push to close before new rules (not understanding that most banks will adopt rules immediately)

‎Combined with the recent CREA/MLS agreement will lead to increased listings

Cash flowing properties will become even more important

More Speculators will be kept out of market – capping price increases on new [construction]

More renters will stay renting

Now, notice the two points of Don’s which I’ve bolded. This means there’ll be people, both listed right now, and who will list even more quickly, who want to get their current home sold and their new home bought before March 18th. If you can find the right people, have your financing sorted, can close quickly and (most importantly) have a good Realtor and Lawyer who can get you through this, there’s a great opportunity to solve some people’s problems, and get a good discount for doing it.

The basic idea is this: buy their house with as short a closing as possible. Transfer the title and do all the normal stuff you do to take possession, but let the sellers stay in the property until (for example) March 1st. This gives them up to an additional 6-7 weeks in which to find and buy their new home. I spoke with a mortgage broker this afternoon and the mini-rush hasn’t pushed their time-lines much, so even if you need financing, you should be able to close in 10-14 days, if you have a good broker and lawyer.

Here’s the breakdown:

Step 1: Find good sellers motivated by the new rules

Your Realtor can help you do this by searching for attributes like recently changed listings which dropped their possession requirements or added negotiable. Price drops or comments in the private (Realtor only) notes like commission bonuses can also flag people who are hoping to get out now and use the 35 year amortization for their new property.

Step 2: Establish rapport, understand where they’re going

Your job (and your Realtor’s job) is to find people who were going to be tight qualifying for the house they want to buy, and wanted to get through with the new financing before they’re limited to a 30 year amortization. You’re going to help them solve that problem by buying their house with a quick close, but not forcing them to move. The balance is between the best discount you can get for solving their problem, but still leaving enough on the table for them to be able to buy the new house they want.

Step 3: Write offer with lease-back agreement

You’ll need to get your lawyer on board up front, but this isn’t an uncommon practice and shouldn’t be hard (or expensive) to do. You absolutely want to make sure you’ve got your legal butt covered, in case (for example) the house burns down the day after closing. You’ve gotta be clear about the cost of staying, who has insurance, damage deposit etc, and also make sure the lenders are cool with what’s going on.

Step 4: Do it!

This part is pretty self explanatory. You write the offer, it gets accepted. You close. They go shopping. They offer and close, then move. Everyone’s happy and you’ve both been able to take advantage of the last of the 35 year mortgages!

If you have any questions, or want to work with a Realtor who gets this stuff, leave a comment, use the contact form or feel free to give me a call. 780-488-4000.

Warning: This one can be tricky and should be used by experienced homebuyers, investors and always consult the appropriate industry professionals. In this case this includes your Realtor, Mortgage Broker or Banker and always your Lawyer.

(HT to Wade Fenner who put the bug in my ear about this earlier today.)

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Brent and I were chatting about the proliferation of courses, groups and courses out there for real estate investing and realized that there’s a lack of education that uses real properties.

What we’ve come up with is essentially a mini-field trip, giving people a chance to get together, go look at some currently listed properties and discuss the benefits of various neighbourhoods, property types and how to write offers. You can download the signup form here.

Here’s the post from Brent’s site:

We’re offering a free service to walk new investors through the process of finding, evaluating and purchasing real properties in Edmonton.

Come and visit actual listings and learn the secret to evaluating neighbourhoods, property selection, due diligence, cash flow analysis, budgeting for reno’s and flips, and writing/presenting offers with no fear, and no obligations. Discover the money makers to watch for and the landmines to walk away from.

Download the registration form here.

Join us to tour and discuss real properties:

June 17th, Townhouses
June 24th, Single Family Homes
July 7th, Suited Properties
July 15th, Multi-Family
July 22nd, Condos, Suites & the LRT

Each night will follow the same format:
6:30 p.m. Meet other investors, review the property type and neighbourhoods
7:00 – 8:30 Tour selected properties
8:30-9:30 Review the properties, analyze the numbers and write an offer.

To reserve your spot, email brent@brentdavies.com, fax this form (PDF) to 780-484-3018 or call Brent at 780-297-2810

I’m going to miss the first one, but I’ll be at the rest of ‘em!

Picure Credit: Woody1778

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15 years learning by watching

4 years building relationships

2 years buying my own stuff

Which leads to the experience of getting an email, making two phone calls and calling the seller back within 30 minutes of their email to say, “we’ll take it!”

