I was talking to a friend earlier this week who isn’t in real estate (Yes, I have friends outside real estate!) and she brought up an interesting subject…

Real estate speak.

Yes, we real estate professionals tend to have a language all our own. It’s easy at times to forget that some of the terms we use sound like Greek to the majority of folks out there. Happens in any profession. Heck when I was in semiconductor manufacturing, we wrote a glossary to keep track of all the TLAs (Three Letter Acronyms) and geek-speak terminology.

Sometimes I think real estate need such a glossary.

Oh, you can find bits and pieces of a real estate glossary out there. RealEstateABC has one. ProU.net’s is even better. The problem with these glossaries is they aren’t comprehensive, and who wants to bounce over to a glossary and look something up as they are reading one of the scintillating, amazingly educational articles here on Phoenix Real Estate Guy?

So beginning today, I’m going to make an effort to include a short footnote^[1] for terms that may need additional explanation. See the little superscript number in that last sentence? Click that, and you’ll be taken to the bottom of the post you’re reading where you can get additional info. Once there, clicking on the arrow symbol at the end of the footnote will take you back to where you were in the post (at least in theory). Depending on your browser, you may be able to hover your cursor over the footnote number to read it.

Here’s how I envision it working:

Today’s post is about short sales^[2]. Short sales suck because…. blah blah blah….

I think I can even put a link in a footnote. We’re about to find out^[3].

Hopefully foot-noting posts will help folks understand some of the real estate speak that many real estate blogs (this one included) tend to use. I’m not trying to insult anyone’s intelligence by defining terms — let’s face it, many readers here are far brighter than I am. Knowing some of these terms doesn’t make me any smarter than you, it just means I live with these words on a daily basis and have learned them from shear repetition if nothing else.

Of note:

I promise not to clutter posts with dozens of footnotes. These aren’t research papers after all. In fact, the majority of posts won’t have any footnotes.

For you academia / professor / English major types out there, footnotes will not be formatted in any formal MLA or APA style. I had enough of that in college. “Footnotes” may not be the proper academic way to handle what I’m doing here, but it seems the most practical way. Deal with it.

I am not going to go back and annotate the 1500ish previous posts here. To do that would require ridiculous amounts of time and alcohol/caffeine. We’ll do the footnote thing moving forward.

And as always, if something I write doesn’t make sense or you need further clarification, just ask!

Thanks ousooner44 for the inspiration!

1. This is a footnote. It will help explain potentially unfamiliar terms
2. “Short sale” is a term used to describe a home that is being sold for less than the amount that is owed on it.
3. This footnote should have a link in it to the best Phoenix home search

Reading a post by Amy Jones (yet another great Phoenix real estate blogger) last night got me to thinking about the language of real estate. Then Mark Eckenrode of HomeStomper and Guerilla Marketing expert, (also from Phoenix) in his maiden voyage at AgentGenius penned this little nugget:

One thing experts tend to do is immerse themselves in the language of their expertise. Problem is, the public doesn’t know the language of “expertise.” And no one likes to feel like the stupid person in a conversation.

We real estate types do indeed seem to sometimes speak in tongues. Here are a few “translations”. . .

Marketing Speak

If you see these terms in any real estate marketing piece, now you’ll know what they really mean:

• “Cute”, “Cozy” or “Adorable” = small, tiny and cramped.
• “Handyman Special” = better have lots of time, money and an awesome set of tools.
• “The backyard is your canvas” = there’s nothing but dirt back there.
• “Look out over the pristine fairway” = watch golf while you replace broken windows.
• “Easy access to freeways” = hope you enjoy the sound of 18 wheelers at 2am.
• “No HOA!” = the neighbors car has been up on blocks for 4 years.
• “This home is spotless” = no one has lived in it for six months.
• “Retro” = shag carpet, linoleum and lime green appliances included.
• “Motivated sellers” = overpriced and/or foreclosure is looming.
• “Short sale” = hope you can wait 4 months only to lose out.
• “Unique” or “One of a kind” = owner is a creative painter. Think magenta, chartreuse, polka dots…

  UPDATE: Be sure to read the comments for some great “reader additions”!

TLAs (Three Letter Acronyms)

Ever seen a home description like this?

