How well are you representing your clients? Today’s column has nine questions that at least one investor has found cannot be answered by 95 percent of the agents in his market. Are you part of the 5 percent who can answer these?

I recently interviewed Barry Cunningham who has a successful investment business purchasing and selling short sales. Cunningham is not a licensee and typically uses an agent in his transactions. What he has experienced is nothing less than shocking. Here are the questions that most of the agents in Cunningham’s market are unable to answer:

1. Is the property still available?
There are four answers to this question. The property could be actively listed, sold, pended or expired. When Cunningham asks this question, many of the agents can’t give him a simple answer. If the agent doesn’t say that the property has sold, Cunningham responds by saying, "So we still have time to put in an offer." At this point, many agents start hemming and hawing. Again, the property is either available or it’s not.

2. How many mortgages are there on the property?
While the sellers aren’t always forthcoming about this issue, there are numerous ways to check this either through the public records, the title company, or by ordering a preliminary title report. If you don’t know the number and the amount of the mortgages on the property, how do you plan on closing the transaction when the seller owes more than what the buyer is offering? Determining this upfront not only protects the principals in the transaction, but it can literally save you months of work.

3. Are there any liens or judgments?
Sellers may be embarrassed to tell you that they haven’t paid their homeowner dues or that there is an IRS tax lien against them. Again, it’s important to see the number and the type of liens on the property.

For example, IRS tax liens are extraordinarily difficult to close in a short time period. City and state liens are often easier to resolve provided there is enough cash in the deal to pay them off. The question is: Do you want to list or sell a property that will require this level of work?

4. Are there any municipal or city fines on the property?
While municipal and city fines are often wiped out when there is a foreclosure, in Florida, for example, this is not the case. The fines transfer to the new owner of the property.

Cunningham cited one example where there was a $1,000-a-day fine (which can be for something such as a swimming pool infested with mosquitoes). The listing agent provided comparable sales information to the bank that owned the property. The comps were based upon other properties in the area that did not have this issue. Clearly, the fine greatly diminished what the property was worth. Furthermore, once the information was revealed to the listing agent, in most states that agent has an affirmative duty to disclose that information, not only to the bank selling the property, but to any future buyers as well.

5. Are the improvements permitted?
Your listing says that there is a new roof or kitchen. Where are the permits? Depending where you are in the country, some areas are relatively lax when it comes to obtaining permits. In places like Los Angeles, however, you have to pull a permit just to replace a dishwasher or a water heater.

In fact, there was a case in West L.A. where an owner did a major remodel on a $1 million home that included adding a substantial amount of square footage. The seller didn’t pull permits. The city demanded that the improvements be removed.

Again, when you take a listing and the sellers say they have done work to the house, determine the nature of the work and whether a permit is required. If a permit is required and the sellers didn’t obtain one, it’s probably smart to pass on the listing, as you could be buying a lawsuit.

6. Who paid what taxes?
If there have been improvements and the sellers didn’t pull permits, their upgrades will probably cause their property to be reassessed for property tax purposes. This means that the sellers may owe additional property taxes, even after the property has closed.

In terms of your obligation on a short sale or other distressed property sale, you need to know whether the homeowner paid the taxes or the bank did. If the bank paid the taxes, this means the payoff will be higher and it also must be disclosed on the HUD statement.

7. Where is that sewer hookup anyway?
Cunningham had a situation where a bank was taking back a property. When the city installed a sewer, the sellers never paid the sewer hookup fee. Instead, they were pulling water out of a pond. The bank didn’t believe it until Cunningham shot a video showing this was the case.

8. The comparables are all at $72,000, $70,000 and $75,000, so why are you listed at $95,000?
There’s only one answer to this question: The listing agent wasn’t strong enough to persuade the seller to list the property at market value.

9. Did you tell the seller about the offer we submitted?
This is probably the most frustrating issue for competent agents and serious buyers. For whatever reason, some listing agents do not submit the offers to their sellers, or worse yet, don’t even call back the agent who has the offer.

Because Cunningham is not licensed, he often sends his offers directly to the owners. The comments he hears are, "I haven’t seen my agent in a month!" or "You mean I can sell my house on a short sale and avoid going through foreclosure?"

In Cunningham’s area, there are about 1,600 sales per month. There are 27,000 agents. It’s clear there’s not enough business for all of them and that most simply don’t have the experience to navigate the difficult waters in today’s market.

If you aren’t able to answer the basic questions outlined in this column, then there is no better time than now to start asking the questions you need to provide your clients with the best possible representation. If you are unable or unwilling to address these issues, refer the client to an agent who will get the job done. It’s much better to earn a referral fee than to get zero when the transaction doesn’t close.

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