FEATURE 1 Florida Law This feature satisfies the 3 hours of Core Law required by the Florida Real Estate Commission.

This Core Law will provide updates towards statutory and rule changes that affect both the licensee and the real estate market. It will aslo help satisfy the requirements to maintain your license and at the same time gather new information and refresh your knowledge.

Learning Objectives Upon completion of this feature, you will be able to:

1. Apply recent changes in the Florida Statutes and Administrative Code in day-to-day practices. 2. Discuss rules and procedures pertaining to the transaction brokerage relationship. 3. Find and explain the new FHA and VA standards and programs. 4. Distinguish the procedures that will allow a licensee to make a claim on a real estate commission for residential and commercial real estate. 5. Follow the correct procedure to make a claim for the commission on the sale or leasing of commercial real estate. 6. Discuss the role, powers and responsibility of the agent in regards to the disbursement of the commercial real estate commission.

Customer Testimonial “Is one of the best course than I never take before and is very interesting how we can relearn about the new laws in Florida. Thanks” ~ Yosty, Florida

Feature 1 - Florida Real Estate Law 3 Chapter Title Part One: FS 83 Florida and Tenant Act FS 120 Florida Administrative Procedure Act Legal Updates FS 455 General Provisions for Business and Professional Regulations FS 501 Consumer Protection Act FS 689 Conveyances of Land Legal Updates, State Law FS 718 Florida Act The Florida Legislature periodically revises statutes. The legislature may be FS 719 Cooperatives prompted to change the statutes due to intense lobbying efforts by political FS 721 Timeshares groups or changes in the socio-economic aspects of everyday life. In some cases, a law just becomes outdated. Some of these chapters were subject to recent changes, while others were left untouched. A brief explanation of each of them is presented here. There are two kinds of laws affecting society: Statutory Law and Common Law. Statutory law is decided upon by legislators and voted in the senate. The majority of this chapter covers changes to the statute prompted by the legislature. FS 83-Florida Landlord and Tenant Act

Common law stems from the English Common Law, and refers to a non- The Florida Landlord and Tenant Act constitutes chapter 83 of the statute. written system of rules that now cover all legal questions that do not find an It was passed with the aim to make the relationship between landlord and expressed answer in statute law. tenant more equitable. FS 83 is divided into three parts: Part I: Non-residential tenancies It should be noted that the goal of this course is not to play, “real estate Part II: Residential tenancies attorney” but rather to focus mainly on the basic changes in the statute, while leaving the consideration of court decisions to the world of attorneys. Part III: Self-service storage space

In no way should any paragraph or sentence in this course be read or interpreted as legal advice. And when in doubt, it is strongly recommended that you consult with an attorney. FS 120 - Florida Administrative Procedure Act The Florida Administrative Procedure Act covers the procedures to be Real Estate License Law followed when dealing with the State of Florida as an organization. FS 120 becomes important when a licensee requests a formal hearing in front of an In the State of Florida there are laws that directly relate to the day-to-day administrative law judge, or if a licensee is prosecuted in some way outside activities of real estate licensees, and laws that indirectly affect the conduct the judicial system. of real estate transactions. Chapter 475 of the Florida Statute (FS 475) is the chapter that constitutes Florida Real Estate License Law. It is separated into The only two entities of the state that are exempt from FS 120 are: four parts: Part I deals with real estate brokers, sales associates and schools • The courts of real estate (FS 475 Part I), Part II deals with real estate appraisers (FS 475 • The legislature Part II) while Part III deals with Commercial Real Estate Sales (FS 475 Part III) and Part IV covers Commercial Real Estate Leasing (FS 475 Part IV).

The governing bodies for the real estate and the appraiser communities are FS 455 - Business and Professional the Florida Real Estate Commission (FREC), and the Florida Real Estate Regulations Appraisal Board (FREAB), respectively. FREC and FREAB have quasi- legislative powers and can codify their own rules when these are supported FS 455 sets general provisions for most regulated professions in the State of by the statutes. FREC and FREAB rules are both found in Chapter 61 of Florida. It is an extensive chapter that is enforced by the Florida Department the Florida Administrative Code (FAC). FREC rules constitute 61J2 and of Business and Professional Regulations (DBPR), under the guidance of FREAB rules constitute 61J1 of the FAC. the appropriate boards or professional commissions.

All of the statutes discussed in this section may be found at www.leg.state. fl.us. FS 501- Consumer Protection Act FS 501 is the Florida Consumer Protection Act. It is divided into six (6) Other Significant Chapters of Florida parts: Part 1: General Provisions Statute Part 2: Deceptive and Unfair Practices Other chapters of the Florida Statute are relevant to real estate practice in Part 3: After Market Crash Part Act the State of Florida. A list of these relevant chapters is found below. Part 4: Florida Telemarketing Act Part 5: Miscellaneous Provisions Part 6: Unfair or Deceptive Acts or Practices: vehicles.

4 Feature 1 - Florida Real Estate Law The Act affects mainly those licensees who rely heavily on the use of telemarketing as an advertising vehicle, while also spelling out a number of Changes in Real Estate License Law tricks, schemes, and other unfair practices that could be encountered while Chapter 475 of the Florida Statute deals with real estate license law. Several practicing real estate. modifications have been made to this chapter in recent years.

For example: FS 689 - Conveyances of Land • The modification of the definition of Good Faith Doubt FS 689 is part of “Title XL” of the statutes and deals with real and personal • The introduction of Distance Learning for Florida real estate schools , conveyance of land, and declarations of trust. It is a chapter relevant mainly for those individuals handling closings by either real estate • The adoption of transactional brokerage attorneys or title agents. • The registering of licensees as LLC’s

These are only a few of the modifications that will be dealt with in this FS 718 - Florida Condominiums Act lesson. FS 718 is the very controversial Florida Condominiums Act. It is organized into six parts: Part 1: General Provisions Brokers and Sale Associates Part 2: Rights and Obligations of Developers One major change to FS 475 was made in the nomenclature and was applied Part 3: Rights and Obligations of Associations throughout the chapter and in 61J2: the license category of sales associate Part 4: Special Types of Condominiums was changed from “salesperson,” to “sales associate.” Similarly, “broker salesperson” has been renamed to “broker associate.” Note that in the State Part 5: Regulation and Disclosure Prior to Sale of Condominiums of Florida there are only two real estate license categories issued: Part 6: Conversion to • Broker • Sales Associate Regulating relationships between unit owners and the governing body of the association, (usually the board of directors of the condominium), is not an Some brokers who do not wish to maintain an office prefer to work for easy task. FS 718 has been bitterly criticized by most consumer associations another broker in the capacity of broker associate. The broker associate in the past due to the ample powers conferred to the board. status is just a license status, and does not constitute an independent license category. Broker associates still have the BROKER description printed on their licenses. FS 719 - Cooperatives Cooperatives, (CO-OPs) are not a very common form of ownership in Florida; however they are widespread in places like New York City. FS 719 deals with those cooperative associations incorporated within the borders of Transaction Broker the State of Florida. FS 719 is divided into six (6) parts: The roles and responsibilities of the transaction broker are defined in FS 475. Part 1: General Provisions Since 2003, Florida real estate brokers have acted as transaction brokers unless chosen in other capacities by their prospects (FS 475.278 (b)). In Part 2: Rights and Obligations of Developers a residential , if the licensee is not representing the Part 3: Rights and Obligations of the Associations prospect, the licensee is required to provide a Notice of Nonrepresentation Part 4: Special Types of Cooperatives disclosure to the prospect at the first meeting. This disclosure is not required in transactions. Part 5: Regulation and Disclosure Prior to Sale of Residential Cooperatives The definition of transaction broker was strengthened to clarify that, as Part 6: Conversion to Cooperative a transaction broker, the real estate licensee becomes a facilitator of the transaction and does not owe fiduciary duties to any one party in the transaction. The new wording is displayed below: FS 721 - Timeshares “In a transaction broker relationship, a buyer or seller is not responsible for Florida is the Sunshine State. Tourists visit the state from all over the the acts of a licensee. Additionally, the parties to a real estate transaction world because of the mild climate, the sunny beaches and the marvelous are giving up their rights to the undivided loyalty of a licensee. This attractions. Among the various forms of accommodations, timeshares aspect of limited representation allows a licensee to facilitate a real estate have become more and more important to the State’s economy. They now transaction by assisting both the buyer and the seller, but a licensee will not constitute their own niche market within the multi-billion dollar tourist work to represent one party to the detriment of the other party when acting industry. FS 721 is the chapter of the statute dealing with timeshares. It is as a transaction broker to both parties.” organized in four (4) parts: Part 1: Vacation Plan and Timesharing Part 2: Vacation Clubs Procedure for Change in Brokerage Part 3: of Liens on Timeshare Estates Relationship Part 4: Commissioner of When transitioning from a single agent relationship to a transactional broker relationship, the licensee must gain written permission of its principal by securing the principal’s signature on a specific form called “CONSENT TO TRANSITION TO TRANSACTION BROKER”. This form has been

Feature 1 - Florida Real Estate Law 5 modified to incorporate the duties associated with a transaction broker Example A relationship. Broker Jenny makes a mistake on a sales and purchase contract: She is sued by her client and loses in court. The fact that she was operating The rationale behind this change was that the difference in duties may not as a PA or LLC does not limit her liability. be clear to a member of the public working with a licensee.

Example B Note: This is the only brokerage relationship disclosure form that MUST be signed before implementation. Broker Monica orders $500,000 worth of expensive leather furniture for her office under the name of her LLC. Due to an unforeseen economic downturn she loses a lot of business and cannot repay the loan she incurred for the expensive furniture. In this case, unless she personally guaranteed the loan, Real Estate Licensee as an LLC or a PA her company (either PA or LLC) is responsible for repaying the debt. FS 475.161 was introduced to give licensees the opportunity to hold their licenses as a Limited Liability Company (LLC). Business Consequences Current licensees, either broker or sales associates, can register their license Working as a PA or an LLC, a licensee is able to perform the services of as an individual, an LLC, or a Professional Association. A Professional real estate under a corporate umbrella and with the help of a full team of Association (PA) is a corporate entity: a form of doing business for people assistants and coworkers. In a real estate transaction, a number of tasks can holding a professional license. The licensee can incorporate a professional be performed successfully by unlicensed persons. These tasks include: corporation under his or her name and work as such. The same considerations • Delivering documents apply to the LLC. The advantages in registering are numerous. For example, while neither form of business shields or protects the licensee from • Accompanying inspectors, surveyors, appraisers professional malpractice, other debt incurred while doing business under • Sending faxes the name of the corporate entity belongs only to the company. Therefore, the assets of the licensee are protected in case of litigation. • Opening up mail • Dealing with clerical tasks

The list is longer, but it illustrates that a licensee can have someone to help Limited Liability Companies them handle a transaction without having to personally burden themselves An LLC or “Limited Liability Company” is a corporate structure available with all the duties related to the deal. In this sense, the licensee can hire a to people holding a professional license. The broker or sales associate number of assistants whose compensation is not related to the gross amount can get their license issued directly to the LLC. In Florida, LLC’s must of the sale. These assistants can work for the company, rather than for the distinguish themselves from other forms of businesses and individuals individual, with tax and liability protection advantages for the licensee. bearing their same name by using any of the following endings: • LLC Errors and Omissions Insurance • Limited Liability Company Since, in some way, there is no real way to limit the professional • Limited Company responsibility of licensees, individuals should consider purchasing an errors • LC and omission insurance policy, just in case.

There are several advantages in doing business as an LLC. For example, Error and Omission (E & O) insurance is generally offered by the brokerage while neither form of business shields or protects the licensee from company and it is either charged on a transaction basis or is part of the sales professional malpractice, other debts incurred while doing business under associate’s compensation package. Either way, it covers all of those errors the name of the corporate entity are the responsibility of the company. and mistakes for which the licensee would still be liable despite working as Limited Liability Companies are incorporated under FS 608. an LLC or a PA.

Professional Associates Legal Consequences A Professional Association is a corporate structure available to people In general, it is wise to consult a lawyer to evaluate which form of holding a professional license. The licensee can open a professional organization is appropriate for one’s business. The State of Florida Division corporation under his or her name and work under that name. If an individual of Corporation maintains a very helpful Web site at: www.sunbiz.org. wants to change his or her license from their name to the corresponding PA, the appropriate request needs to be filed with the DBPR. The fee for Once created, the corporation must be maintained, paying the appropriate changing a license from an individual to a PA is currently $35. fee every year together with the submission of an annual report. Failure to maintain in good order the corporate records may result in the closing of the company. In no way shall the information provided in this chapter be construed as legal advice.

6 Feature 1 - Florida Real Estate Law Standards for Post Licensing and Standards for Course Approvals Continuing Ed A school must obtain approval of post-licensing and continuing education from the State before the school can offer courses. Absent of any other Distance learning is now a reality in the . Students can issue, approval will be issued as long as the courses cover the topics listed now take classes via distance learning schools and obtain credit for both in the statute. pre- and post-licensing education. In general, the FS 475.17 distinguishes between distance learning and correspondence studies. Distance learning includes Internet and CD-ROM based courses. Correspondence studies Specific criteria for the approval of distance learning courses are listed in refer to those classes taken by mail and graded remotely. Continuing the commission’s rule in 61-J2 3.008 (4) (b). education credit can only be earned by correspondence studies in case of hardship. The commission can require, by rule, a doctor’s statement and supportive evidence of a disability for hardship cases. New Standards for Filing the Applications Applications for Florida real estate licenses can now be filed online at the DBPR Website at: www.myfloridalicense.com. New Topics for Post-Licensing Courses In the modernization wave affecting the qualifications for licensure, Applications for real estate licensure no longer have to be accompanied the subject of post-licensing education courses has been updated and by the two photographs of the applicant. Applicants must submit to the strengthened. To the standard subjects of appraisal, real estate financing, department the appropriate application documents, digital fingerprint data, real estate management, and , new and advanced and fee. The Department of Law Enforcement and the Federal Bureau of subjects can now be studied to obtain post-licensing education credit. These Investigation will utilize the digital fingerprints in determining any criminal new topics include: record and if the applicant is statutorily qualified for examination. For reference, refer to FS 475.175 (1) (a). • Marketing • Technology • Sales and listing techniques Sign Requirement • Practical application skills Every real estate office must have a sign that identifies it as a real estate office. For years, the sign requirement has been a major topic in real estate • Development of a business plan courses at all levels. The sign requirement was repealed in 2003 for sales • Time management associates. However, under FS 475.22 (1), brokers must still specify the brokerage entity type on the office sign. In a fast paced business world, it is critical for newly licensed persons to successfully apply their skills to provide better services for the public and improve their chances of earning money. Topics like time management, budgeting, and business plan development are focused on giving the License to Expire at Change of Address licensees the tools to successfully operate their business. Both brokers and real estate school permit holders must notify FREC of a change of business address within ten days of the change. The penalty for failing to provide notification is involuntary inactivation of the license. Time Requirement for Distance Learning When changing an address, the broker and/or school permit holder must notify the commission of the names of associates no longer registered with While the time requirement for a student taking a post licensing education the firm. course through distance learning is relaxed, the student must still pass a timed distance learning end-of-course examination in order to receive credit This is another way of ensuring that the commission has proper license for the academic work performed. records for real estate practitioners, and reducing the possibility of administrative mistakes or the use of legal loopholes to avoid compliance The time requirement has not been completely waived, however, for the with real estate regulations. course developers. The course developers must still obtain an approval from the Florida Real Estate Commission with one of the conditions being that the contents of the course must be consistent, in some way, to the amount of material that could be presented in a 45-minute “hour” classroom chapter. Changes in Escrow Account Rules What has been completely removed, though, is the time requirement on Under the current rule, if a buyer decides to cancel a sales contract because how much time a student should be exposed to the material. Theoretically, of one of these two reasons: a student could quickly read the material and take the end-of-the-course exam. Although their chances of passing may be slim, there would be no • Failure to receive condominium documents or the content of the restriction or limitation to the student in obtaining the full credit for the post documents is significantly different from what was orally presented, within licensing course once the test is passed. the rescission period (3 days for developer unit owner (old), 15 days for developer (new)) • Failure to secure financing within the contract time Examination Procedure The buyer can ask and receive his or her money back from the broker Distance learning examinations do not have to be administered or monitored without having to go through the four settlement procedures, which a by one centralized location, but they must be timed. The distance learning broker is required to use whenever there are conflicting demands between provider must check that the time allowed to the student to finish its test the seller and buyer as to which party is entitled to receive the escrowed does not exceed three hours. In order to obtain a passing score in post funs or whenever the broker has a good faith doubt as to which party to the licensing and continuing education courses, students need to demonstrate contract is entitled to the funds. that they have learned the material by scoring 75% or better on the final test.

Feature 1 - Florida Real Estate Law 7 The broker should really make sure that the denial letter from the buyer is truthful and original, because he or she still retains third party liability and Publication of False and Misleading can still be sued by the seller for liquidating damages. Information Publication of false and misleading information has changed from a first degree misdemeanor to a second degree. In order to remember the degree Procedures for Resolving Escrow Disputes of the violations associated with Florida real estate license law, we use the “violation pyramid.” The most serious violation of FS 475 is practicing real Florida law does not oblige the broker to hold an escrow account. Therefore, estate without a license and is a third-degree felony. The only first-degree brokers may or may not choose to open and maintain an escrow account. If misdemeanor is violation of rental lists and rental companies a conflict arises due to a dispute between the buyer and the seller, the broker should look out for the following exceptions: All other violations are either a second-degree misdemeanor or considered a minor violation. • If it is a rental property, the dispute must be resolved according to FS 83. • If it is a sale and the subject’s property is a HUD property, then the escrow dispute must be resolved according to HUD rules Termite and Roof Inspection Disclosure If it is a sale transaction between two parties, the broker should verify that: Requirement • The cancellation period due to the condominium documents has passed Previously, FS 475 stipulated that a licensee had to provide copies of any • The financing provision is expired. roof and termite inspection performed within the previous year when requested in writing by the buyer. This requirement has since been deleted If all of the above are true, the broker needs to notify FREC of the good faith from FS 475, giving some competitive edge to the seller. doubt within 15 days from the last demand and must initiate one of the four allowed procedures for disbursement, namely: 1. Mediation Rules Regarding Schools 2. Arbitration Real estate schools may now deliver real estate educational products via 3. Request an Escrow Disbursement Order distance learning. The school must obtain written approval from FREC 4. Litigation before advertising or offering any course that promises to grant credits applicable toward pre- or post-licensure requirements. Commission rules were changed to emphasize that the passing of a distance learning course New Escrow Account Limits without passing the State test will not be sufficient to qualify an individual for licensure: 61J2-3.008 (3). In addition, the school must require the student Regarding the rules for a broker’s personal funds in an escrow account, the to sign an affidavit stating that he or she was not cheating on the school’s limits are now: final examination even if it was not taken in a centralized, monitored, or otherwise monitored location. • $1,000 for sales escrow account • $5,000 for property management escrow account When setting up and administering distance-learning courses, the school must provide adequate technical and instructional support as defined by rule In addition, if an escrow violation occurs that is not related to a shortage, the in 61-J2. broker now has thirty days to balance out the escrow account. Schools can now advertise the pass/fail ratio of their students on the state examination. Also, schools are now allowed to advertise in conjunction with brokerage firms. For example, if a broker is also a school permit holder, he Statute of Limitations for Violations or she can combine their ads on a single page paying a single bill. An administrative complaint against a licensee must be brought to the attention of FREC within five (5) years of the date the violation is discovered or should have been discovered. This new paragraph is in agreement with the statute of limitations outlined in FS 95 and sets a limit on how long it License Status can take to notify and/or prosecute a violation. The commission is now A licensee can keep his or her license either active or inactive. If the license under the legal obligation to report to the proper prosecuting authority, any is active, one can practice real estate. If the license is inactive, he or she criminal violation of any statute discovered during an investigation of a real cannot. There are two ways of keeping a license inactive: voluntarily and estate violation. involuntarily

In Florida, real estate brokers are supposed to retain business records for A person who has a license in voluntary inactive status has complied with five (5) years. These business records include all documents related to all renewal requirements in a timely manner. They have paid the necessary situations in which the broker was hired to perform real estate services. In renewal fees and taken the appropriate continuing education courses, general, both closed transaction and failed and dead files are included in but they choose not to practice real estate for personal reasons. Common this category. examples of personal reasons include wanting to avoid the stress of a commission paid job, or avoiding the high fees charged by the local board. The five-year business record retention time frame is consistent with the new statute of limitations adopted for real estate transactions. A voluntarily inactive licensee can reactivate their license by submitting the appropriate form to the Commission signed by an employing broker, notifying their intention of becoming active again.

8 Feature 1 - Florida Real Estate Law The Commission, at its discretion, has the power to require additional testing or educational hours before reactivating the license of a licensee 100% Compliance Program who has been voluntarily inactive for an extended period of time. Usually, Since 2003, the Division of Real Estate (DRE) has enforced the 100% however, no additional request is made to the licensee at the time of license compliance program in order to prohibit Florida real estate licensees from reactivation. renewing their licenses without fulfilling the appropriate educational requirements. A person can hold an involuntarily inactive license for several reasons, including, but not limited to: According to this program, schools are required to electronically notify the DRE of students who have successfully completed and passed the 1. The license of the employing broker was revoked post-licensing and continuing education courses. The department checks 2. The employing broker died the electronic records against the list of the licensees and authorizes the license renewal procedure only if the school has electronically certified the 3. The bi-annual renewal dues were not paid fulfillment of the academic requirement. 4. The educational requirements were not fulfilled In this way, the paperwork related to a license renewal is reduced A license can stay in an involuntarily inactive status for two (2) years, after significantly and the department can monitor the compliance with the which the license expires. Once the license expires, the individual must re- academic requirements before the issuance of the new license. qualify for licensure if he or she wants to become active in the real estate field again. Paper certificates are still handed out to the students as a proof of education in the case of a compliance audit, but should not be filed together with the application for renewal. Reactivation of an Inactive License If a licensee fails to fulfill the appropriate educational requirements for Real Estate Recovery Fund license renewal at the end of the first renewal cycle, the license expires and becomes null and void. To resume practicing real estate, the licensee must The Real Estate Recovery Fund is a fund created under the provisions of FS re-qualify for licensure. 475.482. FREC has the authority to use money from the fund to reimburse members of the public who have suffered significant losses due to the illegal actions of a Florida real estate licensee in a business transaction. The fund If a licensee lets his or her license fall into involuntarily inactive status, it can also be used to reimburse brokers that have been sued following a can be re-activated by completing 14 hours of continuing education within commission’s order. one year. Of course, the licensee also needs to pay any fees for late renewal, pending charges, and/or surcharges. Specific provisions regarding the funds are:

If the license falls into involuntarily inactive status for more than one 475.482 Real Estate Recovery Fund.--There is created the Florida Real year but less than two years, the licensee must complete 28 hours of a Estate Recovery Fund as a separate account in the Professional Regulation commission-prescribed education course. In addition, the licensee must still Trust Fund. pay any pending charges, fees, or surcharges. 1. The Florida Real Estate Recovery Fund shall be disbursed as provided in S475.484. , on order of the commission, as reimbursement If the license remains in an involuntarily inactive status for more than two to any person, partnership, or corporation adjudged by a court of years, it automatically expires and becomes null and void. competent civil jurisdiction in this state to have suffered monetary damages by reason of any act committed, as a part of any real estate brokerage transaction involving in this state, by any broker or sales associate who: Failure to Complete Post-Licensing 1. Was, at the time the alleged act was committed, the holder of Education a current, valid, active real estate license issued under this part; If a licensee fails to complete post-licensing education within the required 2. Was neither the seller, buyer, landlord, or tenant in the time frame, his or her license will expire and become null and void. The transaction nor an officer or a director of a corporation, a member licensee must then re-qualify for licensure in order to become active in the of a partnership, a member of a limited liability company, or a real estate market once again. partner of a limited liability partnership which was the seller, buyer, landlord, or tenant in the transaction; and If a broker fails to fulfill his or her post-licensing education requirements, 3. Was acting solely in the capacity of a real estate licensee in his or her broker license will expire; however, he or she could still maintain the transaction; provided the act was a violation proscribed in his or her sales associate license. In order to do so, one must file the request S475.25 or S475.42 to revert to sales associate together with the appropriate fee. If he or she is the qualifying broker of a corporate entity or of a partnership, the business 2. The Real Estate Recovery Fund shall also be disbursed as provided should be restructured around a properly qualified real estate broker. in S475.484. , on order of the commission, as reimbursement to any broker or sales associate who is required by a court of competent civil If a licensee succeeds in renewing his or her license without taking the post jurisdiction to pay monetary damages due to a distribution of escrow licensing education courses, and mistakenly receives a new license by the moneys which is made in compliance with an escrow disbursement DBPR in error due to no fault on the part of the licensee, the DBPR will order issued by the commission. However, in no case shall the fund revoke the license without prejudice. be disbursed when the broker or sales associate fails to notify the commission and to diligently defend an action wherein the broker or sales associate may be required by a court of competent civil jurisdiction to pay monetary damages due to a distribution of escrow moneys which is made in compliance with an escrow disbursement order issued by the commission.

Feature 1 - Florida Real Estate Law 9 3. A fee of $3.50 per year shall be added to the license fee for both new licenses and renewals of licenses for brokers, and a fee of $1.50 FS 83.67 - Display of the Flag per year shall be added for new licenses and renewals of licenses for Paragraph (4) was also added to FS 83.67. This allows tenants to display a sales associates. This fee shall be in addition to the regular license fee portable removable U.S. flag on their dwelling units. In addition, it specifies and shall be deposited in or transferred to the Real Estate Recovery that the landlord will not be liable for damages caused by a tenant displaying Fund. If the fund at any time exceeds $1 million, collection of special the flag and that the flag cannot be placed or interfere with the space rented fees for this fund shall be discontinued at the end of the licensing by another tenant. renewal cycle. Such special fees shall not be reimposed unless the fund is reduced below $500,000 by disbursement made in accordance with this chapter. Licensed Appraiser Category Eliminated 4. In addition, all moneys collected from fines imposed by the commission and collected by the department shall be transferred into A major change in FS 475 is that the license category of licensed appraiser the Real Estate Recovery Fund. has been eliminated by the state. Licensed appraisers will be allowed to work in Florida, but the State is no longer issuing that type of license.

Broker Liability Under an EDO New Appraiser Qualifications If a real estate broker was to follow an escrow disbursement order (EDO) and in doing so was sued by the seller or party who did not receive the Effective July 1st 2006, the legislature passed a new set of qualifications escrowed property, the broker at his or her own expense needs to defend the for appraisers. These qualifications are dictated by the need of the state EDO in court, and MAY be entitled to recover attorney fees and court costs. to implement changes in the appraisal profession promulgated by the Appraisal Qualification Board (AQB) of The Appraisal Foundation (www. appraisalfoundaton.org). Under the terms of the new law, the commission is obligated to pay whenever a broker needs to pay out of his or her own pocket to defend a commission EDO. These new qualifications are summarized in the following table and include more hours of academic training and more advanced degrees for those professionals seeking employment as state certified appraisers. Other Changes Relevant to Real Estate The state of Florida elected to choose the “segmented scenario” where the FS 475 constitutes real estate license law in the State of Florida. In addition, transition from the old standard to the new one is gradual. Some substantial several other chapters of the statute are relevant to the real estate profession changes to the appraisal qualifications were recently passed as a law without since they address topics that are important to the practice of real estate. any warning, so the rules may still say otherwise. Care should be exercised when examining these requirements.

FS 83.575 - Termination of Tenancy Experience Qualifications Academic Requirements Requirements Chapter 83 of the Florida Statute (FS 83) is the Landlord and Tenant Act. It was passed to make the relationship between landlord and tenant more •High School Diploma or equitable. Licensees should not draft contracts, but they can still equivalent generate significant income by real estate or by working as a leasing Registered •100 hours of pre- None BUT Can agent. Because of this, it is important to know the recent changes in FS 83. Trainee licensing education only work under the Appraiser •The board may increase supervision of a state A rental agreement in Florida may contain a clause specifying that notice the required number of certified appraiser must be given to the landlord by the tenant stating intent to vacate the hours to no more than 125. premises. The landlord may not require this notification to be given more than 60 days prior to the date of the termination of the agreement, or of This license category is no longer offered in vacating the premises, whichever is earlier. If a tenant fails to provide State Licensed the state of Florida. Currently state licensed appropriate notice, the tenant may be liable for liquidating damages. Appraiser appraisers CAN continue working BUT no new Unless otherwise specified in the rental agreement, the statute quantifies the licenses of this kind will be issued. liquidating damages as one-month rent. • 2,500 hours of • The experience experience requirement may be accrued in not FS 83.67 - Members of U.S. Armed Forces • Must pass state exam less than 24 months. This chapter has been amended to prevent discrimination against tenants Minimum of 150 • 200 hours of pre- who are members of the U.S. Armed Forces. In recent years, many documented reports licensing education servicemen have had to answer the call of duty and leave for war. As a State Certified must be kept on file (including 15 hr National result, many Florida have received very short notice of termination Residential for 5 years. Uniform Standards of from tenants who are members of the armed forces. The legislature added Appraiser Professional Appraisal Paragraph (3) to FS 83.67 to specifically prohibit discrimination against • The 100 hours of Practice course) members of the U.S. Armed Forces for any reason. the trainee appraiser course may be • Associate degree OR applied against the Similarly, FS 83.682 has been modified to prohibit landlords from charging 21 college credit in some 200 hours of pre any form of penalty or liquidating damages to servicemen for early specific disciplines licensing ed termination of their rental contracts due to service related reasons.

10 Feature 1 - Florida Real Estate Law In the 2003/2004 period, FREAB rules (chapter 61J1 of the Florida •The experience • 3,000 hours of Administrative Code) were changed accordingly to comply with the requirement may be documented experience changes in the statute. accrued in not less • 300 hours of pre- than 30 months. licensing education • Other restrictions Disclosure Requirements for Stigmatized State Certified (including 15 hr National apply. General Uniform Standards and Appraiser Professional Appraisal • The 100 hours of FS 689.25 (1) (b) states: “The fact that a property was at any time suspected Practice course) the trainee appraiser to have been the site of a homicide, suicide, or death is not a material fact course may be • Bachelor degree OR 30 that must be disclosed in a real estate transaction.” applied against the college credits in specific 200 hours of pre- disciplines licensing ed. This paragraph has been added to the statute. In a sense, it protects the seller if a crime or a violent act has been committed on the property through no fault of his or her own. On the other hand, the public may believe that the broker is hiding behind the statute and avoiding the duty of disclosure. Trainee Appraiser Category Either way, the new statute is VERY controversial and most brokers are Assistant appraisers now become trainee appraisers and must work under adopting a company policy to secure written consent of the owner to the supervision of a State certified appraiser. Trainee appraisers must also disclose the issue to potential buyers. Others are planning to do so. The fulfill 45 hours of post-licensing education within their second renewal idea is that even if the law is on the side of the seller, the community may period. Supervisors can accept no more than four trainees to work for be outraged with the broker if he or she does not behave in the best interest them, while trainee appraisers may accrue experience under as many state of the public. certifications as they want.

Tax Disclosure Notice Distance Learning for Appraisers Due to the rapid increase in property values in the state of Florida over the past few years, the legislature realized that it was not reasonable to advise Distance learning has been a reality for a while in the world of appraisers. the buyer of a residential property to review the previous owner’s tax bill Now, the Florida Board (FREAB) has been to estimate future property taxes, especially for properties which have been authorized to appoint an independent agency to certify distance-learning homesteaded for a long period of time, and therefore had tax rates kept courses. FREAB chose by rule to give accreditation to those courses that artificially low. When a new is recorded, the Office of the County have already been approved by the American Council on Education (ACE) Appraiser will reconsider the assessed value under the light of the new through the International Distance Education Certification Center (IDECC). market conditions. In general, 61J1 states that if an individual chooses to take a course via distance learning or in a live classroom environment, he or she cannot apply credits earned in one class toward the other. While the completed course The disclosure form is mandated by law: grants a certain amount of credit hours either way, the student cannot switch PROPERTY TAX from the live class to the distance education course and vice versa. DISCLOSURE SUMMARY

BUYER SHOULD NOT RELY ON THE SELLER’S CURRENT Non-Resident Requirement for Appraisers PROPERTY TAXES AS THE AMOUNT OF PROPERTY TAXES THAT THE BUYER MAY BE OBLIGATED TO PAY IN THE YEAR Nonresident requirements: as in Part I of the statute, an appraiser who SUBSEQUENT TO PURCHASE. A CHANGE OF OWNERSHIP OR moves out of State has 60 days to file an irrevocable consent to service with PROPERTY IMPROVEMENTS TRIGGERS REASSESSMENTS OF THE the board. The same applies for a nonresident who decides to apply for a PROPERTY THAT COULD RESULT IN HIGHER PROPERTY TAXES. Florida license. The irrevocable consent to service must be notarized or IF YOU HAVE ANY QUESTIONS CONCERNING VALUATION, electronically authenticated. CONTACT THE COUNTY PROPERTY APPRAISER’S OFFICE FOR INFORMATION. The irrevocable consent to service is a separate document in which the licensee agrees that he or she will serve in Florida for any violation of real Some contracts already incorporate the property tax disclosure wording, estate license law committed in the State, even when residing outside the while for standard real estate contracts, this wording must be included in State. Since real estate license law is State law, violations in Florida may some type of addendum. not be prosecuted outside the State’s borders. When signing the irrevocable consent to service, the licensee promises that they will be back in Florida to serve if investigated for a violation of Florida law. Limitation of Rental Rights for Condominium Owners Summary of Changes in FS 475 Part II FS 718.110 was amended in 2004 to add Paragraph (13). This paragraph states: The Florida Real Estate Appraisal Board (FREAB) is the legal entity that constitutes the equivalent of FREC for the appraisal profession. FREAB has quasi-legislative powers, as FREC does. This means that both bodies can (13)Any amendment restricting unit owners’ rights relating to the rental of pass rules and professional regulations as long as they are in compliance units applies only to unit owners who consent to the amendment and unit with the statutes. owners who purchase their units after the effective date of that amendment.