I don’t advocate buying property sight unseen, and after I gave the seller a verbal we still had a chance to do a full walkthrough, but I’ll explain why I felt fine with this one.

1. A wholesaler I trust. The email came through from a wholesaler who I trust and my parents have bought from before. I trust their numbers and the types of properties they offer. They emailed me a 4-bedroom townhouse they had an contract on and were looking to assign. With properties like this there’s almost no way you’ll be able to get a 1st mortgage, so you’re left with bridge financing or closing in cash, and you’ve gotta do it fast.
2. A condo complex, neighborhood and renovation plan I know. They happened to find a property in a development I already own one unit in and am very familiar with. I like the board, the construction and know quite a bit about the recent sales. I know exactly how much renovation will bring how much value. It made the purchase a 90% automatic yes.
3. A joint venture partner ready to close. Being able to pick up the phone and have an experienced JV partner who could come up with $200,000 cash lined up is huge. This isn’t a particularly rich deal for me, but being able to help put it together was a significant personal achievement.
4. Skilled eyes for the one and only walk-through you’re likely to get. Bringing in my Dad, who is a great Realtor, Property Manager and who happens to be a Certified Engineering Technologist and a Journeyman Carpenter is like having a walking home inspection service. Then to bring my Mom in, who has done a lot of renos and is an Accountant is icing on the cake. We could have a second look if we really wanted, but when it comes to great deals, I want to be the easiest person on the block to deal with, so I’m looking to say yes/no as soon as possible and be true to my word. When it comes to wholesale or pre-foreclosure deals, the homeowners are frequently a little skittish so you want to be very careful about how you treat them.
5. Multiple exit strategies. This one is planned to be a flip, and we know the neighborhood well enough to make sure our renos fit the types of sales we’re looking for. I also already have a potential purchaser lined up. I also did the numbers and know that it’ll cash-flow like crazy if we end up having to hold it for unforeseen circumstances.
6. An all-star renovation team and contractors. Knowing which contractors I can have, including some ballpark estimates from a few contractors thanks to my wholesalers means the budget is pretty solid. Concerns are few, risks are low, awesome is high. There’s sure to be things that pop-up unexpectedly, but it’s great to know we have a wicked team to handle it.

Now I’m just looking forward to the process of getting the renos done!

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There’s a cliche in the real estate business that you make your money when you buy. It sounds all fancy and sexy to say things like:

I bought a place 25% under value.

or

I never pay more than 75cents on the dollar.

For the rest of us in the real world, buying is only the start of a long, complex and often stressful road. Guys like Russell Westcott and Don Campbell will tell you to stop grinding down sellers, buy in the right areas and pay what something’s worth. Good property management, effective leverage and economic fundamentals will make you more money than you can shake a stick at.

Good Property Management is the new Black

The most often cited cause of stress, foreclosure or gross stupidity is failure to manage a property and tenants well. Failing to buy well only results in loss of a deal or tighter cashflow. Failing to manage well results in total loss of equity, damage to your property, lawsuits, negative cashflow, midnight moves, visits to the Residential Tenancy Dispute Resolution Board and swift consumption of your reserve fund.

Managed right you’ll have steady cashflow, reliable and respectful tenants, preventive maintenance done right and a fantastic asset for your exit strategy.

The Best Advice Around

I went shopping for condos last month in North Edmonton and stopped at a complex called Castlewood (circa 109st and 165ave, Google Map and Streetview). They’re two story complexes that are listed and seem to be 3-bedrooms. My Realtor is also very experienced property manager (he only does real estate sales now) and knew that the window in the third bedroom wouldn’t meet the safety standards. We automatically walked out of the complex because I won’t waste my time on units that don’t conform. I don’t want the risk.

Not two weeks later I saw this post on myREINspace. Here’s the important parts of the post:

We have three three-bedroom townhouses in a complex of 80 units. The owners of the Condominium received a letter stating that one of the bedrooms is not to be used for sleeping purposes. It is not safe because the window in that room is 9 feet from the ground and cannot be reached and opened from the inside without the use of tools or special knowledge.

We have contacted AHS for clarifications and for solutions that we could apply in our units immediately, since our tenants have been using that room as a bedroom. All our suggestions such as pocket door, or emergency ladder were declined….

