Why Both Agents and Buyers Should Use an Exclusive Representation Agreement

An exclusive Buyer/Tenant (“Client”) representation agreement is an agreement that says that a specific Broker/Agent will represent the Client for the purchase or lease of real estate. It can be for a designated duration of time, a specific geographical area, a particular type of property, one specific property or a combination of any of the above. 

The Agreement creates no obligation on the part of the Client to purchase or lease real estate yet it assures that the Broker/Agent will be paid a commission in the event a transaction occurs for the Client.   The fee may or may not be paid by the Client, many times the agreement specifies that any commission due by the Client is offset by any fee collected from the other side of a transaction (Such as a Seller offering a commission).

For the Broker/Agent it will spell out how they will perform their obligations under this agreement through the individual signing on behalf of the Broker, another real estate licensee assigned by Broker, who is either the Broker/Agent individually or an associate-licensee (an individual licensed as a real estate salesperson or Broker who works under Broker’s real estate license). This is of course subject to the Client’s approval, which shall not be unreasonably withheld or delayed. Broker and the Client will agree that the Broker’s duties are limited by the terms of this.

For the Client the agreement gives representations to the Broker/Agent that there are no other Broker/Agents that the Client may be working with for this proposed transaction.  The Client further represents that the Client has disclosed to the Broker/Agent information about any properties that the Client has previously visited, or that the Client has been shown by any other real estate associate(s).   When disclosing this, the Client can “carve out” exceptions to the exclusive representation agreement by disclosing that if they were to move forward on one of these properties, another agent would represent them, thus protecting the Client from claims arising from multiple Brokers/Agents and limiting the Client’s liability

As for the Broker/Agent, it goes without saying that a Broker/Agent who has a contractual relationship is going to be more committed to the job. Before they begin the often tedious task of searching for the right location, demographics and price range for your investment, they want to be assured that they are going to be compensated for their time and effort. Their time is just a valuable as any other professionals’ time after all, would you expect an attorney to give you free legal advice, or work on your case without an engagement letter/contract? By showing loyalty and trust, most people will work that much harder knowing they are protected for the work they do.

The Client should consider this agreement because there are equal and mutual protections to both parties with respect to their interests. The Client can hold the Broker/Agent accountable for performing fiduciary services (some of which they would not be aware of without the contractual definition). Some Clients don’t want to feel they are being “tied down” to one agent, and mistakenly think that getting several Brokers/Agents to work for them will get them a better deal, this is not necessarily the case, as a key strength of the real estate industry and most successful agents is their communication network. The agents will talk to one another and if they find out their client is working with other agents, that client may soon not have any agents working for them, or just not be taken seriously. 

The Importance of a Move-In and Move-Out Checklist

A landlord/property manager is required to document any expenses that are taken out of a tenant’s security deposit; therefore, good documentation is vital. A move-in/move-out inspection with a checklist, pictures and/or a video is essential.

These Checklists can be Beneficial to the Property Owner and Tenant

The Move-In/Move-Out Checklist is a convenient, all-inclusive and reliable way to document the property’s condition. Tenants can benefit from a Move-In Checklist because any existing conditions will be predated to his/her occupancy. This checklist helps the landlord/property manager by reducing liability risks due to disagreements related to security deposit reimbursement; thus, protecting the value of the property.

Documenting Improvements/Repairs Made to the Rental Property

New carpeting, countertops and paint all need to be documented prior to new tenancy. Take pictures/video of the unit before the tenant moves in. Remember to take before and after pictures, and/or video of repairs made to the rental unit itself or its contents (refrigerator, stove, etc.) throughout each tenancy.

The Process

Prior to the beginning of the rental term, walk the tenant through the property.

What to look for and document on a walk-through:

Each room of the property needs to be addressed and documented separately. This is where a well-planned Move-In/Move-Out Checklist allows for a quick, yet accurate, documentation process.

Entire Rental Property

• Missing ceramic floor/countertop or splashguard tiles

• Loose ceiling and wall fixtures

• Scratches on floors

• Missing glass or ripped screens

• Furnace/Heaters

• Air conditioners

• Tears or burn marks in the carpet

• Rubbed off/Faded paint

• Outlet receptacles and covers

Kitchen

• Scratches or burns on countertops

• Condition of the appliances (refrigerator, stove and dishwasher, etc.)

Bathroom

• Toilet

• Bathtub/Shower – remember to look for mold, mildew, cracks and grime

• Hot/Cold water pressure

These are just a few examples of items that need to be included on the checklist. Once the checklist is complete, date it. Both parties must sign the checklist. Any discrepancies need to be initialed by both parties as well. Additionally, if there is something that will be done to reach an agreement, clearly document the solution and the date by which it will be completed. For example, if there is a missing toilet paper holder, document the date that it will be replaced. Mail a copy of the completed and signed checklist to the tenant.

The Move-Out Checklist

At the end of tenancy, another walk-through must be completed. The Move-Out Checklist should be identical to the Move-In Checklist, barring any upgrades/changes made during the tenancy.

Any significant damage to the rental property that is not considered typical wear and tear must be documented. By documenting these damages, the cost of replacement or repairs can be deducted from the security deposit. Mail a completed, signed copy of the checklist to the former tenant’s new address.

Each state has laws that govern rental property. Some laws pertain to the amount of time permitted for a landlord to complete the Move-Out Checklist once the tenancy ends.

What to Consider when Buying a Single or Multifamily Investment!

Many first time investors have the idea that their first investment should be a single family home due to the cost of entry and ease of management, however, this may not always be the best path to go down. One of the main issues that you have to consider is the fact that if the single family homes goes vacant you will have to cover the entire mortgage until you find a new renter, now if you have a duplex, triplex or fourplex that mortgage will be spread out across more units giving you some cash flow to help with the mortgage.