Feature 1 - Florida Real Estate Law 11 FS 718 is probably one of the most controversial chapters of the statute, DO NOT SPAM list has been under consideration of the Federal Trade artificially limiting rights of property owners in favor of a board of directors Commission to limit the email SPAM (but was not passed). often composed of unqualified individuals pursuing hidden agendas. This paragraph is a little step in the right direction of giving back more freedom In the State of Florida, a Do Not Call list with its own rules and fines was to the unit owner. Hopefully, more amendments like these will be made as already in effect. The Florida Department of Agriculture is the state authority the battle over condo owners’ rights becomes fierce in Tallahassee. that maintains the list (www.800helpfla.com/nosales.html). The State of Florida decided to maintain the state list in addition to the federal list since the two rosters do not perfectly overlap; each covers slightly different areas. The Florida Do Not Call list is not free as the one maintained by the FTC. Mandatory Insurance for Condo Owners It costs $10 for the first yearly enrollment and $5 for each year afterwards. Extensive changes were made to FS 718.111 (11) in order to make it mandatory for condominium associations to maintain an insurance policy. This has the practical effect that now most condominiums may be mortgaged with a , where previously only those condominium Legal Updates, Federal Law associations bearing the costs of sufficiently high insurance were considered Between 2003 and 2005, two major areas of federal regulation affecting the to be appropriate for lenders. More on the condominium issues real estate market were modified: will be dealt with in the Chapter dedicated to the condo specialty. • Rules regarding federally assisted mortgage programs • Law regarding unsolicited marketing Official Notice in Condominium In general, the rules on federally assisted mortgage programs made Associations homeownership easier to manage, introducing new and interesting FHA Other changes to FS 718 include the method of delivery of correspondence: sponsored programs to allow homeowners to upgrade and/or make their now a condominium association can maintain a roster of email addresses homes energy efficient. On the unsolicited marketing side, we have two of condo owners and can deliver official communications via email if new major laws: the introduction of the federal Do Not Call list, and the approved by unit owners. If the association decides to take advantage of the Do Not Fax list. low-cost, safe delivery of email, then appropriate delivery procedures must be established by the board. Rules Affecting Federally Assisted Official notice like the call for a meeting can be sent via emailifso approved by condominium owners. Unit owners can still retain the right Mortgages to opt out of the email distribution list and retain the option to receive their Housing and Urban Development (HUD) is a federal agency dedicated communications via regular mail. to the regulation of homeownership across the nation. We will focus our attention on four recently adopted changes to HUD rules: If the association decides to use closed circuit television for delivery of calls • Prohibition of property for meeting, relevant information such as the agenda of the meeting and the time and location must be left on the screen for a sufficient period of time to • Energy efficient mortgage programs allow the average unit owner to read and understand the message. • 203(k) limited repair programs • Increased maximum FHA insured loan amount in high cost of living areas Condo Questionnaire and FAQ Sheets HUD periodically updates rules and regulations for federally insured loans. Condo associations have been formerly allowed to charge up to $150 Out of the constant flow of information generated by federal regulators, four plus legal fees, copying costs, and administrative charges for filing condo significant changes affecting the Florida market have been selected, but the questionnaires or condo association disclosures. site can also be used as a useful reference to check for future changes.

When re-selling an old condominium, the condo associations must now provide a copy of the Frequently Asked Question (FAQ) sheets and the year end financial statement when available, at buyer request. The buyer has Property Flipping Becomes More Difficult three (3) days after the effective date of the contract or after the delivery Property flipping is the speculative practice of purchasing homes ator of the condo documents, whichever is later, to cancel the contract for any below market value and re-selling them at artificially inflated prices reason. within a short period of time, usually between fifteen days and six months. Flipping is considered to be a predatory lending practice (24 CFR 203). Those properties that have been acquired and re-sold over a short period of time are not eligible for FHA insurance. Most lenders will not consider Florida Do Not Call List properties held by the seller for less than six months as collateral. There are A “Do Not Call List” is a list of phone numbers for consumers who do not some exceptions as clarified by HUD, including properties that have been want to be harassed by telemarketing calls. There are all sorts of “do not” inherited, belong to a federal agency, or were acquired by the seller through lists to protect the privacy of members of the public: a relocation agency or relocation plan.

DO NOT FAX list legislation may soon be passed by Congress at federal level. Energy Efficient Mortgages (EEM)

DO NOT CALL list is already in place at the federal level and in some states HUD has approved a mortgage plan that allows a borrower to finance 100% DO NOT CALL lists have also been implemented at State level. of their expenses to make a property more energy efficient. 12 Feature 1 - Florida Real Estate Law “The EEM may be used with Sections 203(b), 203(k)(rehabilitation • Telephone solicitation calls to your home before 8 am or after 9 pm mortgages), 234(c)(units in condominium projects), and 203(h)(mortgages are prohibited. for disaster victims) loans for both purchases and refinances, including streamline refinances. Both new and existing 1-4 family unit properties are • Anyone making a telephone solicitation call to your home must eligible, including 1-unit condominiums and manufactured housing. The provide his/her name, the name of the entity on whose behalf the call allowable EEM dollar amount is for the entire property and not based on a is being made, and a telephone number or address at which you may per unit basis for multiple unit properties.” contact that entity.

• Company-specific do-not-call lists are available to consumers who In order to qualify for mortgage financing, the energy efficient package wish to avoid telemarketing calls only from specific companies. must be designed by a qualified professional adhering to the International Energy Conservation Code (IECC). On December 2004, the FCC published a final rule amending its Do Not Call rules, requiring telemarketers to scrub their telephone lists against the National Do Not Call Registry at least every 31 days and maintain records Streamline Limited Repair Program 203(k) documenting the process. This provision went into effect January 1, 2005. The FHA also developed a loan package specific for those homebuyers looking to purchase a home in need of repairs. They can now obtain an FHA After substantial lobbying by the National Association of Realtors (NAR) insured loan for their home and cover a limited amount of repairs related and other trade organizations that depend on telemarketing, the National Do to the property. Examples of allowable repairs are: roof, HVAC systems, Not Call list was amended with what is called the Second Reconsideration and minor remodeling such as kitchen, bathroom, appliances, plumbing and Order in February 2005. flooring. The idea of a Do Not Email or Spam list apparently never took off in Congress and was basically dismissed with an FTC report to Congress in FHA Insured Loans June 2004. The maximum amounts of FHA insured loans were adjusted on the basis of the cost of living. HUD acknowledged the increased cost of living in Florida and across the nation. The State of Florida recognized high cost of Summary living areas such as Jacksonville, Miami, and Tampa. Licensees should be aware that several changes have been made to laws affecting the real estate profession both at the State and Federal level.

Changed Maximum VA Loans At the State level, FS 475 has gone through major revisions both in the Veteran Affairs Guaranteed loans have new limits. The Veterans Benefits section dealing with real estate brokers, sales associates, schools, and Act of 2004, reflecting the increase in the cost of living, raises the maximum licensed instructors (PART I), and in the section dealing with appraisers guaranteed amount in 2006 is $104,250. The current maximum guaranteed (PART II). Salespersons now are referred to as sales associates. Escrow loan amount for 2014 is $144,000. Accordingly, the maximum amount of a limits and the definition of good faith doubt have both been modified. VA loan originating with 0% down payment is now as high as $417,000.00. In light of the war in Iraq, minor changes have been made in the Florida VA funding fees, the fees charged at the origination of the loan to the Landlord and Tenant Act (FS 83) and in FS 475 to address issues related to veteran, were also updated. Due to the low down payment requirement, VA members of the military on active duty with the U.S. armed forces. loans tend to default more frequently than conventional loans. In order to offset this loss, the VA administration charges a one time up front fee to the A major change took place in the educational arena, where distance learning borrower. The new fees are slightly higher than before: a complete schedule courses have now been recognized by the statute as an approved delivery is reported in the exhibit. method both for pre- and post-licensing education. Several changes also affected the disclosure requirements both for residential sales, the property tax disclosure law, and for condominiums, the reintroduction of the condominium questionnaire. Federal Do Not Call List The Telephone Consumer Protection Act (TCPA) of 1991 is a law enacted At the federal level, the VA administration and the FHA both implemented at the federal level to protect the public from telemarketers and unwanted some changes adjusting the maximum guaranteed amount and the maximum phone calls in general. In accordance with the TCPA, a federal Do Not Call insurable loan amount to the cost of living, respectively. The VA also list was finally established in 2003. The Do Not Call list is maintained at the increased the VA funding fees, due to a higher default rate among veterans national level by the Federal Trade Commission. Online enrollment is when compared with the general population. FHA also passed several rules possible by scanning this code: to prevent speculative practices like property flipping, while encouraging energy efficient home ownership.

The Federal DO NOT CALL list is maintained separately from the DO NOT CALL list maintained by the Florida State Department of Agriculture. It is very important to check BOTH lists before beginning a cold-call marketing campaign.

As of October 1, 2003, it became illegal for most telemarketers or sellers to call a number listed on the National Do Not Call Registry. In addition, the Do Not Call list has a few basic rules including: Feature 1 - Florida Real Estate Law 13 the broker will not entitle the broker to the commission or placing a lien against the commission. For example: if the earning of the commission was Part Two: contingent upon a closing that did not take place, the broker does not have Additions to FS 475 any rights to that commission. Also a listing agreement that does not specify and reserve, in writing, the right of a broker to place a lien for the recovery of the commission makes Part III of FS 475 is commonly known as the “Commercial Real Estate the provision under this part of FS 475 unenforceable. Remember that it Sales Commission Lien Act” and it deals with the right of the real estate is the listing broker that negotiates the terms of the listings and hence has broker to place a lien on a piece of commercial real estate to recover his or the authority to enforce the procedures under this part of the statute. Sales her commission. The new regulation became effective as of October 1st, associates employed by the broker do not have such authority. 2005.

FS 475.42.1.(j) prevents licensees from placing a lien on a piece of residential real estate to recover their commission unless expressly authorized by the Net Seller’s Proceeds listing agreement: The broker has a lien on the seller’s net proceeds, rather than on the A broker or sales associate may not place, or cause to be placed, upon property. This means that if the seller has on the property, the public records of any county, any contract, assignment, deed, will, the broker’s real value on the lien is zero. The statute defines the owner’s mortgage, affidavit, or other writing which purports to affect the title of, or net proceeds as: encumber, any real property if the same is known to her or him to be false, void, or not authorized to be placed of record, or not executed in the form “Owner’s net proceeds” means the gross sales proceeds that the owner entitling it to be recorded, or the execution or recording whereof has not is entitled to receive from the disposition of any commercial real estate been authorized by the owner of the property, maliciously or for the purpose specified in a brokerage agreement, less the following: of collecting a commission, or to coerce the payment of money to the broker or sales associate or other person, or for any unlawful purpose. However, 1. Any money that is required to pay any , claim, or nothing in this paragraph shall be construed to prohibit a broker or a sales lien that has priority over the recorded commission notice as provided associate from recording a judgment rendered by a court of this state or in other than an encumbrance, claim, or lien that the buyer of the to prohibit a broker from placing a lien on a property where expressly commercial real estate authorizes to remain after the disposition. permitted by contractual agreement or otherwise allowed by law. 2. Any costs incurred by the owner to close the disposition, including, but not limited to, real estate transfer tax, FS 475 Part III sets the right for a real estate broker to use this legal premiums, ad valorem taxes and assessments, and escrow fees payable instrument to recover their commission, and explains the procedures to do so. by the owner pursuant to an agreement with the buyer. This Chapter is divided into two lessons: 1. FCRECLA (Florida Commercial Real Estate Commission Lien Act) 2. FCRELCLA (Florida Commercial Real Estate Lease Commission Claim for Commission Lien Act) Before being entitled to record a lien, the broker must make a claim for his or her commission and must deliver that claim to the closing agent and to the owner of the property at least one day before the closing, or thirty days FCRECLA after the commission is earned, if no closing was required in the brokerage agreement. The Commission notice is a form that contains some essential The term FCRECLA is an acronym that stands for, “Florida Commercial elements: Real Estate Commission Lien Act”. This Act defines the circumstances and 1. The name of the seller procedures to be followed in order to place a lien on commercial real estate property for the collection of commissions arising from the sale or lease of 2. The legal description of the property under contract the property. 3. The name, mailing address, telephone number, and license number of the broker 4. The date of the brokerage agreement Definition of Commercial Real Estate 5. The amount of the commission claimed by the broker Commercial real estate is defined as different from residential real estate. 6. A statement that the broker has read the commission’s notice, FS 475.701.5. (a)-(c) defines commercial real estate as all the real property knows its contents, and makes the commission claim pursuant to the that is not included in the definition of residential real estate. brokerage agreement described in the notice 7. A statement that the commission notice has been delivered to the owner and that the commission notice may be recorded in the public records of the county or counties where the property under contract is Creation of the Lien located In a commercial transaction, a broker places a lien against the net proceeds 8. A statement setting a maximum period of five days after closing for of the sale of a commercial property, as long as it is clearly disclosed to the owner to dispute the commission notice the seller in the listing agreement. Note that the lien attaches to the net The statute does not provide or specify any specific form of use, but does proceeds, not the real property. suggest a legally sufficient format for the notice:

The Act was necessary to ensure the payment of broker’s commission and requires that said expectation of a commission for services rendered must be specified in the listing or brokerage agreement. Failure to do so by

14 Feature 1 - Florida Real Estate Law Exhibit: Commission notice. Time Frame for Making the Claim BROKER’S COMMISSION NOTICE The lien is effective for one (1) year after the recording, or until the UNDER FLORIDA COMMERCIAL expiration of the brokerage agreement. If the brokerage agreement is extended, or is for a period of time longer than one year, the broker must REAL ESTATE SALES COMMISSION LIEN ACT record the extension or the brokerage agreement in the public record of the Notice is hereby given pursuant to the Florida Commercial Real Estate county where the property is located at least 60 days before the expiration Sales Commission Lien Act, part III of chapter 475, Florida Statutes of the notice. (the “act”), that the undersigned real estate broker is entitled to receive a sales commission in the amount set forth below from the owner If the commission is paid by the property owner, the broker has seven days named below pursuant to the terms of a written brokerage commission from the request of the owner to file a written release for the commission agreement regarding the commercial real estate described below, and notice in the record. the undersigned broker claims a lien under the act against the owner’s net proceeds from the disposition of the commercial real estate. The act and this commission notice do not create a lien against the commercial The fact that the broker records a commission notice does not exonerate real estate itself, but only against the owner’s net proceeds. the property owner from the duties to perform according to the terms of the contract executed. 1. Name of the owner who is obligated to pay the commission: 2. Legal description of the commercial real estate: 3. Name, mailing address, telephone number, and Florida broker license Procedure for Dispute number of the undersigned broker: 4. Effective date of the written brokerage commission agreement between If the owner disputes the commission notice, the closing agent needs to the owner and the broker under which the commission is or will be payable: confirm with the broker the accuracy of the statements made in the notice. ______, ______. If the broker confirms the claim, then the closing agent can put aside an amount of money equivalent to the commission and pay the balance of the 5. Amount of commission claimed by the undersigned broker: net proceeds to the owner. In order to confirm the accuracy of the claim, $______, or______percent of sales price, or the broker must file an affidavit where the requested information is stated [specify other formula for determination of commission amount]: in writing. ______. 6. The undersigned broker, under penalty of perjury, hereby swears or Note that the closing agent is not obliged to keep funds in escrow for affirms that the undersigned broker has read this commission notice, knows more than five days, while waiting for the resolution of the dispute. If the its contents and believes the same to be true and correct, and that the dispute is not resolved within five days, the closing agent can file a bill of undersigned broker is making this commission claim pursuant to the written interpleader to the proper authority. The closing agent retains no liability for brokerage commission agreement described in this commission notice. the disbursement of the commission, as long as it is in accordance with all pertinent state and federal laws. 7. The undersigned broker confirms that this commission notice or a copy thereof has been delivered to the owner. Signed: (broker) When the Net Proceeds are Insufficient Signed and sworn to or affirmed under penalty of perjury If the net proceeds to the owner are insufficient to cover the amount before me, a notary public, this ______day of claimed in the commission claim, the claim can be attached to the mortgage ______, ______, by ______instrument or to the note generated in the transaction. ______.

Signed: (notary public) In the case of a 1031 Exchange Like Transaction, where all the cash generated by the sale is held by a qualified third party intermediary, the WARNING TO OWNER: The act provides that if you dispute the property owner can still pay the commission to the broker out of his own commission claimed in this commission notice, you must notify the funds in cash, by check, or by bank draft. An unconditional letter of credit closing agent of the dispute no later than 5 days after the closing. If also is acceptable as a form of payment to release the property owner from you fail to notify the closing agent before that date that you dispute the commission lien. the commission, you will be deemed to have confirmed the commission and the act will require the closing agent to pay the commission to the broker from your net proceeds from the disposition of the commercial The procedure set forth in FS 475 Part III does not prevent the owner from real estate. seeking relief by filing a lawsuit in court, although in this case, the party that loses the suit is responsible for payment of court costs and reasonable This commission notice may be recorded in the public records of the attorney fees for both parties. county or counties where the commercial real estate is located.

Legal Priority of the Notice Effect of Recording The real estate commission notice receives no special treatment and is The recording of the commission notice in the public record of the county subordinated to all other notes, liens, and mortgages recorded before the where the property is located creates a lien on the net proceeds of the sale. notice, which will have a higher priority in a court of law. This is one of the The lien is enforceable as long as the commission notice was delivered reasons why, in the event of insufficient proceeds to cover the commission earlier both to the property owner and to the closing agent. The reason is notice, it is a good idea to attach the lien to the mortgage or note arising that the recording becomes constructive notice of the lien after 60 days from from the transaction. recording; before that, the broker is still expected to provide actual notice to the closing agent. The lien belongs strictly to the broker and cannot be assigned, transferred, or enforced by a third party. Feature 1 - Florida Real Estate Law 15 It states that the property owner was the broker’s client and is responsible for Delivery of Communications payment of the real estate commission. It also stipulates that the broker has All notices must be in writing and verifiable to be valid. Interestingly enough, the right to attach a lien on the real property. If the tenant was responsible for this part of the statute allows the use of registered mail return receipts as the payment of the real estate commission, the broker can attach a lien to the a legally sufficient proof of delivery. The statute also allows electronic leasehold interest of the tenant. communication as long as a proof of receipt can be shown.

The effective date of the notice is the date of the personal service rendered, or Events that Trigger the Broker Commission the date of delivery of the proof of receipt, or three days after the notice was placed in the mailbox if regular mail was used as a means of communication. One of two events is sufficient to demonstrate that the broker earned the real estate commission:

1. A specific act described in the listing agreement is satisfied. Buyer’s Broker 2. The property owner the premises on which the real estate Buyer’s brokers are brokers that represent the buyer in a real estate broker had a brokerage agreement and the brokerage agreement transaction. Buyer’s brokers do not have a written contract with the owner provided for the payment of a certain commission. that entitles them to the payment of the commission or to place a lien on the net proceeds of the sale, but they have to negotiate with the listing broker their share of the commission offered. This is very important because it makes clear that certain acts, like a rental renewal, can trigger the earning of the commission to the broker. The only way a buyer broker can secure the payment of his commission on a piece of commercial real estate is by securing either a brokerage or a commission agreement at the time when the sale and purchase contract is Rental Renewals written. If the buyer broker has a commission agreement, the broker could use that to place the lien on the seller’s proceeds under FS 475.719 (2) (3). In the case of a renewal, the commission is earned when a broker performs all the acts specified in the brokerage agreement, or if there areno contingencies in the brokerage agreement, the renewal commission is an automatic commission earned at the time the property owner first entered FCRELCLA into a lease agreement with the tenant. On the other hand, if the payment of the commission is specifically and expressly conditional to an event that FCRELCLA is an acronym that stands for, “Florida Commercial Real Estate does not take place, under FS 475 Part IV, the broker cannot claim a lien for Lease Commission Lien Act”. the payment of his or her commission.

When a leases a piece of commercial real estate, he or she Conditional events are not covered in detail in the statute, but typically may be entitled to a commission. Historically, several points of confusion include an increase in rent, or a re-negotiation of some aspects of the lease have been identified. Questions like: What is the act that triggers the earning agreement, or the proper management of a particular area of the space that of the commission by the broker?” or “How can the broker collect if the may have become unattractive during the period of the tenancy. landlord refuses to pay?” were often poorly answered.

This new addition to the statute makes clear that in order to receive payment, a broker should have a written brokerage agreement with the Effect of Recording landlord specifying what the acts are that trigger the earning of a real estate commission. If the broker feels that he or she earned a real estate lease commission under the conditions stipulated in the brokerage agreement, a real estate commission leasing lien notice can be filed to warn the owner of the potential Let us assume, for example, that a commercial broker leased a commercial of recording a lien notice on the subject property if they refuse to pay. space one year ago. The lease is up for renewal, and both landlord and tenant are willing to negotiate the lease renewal. If the negotiation is successful, the broker will earn a renewal commission, even if his work was substantially Once recorded in the public record of the county where the property is less than what is required to bring in a new tenant. To the landlord, this located, the commercial real estate lease commission lien is the property renewal commission may look like a rip-off. With the introduction of the of the broker and cannot be assigned or waived to a third party, until the new statute, as long as the renewal commission is expressly agreed to be an commission is fully paid and satisfied. The broker can only use the provisions act that triggers the earning of the commission, the broker can rely that the of FS 475 part IV if an appropriate disclosure was worded in the original commission must be paid and try to collect, even by placing a lien on the property management or brokerage agreement. property if necessary. In other words, the broker CANNOT sell the lien note to a third party If the broker wants to enforce the payment of his leasing commission against investor in an attempt to cash in profits, because the statute does not allow a the property, of course, the broker must disclose it in writing on the brokerage third party investor to enforce the lien. agreement itself so that the landlord is warned right from the beginning. Also, the statute states very clearly that the lien belongs to the broker, Part IV of FS 475 sections 800-813 is also known as the “Commercial Real not the sales associate. Let us assume, for example, that sales associate Estate Leasing Commission Lien Act” and it became effective on October George is involved in negotiating a commercial lease and does so under the 1st, 2005. The Act deals with the procedures for a real estate licensee that supervision of broker Virginia. If the commission is not paid and the real manages or leases a commercial space to recover their commission if the estate brokerage firm has to place a commission lien notice, this commission property owner or tenant failed to pay them. lien notice belongs to broker Virginia, and not to George, the sales associate. If George decides to change the brokerage company along the way, he should have in writing an agreement with Virginia for the payment of the real state commission.

16 Feature 1 - Florida Real Estate Law 8. The lease for which the commission is claimed is described as follows Notice Requirement [provide all information known to the broker]: Before placing a lien in the public record, the broker must deliver a lien Name of landlord: ______notice to the property owner. The lien notice must contain very specific information including: Name of tenant: ______Date of lease: ______, 1. The name of the owner of the commercial real estate. Leased premises: ______2. A statement indicating that the party obligated to pay the commission 9. Automatic renewal commissions (check yes or no): Is the undersigned is the landlord or tenant under the lease for which the commission is broker claiming a commission that may become payable if the lease is claimed. later renewed or modified to expand the leased premises or to extend the lease term, but the written brokerage commission agreement does not 3. The name of the person owning a fee simple interest on the expressly require the broker to perform any additional services in order commercial real estate. to receive this later commission?

4. The legal description of the commercial real estate. [ ] Yes [ ] No If yes, specify the amount of such later commission or the formula for 5. The name, mailing address, telephone number, and license number computing the later commission: of the broker. 10. The expiration date of this lien notice is 2 years after the date of 6. The effective date of the brokerage agreement. recording, unless the answer to paragraph 9 is yes, in which case the expiration date of this lien notice for the commission described in 7. The amount of the commission claimed by the broker, either as a paragraph 9 is 10 years after the date of recording. percentage of the lease or as a dollar amount. 11. The undersigned broker, under penalty of perjury, hereby swears or affirms that the undersigned broker has read this lien notice, knows 8. A description of the lease for which the commission is claimed. its contents and believes the same to be true and correct, and that the undersigned broker is making this commission claim pursuant to the 9. A statement indicating whether the broker is claiming an automatic written brokerage commission agreement described in this lien notice. renewal commission. Signed: (broker) 10. A statement indicating that the broker read the lien notice, knows its contents, believes the same to be true and correct, and made the Signed and sworn to or affirmed under penalty of perjury before me, commission claim pursuant to the brokerage agreement described in a notary public, this ______day of ______, the lien notice. ______, by ______.

The statute suggests a legally sufficient form for the lien notice: Signed: (notary public) BROKER’S COMMISSION LIEN NOTICE UNDER FLORIDA COMMERCIAL REAL ESTATE Time for Recording LEASING COMMISSION LIEN ACT Notice is hereby given, pursuant to the Florida Commercial Real For the lien to be enforceable, the commission notice must be recorded Estate Leasing Commission Lien Act, part IV of chapter 475, Florida no later than ninety days from the day the tenant takes possession of the Statutes (the “act”), that the undersigned real estate broker is premises, or the day on which the legitimate owner of the commercial entitled to receive a leasing commission from the owner named below property sells it, whichever occurs first. pursuant to the terms of a written brokerage commission agreement regarding a lease of the commercial real estate described below, and Brokers need to pay special attention to record the lien to prevent an the undersigned broker claims a lien under the act against the owner’s unannounced sale of the property. In fact, if the property changes ownership interest in the commercial real estate in the amount set forth below. before the lien notice is recorded, the broker may not be able to enforce that 1. Name of the owner who is obligated to pay the commission: lien notice against the new owner.

2. (Check one:) The owner obligated to pay the commission is: Timely Notification 1. [ ] the landlord under the lease. 2. [ ] the tenant under the lease. The act of recording the notice in the public record of the county where the commercial real estate is located constitutes a form of constructive notice. 3. Name of the person owing the fee simple interest in the commercial real Nevertheless, the broker must still notify the interested party within seven estate, if other than the owner who is obligated to pay the commission: days after the notice has been recorded of the claim with the real estate 4. Legal description of the commercial real estate: commission. 5. Name, mailing address, telephone number, and Florida broker license number of the undersigned broker: If the property owner changes his or her mind, and the commission is paid, the lien is then satisfied and the broker has seven days to record a notice of 6. Effective date of the written brokerage commission agreement lien satisfaction in the county where the property is located. The broker must between the owner and the broker under which the commission is or also forward the notice of satisfaction to the property owner. will be payable: ______, ______. 7. Amount of commission claimed by the undersigned broker: $______, or ______percent of rents payable under lease, or [specify other formula for determination of commission amount]: Exemptions ______. Note that even if the lien attaches to the real property, it is the property owner who is responsible for the debt. If the property changes ownership, due to a

Feature 1 - Florida Real Estate Law 17 sale, foreclosure, or inheritance, the lien becomes ineffective. While if the property owner pays the commission and requests a release, the broker has Transfer of the Lien seven days from the day of the request to record, in the public record of the The broker can transfer the lien from the property to a security deposit held county where the property is located, a release due to the satisfaction of the by the court upon receipt of the deposit of a sum of money by the clerk of lien. the court, or upon showing of a surety bond for at least the amount of the commission claimed. In this way, the owner can possibly sell the property, retaining the right to dispute the claim in court. Expiration of Lien Notice The lien created by the Commercial Real Estate Lease Commission Lien Once recorded, the notice is effective for seven years after the effective Act can be subordinated by the owner to any mortgages taken subsequent date, unless the broker decides to exercise his or her right to foreclose on to the recording of the commission lien in the public record. In order for the the property. The seven-years period provides sufficient protection for the subordination to be effective, two conditions must be fulfilled: broker even if the owner holds the property for an extended period of time. The lien can also be extended for another seven years provided that the 1. The subordination instrument must be recorded in writing by the broker records the proper extension. If the broker decides to extend the lien, property owner. he must notify the interested party within ten days of the recording of the notice in the public record. 2. The mortgagee must be someone not related to the property owner.

Also, the commercial real estate commission lien has a priority lower than all other instruments recorded before it. Dispute The owner can possibly contest the lien placed by the broker. If this is the case, the statute suggests the use of a specific dispute form: Summary 1. NOTICE OF CONTEST OF BROKER’S LIEN Effective October 1st, 2005, a commercial broker who is denied payment of a lawfully earned commission in either the sale or lease of a commercial To: (Name and address of broker) property has one more tool to recover his or her hard earned money. The Florida Commercial Real Estate Commission Lien Act constitutes part You are notified that the undersigned contests the lien notice filed III of chapter 475 of the Florida Statutes and entitles the broker to place by you on ______, (year) , and recorded in Official a lien on the net proceeds of the sale of a commercial property in order to Records Book ______, Page ______, of the recover a commission. The timeline for doing so is the day of disbursement public records of ______County, Florida, and that the of the funds. Once the transaction closes and the closing agents disburse the time within which you may file suit to enforce your lien is limited to 60 proceeds, the only remedy available to the broker is a lawsuit. Note that the days from the date of service of this notice. This ______day broker can only use the lien option if he or she has a brokerage agreement of ______, (year) . or a commission agreement entitling them to do so. A buyer broker, or a broker who fails to reserve his right to place a lien on the net proceeds of the Signed: (Owner or Attorney) sales in writing in the brokerage or commission agreement, may not use the procedures in this part of the statute.

The lien of any broker upon whom such a notice of contest is served and who fails to institute a suit to enforce the lien within 60 days after Similar provisions apply to the commercial broker who earns his commission service of such notice of contest shall be extinguished automatically. by the act of leasing a commercial property. In both cases, there is a The clerk shall mail a copy of the notice of contest to the broker at the procedure to follow before registering the lien in the public record of the address shown in the lien notice or most recent amendment thereto county where the property is located. This procedure involves the delivery and shall certify to such service on the face of the notice of contest and of a commission notice to the property owner and some sort of timeline to record the notice of contest. Service of the notice of contest by the clerk follow in order for the lien to be properly placed. shall be deemed complete upon mailing.

To take effect, the dispute form must be registered in the public record where the commercial property is located. This procedure gives the owner the right to defend unreasonable claims on his or her property.

Procedure for Foreclosure Under current statute, the broker has the right to force a foreclosure against the property owner for nonpayment of a commercial real estate lease commission. In order to do so, the broker must file for a foreclosure in the circuit court of the county where the property is located. The foreclosure proceeding must be initiated before the expiration of the lien notice; otherwise, it becomes ineffective. The property owner retains the right to sue the broker to settle the matter in court if he or she feels that the broker’s claim is false or improper. In any suit originating from this chapter, the prevailing party has the right to be awarded court costs and reasonable attorney fees.

18 Feature 1 - Florida Real Estate Law FEATURE 1 PRACTICE - FLORIDA REAL ESTATE LAW

NOTE: You are not required to answer the practice questions below to complete the 14-hour course. Their intention is to help you prepare for your Final Exam.

Final Exam Questions can be found on page 79 or online at www.McKissock.com/FLRE.

1. The recorded lien notice claiming the real estate commission for a commercial lease transaction is valid for how many years from the date of recording? a. 1 b. 5 c. 7 d. 10

2. Which is the only brokerage relationship disclosure statement that must be signed by the client before implementation? a. Transaction broker notice. b. Transition to transaction broker notice. c. Single agent notice. d. No brokerage relationship disclosure statement is necessary.

3. If a commission dispute arises: a. The closing agent can keep the money in escrow until the dispute is over. b. The closing agent needs to file a bill of interpleader if the dispute is not settled within five days after closing. c. The closing agent can issue a certified check to the broker in the amount of his commission, if the seller is not able to prove his point. d. The closing agent does not play any role in a commercial transaction.

4. In a tenancy without a specific duration, the maximum period of time that a landlord can require a tenant to give notice before he vacates the premises is: a. 30 days b. 60 days c. 90 days d. Not mandated by law

5. A broker can record a lien for the nonpayment of a commercial real estate lease commission on: a. The subject property, as long as it is a commercial facility under the provisions of FS475. b. The subject property. c. The net proceeds for the seller. d. The appraised value of the property.