Our plan is to work with a lawyer to file an appeal and at the same time work with the Condo Board to find a common solution. The Condo Board has not been very pro-active in this regard and transferred the problem to the owners, since “all owner occupied premises are strongly discouraged from utilizing the affected room for the purposes of sleeping.” However, the officer from [Alberta Health Services] left very clear that if they have an inspection and somebody is using that room for sleeping purposes in a rental unit, the owner and the Board will have to respond. It is a huge liability.

I don’t know if it’s the same complex, but there’s at least three others I’m familiar with that have the same problem.

And that one move earned Brent every penny of his commission.

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Buying real estate in an up and coming area is one of the best ways to make money on your investment. Areas of renewal or gentrification will appreciate faster and higher than other more genteel areas.

C-Class Area + Renewal = B-Class Area

The one part of this equation that everyone fails to grasp is that you need to be in a C-Class or B-Class area. To quote a question I was asked a little while ago:

Do you find in Edmonton you can find properties that flow in nice areas (Duplex or single family)?

I should have said no because I think their definition of a ‘nice area’ and my definition are likely a little divergent, but let’s back up a minute.

There’s two ways of approaching this strategy.

First, undervalued properties. As Thomas Beyer likes to say, buy C-class buildings in B-class neighborhoods. Second, buy in a poor area, doing minimal renovations or improvements,  counting instead on the increased value of the comparables. Transportation improvements can count as a part of this strategy. But there’s always a little bit of the first strategy which comes naturally to those interested in real estate.

When I think of C-class (and I’m talking multi-family buildings here), I think of an exterior that needs significant paint, ~20% of fascia, all the evestroughing (but minimal structural damage), some of the windows, and most of the light fixtures. A great sign can be a damaged intercom and/or front entry. If it’s covered with shrubbery and dark looking, even better. 20% of the suites should need near total-refurbishments.

If you’re hearing all that and thinking “let’s get cracking”, we’re on the same page.

What’s the difference between B and C class neighborhoods?

B-class:

• No prostitutes. Some transients.
• Very few derelict cars.
• Mostly single family homes, intermixed with town-home developments.
• Typically built between 1960-1990

C-class:

• Transient prostitutes, but not plying their trade in the same area.
• Common transient (bottle-pickers, sometimes panhandlers).
• More dense multi-family area.
• You probably won’t feel safe walking here at night.

What’s a D-class neighborhood?

Is there something worse?
- Actual slums with shack housing
- Large tracks of abandoned residential or commercial properties

I hope I’m getting my point across. If you’re new to the industry, get to know a property manager and ask them to give you a tour of some of their buildings. The lower-class buildings in particular. Get outside your comfort zone.

What do you think defines each of these areas? Am I right in thinking new investors expect too much ‘nice’?

Photo Credit:

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The current market is full of amazing deals, and the US market is full of even more interesting buying strategies that the Canadian market. Getting an offer that’s anything more complicated than 10% below asking accepted is complicated. Now I’m just going to talk the Canadian real estate market for a second, because that’s the only place I buy, and I don’t mess with short sales, forclosures or pre-forclosures.

Some great ways to buy creatively.

• Vendor Take Back Mortgages (I’ve heard of huge VTB’s, zero interest with a 3-5 year balloon payment)
• Lease-options (aka the Rent to Own)
• Discounts
• Existing tenant rent-to-own
• Buying in bulk (the speculator who bought 7 units in the same pre-build)
• And the good old fashioned hard work finding a motivated vendor.

But I stumbled across this interesting video from Jason Hanson’s BiggerPockets blog.

Four tips we can learn from Jason:

1. Let the other person talk. A lot. Keep what you say to an absolute minimum, and don’t be afraid of the silence. When there’s silence, the first one to talk is the loser. Don’t be afraid to break it off, hang up the phone and move on. There’s a lot of other listings, and breaking it of is often a good strategy with motivated vendors.
2. The Seller named a price first. They who quoth thine desired price first shall loseth thy negotiation. She asked $550,000, he came back around $300,000, which set him up to pitch the lease option, which is what Jason wanted.
3. Jason offered a written proposal of his offer. If you’re thinking lease-options or vendor take-back mortgages, you should know how to explain them but you should have it in writing. They’re never easy to explain and there can be a lot of variables.
4. End by giving them something. All Jason did was give them another way to contact him, although a more personal one. By moving from the regular office contact information to his personal cell phone number, you make the seller feel more important. He also used the term ‘Ma’am’ towards the end: sucking up a little never hurt!

Now go watch the video, all 7 minutes of it!

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