Entrepreneurship

This is the first post I've written that's not about real estate. Well, not exactly about real estate anyway. It's really about helping others to help themselves. I recently learned of kiva.org -- a microfinance site that allows you to make very small ($25) loans to people in need across the world. I was intrigued by this site for a number of reasons, but mainly because I just got back from a trip to Vietnam and Cambodia. It was an amazing trip--more of an "education" than a "vacation," really. I won't take up space here with details (though I'll happily discuss off-line with anyone who's interested.) Suffice it to say that there are pockets of extreme poverty, yet in the midst of that, tremendous courage and a pursuit of something better. Entrepreneurship is everywhere. People do what they can to earn a living and provide a better life for their family. People all over the world, deep down, really do want the same things.

I started thinking about my adventures in real estate, and how lucky I am to have been given so many opportunities in my life -- education, careers, mentors, financing. It's so easy to take it for granted. On kiva.org you read profiles of people who are asking for so little, to try to get to the next stage of their lives.

Most people don't know this, but real estate agents are all independent contractors (1099 for all you payroll types.) We front money out of our own pockets for all our start up expenses--advertising, licensing, computers and cell phones, MLS access, business cards, etc. People always ask me who I work for, and the answer is "myself." Though affiliated with a broker, they don't provide health benefits, retirement benefits, equipment, clients, salary or draws, or many other things that people assume are provided. Being in real estate really is being a one-woman show (though in my case, I work with an amazing team!) That's probably why so many people fail. It's starting a business from nothing, with nothing.

When I think about where I am today, I'm so grateful that, truth be told, it was easy enough to get started in this business--some money, some time, some effort. And then I compare it to people trying to build a better life in other countries and I feel so, so lucky.

This isn't nearly as eloquent as I was hoping to be, but I hope you get a sense of where I'm coming from. And thank you to everyone who has ever given me an opportunity: parents, teachers, managers, co-workers, clients, and friends.

See more at www.kiva.org

FAQ: Earnest Money Deposits

I love the Post's Saturday Real Estate Mailbag. There's always something interesting in there. (Though if you read it long enough, you do start to see the same questions over and over.) Here's a good tried-but-true one that I often get from clients -- how much should you put as earnest money? What IS "earnest money," anyway?

Simply put, earnest money is a personal check that you write (payable to your real estate broker or another third party) that accompanies your offer on a property to indicate to the seller that you are sincere, or "earnest," in your endeavor to buy their property. It's a "good faith deposit" on the property. Once you agree to terms, the seller will be removing their property from the market and passing up potential future offers, so it's only fair that they have something more tangible than your signature to rely on. It's a buyer's way of putting "skin in the game."

The check gets cashed upon contract ratification, and the deposit is held by that third party until settlement, at which time it is applied to your downpayment or closing costs. In the event of any overage, it's refunded to you at settlement. In the event of a default by the buyer, the seller theoretically can claim that deposit (though in reality it's extremely difficult to make that happen.) Here's a great FAQ from the mailbag:

DEAR BOB: What is the normal earnest money deposit that should be offered by a buyer for a $350,000 condominium? Is it a percentage of the sales price, or is it based on something else? -- Ottilia C.

DEAR OTTILIA: There is no "normal" earnest money or good-faith deposit for the purchase of a residence. At a minimum, however, it should be 1 percent of the sales price to show serious intent. That would be $3,500 in your situation.

If you are making an offer substantially below the seller's asking price, a larger deposit can impress the seller. However, your deposit should not be more than 5 percent of the purchase price. Always make your check payable to the firm you want to handle the closing of the sale, such as a title-escrow company or perhaps a real estate lawyer -- not the seller.

Of course this column is syndicated nationwide, so may not represent the typical transaction in this area. Though there is no specific requirement, in my experience and in the current buyer's market, you should be prepared to put about $5000 as a deposit for a transaction value up to about $350K, $10,000 up to about $600K, and for anything higher than that $20-25K would likely be considered sufficient. Obviously the more you put down, the more seriously your offer will be considered, particularly in a competitive bid situation (yes, they still happen!)

What Happens at Settlement?

Honestly, very little. Mainly you sign your life away to the bank that gave you the purchase money. But having a good settlement attorney can certainly make your life--and your home purchase--a lot easier. Here's a good article from the Post.

Buyers have the right to choose the transaction's settlement attorney, who represents neither the purchaser nor the seller. (I know, it's a little weird...the attorney represents the transaction itself.) I know in some states it's common for buyers and/or sellers to hire their own attorneys, but I haven't been to one yet in this area where that's been the case.

A good agent should have relationships with one or more reliable settlement attorneys. And yes, there are often "relationships" between the large brokerages and settlement firms, as noted in this article. I wish I knew more about the fee sharing -- I know I don't see a dime of it, and I'd be crazy to risk a good client relationship over something like that anyway. Who wants to work hard for months on a deal only to risk having it blow up at settlement?? I recommend settlement attorneys based on their thoroughness, reliability, and availability to answer questions along the way, (and of course fees.)

You designate your choice of settlement attorney when you write the offer, though, so it pays to be educated on this topic earlier than later in your home-buying process. And, as always, it helps to be working with an agent you trust who can recommend qualified people for your "team."

How Low? It Depends...

Finally, a (mostly) balanced article from the WP: How Low Will It Go? Well, Where Do You Live?

Though the first half of the article (the 'above the fold' part) describes a Manassas homeowner who has lost $200K since buying last year, the article goes on to describe the stark differences between that Manassas market and the closer in areas which are seeing increases.

The Chicago Mercantile Exchange started trading a new instrument that is essentially a futures contract on the residential housing market. That index is predicting a 4% decline in the Washington area. Moody's Economy.com is predicting a 6-7% decline through the end of '08. But neither index makes a distinction by neighborhood, and as anyone who lives here can tell you, there is a world of difference between living in Manassas and living in Arlington.

The article also points to GMU's Center for Regional Analysis, which I've discussed several times in this blog, as well as my first-time home buyer classes, before. They think the national forecasters underestimate the strength of local employment, and they are predicting a 2% increase this year, then 4-5% in 2008. Who's right? Time will tell.

Burglary Prevention

I often get asked questions about crime (which I usually can't answer -- see "What Realty Agents Can't Tell You" entry from April 2007). I did come across this helpful graphic "Anatomy of a Burglary" in today's Washington Post. Pretty interesting stuff. Some good tips on where NOT to keep your valuables. In this season of vacations where homes are left empty for a week or more, it's worth being smart about.

Here are some more tips from Arlington County:

Before you leave...

* Make sure your home looks lived in, not empty: stop mail and cancel all deliveries or ask a friend to make daily collections. Hide empty garbage cans. Leave shades and blinds in normal positions. Put an automatic timer on several lights and the radio. Have a neighbor keep your property maintained.
* Leave a key to a trusted neighbor.
* Store valuables in a safe deposit box.
* Tell a neighbor you trust your departure and return dates. Supply an itinerary with phone numbers where you can be reached in an emergency.
* Ask police to make extra checks at your residence.
* Lock all windows and doors. Double check basement and garage doors before you leave.

On a related note, and relevant to your homeowner's insurance, it's always worth keeping a detailed record of your assets, in case they are stolen. You should include the brand, model, purchase price, and age. Another good idea is to take some quick digital pictures around the house of items that are likely to be stolen in the event of a break-in and email them to yourself for archiving.