Ready to take the Final Exam? • Go to www.McKissock.com/FLRE or scan the QR code with your smartphone to get started. • Purchase the 14-Hr Online Correspondence Course and complete the Final Exam online. • Print your certificate instantly. OR

• Answer Final Exam Question at end of this book and mail or fax your completed forms in. Answers: 1c , 2b , 3b , 4b , 5c , 4b , 3b , 2b , 1c Answers:

Feature 1 - Florida Real Estate Law 19 FEATURE 2 Niche Marketing: Narrow Your Focus Many real estate agents operate in a certain specialty or “niche,” and perhaps with a little thought, many more would take the time to discover the benefi ts of carving out a niche for themselves. When agents market themselves as experts in a certain aspects of the industry, it not only helps the agent, but the client/customer as well. Customers need to know who the most knowledgeable, experienced professional in the area is. If there is an agent who specializes in the topic the customer needs assistance with, it is good for the industry if that customer is made aware of that agent. This feature is designed to help agents identify a niche that they may want to specialize in and to be able to market themselves as an expert so that all customers are receiving the best care possible by an experienced expert in the industry.

Learning Objectives Upon completion of this feature, you will be able to:

1. Compare and contrast the mass marketing and niche marketing approaches 2. Discuss the process of thinking strategically about developing a niche 3. Discuss different niches that are available and how they apply to their abilities and interests 4. Discuss the opportunities available in combining niches to target an even more narrow group 5. Explain how being a referral resource could prove to be a valuable niche 6. Explain how social media can help build lasting relationships with clients 7. List some time management tools and the benefi ts of each

Customer Testimonial “Really good information on time management and on analysis of operating the business.” ~ Carole, Florida

20 Feature 2 - Niche Marketing: Narrow Your Focus 1908: Harvard Business School opens Part One: 1922: Radio advertising commences 1940s: Electronic computers developed What is Niche Marketing? 1941: First recorded use of television advertising 1950s: Systematization of telemarketing 1970s: E-commerce invented How did we go from the Mom and Pop corner store to conglomerate Wal- Mart, Target and other national chains on every corner? 1980s: Development of database marketing as precursor to CRM 1980s: Emergence of relationship marketing Much of traditional marketing practice prior to the twentieth century was 1980s: Emergence of computer-oriented spam based on rules-of-thumb and lack of information. Since then, information technology has become the marketing frontier, providing new channels 1984: Introduction of guerrilla marketing of communication as well as enhanced means of collecting and analyzing 1985: Desktop publishing democratizes the production of print-advertising marketing data. As a result, marketing specializations have emerged, especially sales versus marketing and advertising versus retailing. And of 1991: IMC gains academic status course, our purpose together here, Niche Marketing. 1990s: CRM and IMC (in various guises and names) gain dominance in promotions and marketing planning Starting in the 1990s, a new stage of marketing emerged called relationship 1995-2001: The dot-com bubble temporarily re-defi nes the future of marketing. The focus of relationship marketing is on a long-term relationship marketing that benefi ts both the company and the customer; a relationship based on trust and commitment. One of the most prominent reasons relationship 1996: Identifi cation of viral marketing marketing developed was the discovery, referred to as Kotler’s idea, that it 2000s: Integrated marketing gains acceptance and the fi rst academic costs the average business about fi ve times more to obtain a new customer research center for integrated marketing opens than to maintain the relationship with an existing customer. So, how has niche marketing evolved and where will it take us? The While relationship marketing is largely held as the impactful stage of segmentation of products and markets has been quietly evolving in business marketing, we’ve entered into a new social/mobile marketing era, where over the past 30 years. The catalyst for change to a more segmented businesses are connected to customers 24/7. industry structure has been competition, expense control and the demand for specialization of business in general. The result is the development of niche market products and strategies.

Consider: What do you think has been the single most signifi cant Marketing Timeline contribution to the way business owners communicate to their customers Let’s take a stroll through history and appreciate a timeline of marketing (either on this list or not)? Learning Objectives innovation: Upon completion of this feature, you will be able to: What is Niche Marketing? 1. Compare and contrast the mass marketing and niche marketing approaches If you’re anything like most real estate professionals, then you love the fast- paced environment and diversity this career offers you. That being true, 2. Discuss the process of thinking strategically about developing a niche then creating a niche market might sound limiting to you at fi rst. However, 3. Discuss different niches that are available and how they apply to their abilities and interests having a niche doesn’t mean you’re not diversifi ed or that you can’t expand into other niche markets later--it’s primarily about focus. 4. Discuss the opportunities available in combining niches to target an even more narrow group 5. Explain how being a referral resource could prove to be a valuable niche Real estate niche marketing is not diffi cult; it just takes some thought. The old school real estate mindset is that it’s a numbers game. And although 6. Explain how social media can help build lasting relationships with clients it seems as though you would be more successful marketing to the largest number of people, the truth is that you will only attract clients who are 7. List some time management tools and the benefi ts of each interested in what you have to offer–your product, your niche. By creating a niche and targeting your efforts, you can be even more successful than you would be marketing to everyone.

1450: Gutenberg’s metal movable type (printing press), leading eventually To do that, you have to create a beginning point. This will be an to mass-production of fl yers and brochures important step in getting off on the right foot. Too often business owners 1730s: Emergence of magazines (a future vector of niche marketing) create a laundry list of services they provide, hoping to broaden their market and expose their potential. Resist that urge. More isn’t always better. At 1836: First paid advertising in a newspaper (in France) this point in your business, it’s not what you can do, it’s how well you do 1839: Posters on private property banned in London it and how focused you are. Even though you could, would you list all of the following on your business card: , offi ce manager, 1864: Earliest recorded use of the telegraph for mass unsolicited spam listing specialist, buyer/seller representative, foreclosure mentor, short- 1867: Earliest recorded billboard rentals sales coach, area specialist, marketing expert, transaction coordinator, home stager, photographer, referral system vendor, administrator, brochure writer, 1880s: Early examples of trademarks as branding market educator, resource center, website owner, and so on? With all of that 1905: The University of Pennsylvania offered a course in “The Marketing buzzing around, it’s hard to start your day, much less determine your focus. of Products”

Feature 2 - Niche Marketing: Narrow Your Focus 21 Establish Yourself as the Expert Example - Wal-Mart When people want something done, they want an expert, not someone who You might remember when a visit to Wal-Mart offered lots of options; just appears to be decent at a lot of things. It doesn’t matter if you are shelves were lined with a variety of brand choices in every department. actually really good at all of them. Having a niche allows you to be the “go Nearly every brand imagined was displayed. However, in the last decade or to” person in a particular area of your field. For the purposes of creating so, Wal-Mart has developed its own product, “My Essentials”, and slowly, your Niche Marketing plan, focus is the key. Remember, you can always but surely has begun to reduce the number of competitor products offered expand and diversify later. Having a focused beginning point, a niche, will to a very select, SKU-worthy few. Why is that? make you more money in the the long term.

Niche Marketing defined: Concentrating all marketing efforts on a small, but specific and well-defined segment of business. Niches do not “exist” Example - Organic Food but are “created” by identifying needs, wants, and requirements that are Also in the last decade, more and more specialty stores have sprouted, and currently not being addressed or are being poorly addressed, and then with great success. For example, Fresh Market, Trader Joe’s and World developing and delivering goods or services to satisfy those needs/wants. Market specifically target two niche markets: a very specific demographic Simply put, niche marketing, also referred to as micromarketing, is a and hard to find products. Think vegan, gluten free, all natural, local produce business strategy aimed at being a big fish in a small pond, instead of being and craftsmen. Moreover, even though these companies are national chains, a small fish in a big pond. they advertise to target and even present in appearance the idea that we are “neighbors serving neighbors.” This marketing concept attracts the “shop local” consumer, younger generations, community-minded folks, and those seeking healthier options. Niche Marketing versus Mass Marketing Big companies usually equal big and deep pockets, especially when it comes to their marketing budget. Small businesses typically can’t compete but still offer equally valuable services. So, whereas big companies might have Example - Amazon their sights set on the “mass market,” also referred to as macromarketing, Amazon.com is another noteworthy example of a successful niche market. the rest of us small entrepreneurs realize the key to success is in satisfying I was surprised to read recently that more than half of Amazon’s book the individual and his or her very specific needs. sales derive from non-bestsellers--these are the obscure titles and small, unknown authors that show up on its sales rankings at 100,000 or below. Of We’ve already defined niche marketing, but how about mass marketing? course, Amazon.com also sells its fair share of New York Times bestsellers In short, it is a difference in strategy. Whereas niche marketing is segmented and other blockbusters, but more than half come from readers who prefer focus, mass marketing is the “shot gun” approach, intended to create market non-mainstream titles and who refuse to have their tastes limited by what’s coverage by appealing to the whole market with one offer or one strategy. most popular. For example, most real estate firms focus on all real estate matters, and even more recently, many are making efforts to be the one-stop shop for all things real estate; mortgage, closing agents, insurance. Mass marketing focuses Amazon has aggregated many niches, and through that effort has created on a wide variety of products to a wide audience with the broadest message a huge and very successful mass business, simply by understanding and intended to reach the largest number of people possible. By reaching the satisfying the individual needs and tastes of a niche market. And with largest audience possible, exposure to the product is maximized. In theory, the expansion of digital media, Amazon has taken its niche market to an this would directly correlate to a larger number of sales or buy-in to the entirely new level. Remember back to the beginning of this course when product. I mentioned that you could diversify later? Amazon is an example of how focusing on a small niche market initially can offer an even greater opportunity for growth later. Mass Marketing defined: An attempt to appeal to an entire market with one basic marketing strategy utilizing mass distribution and mass media. These efforts typically derive from the study of marketing activities, institutions, and processes from the national (societal) perspective. What do These Examples Mean for You? So, we’re real estate professionals, not a huge company like Amazon. That’s Mass marketing is the opposite of niche marketing, as it focuses on high fair, but the concept and message is the same -- don’t be afraid of niches. sales and low prices. Mass marketing aims to provide products and services Embrace them. Even more importantly, the Amazon example compels us that will appeal to the whole market. Niche marketing targets a very specific to redefine the very definition of a niche. Be consumer sensitive--find the segment of the market. There will be some examples on the next few pages. “obscure titles” in real estate and the demographic that demands them.

Carving out your niche is clearly a different path to marketing than the “big Example - Proctor & Gamble bang” or mass marketing approach used by national real estate firms. But it makes a ton of sense, given the reality of today’s rapidly diversifying clients Multinational manufacturer, Procter & Gamble (P&G), in recent years and their needs. As such, building your business around a collection of divested itself of smaller brands, such as Comet and Duncan Hines, so they well-positioned “little bangs” can lead to creating your very own “weapons could focus their efforts on higher-yield, more stable brands with more of mass distraction” from the mainstream. global appeal. Meanwhile, the big box retailers, such as Wal-Mart, as well as regional big name supermarkets, are reducing the number of brands they stock. In other words, these companies took the stance that if you’re not a top three brand, then you’re not SKU-worthy (SKU stands for stock- The Essential Foundation keeping unit). Sometimes, in order to move forward, we need to step back to the basics and create a new starting point. As the manager of your business, you’ll

need a plan, a road map if you will, that will help you go from where you

are to where you want to be. I strongly suggest that every business owner

22 Feature 2 - Niche Marketing: Narrow Your Focus create a thorough and strategic business plan. For the purpose of this course, you, but whether or not their needs are met and in a satisfactory and timely we’ll assume you’ve already completed my Strategic Business Planning manner, are solely dependent upon your abilities. You should be at the center course; however, we’ll still need a mini plan to determine and defi ne your of your niche marketing plan, because you--your strengths, experiences, niche market. education, reputation, and track record--are the product. Therefore, when attempting to create your very own niche market, I strongly suggest that you fi rst review your career history, personality, strengths, and weaknesses. Give consideration to what you have you learned during the course of your professional career, where you are currently in your career, and how you arrived there.

Every good plan benefi ts from past experiences. The key is incorporating those experiences with the successes of your existing business model, along with the skills that make you unique. Combine and use this information to defi ne your future niche marketing plan. Be empowered with your progression and use that progression to defi ne your niche.

Whatever you do, don’t create this plan and then fi le it away and forget about it. Mapping out your niche market plan also serves the purpose of allowing you to “make mistakes on paper” before making them in wasted dollars To create a niche marketing plan, you’ll need to give thought to various and time. Mapping out your plan on paper allows you to thoroughly work topics, from exploring your personality to conducting market research, through it, by considering the elements, building a strategy, completing researching available opportunities, reviewing your current business research, acquiring resources, and adjusting where necessary. As time goes processes and creating your prospect pool. You’ll also need to ask and on, review the plan and its projections regularly to determine not only your answer plenty of questions. So let’s get started. progress, but also the success of the plan and whether it is necessary to make adjustments. Your niche marketing plan should be a working document, Here are a few questions you’ll want to ask yourself: just like a strategic business plan. 1. What part of your business do you most enjoy? Success Tip: Once you’ve fully developed your plan, share it with a trusted 2. What parts do you do really well? advisor or consider hiring a business coach. A fresh set of eyes may offer 3. Where do most of your clients come from and who are they? you invaluable feedback, and at the very least, will affi rm that you’ve been thorough in your thought process. 4. What sort of real estate product do you fi nd yourself selling most?

Considering your answers to the four questions above, identify 5 niche markets that could be strong possibilities for you. Strategic Thinking Process Throughout this chapter, I’ve referred to the niche marketing plan process Now take a hard look at your competition. Who else in your area is focused as strategic planning. What I haven’t shared is that there is a difference on these niches? What do they do well and not so well, and what would you between planning and strategic planning. While planning is still a very do differently to set yourself apart from your competition? thorough and detailed process, strategic planning segments the process to a more methodical platform. The main difference is how information is What sort of challenges can you anticipate having in each of these niche formulated, processed, and then implemented, typically with more focus markets and how would you overcome them? on business resources. For our industry, compare strategic planning to the of business planning and implementation.

An important element to understanding the nature of strategic planning is to Establishing a Vision recognize the difference between strategy formulation and implementation. Establishing a clear vision and understanding of your new niche marketing business plan, as well as its strengths and weaknesses, can be the difference Strategy formulation includes the planning and decision-making that goes between success and failure. Be sure to develop and defi ne a clear mission, into developing a company’s strategic goals and plans. For example: goals, and objectives. Defi ning your niche marketing plan will most • Assessing the environments likely involve more work, especially more creative thought, than you ever expected. However, don’t get discouraged. Think of your niche marketing • Analyzing core competencies plan in two ways. First, imagine that your plan is a creative writing exercise, in which you can map out the business of your dreams on paper. This • Creating goals and action plans perspective will really allow your imagination to guide you and help you visualize what you want. Secondly, try comparing your plan to a master plan Strategy implementation refers to the means associated with executing the of a metropolitan area. Your plan, like a city’s master plan, is the roadmap of strategic plan. These include: future development and defi nes the look and feel of your community (your business). Instead of , think marketing styles! • Creating teams • Adapting new technologies • Focusing on processes rather than functions Reviewing History to Establish the Product • Facilitating communications When it comes to real estate, the most successful component of your • Offering incentives business is you. That is truly what you’re selling--your personality, your ability to communicate, and shape your clients perspective, you, you, you. • Making structural changes The your clients wish to buy and/or sell will be there with or without

Feature 2 - Niche Marketing: Narrow Your Focus 23 To be a successful business owner and an effective market leader, it is also critical to develop strategic thinking skills. The good news is SBA Criteria - Driving Forces: Motivation and that throughout this chapter we have already been building your niche Focus marketing plan using these strategic processes. These processes will help bring your business vision, mission, goals and objectives to fruition through Ask yourself, “What are the driving forces that will make my business a team work, resources and problem-solving. They are also useful in helping success?” Then answer that question as it specifi cally relates to: any business confront change, plan for and make transitions, and be in a • Your company’s vision and mission. position to accept new opportunities. • What you want people to focus on in your business • How you will motivate others to perform

SBA Criteria - Organization • Individual and organizational incentives • Empowerment and alignment The Small Business Association (SBA) offers fi ve criteria to help you • Qualitative factors, such as results and experience defi ne your ideal outcome through strategic thinking. Each of these will be discussed on the following pages. • Commitment, coherent action, effectiveness, productivity and value

Organization SBA Criteria - Ideal Position The organization of your business involves your employees, the organizational structure of your business, and the resources necessary to Working through these fi rst four phases of the strategic thinking process make it all work. What will your organization look like? What type of should help you defi ne yourideal position within your business. Be sure to structure will support your vision? How will you combine people, resources, critically answer the following: and structure together to achieve your ideal outcome? • What conditions are necessary to be most productive? • What is the best niche market for you? • What opportunities may exist either currently or in the future for your SBA Criteria - Observation: From a Holistic business? Viewpoint • What are the core competencies or skills required in your business/ When you are looking down at the world from an airplane, you can see niche? much more than when you are on the ground. Strategic thinking is much • What strategies and tactics will you use to pull it together? the same in that it allows you to see things from “higher up.” By increasing your powers of observation, you will start to become more aware of what motivates people, how to solve problems more effectively, and how to Working through these fi ve areas will help you clearly defi ne and visualize distinguish between alternatives. exactly how your niche marketing goals can be accomplished. Just like defi ning your niche, if you focus, your concept will be stronger and more credible.

Consider: What core competencies or skills are essential to being a successful real estate agent? After you share, consider which of those skills you can improve upon the most.

Example - Toyota Success Tip: Seek out and learn from other successful niche seekers. Let’s look at Toyota as our example:

Toyota, a huge company with a global focus on the auto business, is an excellent niche marketer. They were one of the fi rst companies to realize there was a group of car buyers who would be very interested in environmentally friendly cars. Toyota answered this need with the development of the legendary Prius, the fi rst mass produced hybrid car. SBA Criteria - Views: A Different Mindset Where other car manufacturers saw Toyota taking a huge risk, Toyota saw it as an opportunity to identify a new niche and establish its brand in When solving a problem or preparing for change, a view is simply a that niche. In marketing, it is often the fi rst brand to market, if executed different angle to consider. successfully, that can own the niche market with their brand.

There are four viewpoints to consider when forming your business strategy: Once Toyota took the plunge, it pursued an effective niche marketing • Environmental view plan. It didn’t promote the Prius in just any media. It focused on media • Marketplace view outlets that were watched, read or listened to by people concerned about the environment. For example, it heavily promoted the car through • Project view environmental groups and their publications. As the only game in town • Measurement view at that time, Toyota not only dominated the niche, it was the niche. Today, with increased competition in this niche market, the Toyota Prius is still These viewpoints can be used as tools to help you think about outcomes, highly regarded as the niche’s leading brand. identify critical elements, and adjust your actions to achieve your ideal position.

24 Feature 2 - Niche Marketing: Narrow Your Focus Simply identifying holes in the market and fi lling them is often times not As discussed earlier, a great way to discover possible niches is to write out enough. It takes extensive research, careful planning and execution, and your interests, your skills, strengths, connections – your sources; family, extreme aversion to risks to successfully develop, introduce, execute and friends, classmates, referrals, expiree’s, FSBO’s, asset managers, etc. dominate a niche market with a specifi c product or service. Since our goal is to grow your business, fi rst identify the primary source of your current business, be specifi c and break it down. For example, if the majority of your business comes from listings, but those listings were Consider: What are some niches out there in the real estate market? Which referred, then referrals would be your source. Then, make a list of all the ones are most in need of qualifi ed professionals to jump in and fi ll the void? things you really enjoy about real estate, and all your strengths in this Which ones are saturated with competition? business. Again, be specifi c.

What Now? Ok, so now what? Well, now try different ways of combining these connections, your strengths, into a problem you would enjoy helping Before we move onto the quiz, let’s look at a summary of what was your clients solve. Then compare that with your market research and discussed in this chapter and how you can apply it. competition. There’s your niche!

Establishing yourself as an expert in a niche can be huge for you and the You’ll fi nd that discovering your niche and building your business around potential customer. Remember the example of a business card with a ton that core product, to include yourself as a product; will be a very freeing of “specialties” on it. Think about the customer’s perspective. The person approach. It really gives you permission to focus on the parts of your with the wordy business card may be saying, “Yeah, I’ve done a short sale business that you enjoy most, and channels your strengths, but most once or twice. I’m experienced. That’s going on my card!” But, if you’re importantly it focuses your daily efforts. an expert in the short sale realm and that’s your niche, you need to make people aware of that. You need to get them thinking, “Hmm, this guy over Let’s get specifi c. The next 18 pages will consist of examples of Niche real here listed short sales as something he’s good at. But, this guy specializes in estate marketing opportunities. short sales. It’s his bread and butter. We’re going with him.” It just makes sense! Ultimately, you’re doing the customer a HUGE service by making them aware of your expertise. Properties Once you fi gure out your niche (or maybe you already have one), you will Don’t discount the for sale by owner property as not worth your time. These need to get a feel for the need of that niche in your market. There will sellers will, in many cases, fi nd that they really don’t have the ability to most certainly be a need for you niche, but you must fi nd out how that successfully market their home and will decide to list with a real estate niche is already being served by others. What are they doing well? How professional. After all, our profession was established and continues to can you top them? Remember, you’re the expert! No one knows that niche thrive because there is a need – so get out there and show them! Structure better than you. So, no one should have better insight on how to serve those a marketing plan around helping these sellers to learn what they need to customers than you do. know to market their property and they will frequently see the complexity of the task and make a decision to list with a real estate professional. If you’ve been their adviser, you’ll likely get the business; you, the FSBO Lastly, sometimes less can be more. Mass marketing can be, and often is, Niche Marketing expert. effective, but niche marketing has potential for you to tap into a specifi c area of the market and clean up! Hypothetically, with a mass marketing approach, you may be hoping to get 1% of short sales, 1% of listings, 1% of buyers, etc... But with a niche, you’re aiming to get the majority of a certain type of customer by becoming the go-to agent in that niche. You can still be involved in other aspects of the industry, but you own that area.

Consider: What did you read in this chapter that you can apply to your business? Anything you will start doing? Anything you will stop doing?

Part Two: What is YOUR Niche Market?

Defi ning Your Niche Market Defi ning and properly marketing your niche is the key to developing a profi table business, especially in today’s market. If your business isto survive and prosper, taking the time to identify your purpose, plan, develop your Niche Market and to defi ne what differentiates your business from your competitors will be a key component to your success. Remember, a Niche Marketing Plan is the roadmap to the future growth and success for your business.

Feature 2 - Niche Marketing: Narrow Your Focus 25 Resort and Vacation Homes Condominium Buyers Nationally, there has been a huge growth in the number of condominiums in the last decade. In some cases, the owners are investors who wish to rent it. This provides another area in which you can be the expert helping them to select the most rentable properties. It can also lead to referrals to management fi rms or to your own business.

Property Management An agent can make a very nice living managing short and long term rentals for their clients. Within some offi ces, cooperative marketing has been done, for example with a vacation home buyer agent and a management agent working together. A vacation home buyer may want to use the property If you’re lucky enough to live in an area that appeals to vacationers and those only part time and rent it out for income when they aren’t there. Or perhaps looking for getaway properties, this can be a very successful niche market consider partnering with agents, even of multiple fi rms, who have vacant for you. Even in a down economy people see the value in vacation homes listings with more than 200 days on market, and guaranteeing them the as income opportunities. Families and friends are combining resources to professional courtesy of returning their client when they are ready to re-list. buy these properties, plan their vacations and then turn the remaining weeks for profi t. With most of the prospects coming from outside the area, a good internet marketing strategy can position you as the area expert and cut down signifi cantly on the competition. Providing usable information to out-of- The Internet Buyer area buyers will get your business, and at some point they’ll likely be your sellers also. This is a strategy that has been very successful, especially in markets with a high percentage of technology savvy buyers or those relocating from outside the area. With more than 70% of internet buyers indicating that they ended up working with the fi rst web agent that contacted them, you can see Single Home Buyers the potential. Moreover, consider being creative in how you present these properties to your prospects to save them time and effort by previewing the With almost 90 million unmarried and single Americans, this is a group property and providing a video of the home and area. you just cannot ignore. 55 Million households are headed by unmarried individuals. Women make up about 54% of this group according to the Census Bureau. Real estate professionals that can embrace the differing needs of these heads of households will surely fi nd a wealth of opportunity.

Baby Boomers and Seniors Different income considerations, as well as sometimes special housing requirements, make this group a great niche market. Determine their needs and develop marketing and services that are tailored to them. Look into the SRES® Designation (Seniors Real Estate Specialist) to position yourself as Combining Niches to Find Your Perfect a specially trained professional serving the needs of this age group. Marketing Strategy Take any two or more of the above specializations and combine them, if it works for you. You could be an Internet Buyer Agent specializing in Farms Luxury Homes and Ranches. Or perhaps you’d like to serve only sellers of high-rise condos in the city. It’s your business and your success. The luxury home niche looks quite inviting, with the high home prices usually generating correspondingly high commissions to the agents. They do result in a higher per-transaction commission, but don’t think that there A few other Niche Markets to consider: isn’t some trade-offs. Luxury homes require special marketing venues that • Investors seeking income producing and/or small multi-unit generally require a larger investment on the part of the listing brokerage. properties. Overall, the percentage of net profi t after marketing can be similar to lower priced homes. It’s a great niche for some though. • Handicap accessible properties. • Golf communities or other hobby related properties. • Farmland and acreage. Country living. Off the Grid living. First-Time Buyers • Waterfront properties and or properties with boating access. First-time buyers are new to the entire process, with anxieties about • Parents of college students looking to buy verses pay for on or fi nancing, inspections and just about every facet of the transaction. They off-campus housing. want and need our help. It’s a great feeling helping them into their fi rst home, • Commercial real estate, in itself is a Niche Market, but can even and this niche market is a large one. Develop marketing and transaction be broken down into several more segments. information materials that will help them to understand the process and view you as the expert they need to carry them through it. They’ll be a huge • Short-sales, foreclosure and other distressed properties. source of future repeat business and referrals. • Divorce and Estates.

• Executive temporary furnished housing.

26 Feature 2 - Niche Marketing: Narrow Your Focus Referral Resources as a Niche Market Combining Niches Ok, so we’ve defined several different real estate tracks above that could Let’s go one step further. How about we get even more specific and combine be viable Niche Market for you, but how about we consider referrals as a two of the above Niche Markets? For example, perhaps your Niche will be Niche Markets themselves. selling condos to parents of college students who were referred to you by the campus admissions office. Although 84% of clients are comfortable referring friends and family to their adviser, only 29% actually do, according to survey results from Julia Although we’ve yet to discuss how to Market your Niche, take a minute to Littlechild in Anatomy of a Referral. consider marketing strategies for this Niche example. So how can you ensure that your clients find the opportunity to bring you up in conversation? Yep, you • What is the best way to get your foot in the door with the Campus got it, Niche Marketing! Admissions office?

• How do you target the parent, your client, but cater to the student? President of The Client Driven Practice coaching firm, Stephen Wershing says: • If you must be neutral between the College, the parent and the student, what is your brand? “A niche is not a demographic, a niche is a need.” By forming a niche, Wershing says clients will be able to recommend you when they hear • How will you build a database of these college friendly, safe, yet friends, family or colleagues, with a specific problem. More importantly, affordable properties? a problem you’ve created a solution for being becoming the expert in that Niche. So rather than a broad “he’s really nice” comment, the referral can • What qualities and experience must you possess to seamlessly say “he specializes in helping clients in divorce situations and can best execute these relationships and goals? guide you in this process.” These sort of questions will need to be asked and answered at every step John Anderson, head of practice management at SEI Adviser Network in of development, from planning to implementation. Doing so will help you the US, says “the more you remind clients of the value-add and specific determine if a particular Niche is a good fit for you. Speaking of “good fit”, solutions you provide, the better they’ll be able to describe what you can do let’s talk research. for other people.”

Developing Your Niche Market Options for Referral Resources So how can your small business dominate your own niche market? Concentrate on these four basic concepts for niche marketing success: Accountant’s: These local number crunchers have clients that very often need to invest in tax-friendly solutions, such as real estate, or even those 1. Unique product or service. who need to liquidate their real estate assets for one reason or another. 2. Marketable product or service.

Attorneys: Family law attorney’s make great referral sources as they often 3. Choose a niche market that’s available. manage divorce situations where their clients need to sell their current home • Niche markets by virtue tend to be smaller, leaving very little and perhaps buy two separate homes. Or perhaps an Estate attorney dealing room for competition. with estates that need to sell their real estate assets to finalize probate. 4. Market, market, market. Medical Professional’s: Admittedly this is a very difficult group to • Marketing is the most important component for niche market, infiltrate; however, doctors are great referral sources. Consider building and needs to target exactly the right kind of customer/client. a relationship with your local hospital physician relocation and/or public relations department to get your foot in the door. Market yourself as the You can try to be an expert in many phases of real estate, or you can specialize expert for busy executive professionals. in a niche market and become the authority in that market. There are many highly successful real estate agents and brokers that have narrowed their Corporate Recruiter’s/Human Resource Manager’s: Perhaps your local real estate marketing niche to focus on a specific geographical area, a type market is home to large corporations, plants or other organizations that have of property or a category of consumer. Recognizing the opportunities that a direct line to employee’s moving in and out of the area. Find and build are out there and selecting a niche that appeals to you can be a lucrative a relationship with the folks at the head of these departments and sell your strategy. executive relocation services. While location is the most obvious divider for real estate, perhaps your Non-Profit’s: This one is my personal favorite. Not only is it a Niche niche involves other factors. You can target specific property types, such Market, but it’s an opportunity to give back to your local community. Visit as income properties, condos, waterfront homes, luxury homes, or new some of your local non-profit organizations and introduce yourself as their developments. Perhaps you specialize in different demographics such community advocate. Offer to sponsor their organization for the year, and as Spanish speaking clients, senior citizens, empty- nesters or first time as such you’ll donate a portion of your net real estate commission for every buyer’s. closed transaction to their organization, and you’ll do so in the name of your client. Offer to do some cross marketing efforts, host their social events Figure out not only who has a need for your product or service, but also who at one of your listings – a Community Open . Check with your tax is most likely to buy it. Think about the following factors: professional, but I believe this would provide an attractive business tax deduction. • Age • Location Success Tip: Receptionists are the gatekeeper’s, make nice and they’ll help • Gender you get your foot in the door. Feature 2 - Niche Marketing: Narrow Your Focus 27 • Income level Remember, the goal here is to capitalize on your passions and interests so that you can make money doing something you enjoy, while providing a • Education level service that solves a problem for your clients. Don’t short change yourself • Marital or family status by short cutting the process. Although research is boring and typically not • Occupation a strength for those with a sales mindset, it is a necessary evil to this success strategy. Not to worry, in this chapter I will provide you with some very • Ethnic background powerful research resources and tips.

Also consider the Psychographics of your target Niche Market. Defining your Niche Market is only part of the equation. Now we must Psychographics are more personal characteristics of a person, including: gather and correlating the research with your strategy will also help you • Personality target your efforts and build your brand. Think of it as building an argument for why the Niche you’ve chosen won’t fail. • Attitudes • Values Here are some research suggestions and a few questions to ask and answer: • Interests/hobbies • Is there sufficient demand for your niche? Why? • Lifestyles • Behavior • What makes your business different from the competition? Create your own Unique Selling Position (USP). Study your competition to find out what they emphasize about their product. Then decide on Once you’ve decided on a target market, be sure to consider these questions something that will make your business unique from the others. designed to best help you evaluate your decision: • Are there enough people that fit my criteria? • Perform a keyword search for your niche on the internet. Make sure you break down your niche concept into other keywords and search • Will my target really benefit from my product/service? Will they see again. Review and evaluate your findings and the impact on your a need for it? business. • Do I understand what drives my target to make decisions? • Consider using a wordtracker tool to see how many people are • Can they afford my product/service? searching each month on keywords related to your niche. • Can I reach them with my message? Are they easily accessible? • Here’s an example: according to overture (at the time of While we want your Niche Marketing Plan to be specific and focused, don’t writing this course), the keyword phrase “camping equipment” break your target down too far. Determine how your product or service was searched 76,164 times in one month. If you do a search on will fit into your target’s lifestyle. How and when will they use the product? Google.com for camping equipment you will find 1,610,000 web What features are most appealing to them? What media do they turn to sites show up. That’s a lot of competitive. for information? Do they read the newspaper, search online, or attend particular events? • Consider giving a survey to the public about your niche. Ask questions specific to your product/service. Keep it short, but allow them an area to write in their thoughts. Make sure you survey the A well-defined Niche should consist of people with the same specialized proper target group for your niche. Consider offering a survey needs that you offer. You should be able to provide a compelling reason incentive like winning a gift card. for individuals in this group to do business with you instead of your competition. Also make sure that the target group is large enough to sustain the volume of business needed to meet your financial goals. How to Find Out What People Want Success Tip: Remember, a narrow sales focus is one of the most powerful Now for the research; where do you go to figure out what people want? marketing tools. Fortunately, there are a number of websites and resource centers that make answering these questions very simple. Hit the internet and search trends; you’ll find a number of resources that publish weekly, monthly, and annual trends; interest comparisons, top lists and market research reports. And Niche Market Research in great detail; you can even find various online services that publish the Once you have a list of possible niche topics, you need to see which ones are number of times keywords and phrases are searched over any given period selling online. The goal is to eliminate risks by narrowing successful Niche of time. strategies. By analyzing markets correctly, you’ll discover where money is already being made, and you’ll substantially increase your potential for Here are a few market research sites and services suggested by Rosalind success by weeding out the dud markets, and ensure that you’re spending Gardner, a blogger, speaker and Internet Marketing consultant, best known time on profitable niche markets. There’s nothing worse than spending a lot for her “Super Affiliate Handbook”: of time, energy, and money on a market that has no potential for sustainable, long-term profits. • Google Trends lets you compare the world’s interest in your chosen niche markets. For example, I entered ‘coffee’ and ‘tea’ and discovered some significant spikes in the interest in coffee (shown in the graphic below). This site allows you to enter up to five topics and see how often they’ve Another reason to do the research; “If you don’t know your customer, then been searched for on Google over time. It also displays how frequently you don’t know your business.” says Robb Mandelbaum, author of How to your topics have appeared in Google News stories, and which geographic Conduct Market Research, Inc.com. He continues to say that “because it’s regions have searched for them most often. so hard to hang on to customers you don’t know intimately, you will forever be chasing new ones.” • Google’s Insights for Search lets you compare search volume patterns across specific regions, categories, time frames and properties. Check out

28 Feature 2 - Niche Marketing: Narrow Your Focus the examples of how you can use Google Insights for Search accessible from the homepage – you can go DEEP with this one! Tools to Strategically Analyze Research Data • Magazines.com lists their 10 Top Titles on their homepage. At the time of The process so far has presented a lot of questions, required a ton of writing, these included Sports Illustrated For Kids, Time, People, InStyle, research, so now what? Now, you’ll need a strategic formula to process the Woman’s Day, Money, Newsweek, Sports Illustrated, Women’s Health and data and make strategic decisions. Disney Adventures. So what topics do we see there? Sports, general news, women’s issues, fashion, kids and fi nances. Situational Analysis is an understanding of your business’ external and internal situation. It is a common-sense approach to organize, provide • EBay Pulse is a daily snapshot of current trends, hot picks, and cool and consider relevant information. The purpose is to offer a formula that stuff on eBay, listing popular searches, largest stores and most watched will help you process information so that you can make decisions and take items. Although eBay Pulse page shows an overview of the entire eBay action accordingly. marketplace, you can use the drop-down menu to refi ne and fi lter the lists to show content for specifi c categories on eBay.