4/2 MIL, FLR. 2CG. Pvt PT/SW Pool. FP in MBR. WIC all BRs. W/D/R convey

That would be a 4 bedroom, 2 bath “Mother-in-Law” plan (bedrooms on opposite sides of house) with a formal living room. There is a private Pebble-Tech salt water pool. The master bedroom has a fireplace. There are walk-in closets in all bedrooms and the washer, dryer and refrigerator are included in the sale.

Here are a few common TLAs and their English translations (meaning/translation may be different in other areas of the country):

• FLR / FDR = Formal Living/Dining Room
• PVT = Private
• Gate = Gated community
• G/Gate = Guarded, gated community
• AR or 55+ = Age Restricted / 55+ community
• FP = Fireplace
• MBR = Master Bedroom
• HW or HDW = Hardwood floors
• LS = Landscaped
• WIC = Walk-in closet
• HOA = Home Owners Association
• ISD = Independent School District
• H20 Soft = water softener
• CVac or CV = Central Vacuum system (may only be plumbed for CV)
• SF or SqFT = Square Footage
• COE = Close of Escrow
• DOM = Days on Market

Sometimes you will find indecipherable acronyms. I struggled once with “RTR”. I finally asked the listing agent and she said “Red Tile Roof” delivered in a tone like I was an idiot for not knowing.

In addition to clever little space-saving and mind-numbing acronyms, the real estate (and lending!) industry is rife with words many people don’t really understand. There are real estate glossaries out there (we have a real estate glossary on ThompsonsRealty.com), in fact, there are entire books dedicated to real estate terminology (Language of Real Estate is a great one).

As a home buyer or seller, it’s really important to not be afraid to ask your agent for clarification. There are no stupid questions. Often we forget that normal people don’t use the words we do every day. So if you hear a term you don’t understand, don’t be shy. Ask!

Photo Credit

We received a couple of questions this week surrounding “Days on Market” and price changes in the MLS. (Multiple Listing Service)

What is the AZ real estate law regarding resetting the number of days on market (what is required)?

There is no state statute defining how “days on market” (DOM) is set, counted, or reset. These factors are based on the MLS rules and regulations, not state law. That said, here’s how it works (note, this applies only to the Arizona Regional MLS (ARMLS) — other MLS’s have different rules and regs).

ARMLS uses two number to show DOM. “Agent DOM” (ADOM) and “Cumulative DOM” (CDOM). It’s easiest to explain with an example:

If you list your home with Jay and Francy Thompson, then the ADOM and the CDOM clock begins ticking when we enter the listing into the MLS. Assuming you don’t fire us (and you wouldn’t of course), the ADOM and CDOM will be the same number, with the DOM clock stopping on the day of close.

Now, let’s assume that you fire Jay and Francy (that’s a real stretch, but it’s theoretically possible) and enlist the services of another agent. At that point, the CDOM clock continues to click as if nothing changed. It is after all, tracking cumulative days on market. However, the Agent DOM clock will reset to 0 and start counting again.

So how do you reset the CDOM clock to zero? The only way you can do it in ARMLS (legally) is by taking your house off the market for 90 days. The system was designed this way to prevent practices like changing price by a dollar, moving the home from a listed to a pending and back to a listed state — and similar such practices used just to reset the DOM clock to zero and give the impression your home was just listed. (There is a way to reset the CDOM clock to zero within the 90 day period, but I’m not putting that in print, and I won’t do it for a client as I don’t think it’s an ethical practice. It’s a loophole ARMLS needs to close.)

Can agents see on the MLS how many price changes a house has had? If so, can the listing agent reset that so agents can’t see how desperate you are in selling your house?

There is a report that can be run that can access MLS listing changes. Many agents probably don’t even know it exists. I didn’t until VERY recently. (Thanks Greg!) Once the change is made and hits the archive, I don’t believe there is a way to remove it. And if there was, doing so would certainly cross the ethics line. The “desperation perception” is one (big) reason it’s critical to list a home at the right price to begin with. Too many agents will take any listing, let the client dictate the price, and just hope to be able to reduce it later. That’s not a good plan. Price it right in the first place and you won’t have to worry about it.

Personally, I think DOM is an overrated metric that causes way too much heartburn for buyers, sellers and agents. There are multitudes of reasons for long DOM, and too many unethical agents manipulate it. Price, condition and location are what matter in any real estate transaction. Long DOM may simply mean the home was listed at too high a price. That doesn’t mean there is anything wrong with it, other than unrealistic seller expectations (which may make it difficult to get the house at the proper price). But DOM is probably whole ‘nuther post.