Another reason the first time investors tend to like the single family homes is that you can put a lot less down then you can on a commercial loan and the residential loan can be amortized out over the life of the loan. Residential loans can be on properties that have 4 units or less and can be acquired with as little 5% down, however, commercial loans are on 5 units or more will require at least 25% down and you will need to show a business plan plus as well as management experience and cash flow. When shopping for a commercial loan, be prepared to answer a lot of background questions regarding the property. Some of these questions include:

Who pays the utilities?

What types of maintenance are required?

Numerous questions regarding cash flow will also be asked. Commercial mortgage borrowers should be prepared to provide proof of business revenue and profits as well as a detailed plan for how the commercial property will generate enough income.

Where an investment in a residential property can be attractive is in the maintenance costs, you will have only one tenant in stead of multiple so it makes sense that your costs should be less providing you have a good tenant; however, multifamily properties typically afford synergies of scale (one yard, roof, etc…) so your overall cost per unit vs. rent will be lower.

When deciding on which direction to go with your first investment really look at your appetite for risk as having a home go vacant for a few months and having to cover all the expenses on your investment can be a big drain on your savings.

Top 5 Ways To Increase The Revenue On Your Rental Properties

1. Increase Occupancy (Smartly)

Each month you have a vacant unit sitting you lose about 8.3% of the potential yearly revenue from that unit, which means that every month it sets vacant it starts to add up quickly. As soon as you find out that you will be having a vacant unit you need to do a market survey to confirm the current market rate on your unit. Have your lead maintenance person that does your final walkthrough prepare the list of repairs/maintenance issues (if any) as they do the walk through so they can order the needed material that day and they can be prepared to start the turn of the unit as soon as it becomes vacant. Once the unit is vacant begin placing your ads so that as soon as the crew has the unit ready for market you can show the unit immediately. Make sure your market survey is current allowing you to set the best price for your available units and know the specials (if any) that are working the best in your area, if you need to fill several units consider running an aggressive special to get your units filled but be sure you don’t give money away that you don’t need to. Always offer your residents a referral for bringing someone.   Most importantly listen to the market, if you are not getting interest in the unit, you may need to lower the price.

2. Raise Rents Smartly

Know your market rents, know how your property compares to the market and set your prices accordingly. I find that sometimes it’s wise to offer an incentive when raising rent, carpet cleaning or an accent wall can make the whole increase issue a lot more palatable for your renter. This method can also help if you have seen a minor decrease in rents as if the resident believes they can get a better deal somewhere else they may leave but if you make their home even nicer they may decide to stay put and not come out of pocket for the moving expenses. It’s also good to know about how much those moving costs maybe in case it gets brought up.  Make sure that the system you are utilizing sets reminders for rent increases are due, when leases come up for renewal and be aware of maximum rental increases allowed if you are in a rent control area.

3. Be Consistent With Late Fees

Keep in mind that you are running a business, if you don’t collect the fees that are due, you are leaving money on the table. Keep in mind that your residents will talk and if you decide one person can be allowed to not pay on time, or pay the late fee, you will most likely be hit up by more residents asking for the same.

4. Minimize Turnover

Turnovers can be expensive, the cost of turning the unit and advertising the unit can add up very quickly, and as mentioned before, one month of lost rent equates to an 8.3% loss in annual revenue for the unit. If you have a tenant that has run into some financial troubles you may need to work with them for a few months but don’t give too much and always make it work to where you receive all money that is owed. Some options are to add to the following month’s rent, add to the end of the lease, and be sure you are paid in full otherwise the residents may talk and you will get bombarded with requests for assistance.

5. Additional Revenue Streams

As you probably made this investment to make  additional money it makes sense that you look at all potential ways to make additional revenue, here are a few ideas.

1)      Extra storage

2)      Bike storage

3)      Charge for an accent wall

4)      Laundry rooms

5)      Vending machines

6)      Upgraded features/appliances in units

These are just a few ways that we at www.LLCPM.com  look at for every property that we take over and start to manage, remember the reason you got into this business was to either make more money or wealth preservation so make each day count!

The Effects of Overbuilding a City

Having been in the real estate business in Southern California for over 25 years I have seen a lot of growth and redevelopment that has shaped our wonderful cities, but I am becoming growingly concerned of all the development that is slated over the next few years.  I realize that a lot of the development is replacing our older properties that no longer serve their intended purpose or useful life, but I have to ask, how many more mixed use properties with luxury units on top does this city really need? In the case of Santa Monica, how many more boutique hotels need to be built?  I am in the real estate industry so I am all for a great new development that can enhance a community (if needed) and I am all for bringing an old tired property back to life but it seems we have a current mode of build for the sake of building.

Although most new developments require an environmental impact study, including increases in the traffic flow, I still question the long term effects on these cities allowing developments that may not be needed, or the current infrastructure cannot handle.  At a minimum this can lead to consequences, including traffic jams all hours of the day, an increase in crime, and pollution increases.  This can quickly turn a community from being a place that you want to live in to a place you just have to go and deal with.

The real estate cycle in Southern California is less damaging than other parts of the country so our investments tend to be less volatile.  However, when you have built more units than current demand dictates, you will have properties that will go dark and become an attraction for undesirable activities. Therefore, crime will spread to the neighboring properties.

I am an avid scuba diver and I have dived all around Southern California and when you are diving in our area’s beaches, you are amazed at the amount of trash that is already floating in our ocean. The added cars and population will only add to the amount of trash unless we figure out a process that we can help our environment.

I feel like I got on a bit on a soap box here but I am passionate about our cities and what we have created here and I hate to see over development cause damage. I know we have the opportunity to vote on some of these issues next month, so I encourage you to read up, get educated and head out to your voting place no matter your cause or position.