• Yahoo’s Buzz Index focuses on the entertainment industry, providing their Situational Analysis: Overview of What it Is most popular searches on a daily basis for actors, movies, music, sports, TV and video games.

• comScore Networks provides insight into consumer behavior and attitudes by compiling reports based on a global cross-section of more than 2 million consumers who have given comScore explicit permission to capture their browsing and transaction behavior, including online and offl ine purchasing.

• JupiterResearch provides research, analysis and advice to help guide technology vendors and service providers on market opportunity. Guest access is available, however, to quickly gain access to salient sections of recent Jupiter Research reports, try Googling “jupiter research ____” (_____) being the name of the topic you wish to study.

• Amazon best sites for doing market research. Search any of their departments, i.e. books or baby or and you’ll see either a link for Bestsellers or Top Sellers as well as: • Hot New Releases • Most Gifted • Most Wished For

• Movers & Shakers • Analysis of Customer’s needs, resources, other relevant information • Mapping of all products in the marketplace • Google Adwords Keyword Tool is also a free tool that reports on search performance and seasonal trends on keywords and keyword phrases that • Plotting of Competitor’s positioning you enter into the search box. Statistics show the relative amount of users • Charting of competitor’s potential future actions searching for that keyword on Google. • Determination of strategic Collaborators

• WordTracker shows you exactly what people are looking for online by showing you exactly which keywords and phrases they’re searching for. Wordtracker’s suggestions are based on over 330 million keywords The Five C’s to Analysis and phrases that people have used over the previous 90 days. Although One commonly used formula is called the 5 C Analysis; company, WordTracker offers a free trial, I recommend that the week-long pass collaborators, customers, competitors and climate. This formula focuses on for $27.59 is really worthwhile if you want to do justice to your market these fi ve key areas which are critical to any business’s situation. research! •Customers: market size and growth, market segments, customer Regardless of the Niche you select for your business, use the sites benefi ts (tangible and intangible), motivation, decision maker, retail recommended above to fi nd out how much of a potential market exists channels, consumer information sources, buying process, buying BEFORE you make the leap to implementing a marketing plan. A Niche frequency, quantity, and trends. Marketing plan that hasn’t been properly and thoroughly research is like listing a home with performing a CMA, or worse, based on Tax Assessment •Climate: (macro-environmental): political & regulatory, economic, alone. social/cultural, and technological environment.

•Competitors: actual or potential, direct or indirect, products, positioning, market shares, strengths and weaknesses of competitors.

•Collaborators: distributors, supplies, and alliances.

•Company: produce line, imagine in the market, technology, experience, culture and goals. Feature 2 - Niche Marketing: Narrow Your Focus 29 A six key area was added later: We went over several potential niches in this chapter, but don’t limit yourself to the ones listed in this course! You would be selling yourself • Competitive advantage: competitive advantage, determination of your core competencies, analysis of which core competencies can short. Also, don’t be discouraged if you’re having trouble fi nding peers become competitive advantages, and calculation of how a sustainable in your desired niche. While it may be encouraging to search Google for competitive advantage can be constructed. people who have had success doing what you want to do, fi nding no success stories may just mean that no one has done it quite right and you have no competition! SWOT Analysis Here’s an exercise you could do on your own:

Take a sheet of paper and start writing down every aspect of your job that you enjoy. Why did you start in real estate? What is keeping you in the profession? What type of listings or activities do you get excited about? Just start an all-out brainstorm. Then, take a look at your list and fi nd out if something on your list fi lls a need in your market. If you got a large chunk of the business associated with one of those items (which is ultimately the goal!), will there be enough there to make the endeavor worth your while? You might have to cross off items like “making money,” because it’s hard to say how one could possibly make money by making money.

In the next chapter we will discuss how to implement a niche marketing plan. So, circle those items and have them in mind when you start the next chapter.

Part Three: Another commonly used formula is the SWOT analysis. Same purpose at the 5 C’s, however, it evaluates the Strengths, Weaknesses, Opportunities, and Threats involved in a particular project or business venture. It involves Implementing Your Niche specifying the objective of the project or business and identifying the internal and external factors that are favorable and unfavorable. See Marketing Plan diagram on the right.

• Strengths: attributes of the business that are helpful to achieving the objective(s). How to Market a Niche Effectively • Weaknesses: attributes of the business that are harmful to achieving Now that we have an understanding of what niche marketing is, the benefi ts the objective(s). of incorporating it into your business, your areas of strengths, and possible niche markets for you to explore, let’s discuss implementation. • Opportunities: external conditions that are helpful to achieving the objective(s). How do I market a niche? Real estate niche marketing begins with your website. This is where you should brand yourself as the local expert in • Threats: external conditions which could do damage to the your niche and blog about topics of interest to your target market. But objective(s). it doesn’t end there. Post links to your niche-focused web pages on all of your communication channels, including Facebook, LinkedIn, Twitter, Formulating and mapping out information in this format will simplify the WordPress, YouTube, Craigslist, email drip campaigns via Constant decision making process by determining not only whether the objective is Contact, and snail mail to your sphere of infl uence. attainable, but if it’s in the best interests of your business. If it wasn’t, then you’d select a different scenario or objective and repeat the process. Creating a niche-specifi c website is very effective. When assembling your website, be sure to use your niche-specifi c key words. Specifi c key words will help direct your next potential client to you when they utilize a search What Now? engine to locate services or businesses within your niche. In short, stick to words relevant to what it is that you are marketing. However, the larger The quiz is coming up next, but fi rst here is a quick summary of this section the niche, the more diffi cult and expensive it becomes to manage when you and some points to ponder. consider the cost of online advertisements. Do not forget to make sure your website is mobile-friendly and viewable. Choosing your niche shouldn’t be stressful. Actually, it should be fun! After all, you should just be taking something that you are passionate about Also, remain aware of your online resources in regards to the potential and using it to take care of others. When choosing your niche, fi rst consider growth of other marketers within your niche. It is very possible that your what those things that you are passionate about are. Then fi gure out how niche has become the same niche of countless others, creating an overgrowth that passion fi lls a need in the market. It’s important to start with something of competition and challenged revenue. you enjoy, because the expertise will come much more naturally if you actually like what you’re doing. If you’re the square peg, don’t try to fi t yourself into the round hole! Another great resource for marketing your niche is to seek out major real 30 Feature 2 - Niche Marketing: Narrow Your Focus estate websites, such as Zillow.com and REALTOR.com, and establish your free agent profi le. Did you catch that word “free”? You’d be surprised how Social Media as a Niche Marketing Tool many free or very affordable resources are available that you might not be tapping into. I would also suggest that you go one step further and consider paying for an enhanced agent profi le on any of the major syndicated sites for increased visibility. Make sure your bullet points highlight your niche services and link back to your niche website, social media outlets, and blog.

Further in this chapter, we’ll discuss how to partner with your vendors as an extension of your team. However, for the purposes of implementing your niche marketing plan, let’s start with asking your vendors to highlight you--your niche website, your blog and your brokerage--in their blogs and websites. This creates a win-win for you both by providing fresh content The shifting market has forced an uncomfortable reality on real estate and highlighting successful relationships and exposure for your niche. agents: innovate or fold up shop. Marketing real estate used to be a ground Consider doing a guest feature with video. game. Just stick up your sign and wait for the phone calls to pour in, right? Well, that is not the “sign” of the times currently, and frankly, I for one, hope it never is again. Our industry needed a good fl ushing, and these Despite their popularity, some of these media outlets might be new to you and “hard times” have required those who weren’t taking real estate as a serious perhaps a little intimidating. Don’t let them be. These free and inexpensive profession, especially those less than ethical folks, to pack up and ship out. outlets are exactly what you need to market to your niche audience. If you Some might say that business is harder to come by, but I disagree. I fi nd that really struggle and the thought of social media and marketing make you we just need to get creative...so let’s get going! that nervous, then farm out the work. There are virtual assistants, social media consultants and even local college students who would welcome the opportunity to lend you their web skills. We’ve touched on social media throughout this course, but let’s dive in a little deeper. One real estate marketing tool that many thriving agents swear by is social media. Whatever you do, don’t miss an opportunity to share. Be sure to that Facebook, Twitter, LinkedIn, YouTube, Pinterest and everyone you contact knows your area of expertise. Get out there and other social media sites are now crucial ingredients in network. You are now a walking billboard, more than ever, and your niche marketing. Real estate is no exception. sets you apart. Once people know that your site offers an effective way to stay up-to-date on the type of property listings they want to see, they will come back over and over again until you sell them the perfect home. Real Let’s discuss how real estate agents are using social media to sell properties, estate niche marketing can be what sets you apart from the big guys in web using the most inventive and effective ways. First, though, let’s consider traffi c and sales. why social media is an effective tool.

As real estate expert Scott Allen writes in ”Success Guide for Real Estate Sales,” real estate agents often become so wrapped up in the daily tasks of Friends of Friends of Friends servicing clients that they forget to focus on developing future business. Social media is an excellent real estate marketing tool for not only targeting Allen points out that for these individuals, “Their success is limited by your reach, but also expanding it. Social media sites make it easy for the number of hours in the day and/or the number of leads they get lucky people to share information with their friends. For example, if you post to come across.” On the other hand, agents with a marketing plan will a customized video listing to your 300 Facebook friends, and a couple of generally see more robust sales and personal satisfaction over the long term. them post it to their 300 friends, you’ve just tripled your reach.

And fi nally, don’t forget to be specifi c. As an example, let’s consider the However, the real power of social media as a marketing tool is that it is both byline you might use on your website. “Arranging Richmond, Virginia far-reaching (you can post a public message to your board) and targeted Real Estate Opportunities” will have a much harder time sticking out than (you can send a message to just those people who might be interested). As “Expert in Downtown Shockoe Bottom Metro Homes.” The former ad line in many industries, marketing real estate is about getting your message in cannot hope to compete with much larger, more established real estate fi rms front of the type of people who are most likely to be interested. Why go who have big fi rm dollars and countless marketing tools at their disposal. door-to-door with your message/product, when you can have the people However, the second focus has a clear message for potential buyers-- specifi cally looking for your product knocking on your door?!?! this person specializes in downtown Richmond metro homes in Shockoe Bottom. As buyers generally zoom in on the neighborhood they’d like to live in, the second marketing approach will attract more leads. So, don’t Recently, for example, I sold a home to a buyer (let’s call him Mark) that be afraid to be specifi c, very specifi c. After all, it’s your niche and you are was a friend of a friend (who we’ll call John) via Facebook. I had never met the area expert. or spoken to Mark, and my friend John had only chatted with him online because they had several football friends in common. But because I had posted a listing via Postlets on my Facebook page, it appeared on John’s page, which Mark saw and BAM! a connection was made. Mark reached out to me and asked me to help him with his search. The best part about this story, aside from earning a lifelong client and commission, is that I didn’t have to spend a single dollar, not one, to fi nd this client. Facebook is free. Postlets.com is free.

Social media allows users to share stories with everyone they know or just a few specifi c people they think might be interested. And now with Facebook’s promote and target market shares, we’re taking things to a whole new level of direct marketing. Make sure your reach is expanded, and think 6 degrees of separation!

Feature 2 - Niche Marketing: Narrow Your Focus 31 estate with social media, keep searching for online tools that allow you to Page vs. Timeline create engaging, sharable content and that help set you apart! The first step in using any social media site as a real estate marketing tool is setting up a company profile/page. LinkedIn recently joined with the Before we move on, here are three quick helpful tips from Susan Freidman, market leader Facebook, allowing users to create a company profile. author of “Riches in Niches: How to Make It BIG in a Small Market”: 1. “People pay more for services from perceived ‘experts’ than Once you’ve built your company profile/page, it’s time to participate. Rather generalists.” than seeing social media as a one-way conversation, like most advertising, it’s important for you to see it as a two-way street. Be sure to provide 2. “Credibility occurs when you’re visible in your ‘niche’ industry, helpful information, encourage users to ask questions, leave comments, and community or geographic region.” make suggestions. Schedule at least 30 minutes on your calendar every day to interact and respond. However, don’t make your page all about business- 3. “Marketing is less complicated and expensive when you target niche -be personable, share your thoughts and your hobbies, be real. Allowing markets or client profiles.” followers to connect with you beyond what you do for a living can make them feel vested in your success. Consider: Do you use any of the four tools listed? How do you feel about them? What other tools are out there? In addition to posting your listings, provide expert information for your prospective clients. For instance, if one of your clients recently asked a question about closing costs, you could post a quick video response or provide them with a blanket net sheet. This user-centric approach will keep Benefits of Niche Marketing for You and visitors returning to your page for ongoing advice. Become the resource Your Clients center for all things in your niche market. Now that we’re nearing the end of this course, I want to focus on how implementing the previously-discussed concepts into your business will better serve you and your clients. I also want to introduce a few additional Syndicating Your Niche Marketing Online management concepts that will help you effectively manage the new business you’ll bring in. There are many free or affordable resources online that can help improve your online image and your information and listings. Let’s examine four of these resources: Whether you are just getting started as a sole proprietor or owner of a well- established brokerage firm, it is important to plan for and examine how you 1. Postlets.com: Postlets is a free tool that makes advertising properties build and run your business. For new businesses, build a foundation that across a variety of sites quick and easy. Effortlessly send a listing to allows you to think and grow big; lay the groundwork for growth now. For several online real estate sites, upload classified sites with generated more established businesses, this shift in our industry might already have HTML codes, and take advantage of social media marketing all at you considering big changes in company objectives and focus. This chapter one time on one site. You can choose from a variety of professional is composed of thought-provoking tools that will hopefully have you asking looking flyer templates and brand them with your photo and logo. and answering these questions.

2. Virtual Tours: This is a great way to present and market your listings with a “wow factor” for sellers. My personal favorite virtual The foundation of being a self-employed real estate agent is essentially tour product is TourFactory.com, but there are a variety of products out the same as any other business--managing an office, creating internal there, some even free, that you can use. Some of my favorite virtual office systems, dealing with human resources, overseeing sales and marketing features are the presentation, agent branding options, free transaction systems, managing staff and vendors, marketing, accounting, agent website and syndication to dozens of top real estate marketing etc... So whether your career path is simply managing your own book of websites, including REALTOR.com. The seller statistics, which is a business, managing someone else’s business, or opening your own firm, the great tool to show the progress of your marketing, is also fabulous for management concepts in this chapter will provide you with a framework developing and adjusting your pricing strategy. for success.

3. REALTOR.com: Even if you’re not an enhanced member of this site, there are still a lot of great and free resources available to you here. However, since nearly 90% of all buyers search online before The Pareto Principle - 80/20 Rule even contacting a real estate agent, you might want to consider this marketing engine a valuable investment tool for your business. Throughout this course, we’ve touched on finding and focusing on your strengths. This strategy derives from the 80-20 rule, also known as the 4. Pay Per Click (PPC) ads: Anytime you’re in a business with a Pareto Principle, Pareto’s Law or the Law of the Vital Few, which states specific customer niche, pay per click advertising is a must for success. that, for many events, roughly 80% of the effects come from 20% of the With Facebook PPC ads or Google Adwords, you can tailor your ads causes. so only very specific demographics, your niche, see them. Each click represents an interested candidate for your tools. If you don’t work To help you better understand and implement this concept into your within a niche market, PPC can get very expensive, whereas the business, allow me to introduce Steven D. Strauss, a lawyer, author and opposite is true if you’re trying to attract a tailored list of people to speaker who specializes in small business and entrepreneurship. You might your ads. recognize him for his latest book, The Small Business Bible.

These are just four examples of helpful tools for marketing your real estate Steve explains that the 80-20 rule in business says 80% of your profit comes niche. Using such websites to create and distribute content ensures listing from 20% of your customers. But the idea is a bit more complicated than information is consistent across the internet and you’re branding yourself that. as the niche expert. Furthermore, online listings and tour videos are easy to post all over the web, from Craigslist to Facebook, LinkedIn to Twitter. You’ll find that your social media followers are more likely to share such rich, interactive content, than simple plain text. To successfully market real

32 Feature 2 - Niche Marketing: Narrow Your Focus The truth is peaks and valleys occur because when we’re busy doing the work (managing the pipeline), we’re not busy creating the work (fi lling the pipeline). Therefore, when you take time from prospecting and redirect your focus to managing the transaction, your business shifts from a peak to a valley. Suddenly, you fi nd yourself in this vicious cycle of work, work, work and manage, manage, manage.

Well, it’s time to break that cycle by implementing a niche marketing plan, as well as the other strategic concepts discussed in this course. Before we wrap up, we will look at a few key management tools.

Key Management Tools for Success Some background: The rule of 80-20 was fi rst stated in 1906 by Italian All this new business you’ll be attracting is great, but what good is bringing economist Vilfredo Pareto, as Pareto observed that 20% of the Italian in new business if the systems and processes are not there to effectively population owned 80% of the wealth. Since then, the 80-20 principle has and effi ciently manage them? Not to fret. There’s good news ahead. When been applied to other scenarios, such as: implementing a strategic niche marketing plan, there are key steps you can • 20% of your time creates 80% of your results take to help minimize the peak and valley cycle and maximize your success. The following pages will introduce these critical steps. • 20% of your inventory takes 80% of your space • 20% of your suppliers account for 80% of your stock Management Tools - Systems The essential idea is that only a few things are responsible for the vast One sure fi re way to jam up the pipeline, and to keep your business from amount of your productivity and results. Think what an amazing insight running smoothly, is not having the proper systems in place. There are this can be for your business. hundreds of systems out there, some free and some costly, that can help you If you have fi ve things to do today, the 80-20 rules states that only one of stay in front of and manage your relationships and transactions from the those will be vitally important; the other four will be much less so. Figuring initial introduction to beyond closing. out which one is most important can not only go a long way to making you far more effective, but it can also yield amazing results. Invest in your business foundation and take the time to get your systems in place and organized. Otherwise, your business growth will constantly be To create truly spectacular results, consider applying Pareto’s Principle, limited and you’ll fi nd your pipeline constantly jammed. Moreover, when judiciously, across the board. Steve provides us with the following examples: you are ready to add staff members, you’ll need systems in place that allow your team to work effi ciently and effectively without depending on your 1. If 20% of your employees produce 80% of your results, fi gure out constant input. who those employees are and reward them appropriately.

2. If 20% of your products produce 80% of your sales, know what I advise every client and every agent to build their business as if it will those products are and display and price them accordingly (a.k.a. your become a huge corporation with multiple departments, all intended to run niche). without you. So often my clients hit a glass ceiling because they’ve built everything with them at the controller, thus limiting growth and making a 3. If 80% of your profi t comes from 20% of your customers, fi gure out simple vacation nearly impossible. who those customers are and reward them.

4. If 80% of your visitors see only 20% of your web pages, discover which web pages they visit and why, and fi gure out how to monetize Management Tools - Database those pages. Being able to access your contacts quickly is important to the success of your business. I regularly consult with agents to assist them in marketing You get the idea. The important thing is to begin to notice in your business and growing their business. One of the very fi rst things I ask to see is their which 20% of activities, people, and/or products are responsible for 80% of database. If they cannot quickly show it to me on a mobile device, which your success. Spending more time on the things that have the best chance preferably syncs to their other back offi ce systems, then I know they are of making the biggest difference can go a long way to making you more limited in their ability to grow. successful with less effort. Work smarter not harder.

Organize your contacts. Surprise Result of Implementing a Niche 1. Google: Talk about FREE. Google has a ton of resources available Marketing Plan to help you manage your database and to sync it with multiple other Once I began implementing the 80-20 rule, niche marketing, and other systems. Visit Google App Marketplace, and if you don’t already have strategies into my real estate business, I found a surprising result. When your business email hosted by Google, do it now. Sorry Apple user’s, it’s just not the same. properly applied, these business strategies, along with a niche marketing plan, help me manage the peaks and valleys of my business. 2. Top Producer: It’s true they’ve been around a long time and, yes, it has taken them a while to catch up with the times, but Top Producer is At some point or another in your real estate career, you’ve probably felt nearly there. They have created a Real Estate Transaction Management the strain of chugging up and down that mountain, but you might not have Center that is highlight worthy. The entire system is now Cloud-based fi gured out what was happening or why. In fact, most agents don’t even and social media-integrated in some very cool ways. Top Producer also realize that these ups and downs are happening or how they are a direct manages the transaction from conception to close, automates much result of their actions, or rather inaction. of the client touches, syncs with Google and incorporates the latest

Feature 2 - Niche Marketing: Narrow Your Focus 33 technology. One of many things I love about this system is how clients 2. Value: ask your vendors to bring value to your clients and collaborate and vendors can log into their “Transactions” through a private portal in marketing. They can provide content for your blog (before-and- to get updates on the transaction, make notes or upload files. Talk after pictures are a big hit), sponsor an ad on your website, or “like” about a wow feature and streamlined processes! While Top Producer your Facebook page. Perhaps they can help sponsor an Annual Client does fall short in some areas, I am pleased that they continue to work Appreciation event or even participate in a client mailer/email to your to improve the system and have incredible tech support. “sphere of influence,” providing a special discount just to your clients. In return, write them a stellar testimonial on their LinkedIn company 3. Solve360/Norada: I’ve research many project management systems, profile. You can also compile a trusted vendor list on your website and especially those that sync with Google and Constant Contact, and I like link to theirs. Solve360/Norada the best. While they do have a self-assertive tone in their marketing, they’ve earned it. When used properly, this is a great 3. Future Business: Remind your vendors that you’ve enjoyed tool to streamline your database, projects, pipeline, email and teams, working with them and value the relationship. Let them know that all in one system. you’re building a referral-based business and that you want your vendor partnerships to be mutually beneficial, especially by regularly sending them referrals, as well as asking for them. Give them a verbal When working with clients, make sure you keep detailed notes about how commitment of how many clients you intend to send to them each year and when you met. Also keep notes on your conversations and interactions, and ask them to match that, at least by half. And that brings us full as well as their personal information, such as spouse and kids’ names, circle to accountability, not just for you, but for them as well. birthdays and anniversaries. Keep records of the times they’ve referred you or the marketing you’ve sent them. This may sound a bit much, perhaps even borderline stalking, but when this information is applied in the right way, your clients will feel that you’re vested in them and your relationship. Management Tools - Time Management

For instance, say you learned via Facebook that a client’s child, Henry, Time management is a struggle the majority of us face, and as real estate broke his arm at school. If you make note of that and schedule a follow-up, agents, we juggle multiple tasks, phone calls, emails and other to-do’s on such as sending a get well card for Henry, these sort of high touches and a daily basis. Making the most of your time and avoiding time-wasting level of care that will set you apart from your competition. Think about activities is critical to your success. it–when was the last time you got a get well card from a vendor, and if you did, would you feel more inclined to give them your repeat business? Recent studies have shown that the average person wastes anywhere from 2-4 hours per day checking email, chatting with co-workers, surfing the web Oh and P.S. not just your clients, Vendor’s too. For one, they buy and sell and commenting on their favorite social media sites. With stats like that, it’s houses and know other people who buy and sell houses. But also for when a wonder we accomplish anything at all! your client looks to you to refer a contractor, you’ll want to show them how organized you are by how quickly you can provide them with three names Imagine how productive we might be if our time and our tasks were better, and telephone numbers for your Class-A Contractors. and more strategically, organized.

The challenge is implementing systems and tools that simplify your life without adding an additional layer to the process. Here are a few helpful Management Tools - Vendor Relationships tips on easy ways to get organized and better manage your day! When it comes to vendors, I could write an entire class on interesting ways to use and collaborate with them to grow your business, but here are just a Time Block few highlights to get you started. If only you could see my Google Calendar; it is a beautiful color-coded personal assistant that syncs with my smartphone, my desktop, my laptop, We all have vendors that we need and use in some capacity. If you are and my team’s calendars. Sure, I store my appointments like most people, anything like the agents I know, you suggest or refer business to your but I also incorporate other strategies that will help me focus on the 20%, as vendors regularly. But are you paying close attention to what they are doing well as create some balance. for you and your business? Is this relationship a two-way street? At first this exercise might be a bit challenging, but I promise that if you Here’s a collaborative concept. Reach out to your vendors and let them stick with it, you’ll be a well-oiled machine in no time. At first, try using a know that you’re redeveloping your business model, and part of that stopwatch on your phone, or even a simple egg timer, to help you stay on transition is how your trusted vendors will play a very active and key role track. in your business. Explain to them how important they are to you, your business and your clients, and how excited you are about how your new business model will position them as a direct extension of your team. Here’s the exercise: time block every part of your day that is significant to your success. Not just business, but personal, too. While we tend to Here are a few suggestions on how to take these vendor relationships from think of these two aspects of our lives as separate, it’s nearly impossible, a one-way street to two: especially when you are self-employed. So stop trying already and let’s merge the two. 1. Mutual Accountability: ask your vendors to be accountability partners with you; share your business growth goals and your niche Which parts of time management are most important to success? Here are concept, and explain how they can help you achieve these goals. ten critical components that I incorporate into my time-blocking regimen. Communicate to them how you expect your clients to be managed and As for how much time is necessary, that is entirely up to you, but be sure that in the spirit of being a team, you want to be kept in the loop, not to measure your results so you can adjust as needed. And for those of just now, but in any future business with your clients as well. Promise you who are visual, like me, think of these time-blocking components as to do the same when you’re prospecting. fuel for your success, with all components co-existing in order to produce maximum results.

34 Feature 2 - Niche Marketing: Narrow Your Focus Personal Time: clean sheet of paper. Whether it’s a yellow legal pad, your smart phone or • Social: quality time spent with family and friends, perhaps even an old-fashioned organizer; get the to-do list out of your head and into a volunteering and/or a book club. system that works for you.

• Fitness/Health: gym, yoga, walking, sports, and mental health Subscribing to the theory that “it doesn’t exist if it isn’t written down” exercises, such as crossword puzzles and meditation. gives you power over your to-do list. Creating a list is a mental exercise that eliminates the stress associated with feeling as if you’ve forgotten • Spiritual: whatever your belief system, be sure you’re creating the something. It also forces your brain to release that task. We can only time, and if you’re not, consider perhaps keeping a journal or reading. retain so much information at any given time. Having a consistent place to capture important information will increase your productivity and make it • Financial: planning and managing short and long-term fi nancial far less likely that you’ll miss an important meeting or phone call. goals and frequent health check-ups.

• Hobbies: doing the things you love to do that feed your energy in a positive way--being in nature, riding a bike, photography, etc...

Business Time: • Networking: if you’re not already associated with a networking group, join one! Consider a BNI, Toast Masters, Real Estate Investor Groups, Women’s Council of REALTORS, or check out MeetUp.com for other business groups that might even tie into your niche. Here’s a tip: more is not better. Join one or two groups, commit to 12 months and work it. Despite being a technology guru and incorporating technology into every • Prospecting: prospecting can be many things, but I’m going to ask you to aspect of my business, I still love sticky notes. One of the fi rst things I do do several. Here’s a good weekly starter plan: every morning is transcribe my to-do’s onto mini-sticky notes and place • 25 phone calls; past clients, old contacts, FSBO’s, etc... them onto my Action Board on my desk, which has three columns: top priority tasks, important tasks and low priority tasks. Each to-do task goes • 15 business cards handed out to new contacts, not including on one sticky and I post them on my action board according to importance. those given out at events. This helps me manage my day and my tasks by priority. Is there technology • 7 Facebook & LinkedIn posts (your blog can count as one) out there that would do the same? Sure, but I’m a visual person and I like being able to move tasks around. And the best part is balling them up and • 5 written note cards throwing them away once they’re done. Try it! • 1 blog post • 1 business or social event

• All current clients contacted to report market conditions, give Management Tools - Embrace Technology stats, get a pulse, offer assistance, and ask for referrals. Change is scary, and shifting your business from what you’re doing now to these strategic concepts, can be very stressful. So let’s make it as easy as • Management: block time each day to manage current clients and possible and use technology to our advantage, even embrace it! their transactions. This is a working “in your business” task.

• Planning: set aside time to review your current business structure and activities. Design and plan for growth. This is a working “on your business” task. Go back through these course materials and your Strategic Business Plan. Review and adjust.

• Education: continuously seek a higher education by taking classes, earning designations, or even reading up on the latest research and trends. This will help set you apart from your competition and better serve your clients and niche market.

Find balance in your life. If your personal life is suffering, then so will your business and vice versa. Time-blocking will help you achieve balance in both aspects, and you’ll fi nd, as I did, the happier you are, the more successful you’ll be. But in order for you to gain the best results, you must time-block these 10 components on your weekly calendar. There are many time management tools and other useful technologies out there, and when used effectively and consistently, they have the ability to Success Tip: Be consistent. Move the block of time around as necessary. not only signifi cantly improve your productivity, but to create that “wow Dedicate as much or as little time as you feel you can to each component. factor” your future clients are looking for. Commit to trying these techniques for 90 days and review the results.

Most REALTOR Associations regularly offer classes on technology and how to incorporate these tools into your business. Additionally, the Management Tools - To-Do Lists National Association of REALTORS dedicates an entire section on their website for technology tools for REALTORS. Tap into your resources, ask A to-do list is a must to keep you focused and on top of those important your colleagues, and do a Google search so you can take every advantage tasks. It’s essential that you start your day with a fresh perspective and a possible to work smarter, not harder.

Feature 2 - Niche Marketing: Narrow Your Focus 35 What Now? Social media is a HUGE lever that, when pulled effectively, can help get the word out about your expertise like no other form of marketing. Remember the example of the post on Facebook that was originally seen by 300 people, but later 900+ were exposed to it? This type of example is not at all far- fetched. It happens every day. You probably have a couple of close friends that you could approach and say, “I’m trying to get the word out about my niche. Could you share my post on your wall?” Just a simple request to a close friend could put your message in front of several hundred people that you may never have been able to reach.

We briefly touched on Pinterest earlier in the course. It’s a relatively new social media site that real estate agents are using more and more. We included a QR code to a short video that we put together that outlines how you, as an agent, can utilize Pinterest to boost your effectiveness.

We also discussed the Pareto Principle. This is the idea that 80% of effects come from 20% of the causes. If this principle holds true (which it often does), think about what that means for your business. Possibly 80% of your time contributes to just 20% of your production, and the remaining 20% of your time accounts for 80% of your production. Imagine if you identified which tasks, clients, and activities constituted that 20%, then flipped the numbers and focused on those things for 80% of your day.

Here’s an activity you can do on your own: Earlier, we discussed to-do lists. To-do lists and the Pareto Principle are a match made in Heaven! Make up a to-do list for the day. Be specific enough that the list accurately portrays your work day, but not so specific that you’re including something like “showering” or “eating breakfast” (those are things that should always make the list). Then take a step back and start asking questions about each item. How many of those steps are about taking care of your client? Because that’s what it’s really about, right? If you are on top of everything and your client feels like you have her back, she may give you a referral and you get more business. It’s a win-win! If you find several things on your list that are not adding value to your clients, it may be time to reevaluate your work day a bit.