If anyone out there has something they’d like to Ask the Agents, just let us know! (Ask the Agents, or contact us)

[tags]ARMLS, DOM, days on market[/tags]

It doesn’t seem to matter whether it’s buyers or sellers, first-time homeowners or seasoned investors. When it comes to the Residential Resale Purchase Contract, we tend to get the same questions over and over.

So I thought I’d share some of the more common questions here. My intent is to have a “Weekly Contract Question” but I have to be admit that it’ll probably wind up just like my “Pic of the Week” idea did. That being instead of appearing weekly, it winds up being every 2 days to 2 months, depending on the direction the wind is blowing…

Here is this “weeks” question:

Question: How long does the Arizona Residential Resale contract allow for an inspection period?

Answer: The “boilerplate” language (see below) in the standard Arizona Residential Resale contract allows for a 10 day inspection period. (FYI, Commercial transactions typically have a 30 day “due diligence period”) However, there is an area in the boilerplate language where a longer or shorter inspection period can be written into the contract.

As with any other contract provision, the terms must be agreed to by all the parties involved. So if a buyer requests a 15 day inspection period, the seller has the right to decline the offer, accept it with the 15 day inspection period, or counter the offer with changed provisions.

Likewise, just because the boilerplate language has a 10 day inspection period, that doesn’t mean that any party is required to accept that boilerplate language.

Actual AZ Residential Resale Purchase Contract verbiage: (click image to enlarge)

.

UPDATE: Please see this post for an updated chart (through August 2008) plus new charts!

“We’ve got to refinance NOW, rates are going up!”

“If we don’t buy now, we may not be able to get a good rate!”

I hear comments like this all the time.

Chasing mortgage rates will drive you bonkers. Yes, the rates for 30 year fixed rate mortgages are inching up. But keep this in mind… they are coming up from historical lows. Today’s rates are some of the lowest ever. If you concern yourself too much about locking into the lowest rate you’ll ever see in your lifetime, then you’ll never get anything done.The chart below shows the rate of a 30 year fixed mortgage since 1971. Note where we are today compared to the other 35 years this chart reflects.

Is now a good time to convert that ARM to a fixed rate mortgage? Maybe. Maybe not. Rate isn’t the only factor to consider in a refi. How long you plan to live in your home, closing costs, your personal and professional situation, all this and more should be considered. Consult a loan officer, CPA and real estate professional in order to consider ALL your options. Rates are important, but they aren’t everything.

I never jumped on the Zillow posting bandwagon. For those not familiar with it, Zillow.com is a site that estimates the value of property using a bunch of publically available data and some proprietary algorithms to come up with approximate valuations. Sometimes it does OK, sometimes not. But it’s getting better.

Zillow scares the crap out of some real estate agents. I don’t understand why. I think they are afraid that Zillow is going to replace them. That’s absurd. Here’s a couple of facts:

Zillow can’t sell anyone a home. Zillow can’t show a home. Zillow can’t look inside a home and evaluate it from the inside out. Zillow can’t talk to people, and people will never be able to talk and interact with Zillow like they can another human being (at least not in our lifetimes, I think.)

Zillow themselves have this to say about their property “zestimates”: Remember, the Zestimate is a starting point and does not consider all the market intricacies that can determine the actual price a house will sell for, such as entertaining offers, negotiating, closing costs, timing, etc. They say they feel they are within 10% of true market value. So that means price your $500,000 home using a “zestimate” and you may just cheat yourself out of 50 grand. But it’s still a great starting point for home value research.

Zillow provides data. Some of it’s OK, some is questionable, but some of it’s fabulous. And that’s the case with most data sources. Anyone that blindly accepts data from ANY source without analyzing it with a critical eye is asking for trouble. But do that, and you may find some interesting things.

They recently released a report on the Phoenix area market. It’s quite interesting and is worth looking at. Here’s a couple of charts from the report:

The full report is available in PDF format here. Check it out and let me know what you think!

Earnest Money – whenever we’re writing up an offer for a buyer, invariably the one thing that generates the most questions is earnest money. What is it, why do I need it, how much, will I lose it – these questions almost always require a lot of discussion and education.

What is earnest money and why do I need it? The “book definition” of earnest money is: “A deposit paid by a buyer to a seller to demonstrate intention to complete the purchase.”

