Attorney Shannon Wynn: Flipping real estate advice for buyers, sellers, and speculators

 

Wynn at Law LLC has noticed a recent resurgence of real estate 'flipping.' Late-night cable and radio stations are again saturated with ads touting the wild income potential of acquiring and liquidating the same piece of property within the shortest possible time frame. Flipping is legal – as long as it's done on the up and up.

Before the housing collapse a decade ago, some curbs were put in place to deter flipping. The FHA sets the rules by which most lenders follow: Having 3.5 percent as a down payment for example. In 2005, the FHA required additional inspections and safeguards taken on mortgages applied for on properties that have been owned for less than 180 days, and outright forbidding the approval of mortgages on properties owned for less than 90 days. Those rules were relaxed in 2010 following the real estate market bust wiping out $7 trillion in property value.

More importantly, that lost value represented the largest investment loss for many families… and did not involve as many people flipping houses. With that in mind, most lenders still adhere to the 90-day guideline.

If you're buying a flipped home, there are still numerous loopholes and unregulated areas that an unethical or inattentive flipper can exploit when flipping a house. It still remains up to the buyer and his or her attorney to perform all the necessary due diligence before buying. If the property is to be purchased with an FHA-backed loan, a flipped home may require more time to purchase because of the additional documentation required of the seller.

If you're interested in flipping, avoid the late-night infomercials blaring about how you can flip a home without putting in a dime of your own. Banks have extremely tight restrictions to watch for fraud. It's best to have cash on hand for this highly speculative form of investment: Cash you're able to part with (and potentially not recoup) for at least 90 days. A quickly-flipped home requires documentation on renovations, as well as additional appraisals, to justify a much higher resale price if the deal involves an FHA-insured loan. The average flipping time from purchase to resale is just over 106 days, according to market monitor RealtyTrac. Know this as well: Some properties have to become rentals before the flipper is able to get from the market what he or she thinks is the 'value' of the property. Are you prepared, legally, to become a landlord?

In the case of flipping, it's the old adage at play whether you're buying a flipped home or flipping one yourself… If it sounds too good to be true, it probably is. Get an attorney.

 

*The content and material in this original post is for informational purposes only and does not constitute legal advice.  

Photo by Victor Zastolskiy, used with permission.

Attorney Shannon Wynn: Flood damage and selling a property

The record-setting flooding we saw in Walworth, Racine, and Kenosha counties brings to mind an important disclosure topic for real estate transactions… but first, our thoughts and hearts at Wynn at Law, LLC go out to everyone impacted by the flooding. We hope things return to normal for all of you as quickly as possible.

In some of our earlier articles we’ve talked about real estate disclosures. Flood damage is one of those things that must be disclosed by the seller before the transaction. Specifically, the form asks if the property owner was ‘aware’ of ‘any’ past flooding. It’s difficult for anyone to not be ‘aware’ of the current flooding, the worst in history. The issue is the word ‘any.’ If a seller knew of flooding back in 2008, it has to be disclosed. If the sellers know the property flooded in 1973 – another historic flood event in our area – even if the homeowner didn’t live there, it has to be disclosed.

Past transactions on the real estate can identify flooding disclosures that happened before the current one.

Sellers should fully explain the circumstances behind any flooding damage and give as much accurate detail as possible. If it only happened once, say so. If it only happened in the record-smashing deluge we just went through, say so. Most importantly, in the disclosure, you can be very specific about the cleanup and repairs you made, as well as any steps you took to (hopefully) prevent the next massive downpour from causing the same damage this downpour created.

If a property was on the market before the rivers overflowed, the previous disclosure from before the flood might be inaccurate. In that case, the disclosure should be amended.

Both the buyer’s and seller’s attorney (and their real estate agents, too) have legal responsibilities related to the disclosure form. As fiduciaries, they are bound to advise their clients with entire openness. This requirement applies even if the seller just doesn’t want to disclose the current flooding because, ‘It was once in a lifetime and will never happen again and this will sabotage my sale or selling price.’

Does a buyer have to abort plans to buy a house just because it is or was ever in a flood? Of course not. Flooding in an extraordinary event like the one we’ve just seen does not mean the property will flood in every storm. If this storm tells us anything, it’s that even extraordinary records can fall.

 

*The content and material in this original post is for informational purposes only and does not constitute legal advice.  

Photo by Scott Stevens, used with permission.

Attorney Shannon Wynn: ‘By-Owner’ real estate sellers need protection

One article earlier in the Wynn at Law, LLC archives mentioned our current real estate market cycle as being a seller’s market. There’s not much supply, and plenty of demand. Even in a hot seller’s market, there’s a temptation to increase the net price received for the property by offering it For Sale By Owner, or FSBO. (Real estate pros pronounce it ‘fizzboh.’)

Professional realtors have a home-selling advantage by having access to the realty company’s ad money, marketing and presentation resources, and buyers. However, the cost of that advantage is about six percent of the sale. So, FSBO sellers take over the job of the listing agent hoping to pocket that six percent. Many solo sellers do hire professionals to appraise, stage, photograph, video, drone, design flyers, and help them with the paperwork. Some don’t, and just bank on it selling easily because of the market.