How much time are you putting into each task vs. how much are you getting out of it? You may find that you’ve been toiling over some short sale listings and making very little impact, but have had a large amount of success assisting first-time home buyers (or vice versa). Maybe it’s time to shift your focus.

Another good question to ask yourself is, “What happens if I don’t do this task?” It may very well turn out that you are doing things that contribute no real value to you or your clients, but you do them because “that’s the way it’s always been done.” Wouldn’t it be better if you stopped doing those things (or at least spent less time on them), and focused your energy more on things your clients need?

Consider the Pareto Principle as well. Are you spending 20% of your time on 80% of your clients? Is 80% of your clientele coming from 20% of your marketing?

36 Feature 2 - Niche Marketing: Narrow Your Focus FEATURE 2 PRACTICE - NICHE MARKETING: NARROW YOUR FOCUS

NOTE: You are not required to answer the practice questions below to complete the 14-hour course. Their intention is to help you prepare for your Final Exam.

Final Exam Questions can be found on page 79 or online at www.McKissock.com/FLRE.

1. The major difference between Mass Marketing and Niche Marketing is: a. products or services offered. b. strategy. c. budget. d. audience.

2. Which of the following is a good example of demographic based niche marketing strategy? a. Golf communities b. Handling estate settlement for divorced couples c. Commercial real estate d. Investment real estate

3. Facebook, Twitter, LinkedIn, YouTube, and Pinterest are all

a. used for marketing purposes, but not in the real estate business. b. helpful to a few businesses. c. a waste of time. d. crucial ingredients in marketing.

4. Postlets.com, virtual tours, REALTOR.com, and Pay Per Click are all examples of a. places not to market online. b. how to syndicate your niche marketing online. c. inexpensive ways to market. d. free ways to market.

5. What type of buyer may want to use the property only part time and rent it out for income when they are not there? a. Vacation Home Buyer b. First Time Buyer c. Internet Buyer d. Luxury Home Buyer

Ready to take the Final Exam? • Go to www.McKissock.com/FLRE or scan the QR code with your smartphone to get started. • Purchase the 14-Hr Online Correspondence Course and complete the Final Exam online. • Print your certificate instantly. OR

• Answer Final Exam Question at end of this book and mail or fax your completed forms in. Practice Answers: 1b , 2b , 3d , 4b , 5a , 4b , 3d , 2b , 1b Answers: Practice

Feature 2 - Niche Marketing: Narrow Your Focus 37 FEATURE 3 Real Estate Safety: Protect Yourself During a Showing

As a real estate agent, you are placed in a position of special trust. Your clients expect you to deliver the best skill and care as a part of your fi duciary duties. You counsel your clients on strategy, help them complete mounds of paperwork, and sometimes even advise them on home staging. With all of this going on, it’s easy to forget about your clients’ personal safety or the safety of their belongings. Your clients are counting on YOU to know the common risks associated with a real estate transaction and the best practices for minimizing those risks.

Learning Objectives Upon completion of this feature, you will be able to:

1. Identify common items that are vulnerable to theft during property showings 2. Explain to seller clients the safeguards to implement prior to taking photos and showings 3. List some pros and cons of using a lock box on a listing 4. Conduct a showing or open house, and property close up afterward 5. Explain safety tips for issues that commonly come up before and during a showing 6. Discuss the required disclosures and items that buyers should investigate

Customer Testimonial “When I was a multi-million salesperson and manager, you covered the multitude of problems that occurred in transactions. GOOD CLASS.” ~ Waneta, Florida

38 Feature 3 - Real Estate Safety: Protect Yourself During a Showing Part One: Part Two: Introduction Working with Seller Clients: Getting a Home

Fiduciary Duties Ready to Sell As a real estate professional, you are placed in a position of special trust. Most of us already know that and take great care to provide fiduciary duties to our clients in the transaction. We counsel our clients on strategy, help Many people think that a real estate agent’s most difficult task is preparing them complete mounds of paperwork, and sometimes even advise them on a listing for a or handling paperwork. These home staging. How many of us think about our client’s personal safety and certainly are highly detailed and often challenging tasks, but there is so the safety of their belongings during this process? much more that goes on before a home is listed, in order to make the home more marketable and to help protect the seller and the seller’s possessions. In this chapter, we will talk about safeguarding valuables and medications Think about it; you are providing fiduciary duties of: during the showing of a home. Making sellers aware of the vulnerabilities in showing a home without the assistance of a real estate licensee is also Care: you show reasonable care for your clients in the transaction. crucial. The importance of screening buyers prior to showings will also This could very well include their safety. be covered. Obedience: you obey your clients’ wishes. Most would wish to keep themselves and their belongings safe. Safety First: Before a Showing Loyalty: being loyal to the client means placing their interests above your own. You are their guardian in this transaction. Have you ever taken a look at a property listing or the property itself and found yourself focusing on the contents, rather than the building? Maybe Disclosure: you disclose facts that are relevant to the transaction–and you like the artwork, the furniture, or the electronics. People generally don’t safety for buyers and sellers may be an extremely important disclosure! look at listings and pick out the valuables, but there are individuals in our (Think: lead paint, registered sex offenders registry) society who do just that.

Accounting: for funds and documents, which could include escrow funds for radon systems and lead paint disclosures. Sellers should be counseled on protecting their valuables before photographs Learning Objectives are taken and home showings are conducted. Some items should be hidden Upon completion of this feature, you will be able to: Confidentiality: a licensee keeps important information confidential, from plain sight, while others may be better off shredded, moved to another thereby keeping their clients safe from its misuse. location or placed in a safe deposit box at a nearby bank. Sellers should be told that hiding valuables in the home does not protect them. Buyers 1. Identify common items that are vulnerable to theft during property showings frequently open cupboard doors and look in freezers, in closets and under There is no question that having a fiduciary relationship with a client means beds. Some may go further and look in dressers, even though they shouldn’t. 2. Explain to seller clients the safeguards to implement prior to taking photos and showings that the client is counting on YOU to know the common risks and safety precautions that should be applied in a real estate transaction. Let’s delve 3. List some pros and cons of using a lock box on a listing into this subject and talk about some things that don’t frequently come up in If a seller truly values something and moving it wouldn’t be a disruption other education and training classes. to their daily lives, valuables should be moved to the home of someone 4. Conduct a showing or open house, and property close up afterward trusted, or better yet, placed in a safe deposit box until the home is no longer being shown. Some homeowners invest in a fire-proof lock box. While a 5. Explain safety tips for issues that commonly come up before and during a showing Note! lock box is a good way to protect valuables and documents in a fire, these boxes are often small enough to be removed from the property. A skilled 6. Discuss the required disclosures and items that buyers should investigate Please note: safety of the real estate licensee is also of great concern! This robber can get into one with enough time, especially if the box is in his course addresses the safety of the client, but a licensee is advised to learn possession. Remember the expression: “an ounce of prevention is worth a how to keep themselves safe during showings. Please read up on licensee pound of cure.” A little forethought could prevent a major hardship! safety, contact your local Board of Realtors, and/or contact your local police department for tips on staying safe. The North Carolina Real Estate Safety As a person held in special trust, the real estate licensee should be careful Council (a joint effort from the NC Real Estate Commission, and the NC when photographing a home not to include valuables in the photos. Association of Realtors) has an excellent guide for real estate licensees. Things that should not be left out in plain sight include: • Jewelry • Antiques • Medications • Cash and checks • Bills with account numbers • Bank statements that include images of cleared checks • Spare keys • Photos that are too personal • Personal documents such as Social Security Cards and Passports

Feature 3 - Real Estate Safety: Protect Yourself During a Showing 39 • Briefcases, purses, computer bags would look. Luckily, medications are generally small in size and can simply be placed in a bag and taken with the seller before a showing. • Small electronics, such as iPods, iPads, and laptops.

Jewelry Cash and Checks Imagine this: you are a seller, trying to sell your home, and you list it with a Cash and Checks may seem like an obvious thing to avoid leaving out, competent real estate licensee. The licensee does an excellent job marketing but what about bills or bank statements? Many people leave cash laying the home and many potential buyers have viewed the home. One weekend, around and don’t think it is a big deal. As a real estate licensee, you serve your listing agent holds an open house, and it is a huge success! A large your clients well by suggesting that cash, checks, bills and bank statements number of buyers come to see the home, so many that the listing agent can’t be locked in a safe, taken off sight, or shredded. Bank statements may not be in every room with every buyer during the open house. You come home have account numbers printed on them, but copies of cancelled checks may after everyone has gone, very happy with the exposure that your home has be included in a statement. A thief can obtain routing numbers and account gotten, only to fi nd out that someone has been in your jewelry box! Almost numbers from those images. Credit card bills frequently include account everything has been taken! How could this have happened? numbers, and someone adept at identity theft or account theft could easily charge up a fortune, even without the expiration date or security code. According to an article in the Chicago Sun-Times, in 2012, a seller client described the unthinkable: $162,000 worth of jewelry was stolen during an open house in Highland Park, a neighborhood in Spare Keys Chicago. What did the seller do? She sued the real estate fi rm that had the listing. The seller stated that Spare Keys need to be secured as well. They should not be hanging from the listing brokerage had sole control over the home a hook by a door or placed in a “junk drawer.” Spare keys should never be when the jewelry was stolen, thus they were hidden in common places, like under a doormat, under planters, just inside responsible for the loss. a garage, or in obvious, magnetic hide-a-key places. Hidden spare keys are often a good idea, but think like a burglar and put keys in a place that is not obvious. Perhaps a trusted neighbor can hold on to a spare key, if necessary. Could this have been prevented? What is the best thing to do with jewelry? Jewelry is incredibly easy to sell or pawn. Advise the client to secure jewelry in a locked safe or safe deposit box. In the event that jewelry is stolen, contact police immediately and call around to local jewelers and pawn shops. Photos

Consider: Has one of your clients ever had a piece of jewelry stolen during Photos that are too personal should be a showing or open house? If yes, consider what you could have done to help packed away. This is a common prevent that from happening suggestion when staging a home. Homes generally sell better when buyers can envision themselves living in the home, which is diffi cult if Antiques pictures of another family are scattered around the house. There is another, Antiques may be more diffi cult to move off sight, perhaps more important reason to take but they should not be ignored, especially small down those family snapshots. Children and young women are statistically items that can be tucked into a pocket or purse. more vulnerable to predators. In order to reduce this sinister risk, people looking at a listing online or in person should not know what the residents of the home look like.

Social Security Cards and Passports

Medications Personal documents, such as Social Security Cards and Passports, are prime targets of identity theft. Are Medications can be more diffi cult to those documents in a fi le cabinet? Are secure, if they are needed on a daily they in a fi re-proof lock box or in a basis. Every year, pharmacies report fi le box marked “Family Documents”? break-ins and stolen medications. These documents are often The National Community Pharmacist overlooked and so easy to move to a Association estimated that there were secure location, like a safe deposit 686 prescription drug robberies in box. These documents are also the pharmacies in 2010. That is an 81% easiest way for a thief to successfully steal an identity and ruin a person’s increase from 2006 (NCPA, 2012). credit or worse!

The prevalence of prescription drug theft from homes is not known because many people do not report those thefts to the police. Think about how much easier it is for a thief to steal medications from a home that is listed for sale! Pain medication is of particular concern, but every medication should be secured prior to each showing. Sellers should NOT simply place medications in a medicine cabinet or linen closet. Those are the fi rst places many people 40 Feature 3 - Real Estate Safety: Protect Yourself During a Showing Briefcases, Purses, and Computer Bags Example You have been asked to list a beautiful home in a prestigious neighborhood Don’t forget about briefcases, purses and computer bags, especially in your market area. The home is decorated impeccably, and you know it designer brands. Many high-end bags can fetch a good price on auction will generate a great deal of interest. websites, even if they are used. When you fi rst view the home, you notice the lovely offi ce, with a well- marked fi ling cabinet (one drawer says, “Family Documents”). On the desk Small Electronics are a variety of electronics--a tablet, a laptop--and a few small collectables. Further down the hall, you come to the master suite with an amazing walk- Small electronics, such as iPods, iPads, tablets, and laptops, should in closet. The closet has an organization system with a jewelry rack that is be locked up. Although many of these items can be password protected laden with gold and diamond jewelry. There are hooks that hold an array of and have tracking software built in, that will not stop them from being high-end handbags as well. It shows nicely. stolen. Passwords can be reset and tracking software can be disabled by a skilled thief. These electronic devices are actually designed that way. If Moving on to the master bath, you fi nd wonderful storage. There are many a consumer owns one of these devices and forgets the password, usually cabinets and drawers, some containing medications, while others have fi ne a skilled information technology specialist can reset the password in a linens and makeup. matter of minutes. As far as tracking software, that can be disabled and registration can be reset. These small electronics are highly marketable and often contain very personal information, such as passwords, social security As you walk through the home, you admire the beautiful photography. The numbers, and credit card information. lovely family who currently own the home has 2 beautiful young children.

If the home looks well-staged, do you make any suggestions? How would you broach the subject of home safety? Breakables Finally, breakables should be safeguarded. They may be worthless to a Comments: Handing the sellers a checklist is a good start. If it is pre- thief, but valuable to a family. Think about the vase that your daughter printed, then it gives the feeling that securing valuables and taking down made in 3rd grade art class. What if a clumsy buyer knocked it over? Many personal photos is a normal matter of course. Discussing the checklist will buyers have children who come on showings and children are more prone drive home the point. In some areas, having a professional home-stager can to accidents. When securing a home, keep an eye out for those precious add to the credibility of how important it is to secure valuables and take artifacts, even if they are worthless on the market. down personal photos. A home-staging consultation may be surprisingly affordable and may be a nice service that the listing agent can provide.

Suggestion Importance of Screening Buyers before a Provide sellers with a pre-listing checklist. Advise them to move Showing valuables they do not need on a daily In 2006, a Maine man was convicted in New basis to a secured location, like a trusted Hampshire on 5 felony counts of sexual assault, plus family member’s house, or better yet, a criminal threatening, kidnapping, and several safe deposit box at a bank. Things that misdemeanors. The man was named “The Real Estate should be moved include: Rapist” in local newspapers because he approached residents of homes that were listed by real estate brokerages, instead of contacting a listing agent or licensee. One of his victims was a 19-year-old woman. The Real Estate Rapist knocked on doors that had For Sale signs in • Jewelry the yard and asked the residents to view the home. Once he gained entry • Antiques into the home, he proceeded to sexually assault, kidnap, and otherwise • Medications threaten the residents, generally young women. • Cash and checks Listing agents can hang “Do Not Inquire Within” riders on the For Sale • Bills with account numbers signs. They can also recommend that sellers do NOT show their home to • Bank statements that include images of cleared checks buyers who have not been pre-screened, which protects the clients from the unthinkable (as seen in New Hampshire), and it saves the sellers time and • Spare keys hassle. Oftentimes, buyers who are not working with a real estate licensee • Photos that are too personal are not serious about purchasing property. Others do not have a realistic idea of how much home they can afford. The recent case of the “Real Estate • Personal documents, such as Social Security cards and passports Rapist” in New Hampshire is reason enough to want all potential buyers • Briefcases, purses, computer bags screened before a showing! Sellers should be cautioned about showing property themselves. The simple act of making an appointment with a real • Small electronics, like iPods, iPads, tablets, and laptops estate licensee is a signifi cant deterrent to those who may want to steal from • Breakables or harm home sellers.

Consider: Are there any items that we missed? What else should be a part While the actual percentages change from time to time and among market of this checklist that we did not go over? areas, studies show 80–90% of sellers who attempt to sell their homes themselves end up listing with an real estate agent (US News and World Report, 2008; National Association of Realtors, 2012). Common reasons sellers end up listing with a real estate licensee are market exposure, Feature 3 - Real Estate Safety: Protect Yourself During a Showing 41 knowing how to price correctly, and seller frustration with buyers who are • Will the buyer fill out an identity form? (No, that is ridiculous; he has not pre-screened, pre-qualified or pre-approved for financing, and generally NEVER had to do anything like that in previous transactions). not serious about buying. Most buyers who are truly ready to buy a home will approach a real estate licensee. This buyer becomes increasingly agitated and insistent on seeing the house without bothering with any of these formalities. You have a very uneasy Before screening potential buyers, you should ask your principal or feeling about this situation. managing broker if there is a safety/screening protocol for your office. Part of your job as a real estate licensee is to take as much time and stress out of Consider: What should you do? We will go over a suggested response the selling experience as possible. If a buyer approaches you, you should on the next page, but take some time and consider how you would/should do the following: respond in this situation. 1. Ask if they working with another agent. Example - Resolution 2. Ask if they have been pre-approved for financing and with whom. This exact situation happened to a number of licensees within a brokerage. All the agents who talked to this buyer felt uneasy about his aggressiveness. 3. Know the person you are taking into your client’s home. If possible, The managing broker was alerted to the situation, called the police and meet them in your office first and have them fill out an identification emailed all licensees, warning them not to take a call from that number, and form. Photocopy their driver’s license and note the make, model, and if they did, to politely decline a showing. Most of the agents (including the license plate number of their car. author of this course!) had been contacted by this buyer regarding many of the listings held by the brokerage. No one knows what would have 4. Get a full name and phone number. Call the number to verify it is not happened if one of the agents ignored their inner voice and conducted a false. Put the name in an internet search, and if possible, try to verify showing for this individual. We all want to provide the best service for the that it is real. seller clients. Sometimes this includes refusing to show a property to a buyer who doesn’t seem legitimate. Let your managing or principal broker 5. Let someone in your office know when you are going to the listing know about situations such as this and trust your instincts. and when you will be back. If a person is planning to rob the home, they may compromise your safety too.

6. Attend a showing with another agent. Perhaps one of you can stay in the car with cell phone in hand. Summary In this chapter, we covered some of the more common household items 7. Trust your instincts! If something doesn’t feel right, you should that should be protected prior to listing a property (before photographs protect your client and simply decline a showing. are taken and before any showings). Such items include jewelry, antiques, medications, cash and checks, bills with account numbers, bank statements If a buyer has a difficult time with any of the things listed above, perhaps that include images of cleared checks, spare keys, photos that are too they are not serious about buying a home. Going through these steps will personal, personal documents, such as Social Security cards and passports, likely screen out predators and thieves, as well as the “tire-kickers” and briefcases, purses, computer bags, and small electronics, like iPods, iPads, nosey neighbors. It simply protects your client, who is your principal. You and laptops. We also talked about the importance of screening buyers prior must do what you can to keep your principal and their home safe, even to showings. Real estate licensees should design their own checklists to if it means turning away someone who may or may not be serious about be used consistently. The checklists provided in this class can serve as a purchasing the property. A serious buyer should not have a problem with starting point that can be tailored to the licensee’s specific needs. any of the aforementioned steps. Think about how many times you show your driver’s license--when you cash a check, buy alcoholic beverages or cigarettes, or use a credit card. Driver’s licenses are copied to test drive a car or adopt a pet from a shelter, and people usually have to provide a name and phone number when having a pizza delivered! A home is a MUCH bigger purchase than most cars, pets, and certainly pizzas.

If the buyer is working with another licensee, tell the buyer to contact the licensee. If a licensee contacts you, ask for the buyer’s name. Also, ask if the buyer is a buyer client (under an agency agreement), or a buyer customer (without an agency agreement). Has the other agent verified their identity? This is yet another layer of protection; plus, having another agent involved increases the safety for you, your client, and their belongings.

Example A buyer calls you and asks to see one of your listings as soon as possible. You go through your list of questions:

• Is he working with another agent? (No)

• Where have they been pre-approved for financing? (Nowhere – he says he has plenty of money)

• Will he meet you in your office first so you can get a copy of his driver’s license? (No, he wants to meet you at the house. He doesn’t have time to meet you before a showing).

42 Feature 3 - Real Estate Safety: Protect Yourself During a Showing Part Three: Vacant Homes What about vacant homes? There is virtually nothing to worry about in that Working with Seller type of listing, right?

Clients: Conducting the With vacant homes, especially empty ones, it is true that the items discussed in chapter 1 may not be an issue. There is no need to advise sellers to secure belongings that are not in the home. However, that does not mean that the Showings home is invulnerable to theft and other pitfalls. Every year, vacant homes are subjected to theft, fraud, and squatters. With the popularity of online classified ads, there is a new phenomenon of fraud. Much of this can be In this chapter, we will talk about showing the property. Should the showings accomplished easily if a home is not closely monitored. be assisted (with the listing agent present) or is a lock box a better idea? What are some pros and cons of using a lock box for unassisted showings and some benefits of accompanying buyers? Next there will be tips for What can a seller of a vacant home do to protect their home from protecting vacant homes from theft, vandalism, fraud and squatters. We will burglary and vandals? address ideas of what to do with pets, and how to close up after a showing, specifically, making sure doors and windows are locked, and heat and lights • Call the home owner’s insurance company and ask about vacant are turned down. Finally, we will share safety tips on hosting an open house. home policies (and perhaps purchase the extended coverage–most homeowners policies will cover only 30 days after the home is vacated)

• If possible, take pictures of the home before furniture is moved out. To Lock Box or Not to Lock Box? Pictures of an empty home in the MLS can attract mischief Lock boxes are a wonderful convenience. Different regions of the country • Ask a neighbor to park their car in the driveway have different customs when listing homes. In some areas, it is customary to have listing agents conduct showings most of the time, while in other • Ask neighbors to keep an eye on the home areas it is rare for a listing agent to be present during a showing. Lock boxes may be the norm in some places–either Supra Boxes or combination boxes- • Have the Post Office hold or forward mail. Check the mailbox and -while other brokerages may prefer to hold a key in the office for buyers’ front steps regularly for mail and flyers agents to pick up. • Put a lamp on a timer, so it will turn on and off like someone is still What is the best way to keep a listed home secure? In an ideal situation, living in the home a sales team would be present to show the property. Buyers would be thoroughly screened prior to a showing and not allowed to be alone in any • Install motion detector lights and/or a security system room. The ideal situation, however, is not always possible, so let’s discuss the pros and cons of different types of lock boxes. • Make sure snow, leaves, or other debris is cleared away regularly • Check in on the home regularly Technologies like the Supra Systems have many wonderful features. The showing agent must subscribe to the service to get a special key. Their information is made available to the listing agent, and the system records Consider: What do you think? What method(s) work best? Which methods when and who enters the property. The advantages are obvious, and that do you like to do most? What others did we miss? is why such systems are so popular. The downside is that many real estate licensees do not subscribe to these services, so they need to find another way to enter the property. Records can become inconsistent and the listing What Can Happen if a Vacant Home is Not agents often consider a simple combination lock box instead. Closely Monitored? If an unethical person is able to obtain a key to a vacant home that is for A combination lock box does solve the issue of licensees who do not sale, they can easily show the home to would-be renters. It may be easy subscribe to a key system, but once the combination is out, it is not possible to collect deposits and take off with the money. A home that is not closely to determine who viewed a property or when they viewed it. Some buyers’ monitored is much more susceptible to rental fraud. agents may be careless and write the combination on a listing sheet, which they may in turn give to a buyer or discard for anyone to pick up. Craig’s List advises potential renters about this type of scam on their website: http://www.craigslist.org/about/scams. These scams occur when Having either type of lock box visible from the street can make a home a property is posted for rent, when in fact, it is not. The person posting more vulnerable to vandalism. In Pennsylvania, several homes were broken the rental may have nothing to do with the property but collects security into when thieves cut lock boxes off of front doors. The lock boxes where deposits, first and last month’s rent, application fees, and more. While a smashed and the criminals entered the homes with the keys. They then court may not find the seller liable for damages in this case, it would be proceeded to take copper pipes from the empty houses prudent to advise sellers about this possibility and suggest that they make the home look inhabited (at least when photos are taken), so it is less inviting Some brokerages may have a person on duty who distributes keys to to this type of scam. Avoiding the use of a combination lock box in vacant agents working with buyers. Having this person sign out a key may help homes may also be good advice. keep track of who views the property, but keys can be lost, returned in an untimely fashion and perhaps even copied. There is no doubt that assisted In 2012 in Sarasota, Florida, there was a rash of rental showings help to keep homes, possessions, and keys safer, but having a key scams in vacant homes. Renters paid cash deposits, in a lock box or available through an office makes scheduling the showings only to find they could not access the home on moving much easier. What are the priorities of your seller? day. The people posing as the landlords could not be found.

Feature 3 - Real Estate Safety: Protect Yourself During a Showing 43 Vacant homes that are empty are also more exposed to Accompanying the Buyer theft. Police blotters across the country are riddled with reports of items stolen from vacant homes, such Accompanying the buyer during a showing may be one of the most as copper pipes, furnaces, gas fi replace inserts, and important things a listing agent can do to ensure the safety of the seller appliances. There is vacant that can and their belongings! Thieves and assailants are far less likely to commit be purchased, and it may be a very good idea for crimes if their faces are known. If possible, bring a sales team member to sellers to invest in that protection. showings. Having two people at a showing helps, if multiple buyers want to go in multiple directions. The listing agents can follow them to answer questions and make sure they don’t steal or damage anything. Conducting a Showing Keep your phone with you and have a secret code that others know in Even after the buyer(s) have been carefully screened, there is work licensees case you suspect something suspicious. For example: “I’m at the Main St. can do to help keep seller clients and their possessions safe. house and … the fl owers are blooming… the new fl oor looks great… the neighbors came by…,” some phrase that your colleague will understand Whenever possible licensees should show property in-person and in teams. means you need assistance quickly. Using a code means you won’t add any This is especially important when going to a home without close neighbors additional risk to the situation. and/or with an unfamiliar buyer. While female agents may be statistically more vulnerable to assault crimes, male agents have fallen victim, too. Damage to a Property When showing property it is helpful to be at the property before the buyer, so you can adjust the heat or AC. Turn on lights and make sure the home is Theft is highlighted in this course, but how many buyers will damage a presentable. A few extra minutes could make a big difference if the home property to get a better look at something? They may want to know if there has dirty dishes in the sink, clothes on the fl oor, or a dead mouse in the is hardwood under the carpeting or if there is rot behind a piece of trim. dining room! Oftentimes, the property owner prefers to reduce energy Something may look loose, and a buyer may want to jiggle it a little. Buyers bills by keeping heat or air conditioning turned down. Comfortable room have been known to move appliances, scratching fl oors and damaging temperatures can make buyers feel better about a home, and the listing gas or water lines. Even licensees who represent the buyer should not let agent won’t be distracted, thinking about rushing around to do things like this sort of behavior occur. It is much better to ASK the seller if there is this when they should be focused on the buyers. Being early to a showing hardwood under the carpet then to rip up a corner! allows a licensee to make the home more comfortable to show and causes fewer distractions during the showing, which allows the licensee to better protect the seller’s possessions. They can also protect the seller’s money by being sure to turn down/off everything that was turned up/on! Lock the Door Behind You In some neighborhoods, you may want There are ways to show properties that can minimize to lock the door behind you once you are this risk to the seller’s home and to the licensee. To inside to prevent others from entering start, always let the buyer walk into a room fi rst and the home after you. A For Sale sign in never let them get between you and the door. When the front yard can invite crime into a going into a basement or attic, wait on the stairs or home. Seeing a strange car in the decline to enter the space altogether. A cell phone in driveway may let a would-be thief or hand may help, as can pepper spray (check to make attacker gain easy access into a home. sure it is legal in your area). Pepper spray comes in many containers that do The person gaining access to the home not raise alarm, such as a pen. may wish to cause physical harm to the occupants, to steal, or to squat. Such Much like the recommendations with open houses, it is a good idea to meet persons may quietly sneak in, unlock a the neighbors and ask that they keep an eye out for anything out of the window and sneak out, with the intention of coming back later. Locking the ordinary. door behind you can help prevent this from happening.

Doors and Windows On that note, many buyers will What to Do with Pets want to open doors and windows. This is perfectly acceptable if What is the best thing to do with pets? Many they wish to see how something property owners enjoy the company of their pets– operates or to check if a door or dogs, cats, birds-- but where should these pets be window sticks or is easy to lock. during a showing? What if they get out or are As a real estate licensee, it is your frightened or excited and cause damage? If possible, job to make a fi nal check after a it is a good idea for the owner of the property to showing to ensure all the doors take the pets with them during a showing. and windows are locked or left in Sometimes that is not possible, so there are some a state preferred by the seller. options to consider. The pet owners know the pets best, and should make the Example ultimate determination. Should the pet wander freely? This may be alright for pets, such as cats, if they are allowed outside or will not try to escape. During a home inspection in a multi-family home, the home inspector Dogs can be placed in a dog run outside or a kennel inside. Some pets may inadvertently locked all the doors and windows, including a deadbolt lock themselves be vulnerable to theft, so keeping the furry family members safe on an door. The listing agent knew that the tenants did not have is a top concern, too. a key to the deadbolt, only to the door knob. She didn’t bother to check the doors because she knew the tenants would return to the home soon after the inspection. 44 Feature 3 - Real Estate Safety: Protect Yourself During a Showing When the tenants returned, they could not open their door, so they broke • If possible, take pictures of the home before furniture is moved out. a storm window in the living room. Unfortunately, they could not get the Pictures of an empty home in the MLS can attract mischief living room window open, so they proceeded to the basement, where they kicked a window in, causing a few hundred dollars’ worth of damage. • Ask a neighbor to park their car in the driveway Luckily, the seller did not mind paying for the repair, but the listing agent could have easily prevented the damage. • Ask neighbors to keep an eye on the home

• Have the Post Office hold or forward mail. Check the mailbox and While checking that doors and windows are shut and locked (or left as the front steps regularly for mail and flyers property owner desires), it is a good idea to check the heat, air conditioning and lights. Buyers and home inspectors may turn these things on excessively • Put a lamp on a timer, so it will turn on and off like someone is still to see how they work. How would you like to return home to find it 90 living in the home degrees in the dead of winter? Or even 90 degrees in the middle of the summer?! Buyers may turn on heating and cooling systems to see if forced • Install motion detector lights and/ or a security system hot air systems irritate their allergies. There are many reasons why these systems may be activated. It is your job as a licensee to set them back to the • Make sure snow, leaves, or other debris are cleared away regularly levels the property owners prefer. • Check in on the home regularly

• Keep a phone with you and have a secret code word that alerts other How to Host an Open House agents if you feel endangered. During an open house, the listing agent may not have the opportunity to screen every potential buyer who comes in the door. Many of the people Hosting an Open House: who view an open house may not even be potential buyers. Nosey neighbors, curious drivers and possible criminals may also stop by the home. What can • Introduce yourself to neighbors and let them know you will be a listing agent do to minimize the risk to the seller and their belongings? hosting an open house There are many things we can do. • Warn sellers that they are liable if a person gets injured while viewing First, introduce yourself to neighbors and let them know you will be hosting their home an open house. They will likely pay attention to people coming and going. This may not only help identify a thief, but it may actually deter theft if it is • When people arrive, jot down the make, model, color, and license obvious that there are neighbors looking on. It may help market the house, plate number of each car, and a basic description of the individuals too. Having caring neighbors can be a wonderful thing! viewing the home • Place yourself in a spot that is right by the front door and ask viewers Warn sellers that they are liable if a person gets injured while viewing to sign in their home. Ask if the sellers have liability coverage in their home owners insurance policy. They should also pay attention to hazards, such as loose • Whenever possible, get help from other licensees in your office and carpeting, wobbly stairs, areas that have low ceiling height and poor position agents on each floor lighting, or sidewalks that may be icy.

When people arrive, jot down the make, model, color, and license plate number of the cars, as well as a basic description of the individuals. Place yourself in a spot that is right by the front door and ask viewers to sign in. This information could prove important if a crime does occur. It could also be useful information to your sellers. They may want to know if a scheduled showing resulted from the open house.

Whenever possible, get help from other licensees in your office. Position agents on each floor to help answer questions more easily AND to protect the seller’s belongings. Thieves often work in teams–one distracts, while the other takes the valuables. It is more difficult to pull off that kind of theft when more than one agent is on duty.

Summary This chapter covered showing the property, including some pros and cons of using a lock box for unassisted showings and some benefits of accompanying buyers. There were also tips for protecting vacant homes from theft, vandalism, fraud and squatters, followed by ideas of what to do with pets and how to close up after a showing. Finally, safety tips on hosting an Open House were shared. To recap:

• Call the home owner’s insurance company and ask about vacant home policies and perhaps purchase the extended coverage--most homeowners’ policies will cover only 30 days after the home is vacated

Feature 3 - Real Estate Safety: Protect Yourself During a Showing 45 Obedience: you obey your clients’ wishes--most would wish to keep Part Four: themselves and their belongings safe.

Working with Buyers with Loyalty: you are loyal to the client, which means placing their interests above your own. You are their guardian in this transaction. Safety in Mind Disclosure: you disclose facts that are relevant to the transaction, and safety for buyers and sellers may be an extremely important disclosure! (think: lead paint, registered sex offender registry, etc...).