That pretty much sums it up. In Arizona real estate, earnest money is some amount of money, deposited in escrow, which helps show the seller that a buyer is serious. Normally the earnest money is applied to the buyer’s down payment at close of escrow.

Without earnest money, and the possibility of losing it, there is nothing to stop a buyer from submitting offers on multiple properties. Without earnest money, there is nothing to stop a buyer from just walking away from a contract days or weeks after it’s been accepted and the seller has taken their home off the market. Sellers want and need to know that a buyer is serious about the offer on their property.

How much earnest money do I need? The simple answer is, “the more the better”. The complicated answer (and one that’s virtually impossible to know in advance) is, “whatever it takes to make the seller know you are serious”. **Generally** speaking, 1% of the offer price is considered a reasonable amount. But like anything in real estate, there are no hard and fast rules. I’ve seen offers written with as little as $1 earnest money and as much as 100% of the sales price.

An example may be helpful here. Let’s say a seller gets two offers. They are identical in price, down payment amount, close of escrow date, etc. But offer #1 has a higher earnest money deposit than offer #2. Regardless of the true motivation of the buyers, the seller will most likely accept the offer with the higher earnest money amount. A significantly higher earnest money amount may even make a seller consider one offer over another even is there is difference is terms such as price, close of escrow, etc. Higher earnest money amounts signify to sellers that a buyer is serious and more likely to close the transaction.

Can I lose my earnest money? The short answer is yes. The complete answer is maybe. Again, generally speaking, your earnest money is “safe” unless you default on the contract. Should the seller default, your earnest money will be returned. In Arizona, the typical “inspection period” (or “due diligence” period) is 10 days. If the property you make an offer on doesn’t “pass” inspection, or if the seller declines to do requested repairs, the buyer can cancel the contract and get their earnest money back. There are also contingencies in the standard residential resale contract that a home must appraise for the asking price and the buyer must be able to secure financing. If neither of these contingencies are met, then generally earnest money is returned to the buyer.

Most earnest money is lost when the buyer backs out after the inspection period. In this case, the seller will almost always retain the buyer’s earnest money.

There’s nothing to be afraid of with earnest money. If you are serious about purchasing a home, you need to indicate to the seller you are serious. They’ll be taking what is probably their single largest asset off the market if they accept your offer. They need to know you are serious about completing the sale. That’s why a seller wants to see that you can get a loan, that you aren’t “fishing” with multiple offers, and that you aren’t going to back out at the last minute. A reasonable earnest money deposit helps reassure the seller you are serious about buying their home.

Buy a house, get a free car! Believe it or not, it is possible to just that. As Phoenix shifts from an insane seller’s market toward (TOWARD) a true buyer’s market, many sellers are beginning to offer some unique enticements to get the attention of buyers.

The things we’ve seen range from the “typical” to the quite creative…

* Paying for closing costs
* Buying a home warranty
* Including furnishings, appliances, even the pool table.
* Paying the first months (or 2 or 3) mortgage payments
* Credit(s) for landscaping, flooring, appliances, etc.
* Guaranteeing 12 months of rental payments (Investors take note!)
* Paying for a new swimming pool (!)
* Leaving the new Toyota Four-Runner in the garage (!!)

Most of the “bigger ticket” incentives come with the caveat that the offer has to be for full price. As more sellers come in to the market and buyers become more scarce, expect to see even more bigger, badder and creative incentives for buyers.

Are you a real estate investor? Do you own a piece of property that is not your primary residence? If you answered yes to either of these questions, then you need, make that MUST, understand what a 1031 exchange is (and isn’t).

We get lots of questions on 1031 exchanges. In an effort to create a “repository” of Q&As about 1031 Exchanges, I’ve added an new category to our Real Estate FAQ site… appropriately titled “1031 Exchange FAQ” (clever and original, isn’t it?).

Check it out. Post a question if you’ve got one. I’ll be adding to it on a regular basis…

==========

Data is taken straight out of the Arizona Regional MLS (ARMLS):

Homes (includes SFH, condo/TH, mobile/mfg):
Active Listings: 32,730
Active With Contingencies (AWC): 1,183 (what does AWC mean?)
Pending: 7,726
Sold (Feb 1 – Feb 28): 5,913

Land:
Active: 7,715
AWC: 113
Pending: 725
Sold (2/1 – 2/28): 500