Even a realtor-oriented source like Realty Times concedes that a part of a hot market will go FSBO. That website’s tip – and ours – for those sellers is to get a lawyer: “If you have opted to do a realtor-free FSBO transaction this is definitely the time to call an attorney.”

Every real estate transaction requires a deed. It has to be accurate. It has to be on-time. Anyone can access the records at the register of deeds office to pull that off. As much fun as that sounds, can he or she also assure that deed is legally sound? No. Realtor transactions always have an attorney: The title company and lenders insist upon it for that very reason.

Something else to consider: Another way a good attorney has your back when you go solo is by being your surrogate if negotiations get sticky.

Getting a lawyer involved early – as soon as you decide to go it alone – gives the owner an edge by being ready for closing. It provides the peace of mind that comes from having trained eyes look for other factors impacting the closing… before the closing. (See our previous article)

 

*The content and material in this original post is for informational purposes only and does not constitute legal advice.

 

 Photo by Andy Dean, used with permission.

Attorney Shannon Wynn: Make an equitable real estate offer with these five tips

Wynn at Law, LLC is honored to be part of more successful real estate offers than we can count since the 2008 recession. Every one of them had five components in common that made for 'clean' bids and negotiations without animosity.

1) Know what you're buying. This means getting your property inspected and making sure that your offer is based on what the inspector says. Making an offer with the inspections waived is a huge gamble with one of your largest investments… it can be done, but it takes a perfect storm of knowing the property extremely well, a bargain on the market as-is, and a knowledgeable attorney in your corner. A tip: Walk through the house with an inspector before your offer.

2) Know what it's worth. Real estate 'comps' show what similar homes have sold for in the area. A good agent will produce them for you. You can also sleuth for them on your own through public records. You'll know what the owner paid when. You can also find permits issued for renovations the current owner made so you'll know the work was locally inspected.

3) Know your seller. Is the bank selling the property? Or is the owner distressed? Or is the family selling on behalf of a decedent? Each selling situation has its own nuances. For example, the bank is less emotionally attached to a number than a long-time owner.

4) Know your own finances. Offer c-a-s-h. This is true whether it is your cash, or a lender's money. From the bank’s perspective in a foreclosure or distressed property, by placing a cash offer they view you as not subject to financing. Regardless of whether it's bank-owned or family-owned property, the seller's been previously dealing with offers that involve financing.

5) Know your real estate attorney. Wynn at Law LLC knows the real estate in southeast Wisconsin, most of the agents and many of the local lenders. As we mentioned in a previous article, the sooner in the home-buying process our firm is involved, the more we can assist in a smooth, legally sound transaction.

The fair comes in August

Remember our article on honesty? If you're low-balling an offer just for the sake of doing it, think twice. This tactic can burn your bridges with local realty professionals and homeowners alike. 'Fair' isn't really a real estate term. It's a subjective concept: What's fair to the seller or the buyer or the bank are not likely to be the same. Wynn at Law LLC sees the best offers as being equitable, rather than fair. From our experience, the only 'fair' upon which there is objective agreement is the one at the fairgrounds in August.

*The content and material in this original post is for informational purposes only and does not constitute legal advice.

 Photo by Andy Dean, used with permission.

Attorney Shannon Wynn: Enlist an ally in a seller's real estate market

Wynn at Law, LLC is frequently on the lookout for its clients when it comes to their two largest investments: The retirement nest egg, and the family home. We'll talk about the nest egg, wills, estates, and wealth transfer several times in the coming weeks. However, this week I've noticed how low real estate inventory is in southeast Wisconsin, so let's cover what that means for the legal rights of buyers and sellers.

Low inventory means it is a seller's market and that's excellent news if you have a property to market. Typically bidding favors you:  It's supply and demand. However, deals can still be found for buyers in the market today. The key on either side of the transaction is an effective attorney, and here are five reasons why.

1) Offers need speedy attention during a low-inventory cycle. No buyer should make one, no seller should accept one, without a legal review. Real estate agents all know attorneys for this reason. (Did you know you can choose your own instead?) Without an experienced real estate attorney in a buyer's corner, it gives time for other buyers to enter the bidding.

2) Home sellers are more inclined to go For Sale By Owner (FSBO) when the inventory is light. Their theory is that real estate agents add value when there is a glut of homes on the market. In my opinion, the theory is a little over-simplified, but to each, their own. A buyer's attorney makes sure the transaction represents the buyer's best interests… the FSBO seller's attorney ensures the seller's rights are protected in the face of mortgage lenders and the legal transfer of the deed.

3) A seller's market often triggers buyers to take on properties as-is or with minimal improvement in order to beat other buyers to the table. Wynn at Law, LLC sees several lake properties a year that fall into this category in buyer's markets, too. A buyer's attorney makes sure the client doesn't get in over his or her legal head.

4) Time is a recurring theme here. The attorneys coordinate the closing to encompass every detail in one sitting. A missing deed or inspection will impact the mortgage which will impact the deal.

Know how many initials and signatures are involved in the transaction? Dozens. All are binding. It seems monotonous. It can also seem threatening. Attorneys add value by taking emotion out of a big investment and scrutinizing every detail, which saves time, money… or both in a seller's market.

 

*The content and material in this original post is for informational purposes only and does not constitute legal advice.

 Photo by Alex Raths, used with permission.