Accounting: you deal with funds and documents, which could include Disclaimer escrow funds for radon systems, or lead paint disclosures. A licensee’s duty to a buyer as a buyer agent is slightly different in every state. Licensees should keep up on the laws and rules in their states. This Confidentiality: you keep important information confidential, thereby document is meant to highlight examples of some of those duties, it is not keeping your clients safe. intended to be an all-inclusive list. Terms of a brokerage agreement and company policy must also be taken into consideration. In this chapter, we move to the other side of the transaction and talk about keeping buyers Chapters 1 and 2 covered how these duties apply to a seller client. Do and their assets safe, starting with meeting the buyer and disclosing the you see how they are just as applicable to the buyer-client? Both sides of difference between agency and non-agency relationships. We will examine a transaction face risks. It is our job as licensees to disclose, advise and overlooked issues, such as leaving the buyer’s car in a safe place and safely protect our clients from common risks in accordance with the law and our showing a property. Next, we will do a brief overview of disclosures and fiduciary duties. safeguards, such as inspections. Buyers should be alerted to future safety in the property and should conduct their due diligence with respect to the sex offender registry and crime statistics for the neighborhood. They should also consider obtaining title insurance, homeowners insurance, Before the Showing - Agency and and . Finally, buyers should change the exterior door locks Non-Agency immediately after taking possession of a property. Before the showing, get to know your buyer. Does your state have a brokerage relationship disclosure? It is vital that the buyer know the One theme that runs through this chapter is disclose and refer. As a real difference between agency and non-agency relationships when working estate licensee, you must disclose material defects to all buyers, be they with a real estate licensee. An agency relationship helps to protect the clients (with an agency agreement), or customers (without an agency buyer. When an agency relationship exists, the licensee keeps the buyer’s agreement). For clients, you must disclose material facts as well, for example willingness to pay, motivations, buying strategies, and personal information if you know a concrete manufacturing plant is being built across the street. confidential. This type of relationship also means the interests of the buyer As a real estate licensee, you are a professional in the real estate transaction. are placed above the interests of the licensee. In short, having an agency That does not mean you are an industrial hygienist, law enforcement officer, relationship with a buyer adds a significant level of safety and protection or real estate lawyer. For technical questions, always refer your buyer to an for the buyer. Make sure the buyer knows that the seller’s agent acts in expert in the field who can give the buyer the best answer and protect you the best interest of the seller, and that they should avoid sharing personal from liability. information with that licensee. Only an agency relationship will require that personal information be kept confidential. While you might want to save your buyers money, remember their health and safety are priceless! Before the Showing - Financing Learning Objectives Pre-Approval It is also wise to have the buyer pre-approved for financing, if it required for Upon completion of this chapter, you will be able to: the purchase of the property. How does this keep the buyer safe, you ask? It keeps them safe from falling in love with a property that is out of their price • Explain safety tips for issues that commonly come up before and range or from losing a home they want because another buyer presented during a showing an offer that included a commitment letter from a lender, thus making that offer stronger. Pre-approved financing could also save the buyer from losing • Discuss the required disclosures and items that buyers should an earnest money deposit, if they cannot get financing before a contractual investigate financing deadline.

Fiduciary Duties Before the Showing - The Buyer’s Car, the Buyers are exposed to significant risks when shopping for a home. Many of these risks must be disclosed because of federal regulations (such as Licensees Car lead paint disclosures), or state regulations (such as asbestos or radon). When going out on showings, it is common that the buyer leaves his car and Recall from Chapter 1 the Fiduciary Duties that all real estate licensees are ride in the real estate licensee’s car. However, you must consider the safety required to provide to their clients: of the buyer’s car when it is left. It is in a safe neighborhood? If you leave or return to the car in the dark, is the parking area well lit? Is there a place to Care: you show reasonable care for your clients in the transaction, which park the car where it is less likely to be hit by another car door or shopping could very well include their safety. cart? Making these sorts of parking suggestions will show the buyer-client that you are trying to keep them safe through the entire transaction.

46 Feature 3 - Real Estate Safety: Protect Yourself During a Showing If a licensee drives buyers in their car, it is wise to protect the buyers by Email the above PDF fi le and ask for confi rmation of receipt and/or obtain having good insurance coverage. Do you have liability coverage or just paper copies from EPA, HUD, or your local Board of REALTORS®. collision? Collision may protect your car, but what about the passengers? Make sure your coverage insures passengers in the event of an accident. Hazards of Special Interest: Radon At the Showing Radon is another deadly hazard that is prevalent in much of the country (to see if radon is common in Next, when viewing a home, it is vital that the buyer knows the listing agent your area, see the QR code). Radon is a natural gas represents the seller. They should never divulge personal information that that results from the breakdown of radioactive may affect their bargaining position in a sale. Most consumers are unaware materials commonly found in soil and rocks. It is of confi dentiality rules. invisible and odorless, and tends to accumulate in basements and lower levels over time. Radon can Locking Doors also be present in water. It is estimated that radon is second only to cigarette smoking as a contributor to lung cancer in the When viewing a home, take note of the neighborhood. Should the doors be United States. locked once everyone is inside the home? With , short sales and vacant homes, many of them could be “winterized,” with electricity and The Environmental Protection Agency recommends taking action if Radon heat turned off to save money and prevent pipes from bursting. If a property exceeds 4 pCi/L in the air. The EPA has proposed guidelines for areas with is winterized, set up a showing during daylight hours. It is diffi cult to see the radon in the water that ranges from 300 pCi/L to 4,000 pCi/L, depending on details of the property when viewing it with a fl ashlight. the source of water.

It is important to warn your buyers of the dangers of radon, recommend Disclosures that they test for it, and let them know that radon can be mitigated in most situations. A variety of hazards are common in different parts of the country. Each state has its own list of mandatory property disclosures. These disclosures may include: • Water Supply System (type, location, any malfunctions, date of water Home Inspections test, problems) Most licensees know the importance of • Insulation home inspections and readily provide • Heating System (type, age, company that serviced, date of service, buyer clients with a list of reputable annual fuel consumption, malfunctions) inspectors. Oftentimes, however, the buyer may under-inspect or decline the • Waste Water Disposal System (type, size, location, malfunctions, inspections all together. date of instillation, date of service, name of servicer, more info needed for systems within shoreland zones) When potential issues become apparent, • Hazardous Materials getting a professional opinion is • Asbestos generally a good idea. The next few pages will contain some common examples of transactions that would have benefi ted from a home inspection. • Lead-based Paint • Radon • Underground Oil Storage Tanks Home Inspections: New Construction • Other Material Defects Your buyers are thrilled to fi nd a newly-constructed home that suits their needs. Why should they have a home inspection when the home is brand Consider: What other hazards are there? Are there any on this list that are new? It is in perfect condition, right? unique to your area?

Consider: What do you think? Should the house be inspected? If so, for what reasons? Hazards of Special Interest: Lead According to Colorado State University (Fact Sheet number 9.538), more New Construction Suggestion than 75% of homes built before 1978 contain lead paint. According to It is true that the property probably had the municipal building inspector UL, that fi gure jumps to 87% for homes built before 1940. Lead paint can out to sign off on the home during the various stages of construction, contribute to nervous system and kidney damage, learning disabilities, but the building inspector may be looking for particular safety and code diminished bone and muscle growth, behavioral issues and even death. It is requirements. There are many things that a municipal building inspector is especially dangerous for children 6 years and younger. not responsible for inspecting, such as water quality from a well or radon levels in the basement. Building inspectors are human and may simply miss Lead paint is the only federally mandated property material defects, especially if the builder is actively trying to hide them! disclosure. Sellers, landlords and real estate licensees must ensure that buyers and renters receive a lead paint disclosure AND the lead paint pamphlet from EPA/ A basic home inspection should be recommended even if the home is new HUD, if the property is for sale or rent as housing and construction. was built before 1978.

It is vitally important to inform your buyers of the hazards of lead paint!

Feature 3 - Real Estate Safety: Protect Yourself During a Showing 47 Prepare your buyer for the possible scenarios so they do not come as a Home Inspections: The Additional Items surprise. Make sure they know when their earnest money deposit will be Your buyers may have requested a basic home inspection but now wonder returned and when they risk losing it due to certain transactional issues. about the add-on items, which can be expensive. Should they get the home inspected for lead paint? Should they do additional water tests for radon or heavy metals? Should the septic system be inspected? If the home is on a Current Market Conditions public sewer, should the line be inspected? This section refers to buyer-clients only. Licensees should not give advice on market values after the initial solicitation of agency services, if the Consider: What do you think? Should they add on the other items to be licensee acts as a transaction broker, facilitator, or non-agent (i.e., no inspected? Which ones are more vital? What factors play into the decision? agency agreement).

The Additional Items Suggestion Buyers frequently make poor decisions because they hear misleading information about market conditions. They may hear that it is a “buyer’s The fi rst question to consider is how common is the issue in the area or market.” which makes them think that making purchase offers signifi cantly with that type of construction? For example, if the home was built in 1850, lower than the list price is an ideal strategy. While that strategy may work lead paint is a common occurrence, but not so for a home built in 1985. In in some cases, it may also lead to insulted sellers who will then refuse any event, it is a good idea to refer the buyer to an expert. The 1985 home to negotiate or will not counter-offer with their lowest acceptable price, may have salvaged doors, windows, or fi replace mantles that contain lead both of which could ultimately harm your buyer’s chances of purchasing a paint. Real estate licensees are not industrial hygienists. Refer the buyer to property at the best possible price. On the other hand, if buyers hear they a licensed or certifi ed inspector. are in a “seller’s market,” they may feel unnecessary pressure to offer more than market value for a property. Home Inspections: The Additional Items #2 Let’s say you are showing a home that was built in 1905 and is on public As a real estate licensee, you have the best tools to assist your buyer-clients sewer. The listing agent insists that any sewage issues are the responsibility (remember, you should not give price recommendations to customers, just of the town and there is no need to have an inspection. clients). What are the best tools to assist your buyer-clients, you may ask? Consider: Is the listing agent correct? Is there really no need for an inspection? What do you think? Facts! The Additional Items #2 Suggestion • Show your buyer-client examples of recent sales that are comparable to their ideal property While it is true that the sewer line is maintained by the town, what about • Calculate the ratio of sale price to list price of recent sales in their the line that goes from the home to the street? Most likely that is the target market: Is it 90%? 95%? 102%? responsibility of the home owner. You may want to call and ask an expert if inspection is warranted. If a sewage line is old, it may have deteriorated and • When looking at these facts, also note the Days on Market, Original replacing it could be expensive! List Price, and any special circumstances, such as a short-sale or foreclosure, of the recent sales.

Arm your buyer-client with facts so they know what the current market Crime Rates conditions are and what they can expect in their search for the best property. Keep your buyer safe from overpaying and safe from losing a property they really want to buy. Safety is a concern for most people, though not all buyers will research the safety of an area they are Example considering buying in. Some buyers You are working for a newly-married, young couple as their buyer agent. will ask if a neighborhood is safe or They are looking for their fi rst home. Of course, they want their dream do research online, while others home, but after many, many (many!) showings, you hope they get a sense won’t think about the issue until it is of the market and fi nd a home that suits their needs. too late. Real estate agents are not law enforcement offi cers. It is not a good idea to take on the liability of making safety statements. Refer buyers The buyers eventually fi nd a home that they fall in love with and wish to to key websites and the local police department. make an offer. While investigating the home, you see that it has been on and off the market every year for the last 5 years without selling. You also notice that 3 homes on the road have gone through foreclosure and sold for One list in particular may be of interest to buyers--the Sex Offender 50-75% less than the list price of the home in question. When you run a Registry. Each state maintains their own registry. Let the buyer look up the CMA on the property, your estimate indicates that it is overpriced by 20%. information for them to ensure they know where to locate the information if they want to check it later. Consider: What should you do?

Example - Resolution Protecting the Buyer’s Earnest Money Hopefully, you have already talked to your buyer-clients about the market Deposit conditions. This property may be at risk of appraising low. Warn your Purchasing property, especially a home, can be a very emotional experience. buyers that they may lose their deposit if the appraisal comes in low and the Negotiations can be emotionally taxing, so it is the job of the licensee to fi nancing contingency deadline has passed. be the voice of reason, the buffer, and sometimes the peacemaker. Many transactions are completed with a minimum of negotiations, but some It may be tempting to let the buyers proceed with the transaction without are fraught with haggling over price, repairs, timelines, and other details. warning them. It may feel like they will never fi nd an acceptable property. 48 Feature 3 - Real Estate Safety: Protect Yourself During a Showing Nevertheless, be aware of your duty to care for your clients and keep their However, you should alert the buyer to the need for homeowners insurance earnest money deposit safe. Equip your buyers with the facts and advise and the potential need for other insurance, like fl ood insurance. A fl ood them as best as you can. Once you show the facts and give your advice, certifi cation may be required by the lender. If the buyer is a cash buyer, the ultimate decision is up to your buyers--”agents advise, clients decide.” you may want to advise him to look into fl ood certifi cation for his own If your advice encourages your buyers to keep looking, that may work out protection. best for you in the long run! Clients appreciate agents who actively work to keep them safe. They will be more likely to recommend you to others in An often overlooked insurance issue is the existence the future. of past claims on a property. Scan this code for an article that details the risk buyers may face in this It is a good idea to show your buyer a copy of the Binder or Purchase and scenario. Sales Agreement used by your brokerage. Perhaps it is a standardized form available from your state’s Association of REALTORS®. It could also be There is a database of claims that insurance a form specially designed for the brokerage or one drawn up by attorneys companies can access to see if a property has a history of claims. This was of for the transaction in question. In any event, it is important to go over the particular concern in Texas when a series of water-related and mold claims terms of a typical Purchase and Sales Agreement ahead of time, so the buyer prompted insurance companies to deny coverage on certain properties. In is aware of the terms and conditions, timelines, and contingencies. The other cases, a property may be uninsurable because it has older electric licensee should refer the buyer to an attorney if there are any questions or if wiring (knob and tube, or 60 amp fuses). Buyers would do well to make the buyer wants advice on certain contingencies in a contract. sure the property is insurable well before closing.

The licensee is also responsible for keeping the buyer on track. How many Real estate licensees frequently get questions about Title Insurance. Most days should the buyer have for inspections? (Note: it is a federal law that lenders require that the buyer make a one-time payment for title insurance to 10 days must be allowed for lead paint inspections). Should there be a cover the lender. It is up to the buyer to decide if it is worth it to cover them. buffer for more experts to come in or for contractors to give estimates? Many buyers will ask their real estate agent if title insurance is worthwhile. When should all documentation for fi nancing be in? When should the buyer Remember two things: 1) The safety of your client is priceless, and 2) Real ensure the property is insurable? When will the appraisal, title search, and estate licensees are not title insurance experts. Let the buyers know that it other applicable work be done? The licensee must keep track of all these is usually a good idea to purchase title insurance, and that they should talk things for their buyer-clients. In addition, they should remind the buyer to to a title company for the best advice. Protection after Closing - Change have utilities switched over on or soon after the closing date. Many utility the Locks! companies will charge more if utilities are turned off, then turned on, rather than a simple name change. How many sets of keys exist for the property the buyers just purchased? What if everything is going smoothly, until a signifi cant undisclosed material defect is uncovered in the home inspection? Depending on the purchase and sales agreement, the buyer may have three choices, but MUST execute Why guess? There could be many sets of keys their choice BEFORE the last day specifi ed for that particular inspection, or in the hands of many people. Here are a few they waive their right for a remedy. A buyer may wish to consult with a real common examples of individuals who may estate attorney to design or better understand a legal contract. have keys to a newly-purchased home:

• The previous owners (or the owners before them) Here are the three common choices in a typical Purchase and Sales Agreement: • People who rented the home a few years ago 1. Buyer can declare the purchase contract to be null and void and • A few neighbors who have keys in case of emergency or because they receive his or her earnest money deposit back. walked a dog that used to live there 2. Buyer can ask the seller to remedy the defect, by repairing it, • Contractors who worked on the house reducing the purchase price, or receiving cash back at closing. • Family and friends of the previous owners 3. Buyer can accept the property “as-is” and execute the contract as planned. • The listing agent

The licensee should stay aware of the terms and any Purchase and Sales • Another buyer-agent who forgot to return the key Agreement. In some states, it is common to allow the seller to declare the contract null and void if the buyer requests a remedy to a defect. It It may be surprisingly inexpensive to have locks re-keyed. Another option is important to be cognizant of the terms of the agreement when making that may add a little style (and safety) to the newly-purchased home is to recommendations to buyer-clients. purchase new door knobs and/or deadbolt lock sets from a local hardware store.

Protection after Closing - Insurance Most lenders require buyers to obtain homeowners insurance when purchasing property with the help of mortgage funds. Buyers are well advised to talk to an insurance agent to assess their particular insurance needs. There are basic, broad, and multi-peril policies, among others. Every property is different and every property owner is different. It is best to refer the buyer to an insurance professional rather than advise them yourself.

Feature 3 - Real Estate Safety: Protect Yourself During a Showing 49 Summary In this chapter, we covered safety concerns for buyers and their assets. From the first meeting, the buyer must be made aware of the difference between agency and non-agency relationships. We also went over some often overlooked issues, such as leaving the buyer’s car in a safe place and safely showing a property. Next, we did a brief overview of disclosures and safeguards, such as checking crime rates, having inspections done, obtaining certain kinds of insurance (title insurance, homeowners insurance, and flood insurance), and changing exterior door locks immediately after taking possession of a property.

One theme that runs through this chapter is disclose and refer. While you might want to save your buyer money, remember their health and safety are priceless!

50 Feature 3 - Real Estate Safety: Protect Yourself During a Showing FEATURE 3 PRACTICE - REAL ESTATE SAFETY

NOTE: You are not required to answer the practice questions below to complete the 14-hour course. Their intention is to help you prepare for your Final Exam.

Final Exam Questions can be found on page 79 or online at www.McKissock.com/FLRE.

1. When should a seller start to think about the safety of their home and possessions? a. When pictures are taken of the property b. At the first showing c. When buyers come back for a second showing d. Sellers do not need to worry about safety; the licensee ensures the home and possessions will be kept safe.

2. Vacant and empty homes frequently run the following type(s) of risk(s) to the sellers: a. There are no significant risks to sellers when the homes are empty b. Copper pipes may be stolen c. Appliances may be stolen d. Both copper pipes AND appliances may be stolen

3. Who must a real estate licensee disclose material defects to? a. Buyer b. Seller c. Home inspector d. Bank loan officer

4. Which disclosure is federally mandated? a. Radon b. Water systems c. Lead paint d. Sewage disposal

5. What popular social media site provides information about rental scams to homeowners? a. Facebook b. Craig’s List c. Twitter d. LinkedIn

Ready to take the Final Exam? • Go to www.McKissock.com/FLRE or scan the QR code with your smartphone to get started. • Purchase the 14-Hr Online Correspondence Course and complete the Final Exam online. • Print your certificate instantly. OR

• Answer Final Exam Question at end of this book and mail or fax your completed forms in. Answers: 1a , 2d , 3a , 4c , 5b , 4c , 3a , 2d , 1a Answers:

Feature 3 - Real Estate Safety: Protect Yourself During a Showing 51 FEATURE 4 Give Your Clients the Green Light: Simple Ways to Green a Home

This feature is designed to introduce a variety of methods for making a home more environmentally healthy. The course is meant to be an overview of some of the major areas in the home where one can begin to make positive environmental changes. The feature is divided into three chapters: water, indoor air quality, and energy. Within each part are multiple topics that delineate changes one can make in each of these areas.

Learning Objectives Upon completion of this feature, you will be able to:

1. Explain the basic movement of water on earth in the water cycle 2. Identify the fi ve most substantial uses of water in the home 3. Identify the primary methods to improve water use effi ciency in the home 4. Identify the potential sources of the major indoor air pollutants 5. Identify negative health effects caused by the major indoor air pollutants 6. Identify ways to minimize the major indoor air pollutants in the home 7. Discuss the Energy Star program and its impact on appliances and homes 8. Explain basic electricity use in terms of energy, power, and fi nancial cost 9. Identify the pros and cons of a variety of electricity sources, light bulb options, and water heaters

Customer Testimonial “Very easy to follow along with. I felt the course gave good information about products and other sources that we may use in our business such as website to refer clients to.” ~ Amanda, Florida

52 Feature 4 - Give Your Clients the Green Light: Simple Ways to Green a Home The fourth reservoir for water is atmospheric water, or what we call water Part One: vapor, that which is found as a gas in the air. Water moves among these four reservoirs through the processes of Water evaporation, condensation, precipitation, and runoff. As water moves through the water cycle, it is purifi ed as it evaporates from the oceans and through precipitation; it is then returned to the land as fresh water. See the image on the right for a visual description of these processes. “Water, water, everywhere, and all the boards did shrink; water, water, everywhere, nor any drop to drink.” So now that we understand the water cycle, let’s take a closer look at how water is used residentially. The quote above is taken from the 1798 poem The Rime of the Ancient Mariner by the English poet Samuel Taylor Coleridge. The verse refers to a point in the story when the crew of the ship was running out of water to drink even though they were surrounded by millions of gallons of the Where to Start precious liquid. The salt water in which their ship sailed was completely Once you have decided to make the effort to conserve water in your home, useless to them and could do nothing to quench their increasing thirst. the next logical step is to ask the question of where to begin. The answer to this question can be overwhelming to many home owners as there are Similarly today, even when some 70 percent of the earth is covered by numerous fi xes that take a variety of effort and fi nancial cost. It is often water, we fi nd ourselves in a place where there is very little accessible and best to start by understanding the four or fi ve biggest uses of water in the useable water. As a matter of fact, less than 1 percent of all the water on home and beginning with them. So, where do most Americans use their earth is available to us to use. The vast majority of the liquid is either salt water? Since 70% of the water used by Americans is used indoors, let’s water or is frozen in glaciers and polar ice caps. We are lucky in the United start inside the home. States to have access to some of the healthiest, safest water in the world which we can often access by simply turning on a tap. The ease with which we can access our water belies the precious nature of this substance. This • Toilets are the number one use of water in the home, accounting for 27% attitude is changing, however, and people are quickly realizing the great of indoor water use. This means more than one of every four gallons used environmental and economic benefi ts of conserving water. goes for fl ushing the toilet. Toilets made before 1992 use up to 3.5 gallons per fl ush. Switching to WaterSense-labeled toilets or using an alternative toilet can save a family up to $2,000 in water costs over the life of the toilet, The average family in the United States uses over 300 gallons of water paying for itself multiple times. per day. For most of us, about 70 percent of that is used inside the home and 30 percent is used in outdoor applications. Typically, Americans use water indoors for fl ushing toilets, in showers and sinks, for washing clothes, • Washing Machines come in at a strong second using about 22% of the and for drinking. Leaks account for almost 14 percent of the water used. indoor water used. Energy Star-labeled machines use about 15 gallons per Outdoors, the primary residential use is for irrigation of plants. load which can be up to 50% less water than standard machines and far less than machines made before 1998. Learning Objectives There are many ways in which we can conserve water without much sacrifi ce. By making upgrades to a variety of things in our homes such • Showers account for 17% of water use and are the third largest consumers Upon completion of this feature, you will be able to: as toilets, showerheads, and faucets, by fi xing leaks, and by changing of water in the home. Similar to toilets, showerheads made prior to 1992 our behaviors, we can save money and help protect this resource. So the can use massive amounts of water, some up to 5.5 gallons per minute. question becomes where to start. The answer is to start by understanding Newer, effi cient showerheads can be purchased for under $20 and have fl ow rates below 2.5 gallons per minute. This is another item that quickly pays 1. Explain the basic movement of water on earth in the water cycle water and the water cycle. Once you understand water, the next thing to do is to look at the largest typical residential water uses and make changes to for itself and can use less than 50% of the water in some cases. 2. Identify the fi ve most substantial uses of water in the home those things that will have the largest impact. • Faucets come in fourth accounting for 16% of the water used in the home. 3. Identify the primary methods to improve water use effi ciency in the home New WaterSense-labeled faucets can save 30% of the water used compared 4. Identify the potential sources of the major indoor air pollutants to older faucets and will perform equally well. Similar savings can be seen The Water Cycle by replacing the aerator in the faucet with a newer one; the aerator in the 5. Identify negative health effects caused by the major indoor air pollutants screw-on tip is what determines the fl ow rate of the faucet. 6. Identify ways to minimize the major indoor air pollutants in the home If we are going to understand • Leaks, unfortunately, also account for 14% of indoor water use and 7. Discuss the Energy Star program and its impact on appliances and homes how and why it is important to therefore are ranked fi fth behind the big four. Leaks are a complete waste conserve residential water, we of water and should be checked for and fi xed as soon as possible. 8. Explain basic electricity use in terms of energy, power, and fi nancial cost need to have a basic understanding of how water 9. Identify the pros and cons of a variety of electricity sources, light bulb options, and water heaters exists on earth. Water on earth • Other uses account for the remaining few percent of indoor water use. is in a constant state of fl ow and change. The overall processes by which this water WaterSense changes form and moves from place to place is called the WaterSense is a program through the U.S. Environmental Protection water cycle. Even with the large energy changes associated with the water Agency. The primary goal of the program is to protect the nation’s water cycle, the amount of water on earth remains relatively constant over time. supply. To accomplish this, the EPA has given the WaterSense label to certain products and services that have been shown to help reduce water consumption without sacrifi cing performance. The three phases of water are solid (ice), liquid, and gas (water vapor). Additionally, water may exist in four distinct reservoirs. The vast majority The driving forces behind the WaterSense program are of earth’s water is salt water that can be found in the world’s oceans. Most of multi-tiered. Foremost is educating people on the value the earth’s fresh water is frozen in glaciers and polar ice caps. Liquid fresh of conserving water. The program provides consumers water can be found in lakes, ponds, rivers, streams, and as groundwater. with methods for saving water, provides an easy labeling

Feature 4 - Give Your Clients the Green Light: Simple Ways to Green a Home 53 system for water-effi cient products, and seeks to minimize water use in a single load. Many modern models use between 20 and 25 gallons per order to protect water resources. By following the recommendations of the load, using 35-50% less water, and Energy Star-labeled washers can use 15 program, consumers can make smarter choices that will save money and gallons per load; this is about a third of the water used by older, ineffi cient protect the environment. models. Replacing a washing machine can save over 25,000 gallons of water over the lifetime of the machine; this is no small amount of water and cost savings, and these changes often pay for themselves in the long run. In order to be given the WaterSense label, a product or service must be at least 20 percent more effi cient than is typical without sacrifi cing performance. Products awarded the label have been independently tested Options and certifi ed. There are three typical options for washing machines. Top-loading machines with center post agitators are often the cheapest to purchase and have fast In order to help consumers locate products and services with the WaterSense wash cycles, but have the least impressive performance and usually use label, the EPA has developed a search engine where one can search by the most water. They wash 12-16 pounds per load. More expensive, high- category, brand, and other parameters. That search engine can be found at effi ciency top-loading machines do not have a center agitator and will often the following website: http://www.epa.gov/watersense/product_search. wash more laundry per load using less water and leave clothes drier making html for less energy use in drying. They can often handle 17-24 pounds. The third option is front-loading washing machines which typically use the least water per load and leave clothes the driest. They also can handle loads of 17-24 pounds. The best front-loaders are often similar in cost to the top Toilets high effi ciency top-loaders but will outperform them in terms of water use. Of all the ways in which people use water in the home, toilets are, by far, the main drain, so to speak. Approximately 27 percent of all the water used Water Factor residentially is for fl ushing toilets. If your home has a toilet made before 1992, chances are that you can save large amounts of water and money by When comparing clothes washers, a useful number is the water factor. The switching to a more effi cient model. water factor is the number of gallons of water used per cubic foot in a washer. It is determined by dividing the total gallons used per load by the cubic feet of the washer. In 1992, the Energy Policy Act was signed into law by President George H. W. Bush. This law was wide-reaching in its scope and addressed such varied concerns as energy, natural gas, alternative fuels, electric vehicles, For example, if you were in the market for a new clothes washer and had radioactive waste, and coal, in addition to water. One of the outcomes of the choice of Washer A which uses 42 gallons per load with a capacity of this law was to mandate low-fl ush or low-fl ow toilets. Installing toilets 3 cubic feet or Washer B which uses 15 gallons with a capacity of 3 cubic that fl ushed more than 1.6 gallons (6 liters) of water were outlawed at this feet, which would be the better choice? time. Many older models of toilets use up to 3.5 gallons of water (13 liters) -- more than twice this amount! Some very ineffi cient models even use For Washer A, the water factor is 14 (42 divided by 3). For Washer B, the up to 6 gallons. By replacing an older model with a low-fl ow option, a water factor is 5 (15 divided by 3). In this case, Washer B with the lower family of four could save over $2000 in water costs over the lifetime of the water factor is the better choice. 2013 Energy Star-rated models see water toilet, more than covering the costs of materials and installation, and saving factors in the range of 2.7 to 3.0. thousands of gallons of wasted water.

Options Faucets and Showerheads In addition to the newer, standard, more effi cient toilets, there are other Most homes contain multiple faucets. Faucets account for approximately highly effi cient options for consumers looking to go the extra mile. 15 percent of indoor household water use. Many people understand that Remember that a toilet with a WaterSense label will be 20% more effi cient by turning off the faucet while they are brushing their teeth or washing than the standard. Toilets with this label will fl ush less than 1.28 gallons. dishes, they will conserve water. In addition to this, however, the specifi c components of the faucet also control how much water is being used, so Additionally, dual fl ush toilets are toilets in which the option exists to fl ush one can conserve water by replacing older, less-effi cient components with two different volumes of water depending on the lever or button used. For newer and more effi cient models. solid waste, the full 1.6 gallons are used. However, there is also an option for liquid wastes only that uses about a half-gallon less of water. The most important factor when discussing faucets and showerheads is the fl ow rate of the water. Flow rate is often expressed as the number of gallons Composting toilets are another option for those consumers who really want that the faucet produces per minute. Many older faucets had fl ow rates to minimize water use, reduce pollution, and create useable compost for over 5 gallons per minute. The standard rate for a typical new faucet is set gardening. Composting toilets have been in use for more than 30 years at 2.2 gallons per minute or less. Faucets with the WaterSense label can primarily in areas of need such as backcountry and off-grid destinations; reduce this fl ow down to 1.5 gallons per minute without a decrease in water however, the technology is suitable for residential use, if permitted in your pressure or performance. particular area. There are a variety of options for composting toilets, but, in general, they use little or no water. The breakdown of waste that occurs is An aerator is usually found at the tip of new faucets. The aerobic (with oxygen) and thermophilic (with heat). During breakdown, the purpose of this small piece is to save water, save energy, volume of waste is reduced and the pathogens are destroyed. A composting reduce noise, reduce fl ow rate, and give shape to the toilet breaks down waste faster than a typical municipal treatment facility. stream of water. WaterSense certifi es aerators that meet The result is compost that amounts to about 10 percent of the input volume their fl ow rate criteria of 1.5 gallons per minute or less. and can be used in agricultural applications, if permitted by local regulations. Since the cost of an aerator (picture on the right) is often only a few dollars, replacing old ones is an easy fi rst step toward water conservation and fi nancial savings. By upgrading both faucets and aerators, Washing Machines an average home can save more than 500 gallons of water per year. Modern appliances which use water are far more effi cient than older models. For example, a typical older washing machine uses 41 gallons of water in Nearly 17 percent of indoor water use is for showering. An average family uses 40 gallons of water daily to shower! There are multiple ways 54 Feature 4 - Give Your Clients the Green Light: Simple Ways to Green a Home to conserve water in the shower. Similar to shutting the water off when 3. Use only one glass or water bottle during the day to cut down on brushing one’s teeth, some people shut off the shower head while lathering washing. up. In addition, newer shower heads can replace less effi cient models. 4. Soak pots and pans instead of running water while scraping them. Before 1992, many showers had a fl ow rate between 5 and 6 gallons per minute. Standard showerheads now achieve fl ow rates of 2.5 gallons per 5. Keep cold water in the refrigerator instead of running the faucet minute whereas WaterSense-labeled showerheads produce 2 gallons per until the water is cold. minute or less. 6. Reuse any water you can for watering plants (water used to rinse or cook vegetables, water from pets’ dishes, dropped ice cubes, etc.) 7. Only do full loads of laundry. Leaks 8. Time your showers and keep them under fi ve minutes. Accounting for approximately 9. Turn the water off while you lather. 14% of the water used inside a 10. While you wait for hot water, collect the running water for other home, leaks are an important part uses. of the discussion when making moves to improve water 11. Teach children how to conserve water and to close faucets tightly. effi ciency. Before one can fix 12. Do not use water toys that require a running hose to be on constantly. leaks, however, it is important to understand which places in the 13. Reuse towels instead of washing them each time they are used. home tend to leak and how to 14. Replace lawns with native plants that do not require a lot of water. detect them. 15. Water plants early in the morning to avoid evaporation from heat. 16. Use mulch in gardens to minimize evaporation and reduce weeds. The best place to start is by taking a look at your water bill. If possible, have your bills for the prior year at hand and look for any substantial changes in 17. Collect rain water or redirect gutters and spouts to use for watering usage month to month. Pay less attention to the cost and more to the actual plants. water use itself. Is there a month where water use increased dramatically 18. Sweep sidewalks and driveways instead of using a hose. that cannot be explained by another use (e.g. company, summer uses, etc.)? If so, this may be indicative of a leak. 19. Avoid single use, disposable items (they require a lot of water to make). Once you have analyzed the water bill, an easy way to check for a leak 20. Before dumping any water down the drain, ask yourself if it can is to turn off all water sources in the home and monitor the water meter. be reused! Write down the reading on the gauge and come back two hours later and check again. If the reading has changed, water moved through the meter Consider: Which of these do you already do? Does it work? Which of these indicating there may be a leak. will you start doing in your own home?

Toilets are a large source of leaks. To check a toilet for leaks, add about 10 drops of food coloring to the tank until the color is noticeable. Check the bowl an hour later. If the dye has entered the bowl, there is a leak between Summary the bowl and tank. If you have a signifi cant leak, you will most likely hear To review what we have learned in this chapter, a major area in which one the water constantly running in the toilet. can improve the environmental impact in the home is by making moves to improve water conservation. The amount of water on earth is constant and Leaks can also occur around faucets, showers, and pipes. Be sure to less than 1% of the resource is available for use as most water is either salt thoroughly dry surfaces and then check the areas around all of the fi xtures water or frozen in glaciers and ice caps. There are many cheap and easy to see if water is pooling. This is a sign of a leak. Be sure to look under ways for initially conserving water in the home. The biggest culprits for all sinks for signs of water as well. If you have exposed water pipes in the high water usage are toilets, washing machines, showers, faucets, and leaks. basement, be sure to check for drips at connections and along the pipes By upgrading to products with the EPA’s WaterSense label and by making themselves. Do not forget to look at outdoor spigots and other connections changes in behavior, one can quickly see drastic improvements in the as well. amount of water used in the home. Modern toilets, washers, showerheads, and faucets are designed to use substantially less water while maintaining good performance. Those who garden and grow plants outside can also Hot water heaters can also be a source of leaks. These are often easy to make changes that will result in water conservation without sacrifi ce. detect as water can be seen dripping from them. Occasionally, a water Overall, these changes will not only help to minimize water use, but will heater will rust through and begin to leak out the bottom. If you think you also save energy, money, and help preserve this valuable resource. have a water heater leak, be sure to feel the top of the water heater for water. If the top is wet, the leak may be coming from a pipe instead. Sometimes a leaky hot water heater can have a problem with the pressure valve which Challenge: can be replaced at little expense. Here is something that you can do that will not only save you money on your water bill, but also give you credibility with your clients when you talk about water effi ciency: Quick Water Conservation Fixes Take another look at the list on page 9 (we will be providing a handout at the end of the course). Write down every bullet that you think your household Consider these twenty cheap and simple fi xes for your home to conserve can reasonably do in a month. Then start doing those little things to improve water before investing a lot of money. your effi ciency. Once the month is over, note the change in your water bill. 1. Turn off the water when brushing your teeth. How much did you save? Once you’re armed with this information, you can tell your clients that they can save X% on their water bill by doing these 2. Fill basins when washing dishes: one with wash water and one to simple tasks. Maybe a buyer client is in love with a home, but doesn’t love rinse. the old, ineffi cient appliances. You could suggest that they employ these energy-saving tips and use their savings to buy new appliances! Feature 4 - Give Your Clients the Green Light: Simple Ways to Green a Home 55 Part Two: Carbon Monoxide The health effects from indoor air 1031 Formats and Indoor pollution can vary greatly; however, common immediate effects may Air Quality include eye, nose, and throat irritation, headaches, dizziness, and asthma attacks. As these symptoms are also similar to those from fl u or respiratory A vital part of greening your home, and one often overlooked, involves illness, it is important to note whether taking some time to identify and eliminate potential air quality problems symptoms persist when outside the that may exist within the home. Primarily, air quality problems stem from home. There are also potential long- indoor pollution sources that release gases or airborne particles into the term health effects from indoor air air. If indoor pollution sources are combined with poor ventilation, then pollution which may show up years pollutant levels may increase within the home causing health problems after exposure. Respiratory diseases, associated with breathing in these pollutants. lung cancer, and heart disease are a few of the serious consequences one can face from long-term exposure. Additionally, the levels of pollutants Sources of Indoor Air Pollution needed to cause health problems vary Multiple sources of indoor air pollution exist. Combustion sources like oil, greatly from individual to individual. For these reasons, it is important to coal, gas, wood, kerosene, and smoking tobacco are the primary culprits. maintain as healthy indoor air quality as possible. However, building materials, insulation, solvents, furniture products, cleaning products, and sources outside the home, like radon and pesticides, Sources of Carbon Monoxide and even biological sources, can be harmful. The effects of any of these sources can vary dramatically depending on the situation. Carbon monoxide comes from incomplete combustion. Combustion is another word for fi re. Anything that burns in your home has the potential to produce this deadly gas. The most common sources include unvented space heaters (gas, kerosene), gas water heaters, running automobiles in attached Ventilation garages, tobacco smoke, and leaks arising in chimneys, fl ues, furnaces, wood stoves, generators, and anything else gas-powered. Ventilation is a primary consideration when discussing indoor air quality. Proper ventilation is necessary to remove pollutants, lower pollutant concentrations, and bring fresh air into the home. Homes that are not Acceptable Levels ventilated may accumulate very high levels of pollutants. Natural air enters Typically, levels of carbon monoxide are measured in parts per million a home in three ways: by infi ltrating openings, joints, and cracks, by natural (ppm). One part per million (1 ppm) means there is one molecule of CO for ventilation through open doors and windows, and by mechanical ventilation every million molecules of other gases in the air (nitrogen, oxygen, etc.). such as fans and ventilation systems. Most homes will be below 5 ppm. Homes with gas stoves run a little higher, often up to 15 ppm, and levels of CO near a poorly maintained gas stove may be 30 ppm. Various occupational guidelines (NIOSH, OSHA) set the Health Effects limit for exposure over an 8-hour work day between 25 and 50 ppm. The health effects from indoor air pollution can vary greatly; however, Minimizing Your Risk common immediate effects may include eye, nose, and throat irritation, headaches, dizziness, and asthma attacks. As these symptoms are also In order to reduce the risk of high carbon monoxide levels, there are many similar to those from fl u or respiratory illness, it is important to note things that one can do. First, all combustion equipment should be maintained whether symptoms persist when outside the home. There are also potential and adjusted properly. Automobiles should never be idled in a garage, and long-term health effects from indoor air pollution which may show up years similarly, generators should always be used outside of the home. Heating after exposure. Respiratory diseases, lung cancer, and heart disease are a systems (furnaces, chimneys, fl ues, etc.) should be inspected yearly by a few of the serious consequences one can face from long-term exposure. professional and repaired as needed. Space heaters and gas stoves should Additionally, the levels of pollutants needed to cause health problems vary be vented outside. Use only the appropriate fuel in combustion devices. Be greatly from individual to individual. For these reasons, it is important to sure fl ues are open for fi replaces. Woodstoves should be sealed tightly and maintain as healthy indoor air quality as possible. doors should close completely. Finally, a carbon monoxide alarm should be installed outside bedrooms on each level of the home.

Lead Lead is a very dense, metallic element, often referred to as a heavy metal. It can have serious negative health effects and has been labeled as one of the most serious environmental threats to the health of children in the United States.

Sources of Lead Lead exposure can occur in many ways including through air, water, food, dust, contaminated soil, and lead-based paints. Among other things, lead was historically used in gasoline, paints, and water pipes. Regarding homes, the largest source of lead is from lead-based paints. Exposure can be a problem when lead-based paints are sanded away from walls. The

56 Feature 4 - Give Your Clients the Green Light: Simple Ways to Green a Home sanding creates lead dust in the air which is then inhaled. Homes built prior 4 pCi/L are “safe.” This is a common misconception, especially in the real to 1978 are likely candidates for lead-based paints. Water pipes should also estate market, and one should be careful to warn people that any radon be inspected for lead. exposure can be dangerous.

Health Effects Minimizing Your Risk Children and fetuses that are exposed to lead can see very serious adverse The only way to know if a family is at risk from radon is to test for it. Home health effects, as the lead is incorporated more easily into children’s bodies kits can be purchased at most hardware and home improvement stores or than adults’. Lead exposure has resulted in lower IQs, behavioral problems, online for under $20 and analyzed for around $30. These tests require developmental delays (mental and physical), and attention problems. placing the kit in the basement and sending it back for analysis after a few Children are also more likely than adults to put their hands in their mouths days or a week. If radon is detected in the home, it is highly recommended after touching surfaces contaminated with lead. At high enough levels, lead that the state radon office be contacted to find contractors who can fix the can cause coma and death. problem.

Minimizing Your Risk Formaldehyde Knowing the likely places where lead could be found and avoiding the creation of lead dust is the best way to minimize exposure. Walls painted Formaldehyde (CH2O) is a colorless gas with a strong, sharp odor. It has with lead-based paints are often best left undisturbed. Areas where painted traditionally been used in adhesives and glues and as a preservative for surfaces rub together like windows and doors tend to create dust which can biological specimens. Formaldehyde can have many negative health effects then enter the air. Similarly, the paint on fences and gates outside the home including burning eyes and throat, wheezing, rashes, fatigue, nausea, and often chips away leaving lead dust in the soil. Children playing in the area difficulty in breathing when exposure is above 0.1 parts per million. High can be exposed to lead dust or they can track the lead inside the home on enough concentrations may also trigger asthma attacks. The most serious their shoes. effect is that it is a known carcinogen in animals. Bear in mind that humans are in the animal kingdom. Federal law requires that home sellers provide certain information for all homes built before 1978. Any information concerning the presence of lead- based paints must be disclosed and a “lead warning statement” must be Sources of Formaldehyde included in the contract if there has been any history involving lead paint The most significant sources of formaldehyde in the home are from pressed in the home. An EPA-approved pamphlet on lead-based hazards must be wood products such as plywood, paneling, particleboard, fiberboard, and provided for the buyers. Buyers also have a 10-day period in which to have products made with these pressed wood products. The formaldehyde the home inspected specifically for lead. For more information on lead, comes mainly from the adhesives used to hold the layers of wood together a good resource is the National Lead Information Center Hotline at (800) in these products as well as other glues. Urea-formaldehyde (UF) resins are 424-LEAD. the type which releases the most formaldehyde. These resins are used in the medium density fiberboard popular for drawer fronts, cabinet fronts, and furniture tops. Formaldehyde is also a by-product of tobacco smoke and can also come from unvented kerosene heaters and gas stoves. Radon Radon is a colorless, odorless, tasteless element created as a product of the Acceptable Levels nuclear decay of uranium and thorium, the two most common radioactive Typically, like carbon monoxide, levels of formaldehyde are measured in elements on earth. Radon will continue to be produced for millions of years parts per million (ppm). One part per million (1 ppm) means there is one at the same levels we have now since uranium and thorium take so long molecule of formaldehyde for every million molecules of other gases in the to decay. As the only known radioactive gas on earth, it is easily inhaled. air (nitrogen, oxygen, etc.). Most homes will be below 1 ppm. However, Since it is dense, it remains low in the air and concentrates in basements and homes containing a large amount of new pressed wood products can register crawlspaces. Radon is considered the largest contributor to public exposure formaldehyde levels as high as 3 ppm. This is well over the minimum level to radiation, and it is often the major factor in an individual’s background needed to cause respiratory issues. In July of 2010, President Obama signed radiation levels. The only significant health effect from radon exposure is into law the Formaldehyde Standards for Composite Wood Products Act lung cancer, but the danger is very serious. For non-smokers, radon is the which establishes limits for formaldehyde emissions from these composite single leading cause of lung cancer in the United States with an estimated wood products. 20,000 deaths occurring yearly. Smokers have a significantly higher risk and are 10 times more likely to develop lung cancer when compared to nonsmokers exposed to the same radon levels. Minimizing Your Risk In order to reduce the risk of high formaldehyde levels, there are many Sources of Radon things that can be done. Exterior grade pressed wood products can be used instead of interior grade; these products do not contain the more dangerous Radon is created as a product in nuclear decay reactions from naturally UF resins. occurring uranium which is found in soil and water. It is often concentrated in basements and crawlspaces below ground level. Also, the types of adhesives that are used in furniture and building materials can be researched before these items are purchased. Since formaldehyde is released more at higher temperature and humidity levels, moderate Acceptable Levels moisture and temperature levels should be maintained within the home The effects of radon concentration are measured in picocuries per liter and ventilation increased when new products containing formaldehyde are (pCi/L). These units measure the amount of radiation in a specific volume brought into the home as most of the toxic gas is released when the products of air. There is no safe level of radon as any level of radiation can be are new. harmful. However, the EPA recommends homes be fixed if the radon level is 4 pCi/L or higher. EPA also recommends that Americans consider fixing their home for radon levels between 2 pCi/L and 4 pCi/L since the radon Biological Pollutants may still be dangerous at those levels. The average radon concentration for inside air in American homes is 1.3 pCi/L. For comparison, outside Biological pollutants, unlike radon, carbon monoxide, and other chemical air typically has a concentration of about 0.4 pCi/L. There is a danger in sources, come from living things. Sources include mildew, mold, viruses, assuming that because the level suggested for a fix is 4 pCi/L, levels below bacteria, pet dander, pest droppings, pollen, and dust mites, among other Feature 4 - Give Your Clients the Green Light: Simple Ways to Green a Home 57 things. Biological pollutants can often be found in wet or damp areas that ventilation increased when they are indoors. Pesticides should not be promote growth like unvented bathrooms, pans in air conditioners and stored inside the home. If moth repellants like paradichlorobenzene are humidifiers, and near cooling coils. Also, areas that collect dust can harbor used with clothing, they should be stored in a separate vented area. Many biological pollutants such as carpeting and rugs, bedding, and drapes. air fresheners also use paradichlorobenzene; it is best not to use them.

Health Effects Also, biological pesticides can replace chemical ones in some instances, like in the control of gypsy moths where a bacterial agent can be used Primarily, the health effects associated with biological pollutants include instead. Plants that are disease-resistant can be used to avoid the need for asthma attacks, allergic reactions, and potentially harmful toxins. Asthma pesticides altogether. If a pest control company is contracted, they should can be triggered from mold, dander from pets, and droppings from pests provide a clear written explanation of what specific pesticides will be used such as insects or mice. Allergic reactions can develop after repeated and what pests are being treated. Pest companies can legally use stronger, exposure to a particular allergen. Often the symptoms of allergic reactions more toxic pesticides than regular consumers can purchase, so the dangers such as sneezing, wheezing, coughing, and watery eyes will worsen over may be increased. time with exposure.

Minimizing Your Risk Instead of using disinfectant sprays for cleaning, non-toxic cleaners such as vinegar can be used, which clean equally well in most cases without the Minimizing the risks associated with biological pollutants involves associated health risks. eliminating the factors which allow them to thrive. Since the two biggest factors are moisture and dust, taking care of these issues is at the forefront. 1. Relative humidity in a home should be 30-50%. Attics and crawl Volatile Organic Compounds spaces can be ventilated, if necessary. Unlike lead or carbon monoxide, which are specific substances, volatile 2. Standing water, water-soaked materials, or wet surfaces should be organic compounds, or VOCs, include a wide range of chemicals of varying eliminated and dried to minimize mold and mildew. properties and toxicity. The term volatile means that a substance evaporates, 3. Regular cleaning will reduce the effects of dust mites, dander, and or turns into a gas fairly easily at low temperatures. Once the substance pollen. Drapes and bedding should be washed regularly. Carpets evaporates, the gas is free to move throughout the home and can be breathed and rugs should be regularly vacuumed and dust should be kept to a easily into the lungs. This is how VOCs can easily enter the human body. minimum. 4. People with allergies should not be in the house when it is being Sources of VOCs vacuumed. Most volatile organic compounds in the home come from solvents used to 5. Evaporation trays in air conditioners, dehumidifiers, and refrigerators dissolve other substances. These solvents are often found in paints, cleaning should be cleaned regularly. supplies, lacquers, adhesives, markers, copy machines, fuels, paint thinners, 6. Basements should be kept clean, dust free, and dry. A dehumidifier and some building materials. They are typically widely used in the home. can keep relative humidity to 30-50%, if necessary. 7. Exhaust fans in kitchens and bathrooms can keep air dry and flowing Health Effects Health effects of VOCs can vary greatly since this group includes a variety of substances. Depending on the substance and concentration levels, health effects can be as basic as irritation of eyes, nose, mouth, and throat, Pesticides and Disinfectants headaches, dizziness, nosebleeds, and nausea. More severe consequences Pesticides and disinfectants are generally chemical agents that are designed may include difficulty breathing and loss of memory. Some volatile organic to kill or eliminate pests such as insects, termites, rodents, and microbes. compounds are also known carcinogens that cause cancer in animals and Being that these are toxic to pests means that these chemicals can also be humans at certain levels and lengths of exposure. toxic to humans. According to the EPA, three of four homes in the United States have used an indoor pesticide within the past year and 80% of people’s Minimizing Your Risk exposure to pesticides occurs inside. Do not underestimate the potential dangers of pesticides. In 1990, there were an estimated 79,000 children In order to reduce the risk of negative health effects associated with volatile poisoned by pesticides. The Stockholm Convention on Persistent Organic organic chemicals, there are many things that can be done quickly and Pollutants claims that nine of the twelve most dangerous and persistent easily. chemicals in the environment are pesticides. Many of these have long been • Proper ventilation when working with VOCs is vital. outlawed or restricted (e.g. DDT) but they persist as contaminants in the environment. Bear in mind that the suffix “-cide,” also used in “genocide” • A respirator should be worn while working with more volatile products. and “suicide,” means “to kill.” • Any opened products that have been stored should be disposed of responsibly. Health Effects • When using products containing VOCs, the directions should be Health effects vary greatly but include eye, nose, and throat irritation, followed carefully. headaches and dizziness, central nervous system (brain, spinal cord, nerve) damage, kidney problems, and cancer. Because the active and inert • Cleaning products should never be mixed, as unintended chemical ingredients vary so greatly in these products, there is no specific maximum reactions can occur. exposure level to discuss. • Paint and similar products should not be stored in the home, including attics and basements, as the gas emitted can move between floors of Minimizing Your Risk the home. In order to reduce the risk from pesticide exposure, there are many things Methylene chloride is a compound found in spray paint, some paint strippers, that can be done. The home should be kept clean and dry to avoid having and adhesive removers. Benzene is a compound found in paints, fuels, pests. The use of chemical pesticides should be eliminated where possible. and is emitted from tobacco smoke and automobiles. Perchloroethylene If they must be used, they should be mixed outdoors and the directions is the most common compound used in dry cleaning. All three of these followed carefully. Animals and plants should be treated outside and 58 Feature 4 - Give Your Clients the Green Light: Simple Ways to Green a Home are known to cause cancer in animals. Use alternatives for products with effects. Common sources to look at initially include combustion sources, methylene chloride or benzene or use them outside or in a very well- smoking tobacco, insulation, radon, building materials, wood products, ventilated area. Also, many dry cleaners have green options that do not use solvents, cleaning supplies, and pesticides. An important part of keeping perchloroethylene. healthy air in the home involves not only eliminating sources of pollution but also maintaining adequate ventilation. The health effects from indoor air pollution can vary greatly from minor effects such as eye, nose, and Asbestos throat irritation and headaches to much more serious chronic effects like lung cancer and other respiratory diseases. Improving the quality of the Asbestos is a mineral fi ber derived from rocks air breathed in the home can help minimize the risk of these health effects. and soil. It has very good fi ber strength and is heat and fi re resistant. Due to this combination of properties, asbestos has been used in building materials, for insulation, and as a fi re retardant. It can be found in fl oor tiles, shingles, and also in car parts where heat from friction can build up. Most people are under the assumption that asbestos is no longer used. This is not true. Asbestos has been banned for certain uses but is still approved for many uses as well.

Sources of Asbestos In the home, asbestos may be found in vermiculite insulation in attics and walls. Seventy percent of all vermiculite sold in the U.S. during most of the 20th century came from a mine in Libby, Montana contaminated with asbestos. If you have vermiculite insulation, it is safe to assume it is contaminated. Asbestos can also be found in fi re-resistant boards or paper around wood stoves, in asbestos tape or materials on water pipes, in door gaskets on furnaces, and in heat-resistant fabrics.

Health Effects Health problems from asbestos come mainly from inhaling the particles released when materials containing the substance are disturbed by demolition or remodeling work. The material containing the asbestos generally must be disturbed in order to release the unhealthy particles into the air. Following exposure, sometimes heath effects take years to appear. Lung diseases are the primary risk of exposure to this dangerous substance. The biggest three diseases that result are: • Lung cancer • Mesothelioma (a rare cancer of the linings of the lungs) • Asbestosis (a progressive, long-term lung disease)

Minimizing Your Risk There is generally no need to be concerned about asbestos unless involved in a remodeling project. Asbestos is most harmful when it is disturbed and the fi bers become airborne from sanding, cutting, sawing, or drilling asbestos-containing materials. These materials are generally best left undisturbed if they are in good condition. If materials suspected of having asbestos may be disturbed during remodeling, it is best to have the home inspected by a trained and accredited asbestos professional. For those who have damaged asbestos materials or are planning to do work that will disturb these materials, a professional should be called to either repair or remove the asbestos. Repair usually involves sealing the asbestos so fi bers cannot be released.

Summary To review what we have learned in this chapter, improving the indoor air quality of the home can be an easy and effective way of increasing the health of the air we breathe. This area is often overlooked, however, as many of these issues cannot be easily detected as in the case of a leaky hot water heater. Often these air quality pollutants are invisible and have no odor, making them easy to overlook. Most sources for indoor air pollution begin with things which release gases or airborne particles into the air. These are then inhaled when people breathe, potentially causing negative health

Feature 4 - Give Your Clients the Green Light: Simple Ways to Green a Home 59 This is an online calculator that will allow you to Part Three: compare your home to other similar homes in similar climates. It only takes a few minutes to complete once you have your information. In order to complete the Energy calculator, you will need your zip code, square footage of your home, the number of occupants, the different fuels used in the home (oil, propane, electricity, etc.) and the last 12 months of utility bills. These are often summarized on monthly There are many good reasons to reduce energy use and conserve energy in bills or can be obtained directly from your energy supplier. the home. The cost of energy has been rising with increasing populations and the associated increase in demand. By reducing the amount of energy The Energy Yardstick gives a score from one to ten with the average home we use, we can save a substantial amount of money. Additionally, by receiving a score of 5. A score higher than fi ve represents a more effi cient using less energy, fewer greenhouse gases are emitted into the atmosphere, home and a score under fi ve means the home is of below average effi ciency. helping to mitigate climate change. Similarly, fewer toxins are added to the Once complete, there are multiple suggestions given to improve your environment when we use less energy and less open land is lost to energy home’s energy effi ciency based on your climate and responses. production. Another good resource, also from the EPA, is the Home Whether you are building a new home from the basement up, renovating Energy Advisor. an older home to be more effi cient, or simply making small changes to By entering your zip code as well as the methods of minimize your energy use, there are many improvements that can be made. heating, cooling, and hot water generation in the home, Making your home more energy-effi cient is a great place to start if you are the tool provides a number of recommended places to beginning the process of greening your home. begin improvements in the home. It will also provide an estimate of the percentage increase in effi ciency that is possible based There are so many ways we use energy in the United States! The largest on the information entered. These suggestions may include such ideas as of these uses is space heating, followed by electrical appliances, water sealing leaks in the home, sealing duct work, replacing ineffi cient heating heating, air conditioning, and other more minor uses. The energy used and cooling systems, replacing water heaters, replacing lights, and so on. for space heating has generally gone down in recent decades as homes It provides a variety of sound options that can be used to create a more are better insulated, have more effi cient doors and windows, and there has energy-effi cient home. been a large number of people moving to warmer climates. Energy for water heating has not changed much, although there are more effi cient hot water heaters available now. The energy used for appliances has actually Energy and the Energy Star Program increased, even though things like refrigerators and washing machines are In 1992, the Environmental Protection Agency (EPA) much more effi cient than in the past. The increase is primarily due to the established the Energy Star Program. The program is rapid increase in electronic appliances like tablets, phones, and computer designed to help consumers and businesses save money and applications we have seen recently. People are simply using more things protect the environment while minimizing climate change that need electricity. from greenhouse gases. Energy use in homes, buildings, and industry represents a full two-thirds of greenhouse gas There is much that can be learned about energy conservation in the home. emissions in the United States. Some appliances use For this chapter, we will focus on a few important areas of energy as a signifi cantly more energy than others to do the same function. By starting point. It is vital to understand the basics of electricity in terms of eliminating these less effi cient appliances and replacing them with more energy and power so intelligent choices regarding its use can be made. Very effi cient ones, we can do much to improve our environment. Appliances recently, there have been signifi cant improvements in lighting technology; that meet the highest energy effi ciency standards are identifi ed and given various options for light bulbs will be discussed in terms of their pros and the Energy Star label as seen below. These products have been shown to cons. Similarly, the options for hot water heaters have expanded, so we will help reduce overall energy use. For example, a clothes washer given the learn the basic differences between these as well. A review of the EPA’s Energy Star designation is about 70% more energy-effi cient than a typical Energy Star Program will help consumers choose quality products that meet model from the early nineties, about 20 years ago. That’s an enormous high standards of energy conservation. This chapter will not focus on space difference and often the cost of a new appliance is mitigated by the energy heating, sealing, and insulation in the home due to the large scope of this savings within a few years. topic. Finally, a variety of simple fi xes will be presented that could make an For those deeply interested in being environmentally responsible, new environmental difference in energy use immediately without the outlaying homes can also earn the Energy Star label if they go through a third-party of much money or effort. Once you start to learn how easy conserving certifi cation. There are two ways a home can be certifi ed this way:the energy can be, you will likely fi nd yourself changing how you think about Prescriptive Path and the Performance Path. The former option uses a the world and your actions. predefi ned set of home improvements, while the latter is based on more customized improvements. In either case, there are four checklists that Evaluating Your Home Energy Use must be completed to gain certifi cation: • Thermal Enclosure System Rater Checklist Most people often want to fi nd ways to save money in their homes. Simultaneously, they would like to minimize their environmental impact • HVAC System Quality Installation Rater Checklist and carbon footprint. The decision to make these changes is often an easy • HVAC System Quality Installation Contractor Checklist one. Deciding where to begin, however, can be overwhelming. The options for greening your home vary greatly in cost and effectiveness. For this • Water Management System Builder Checklist reason, it is important to understand your home energy use so that areas More information can be found on obtaining Energy Star certifi cation for a needing improvement can be identifi ed and prioritized based on cost and home by scanning the code: energy savings.

The Environmental Protection Agency (EPA) has a few outstanding resources to help people assess their home’s energy use and effi ciency. A good place to start is by using the Home Energy Yardstick.

60 Feature 4 - Give Your Clients the Green Light: Simple Ways to Green a Home use will need to be minimized if we are to protect the earth’s climate. Understanding Basic Electric Use Furthermore, accessing coal reserves can involve substantial impacts to the In order to speak knowledgeably about energy use with potential home environment such as are seen in mountaintop removal mining (MTR) where buyers, it is important to understand how appliances use electricity. This the top 400 feet or so of a mountain are removed with explosives, the coal is relatively easy to do; however, there are many misconceptions about mined, and the remains, including toxic mining chemicals, are often electricity terms. Not to worry, though; we will not be going back to physics dumped in the valleys where they contaminate water sources and decrease class to learn about resistance, voltage, and Ohm’s Law! This section will biodiversity. Cancer rates among humans in Appalachia where this is a simply focus on developing a clear understanding of the difference between common procedure are 50% higher than average. a watt (W), a kilowatt (kW) and a kilowatt-hour (kWh). It will also explain how to compare the energy use and cost of appliances over time. Natural Gas Natural gas, the second largest source for electrical generation, is another Energy is the ability to do work. Energy represents an amount, like distance fossil fuel also fraught with potential problems. Like coal, burning natural does. Electrical energy represents the fl ow of electrons from the energy gas creates greenhouse gases and increases the rate of climate change. source to the appliance. The more electrons fl ow, the more electricity Furthermore, drilling for natural gas has been very controversial due to (energy) is used. Just like distance can be measured in miles or kilometers, the use of “fracking” techniques and chemicals. Many countries around energy can be measured in many units such as calories, joules, BTUs, or the world have banned or highly regulated this process. Fracking is short kilowatt-hours (kWh) in the case of electricity. You pay for electricity for “hydraulic fracturing” and involves driving potentially dangerous based on the total energy used, which appears as kWh on the bill. $0.11/ chemicals, sand, and water into the earth to create small cracks through kWh is not an uncommon price. which the natural gas can fl ow to the surface. Probably the largest drawback to fracking is the potential for contaminating drinking water in wells and Power is the speed at which energy is used. Power represents a rate. An other groundwater sources as the fracking chemicals cannot be controlled electrical appliance will require a certain amount of energy each second easily once driven underground and can infi ltrate well water. in order to work properly. Electric power is measured in watts (W) or kilowatts (kW). A watt is defi ned as one joule of energy used per second. A kilowatt is 1000 watts. Electricity Sources - Nuclear and Hydropower Example: A family has two lamps in their den. The red lamp has a 60 W Nuclear Power (0.06 kW) incandescent light bulb and the green lamp has a 10 W (0.01 kW) LED light bulb. The red lamp uses 6 times more energy every second Nuclear Power is the third largest source of electrical generation in the the lights are on. Let’s assume each lamp is on for 3 hours every day for a United States at nearly 20%. The benefi ts and risks of this energy source year or 1095 hours total. To determine the energy used by each, a simple are signifi cant. Since the process generates power through nuclear reactions formula is necessary: as opposed to combustion of a fuel source, there are no greenhouse gases produced as there are with coal and natural gas. Energy (kWh) = Power (kW) x Time (h) Red Lamp: Energy = 0.06 kW x 1095 hours = 65.70 kWh Furthermore, nuclear power is substantially more effi cient than these fossil Green Lamp: Energy = 0.01 kW x 1095 hours = 10.95 kWh fuels as the same power can be generated with a much smaller amount of starting material. The risks, however, are also substantial. The waste If we assume consumers pay $0.11 per kWh, the red lamp will cost material from these reactors can be radioactive for more than 10,000 years $7.23 for the year and the green lamp will only cost $1.20 for the year. and needs to be stored safely. Nuclear power plants can have meltdowns Furthermore, since it uses a fraction of the electricity, this means much less or near meltdowns; Three-Mile Island (1979), Chernobyl (1986), and coal or natural gas is burned to produce the energy. When this is applied Fukushima (2011) were three reactors that had serious breakdowns. It over all of the light bulbs used in a home, the fi nancial and environmental was estimated that over 4,000 people could get terminal cancer from the costs are minimized and the savings can be substantial. Chernobyl incident.

Hydropower Electricity Sources - Coal and Natural Gas At 7%, hydropower is currently the largest renewable source of electrical Of all the power used in the United States, about 40% is used to generate generation in the U.S. To generate this power, rivers are dammed and the electricity. Electricity runs our appliances, lights our buildings, and fl ow of the water is used to turn a turbine which is connected to a generator powers our tools. Considering that all we have to do to power an electrical to create electricity. Like nuclear energy, hydropower does not exacerbate appliance is simply plug it into an outlet, it is easy to overlook the source of climate change since greenhouse gases are not produced. Water is a electrical power generation. As of 2012, 37% of electricity was generated renewable and safe resource, so toxin pollutants are minimized. However, by burning coal, 30% from natural gas, 19% from nuclear power, and 7% in order to get hydropower, dams must be built. When this occurs, from hydropower. Other renewable energy sources only account for about large natural areas are fl ooded destroying the original environment and 5% of the overall demand, so there is much room for improvement. Today’s biodiversity of the area. The natural water fl ow of the river is drastically homeowners have more green options than ever when it comes to choosing a changed which has affects downstream on ecosystems which rely on that power source. By contacting your electricity provider, you can often switch consistent fl ow of water. to purchasing green power that is generated by wind, solar, geothermal, or biomass. In some cases, you can also be completely independent of the power grid and generate your own electricity. Electricity Sources - Wind, Solar, Coal Geothermal and Biomass Coal is a fossil fuel burned in coal-fi red power plants to Wind generate electricity. It is the number one source of mercury Wind can be used to generate electricity much like water behind a dam, contamination in the world. Mercury has been shown to the difference being that the turbines are turned by the movement of air as cause severe problems with neurological development in opposed to water. Over 3% of electricity in the United States is generated children and fetuses. Burning coal is also a major by wind. This source does not generate greenhouse gases and is renewable. contributor to greenhouse gases and climate change and its

Feature 4 - Give Your Clients the Green Light: Simple Ways to Green a Home 61 We will not run out of wind as long as the sun exists. Some of the negatives recycle CFLs after their life so the small amount of mercury in them can be of wind are that the turbines are sometimes seen as scars on the landscape, handled properly. and those living near the turbines complain of excess noise. Also, because wind turbines can only generate electricity when the wind blows, this Light-Emitting Diodes (LEDs) will not likely be the primary source of energy unless electricity storage potential increases. LEDs are starting to appear on the market after years of development and anticipation. These have many Solar Power advantages over other light bulb types. LEDs produce light via semiconductor technology when an electric Solar Power is responsible for less than 1% of the electricity generated in current is passed through them. Unlike incandescent and the U.S. It uses the energy from the sun to generate electricity without the CFL bulbs, LEDs do not burn out. They do come to the need for a fuel and without generating greenhouse gases. Like wind power, end of their useful life at some point, however, as over it is limited in that power can only be generated when there is some sun time they will dim. Once they have lost 30% of their light shining; however, energy from the sun is free. Batteries are used to store output, they are considered to have outlived their the power that is generated. The cost of the solar (photovoltaic) panels and usefulness. Also different than other bulbs, LEDs must installation is not cheap, however, and may cost upwards of $10,000 for a contain a “heat sink” which is a device designed to absorb home to go totally off grid. any excess heat produced and keep the bulb working properly. Any LED with the Energy Star label has been tested to be sure the Geothermal and Biomass heat sink is adequate. The label also signifi es the bulb will consistently produce white light, produce the advertised light output (lumens), and has Both of these are also now being used to generate electricity. Geothermal at least a three-year warranty. uses heat from underground and biomass generates electricity by burning things such as forest slash, agricultural wastes, and wood waste. In both cases, the heat is used to turn a turbine connected to a generator. People may be hesitant to pay the extra money for CFLs or LED lights; however, the cost savings in electricity over the lifetime of the bulbs is substantial and more than makes up for the initial investment, not to mention

Light Bulbs the fact that the environmental impacts are much less because these bulbs use a lot less energy and need replaced far less often. About half of all the energy used in a home comes from things that are plugged into the wall. These things include televisions, microwaves, lights, refrigerators, freezers, computers, and a host of other appliances. One area For example, a typical incandescent bulb lasts for 1200 hours of use before in which homeowners can quickly save energy and money is in the area of burning out. A CFL has a life of about 10,000 hours and many LEDs last lighting. Currently, no pun intended, there are three options for light bulbs 50,000 hours before needing to be replaced. One LED may be expensive, with large differences in their environmental impact. but you would need to buy approximately 40 incandescent bulbs to last that same amount of time. Over the expected lifetimes of these bulbs, both CFLs and LEDs will save a similar, substantial amount of money over Incandescent Bulbs incandescent bulbs; however, the LEDs have no mercury and since their life Traditional light bulbs, called incandescent bulbs, are is so long, they require only one bulb instead of multiple ones, decreasing easily recognizable as the bulb that appears above your the impacts of creating new bulbs as well. head when you have a great idea. They are shown in the image above (left) for those who may have never had a great idea. These bulbs represent one of the great Water Heaters inventions of our time; however, they are extremely Heating water is one of the largest uses of energy in the home. Before ineffi cient. 90% of the electrical energy that is used for buying a water heater, one needs to consider both the type and size of the these bulbs is lost as heat, not light. Do you remember water heater as well as the type of fuel to use. The correct size for the burning yourself the last time you tried to remove one water heater will depend on the number of people in the house and their that was still hot? That heat is all wasted energy. personal use. The choice of fuel will largely depend on availability and prices; propane, natural gas, and electric are three options. Compact Fluorescent Light Bulbs (CFLs) Compact fl uorescent light bulbs or CFLs (shown in the Storage type water heaters keep water heated in a large tank. They are the image above, center) are far more energy-effi cient than cheapest to purchase; however, they are the least effi cient as they keep water incandescent bulbs and last longer. CFLs use about 25% of at a specifi c temperature whether it is being used or not. Thus, this kind of the energy that a traditional bulb uses for the same amount water heater keeps a tank of water hot constantly. The best water heaters of light. In other words, a 60W traditional bulb will use the of this class are well-insulated and will feel cool to the touch. Insulating same amount of energy in one hour that a 13W CFL uses in covers can be purchased to help save energy. They last 10-15 years. four hours. Overall, with bulb and electricity costs included, you will save about $40 per bulb over the CFL’s lifetime (5 Tankless water heaters (on-demand) heat the water when it is needed as years or so). This estimate includes the cost of the bulbs. opposed to keeping a full tank of water hot all the time. They are more effi cient and more expensive than storage heaters, but the initial cost and Because most electricity is generated by burning fossil fuels, CFLs reduce installation can make the overall fi nancial savings small. One limitation the amount of greenhouse gases entering the atmosphere by 75% simply by with these is that there is a limit to how much water can be heated at one using less electricity. Using traditional light bulbs creates 4 times as many time, so taking a shower at the same time as someone else may cause the greenhouse gases! water to cool. They last about 20 years.

There is a common misconception that CFLs add more mercury to the Heat pump water heaters heat water by moving heat from one place to environment than traditional bulbs since CFLs contain a small amount of another as opposed to generating heat specifi cally for water. When placed the element. However, the primary source of mercury contamination in the in a hot area like a furnace room, they draw heat from the surroundings U.S. is from electricity production by coal-fi red power plants. Switching and apply it to heat the water. Because they draw their heat from the to CFLs signifi cantly reduces mercury contamination simply by using far surroundings, these are not recommended for installation in areas that less electricity to run the light bulbs; however, it is important to properly regularly drop below 40oF. Their cost is similar to tankless water heaters. 62 Feature 4 - Give Your Clients the Green Light: Simple Ways to Green a Home Solar hot water heaters use energy from the sun to heat hot water. They are fairly expensive compared to other types; however, they last about 20 Summary years and are 50% more efficient than traditional storage heaters. Since A review of what we have learned in this chapter: a major area in which one they do not work well without sunshine, these are often installed in line can improve the environmental impact in the home is by making choices to with a storage heater such that the solar-heated water is delivered to the improve energy conservation and minimize energy use. Society’s demand storage heater already hot and therefore uses very little extra energy except for energy continues to rise as population increases. In order to move on those cloudy days. forward with energy conservation in mind, there are a number of things that can be done. Starting with any number of online tools to help understand Tankless coil and indirect water heaters use a home’s furnace to heat hot how one is using energy now can really help in deciding where to begin. water. Tankless coil heaters are an on-demand type of heater. When hot Understanding how electrical energy is used is important so one can water is needed, it is heated in coils that are installed within the furnace. make choices that will use the least amount of energy without impacting They work better when the furnace is being used in cold months but are performance. The Energy Star label from the U.S. Environmental Protection generally considered inefficient, especially in warmer climates. Indirect Agency helps this process. It is awarded to those products which meet water heaters are similar but are combined with a storage tank, and, high standards for performance and conservation; it can help consumers therefore, the furnace comes on less often. These are more efficient than make intelligent choices regarding energy. With many new products on tankless coil heaters especially when combined with an efficient boiler and the market including light bulbs, water heaters, and other appliances, it is insulated tank. important to understand how to compare them in terms of performance, energy use, and expected life. In addition to making changes to appliances, there are a large number of simple, inexpensive things homeowners can Quick Energy Conservation Fixes do to save energy without much effort. A great place to start is to simply choose a few of these that make sense. Consider these twenty cheap and simple fixes for your home to conserve energy. 1. Turn off the lights when not in the room instead of leaving them on. 2. Set your hot water heater thermostat at a temperature such that when you shower, you do not need to add cold water. 3. To conserve heat, leave shades open during daylight hours and closed at night. 4. Keep the refrigerator between 36 and 38oF and the freezer between 0 and 5oF. 5. Use a thermostat to let the temperatures in your house drop when you are away. 6. Use power strips for electronics as electronics often use power even when not in use. 7. Use a Kill-A-Watt: a hand-held device used to measure the actual energy usage of appliances. Check your local library to see if they stock them. 8. Digital clocks on stoves, microwaves, and appliances can often be turned off. 9. Turn off the burners on the stove a little early when cooking with boiling water since the water will retain its heat for a time and continue to cook. 10. Close fireplace and woodstove dampers when not in use to avoid air flow. 11. Dry clothes on a clothes line. Do laundry on sunny days. 12. Cook food with lids on the pans to keep heat in. 13. Wash clothes in cold water. 14. Use fans and ceiling fans in addition to air conditioning to help cool the home. 15. Put on a sweater before increasing the temperature in the home. 16. Seal air leaks around doors and windows with weather stripping and caulking. 17. Repair leaks in duct work. 18. Clean the lint screen every time you use the dryer. 19. Have the filter in your furnace replaced regularly. 20. Turn your hot water heater down when you will not be using it for a while.

Consider: How about this list? What have you tried? What did we miss? What will you do differently after reading this chapter?

Feature 4 - Give Your Clients the Green Light: Simple Ways to Green a Home 63 FEATURE 4 PRACTICE - GIVE YOUR CLIENTS THE GREEN LIGHT

NOTE: You are not required to answer the practice questions below to complete the 14-hour course. Their intention is to help you prepare for your Final Exam.

Final Exam Questions can be found on page 79 or online at www.McKissock.com/FLRE.

1. About how many gallons of water does the average family in the United States use per day? a. 1 gallon b. 100 gallons c. 300 gallons d. 1,000 gallons

2. Where do most problems with indoor air quality start? a. Indoor pollution sources b. Automobile exhaust c. Underground radiation sources d. Greenhouse gases

3. The program created by the United States Environmental Protection Agency to help consumers locate energy-efficient products is called: a. Energy Star b. LED Star c. Efficiency Star d. Sea Star

4. Electrical energy, which is the amount of energy used, is measured in: a. Kilowatts b. Lumens c. Kilowatt Hours d. BTUs

5. Carbon monoxide causes health problems by: a. Causing swelling in the throat b. Replacing oxygen in the bloodstream c. Exposing one to radiation d. Causing mutations in genes

Ready to take the Final Exam? • Go to www.McKissock.com/FLRE or scan the QR code with your smartphone to get started. • Purchase the 14-Hr Online Correspondence Course and complete the Final Exam online. • Print your certificate instantly. OR

• Answer Final Exam Question at end of this book and mail or fax your completed forms in. Answers: 1c, 2a , 3a , 4c , 5b , 4c , 3a , 2a 1c, Answers:

64 Feature 4 - Give Your Clients the Green Light: Simple Ways to Green a Home FEATURE 5

A Home Buyer’s Guide to Credit Scores

The best time to plant a tree was 20 years ago. The next best time is now. ~ Chinese Proverb

This Chinese proverb rings true about credit reports too. Ideally, a homebuyer has been preparing to buy a home for years: saving a healthy down payment, eliminating debt, and boosting their credit score as much as possible. Unfortunately, many buyers in the market have not had the opportunity to do such things, so what can they do now?

Being able to counsel people on improving their fi nancial standing can not only improve your service to current clients, it can be used as a marketing tool to attract and help new clients!

Learning Objectives Upon completion of this feature, you will be able to:

1. Summarize the basic information asked for and provided by a credit score 2. Discuss how to minimize the risks of identity theft 3. Identify the four basic types of credit 4. Discuss how FICO® credit scores are calculated 5. Describe how FICO® credit scores affect consumers 6. Identify actions consumers can take to improve credit scores 7. List the expenses, over and above PITI, of routine homeownership 8. Discuss the benefi ts of a homebuyer using a fi nancial tracking tool 9. Estimate the potential closing costs for a homebuyer

Customer Testimonial “Very easy to follow along with. I felt the course gave good information about products and other sources that we may use in our business such as website to refer clients to.” ~ Amanda, Florida

Feature 5 - A Home Buyer’s Guide to Credit Scores 65 Identity thieves can obtain personal information a number of ways, Part One: including: • Taking credit card bills and bank statements from trash cans All About Credit Reports • Stealing wallets or individual credit cards • Reading credit card numbers over a person’s shoulder as they hold their card out for a purchase In this chapter, we will cover credit reports. What is contained in a credit • Employees of a store stealing information report? Which companies produce these reports? How can a consumer obtain a copy of his or her reports? Can credit reports be used to help protect • Email “phishing” in which an individual sends out many emails against identity theft? These are common questions that will be addressed asking people to verify an account. They may be asked for login in this chapter. IDs and passwords, social security numbers, home address, phone numbers, etc. Keywords • Thieves can take credit card offers from mailboxes, apply for the card, then take the card from the mailbox (or simply checking mailboxes for • Credit Report envelopes with cards) • Identity Theft • Taking boxes of bank checks from mailboxes • Revolving Credit • Sophisticated hackers can break into retailers’ electronic files and • Installment Loans steal information, as what happened to the retail chain Target in late 2013 • Finance Company Accounts

• Mortgage Loans People can help protect their information with a few easy steps, including: • Opt Out • Obtain the free credit reports once a year from all three Reporting • Credit Inquiries Bureaus • Ask to pick up checks and bank cards directly from the bank • Be careful when holding credit cards, so the numbers are not visible The Credit Report • Shield the number pad when entering PIN numbers The credit report is the basis upon which potential borrowers are assessed. • Check bank and credit card statements regularly to see if there are This can affect interest rates offered, possible extra points a mortgage unusual charges borrower may have to pay, and even if the potential borrower can be approved for a loan at all. • Shred credit card bills and bank statements before throwing them away

Anyone with a social security number or tax ID in the United States has • Opt Out of credit card offers by going to this website: www. the right to download one free credit report from each of the three big optoutprescreen.com, or call (888) 567-8688 credit bureaus once every 12 months. Many websites will offer “free credit • Keep the number of credit and debit cards to a minimum reports”, but they usually require credit card information and will enroll the • Do not carry social security cards and unnecessary credit cards in a user in a credit monitoring service complete with recurring monthly charges wallet until the consumer cancels. Figuring out how to cancel this service is often very difficult and time consuming. • Place all important documents in a safe or lock box

This is why in 2003 the Fair and Accurate Credit Transactions Act (FACT) was enacted to allow consumers to access their free credit reports, once a year, with no strings attached. Case Study: Target During a period from November 27 through December 15, 2013, hackers Anyone can go to www.AnnualCreditReport.com to instantly download were able to obtain access to Target’s digital records (Target, 2013). These their free credit reports. If web connections or internet security is a concern, hackers were able to get credit card numbers including expiration dates consumers have the options of calling or mailing a form to the Annual and verification codes, debit card information, names and addresses. This Credit Report Service: (877) 322-8228 information was then sold to other thieves on the internet. Unscrupulous people could obtain victims’ credit card information for less than $100, then charge against the card until the card holder or Credit Company discovered You can mail a copy of this form to: the fraudulent charges and cancelled the card.

In response to this incident, Target offered 12 months of credit monitoring for free (including credit reports from all three bureaus). In this case, consumers did nothing reckless. The retailer had excellent internet security, and yet hackers were still able to break in and take the information. Annual Credit Report Request Service P.O. Box 105281, Atlanta, GA 30348-5281 Target was extremely proactive in letting consumers know about the infraction. In other cases, victims of identity theft may not know for some time. Many thieves do not make outrageous charges. They may simply Identity Theft charge gas and groceries, which may go unnoticed for a long time. Identity theft is the act of obtaining key information from an individual for the purpose of using his or her credit to make purchases or steal money.

66 Feature 5 - A Home Buyer’s Guide to Credit Scores Also included on the report is a History of Credit Inquiries. There are many Anatomy of a Credit Report instances where companies will wish to check a credit history. Sometimes Credit reports are assembled and maintained by three major credit reporting these credit checks are directly authorized by the individual; other times, a bureaus: person has no idea that his or her credit has been checked. The credit checks are divided into two sections to reflect this. The first section contains credit Experian: www.experiean.com checks directly authorized by the individual. This happens when someone TransUnion: www.transunion.com applies for store credit, or a loan, or even fills out an application to rent housing and authorizes the landlord to do a credit check. Equifax: www.equifax.com

There are a few other credit reporting bureaus, but they are not used nearly On the other hand, sometimes companies do credit checks without the as frequently as these three titans. These credit bureaus collect information individual’s knowledge. This may commonly occur if an individual does not about a person’s credit history: credit cards, auto loans, student loans, “opt out” of special offers. mortgages, judgments, and so on. They maintain this credit history for years, but the last two years (24 months) is the timeframe of the most importance. The last section has the contact information on file for the individual, along with his or her employer, and a section for the individual to make a statement Of particular interest are the following sources of credit: about anything on the credit report. Revolving Credit: Credit Cards and Retail Accounts (store credit cards) Credit reports give a detailed account of a person’s credit history and current Installment Loans: Loans with regular payments, like car loans or student standing. In the past, creditors would look at an entire report to make their loans own judgments on the credit worthiness of a credit applicant. Looking at the sample credit report, you may have noticed that it looks completely different Finance Company Accounts: These are high-interest loans that are than what your report may look like. There is so much variation from person generally offered to high-risk borrowers. These types of accounts are also to person, it is difficult to have consistent standards when deciding on commonly offered to consumers who wish to finance furniture, appliances, whether to grant credit or not. Credit scores were developed to calculate elective medical procedures, etc. They may have zero-interest “same as a more consistent measure of credit worthiness. They are not included in a cash” offers if paid in full within X months. If a borrower does not pay in credit report (and will be covered in the next section). full, the interest rates are significantly higher than market rates. Having this type of credit is not generally seen as a favorable item on a credit report.

Mortgage Loans: First mortgages and larger home equity loans Summary This chapter covered the basics of a Credit Report, and how to obtain a free One important benefit from obtaining the free credit reports once a year is report from each of the three major reporting bureaus once a year. Next, we to check to see if any identify theft occurred. Are there credit accounts that discussed the dangers of Identity Theft and how to minimize the chances of were opened fraudulently? Are credit balances higher than expected? Have it happening. Credit reports are useful tools to check for identity theft and for there been credit inquiries from organizations unknown to the individual? monitoring the basic types of credit (Revolving Credit, Installment Loans, Finance Company Accounts, and Mortgage Loans). Finally, an easy way to Opt Out of credit offers was covered, along with other ways to minimize Sample Credit Report Credit Inquiries. Taking a look at a sample credit report from www.Experian.com shows many things that can appear on a credit report. The credit bureaus are highly accurate, but there may be some inaccuracies or inconsistencies in credit reports, so it is a good idea to obtain all three of the free reports once a year to verify that the information is correct and to check to see if there has been identity theft.

The top of the report contains the name and contact information of the subject individual. Next is a section on Potentially Negative Items. This may include late credit items, bankruptcy, liens, and court judgments. This section shows the source and amount of indebtedness.

Ideally, there would be nothing in this section, but if there is, it is in the best interest of this individual to get these items paid.

Next are Accounts in Good Standing. Having some debt is not necessarily a bad thing on a credit report. Being able to manage some debt in a responsible way establishes a credit history. This section lists all sources of credit going back 5 years or more. Many of these accounts may be closed, but will still appear on the credit report. For open accounts, the Credit Limit, Current Balance, and 24 months of Payment History will be listed. As stated earlier, the last 24 months are very important months on a credit report. Late payments over the last 24 months are included, and coded as 30 Days Late, 60 Days Late, or Over 90 Days Late. Items are generally reported late once the grace period after the due date has passed.

If a mortgage borrower has the opportunity to spend 2 years improving his or her credit report, one key component is to make sure he or she pays at least the minimum payment on time for every account he or she has.

Feature 5 - A Home Buyer’s Guide to Credit Scores 67 Part Two: FICO Scale

Credit Scores 720 – 850: Excellent It is estimated that slightly less than 50% of the population has an excellent credit score. This is a group of people who have generally been at their current job (or current line of work) for more than 2 years. These people pay Given the length and variability of credit reports, there was a demand at least the minimum payments on their debts on time every month. These for a more consistent, more effi cient way to measure credit worthiness. people generally carry a balance of less than 30% of their available revolving Thankfully, there is now a set of Credit Scores. These scores take all the credit (i.e. credit cards), and they do not open new credit accounts frequently, information in a credit report, put it into an algorithm, and compute a credit or have many credit inquiries. score number, making credit assessments much more simple.

680 – 719: Good In this chapter, we will cover Credit Scores. What do they mean? How many different scores are commonly available? How are they calculated? What can a consumer do to raise his or her credit score? Keywords • Credit Score • FICO Score • Credit Ratio • Revolving Credit • Installment Loans

The Credit Score(s) Most consumers have a Credit Report that is pages and pages long. In addition to the length of the credit report, there is a great deal of variation from person to person in terms of what appears on the report. It was clear that having a way to evaluate consumers’ credit worthiness in an easier way would be of great use to many creditors, employers, landlords, insurers, lenders, etc. FICO did just that, by generating a number to represent a consumer’s credit worthiness. We call this The Credit Score.

What is FICO? FICO: Fair Isaac Corporation. This is a publicly traded corporation that This group contains approximately 15% of the population. These people provides software that utilizes information in a credit report to calculate may be doing almost everything right, but have a lowered score because credit scores. of one or more minor issues. Perhaps one of their credit cards has a high balance. They may have been late on a payment in the last 2 years, or may have had a number of recent credit inquiries. There are a number of different credit scores available, but FICO scores are used by over 90% of creditors in the United States. 620 – 679: Average

FICO actually calculates 49 different credit scores. The different scores are It is interesting that this group is called average. About 65 – 80% of designed to suit different needs. For example, the score used to assess if a Americans have better credit scores than people in this group. Things that consumer should be granted a $500 store credit card is different than that people commonly do to end up in this category are to open up new credit used when deciding to grant a car loan, which is different than what is used accounts. Perhaps these people like to save 15% off their fi rst purchase at a by a mortgage lender. Each credit reporting bureau has its own method of department store, or they wish to take advantage of low introductory rates calculating scores (although they are very similar to one another). The way for balance transfers on credit cards. These people may have large debt loads scores are calculated are also updated frequently, so it doesn’t take long for from car loans or student loans. They may also have too many credit cards so many different scores to be available. and/or have high balances on those cards. Being late or missing minimum payments may also contribute to these lower scores.

The basic FICO® credit score is the one most frequently used. This is the consumer credit score which is most used by credit card companies. This is 580 – 619: Poor also the score that consumers see if they request a credit score. This group contains about 10% of Americans who likely have a combination of factors listed in the “Average” categories. This group of people may have This score ranges from 300 – 850, with 300 being high risk/poor rating, and a very diffi cult time obtaining credit for car loans and mortgages. 850 being low risk/excellent rating. Below 580: Bad More specifi cally, the scores are grouped into ranges for Excellent, Good, This group contains the bottom 10% of the population. This group likely Average, Poor, and Bad. has a combination of factors described in the “Average” group, plus a foreclosure or bankruptcy on their report. Most credit issues can be cleaned

68 Feature 5 - A Home Buyer’s Guide to Credit Scores up over time; however, foreclosures and bankruptcies tend to damage credit could help them save $70 a month and .4% interest on the loan. That’s pretty scores for many years, if not permanently. powerful considering you are already helping them fi nd their dream home! This could be one more tool that you could add to develop raving fans out The average (mean) FICO® score in the United States in 2012 was 689. of your clients.

Luckily, for most Americans, it is possible to increase their credit score with a few easy steps. Some credit scores can go up quickly, while others may Mortgage Interest and the Debt-to-Income take a little more time to resolve. We will cover these steps a little later, but fi rst it is useful to know WHY we may want to increase our credit scores. Ratio Staying with the above example, we know that lenders base their pre- How Do Credit Scores Affect Consumers? approval amounts on the debt-to-income ratio: Minimum Monthly Payments on Debt ÷ Monthly Gross Income = Debt-to- Credit scores affect consumers in so many ways. Landlords, employers, Income Ratio and creditors frequently look at these scores for their current and potential customers. Having a favorable credit score could mean the difference between being offered desirable rental housing, job, or loan… or not. This critical ratio shows the borrower’s ability to take on more debt. Mortgage lenders generally will not lend more than what would constitute 28% of a person’s monthly gross income. If there is other debt, mortgage For the real estate licensee, a buyer’s credit score can be crucial to lenders will generally not originate a loan that causes a borrower’s total debt- determining which properties the buyer can afford. Credit scores can affect to-income ratio to exceed 36% (mortgage plus other debts). the loan amount, interest rates, required down payments, and if a potential buyer can be approved for a conventional mortgage at all. As shown in the table previously, a person’s monthly mortgage payment on a given property can vary dramatically based on his or her credit score. The following example was taken from www.myfi co.com and refl ects 30- The borrowers with higher credit scores are charged a lower mortgage rate, year fi xed mortgage rates on a $300,000 loan based on Jan. 31, 2014 market which means their monthly payment is lower for any given loan amount. rates. People with a FICO® score above 760 can borrow up to $360,000 and have their monthly payment be the same as an individual with a FICO® score Example: below 640 who borrows $300,000. $300,000 loan, 30-Yr fi xed mortgage In other words, people with better credit scores can borrow more money with FICO® score APR Monthly payment a lower interest rate than those with less desirable credit scores. People with 760-850 3.917% $1,418 excellent credit scores may be able to afford a more expensive property than those with the same income, but lower credit scores. 700-759 4.139% $1,456 680-699 4.316% $1,487 In addition to that, banks may require larger down payments from those 660-679 4.530% $1,525 individuals who are seen as a credit risk. If a borrower’s credit score were 640-659 4.960% $1,603 improved, he or she may be able to borrow more money for a lower interest rate and less money down on a property. Taking a few steps to improve a 620-639 5.506% $1,704 credit score can be well worth it!

As can be seen here, a borrower with a poor credit score would pay $286 a month more than a borrower with an excellent credit score on a $300,000 Anatomy of a Credit Score loan! National averages show that lenders may charge more than 1.5% additional interest as a risk premium to those individuals with lower credit Now that we see how important credit scores are to real estate borrowers, scores. you may be asking how these seemingly magical credit scores are calculated. The simple answer is that no one knows exactly how they are calculated. The credit bureaus and FICO® keep that information top secret, like the formula What if a married couple is applying for a together? What if to Coca Cola, or what’s in the Special Sauce on a Big Mac. We know what one spouse has an excellent score, and the other has an average score? the ingredients are; we just don’t know the precise amounts of each.

If two individuals are applying for a joint mortgage loan, which credit score This is what we do know (according to myfi co.com): will be the one used to calculate the interest rate? a) The higher score b) The lower score c) An average of the two scores d) Neither score, as mortgage rates are the same for all borrowers

As a real estate licensee, you are probably hoping that a) is the correct answer, but have a feeling that b) is the correct answer. Mortgage lenders have become much more adverse to risk over the last few years. They will generally weigh the lower credit score much more heavily and base their mortgage rates on the score that is lower of the people applying jointly for a loan.

Takeaway: Refer to the example above. By providing knowledge to your clients on how to raise their FICO® score (let’s say from a 675 to 700), you Feature 5 - A Home Buyer’s Guide to Credit Scores 69 When looking at these categories, keep in mind that the last 2 years (24 For example, if a consumer has a retail account for a local department store months) is the most critical period of time. Information dating back many that has a ratio of 95%, it could signifi cantly impair a credit score; even if years is kept on a credit report, and foreclosures and bankruptcies can the credit limit for this one account is $500, but the consumer has a total of damage credit from anywhere between 7 years and permanently. For most $25,000 of available credit and an overall credit ratio of 10%. credit events, the previous 24 months is the period of time that is used in order to calculate a credit score. Let’s look at two different consumers with similar credit accounts, but different distribution of balances: We are going to be looking at each one of these factors a little more closely Charles Charlene on the next few pages. Visa 2000/5000=40% 200/10000 = 2% Master Card 3000/5000=60% 100/5000 = 0.5% Payment History - 35% of Credit Score Sears 10/1000 = 1% 1020/1000 = 102% Total Balance $5,010 $1,320 This category is weighted the most heavily and includes factors such as: Available Credit $11,000 $16,000 Overall Credit Ratio 5010/11000 = 45.5% 1320/16000= 8.25% • Did the amounts paid at least cover the minimum Average of Credit Ratios 33.70% 34.80% monthly payments?

• Are accounts up to date? Comparing Charles and Charlene, we see two different borrowers. Despite the fact that Charles has charged 45% of his total available credit, Charlene • Were there “slow pays”? (payments past due dates) may have a similar average credit ratio! Charlene owes less and has a higher amount of available credit, she has used all of the available credit (plus a • Were there missed payments? little more) on her Sears card. This one small card pulls the average of all credit ratios up - even though Charlene has used only 8.25% of her total available credit. With revolving credit, the minimum monthly payment must be paid on time each month. Unlike some loans, borrowers cannot make a double payment one month, and then skip the next. If a consumer is not able to make the Why would one small card make the “Average of credit ratios” look slightly minimum monthly payment on time every month, it is a good idea to call the worse than someone who has a higher balance on multiple cards? The fact credit company and try to set up a better payment plan. that Charlene has a high credit ratio on one card shows that Charlene may not be able to handle credit wisely.

It is unclear how having credit cards with no pre-determined limits affects Amounts Owed - 30% of Credit Score these ratios. They do factor in, but it is hypothesized that the current balance may be used as the credit limit in calculating credit ratios. “Amounts owed” is a complex set of criteria. The actual dollar fi gure owed is only one facet of this portion of the credit score. While the Some people may wish to reduce the number of open credit cards and cancel total amount owed is certainly important, a some they no longer wish to use. Consumers should be very careful about critical component of this category is the closing accounts that have positive balances. If such an account is closed, Credit Ratio. Simply stated, credit ratio is the credit balance divided by the then the credit limit immediately goes to $0, which will affect the credit credit limit: ratio, making it appear that the consumer is over his or her credit limit on that account. Credit Balance ÷ Credit Limit = Credit Ratio Another important factor is the number of open accounts. For example, if a consumer had a $5,000 credit limit, and held a $2,000 balance, his or her credit ratio would look like this: Saving 10 or 15% off a purchase for opening a retail credit card may sound good; however, doing so hurts credit scores – having a small number of 2,000 ÷ 5,000 = .4, or 40% accounts can help to build a credit history. Having more than 3-5 open accounts shows that the borrower may be a serious credit risk. Even if the Credit Ratio open accounts have small or zero balances, too many open credit accounts is • <30% = Low Risk (Ideal) harmful to a credit score • 30-49% = Medium Risk • 50-75% = High Risk Length of Credit History - 15% of Credit • 100% or more = Very High Risk Score

What if a consumer has more than one credit card? What if the credit card How long has the consumer had credit accounts? does not have a pre-set limit? What if the consumer has “maxed out” one How old is the average account? How old is the credit card, but has zero balances on other cards? newest account?

These are common questions that are diffi cult to answer without knowing the If a consumer frequently opens and closes credit exact formulas used by the credit reporting bureaus. Many experts deduce accounts, it is detrimental to their credit score. To optimize this category, that not only does the overall credit ratio matter, but also the individual credit credit accounts should be 5 years old or older. Taking advantage of an ratios. introductory credit card offer to transfer balances may save money, but it could hurt a credit score.

70 Feature 5 - A Home Buyer’s Guide to Credit Scores Consumers may need to take out new loans to buy a car or fi nance dental • Open new credit card accounts to transfer balances to lower rate cards braces requiring new accounts to be opened. If at all possible, consumers • Close old accounts so that the average age of open accounts is less interested in maximizing their credit score are best off attempting to keep than 5 years longstanding credit cards open, rather than ditching them for new accounts. More about new credit cards is covered in the next section. • Apply for a few loans, hoping to shop around for the best rate • Open retail credit accounts to receive discounts Rather than rushing to open a new credit card with a low introductory • Keep overall credit balances low, but have one account with a high interest rate, try calling credit card companies that have open accounts to credit ratio negotiate interest rates. It has been estimated that credit card customers pay hundreds of dollars on average to acquire a new customer. Companies may • Close a credit card account before paying off the balance in full be willing to go to great lengths to keep existing customers! A quick phone • Have many open credit accounts – even if they have zero or low call may result in a reduced interest rate, or even matching a 0% balance balances transfer offer! • Not making payments on time -- skipping a month, paying late, or paying less than the minimum monthly payment New Credit - 10% of Credit Score • Allowing a disputed charge go to collections, rather than correct it This category not only includes new accounts, but also includes the number of credit inquiries, even if no new account is opened. Specifi c Actions to Improve Credit Scores Here are some ways to improve a credit score: Some of the more popular ways people unknowingly hurt their credit scores • Be sure to make at least the minimum monthly payments on time include: every time • Opening up retail store credit to get introductory offers (like 10% off • Do not let credit accounts go to a collection department or be sold to fi rst purchase) a collection company • Shopping around for loans on homes or cars • Limit the number of open credit accounts to between 3 and 5 accounts • Mailing in “pre-approved” credit offers • Keep credit balances low (or zero) on all open accounts • Applying to rent numerous that request a credit check • Try to keep old credit card accounts open (landlords must obtain written permission before pulling a credit report) • Keep credit inquiries to a minimum Any time a new credit account is opened or a credit inquiry occurs, a • Do not close credit accounts until the balances are paid off in full consumer’s credit score is reduced. Summary Types of Credit Used - 10% of Credit Score This chapter covered the basics of FICO® credit scores. We covered the range of possible credit scores and how they can affect a borrower’s monthly payment. Credit scores are calculated by evaluating Payment History, This category is a delicate balance (pun intended). Amounts Owed, Length of Credit History, New Credit, and Types of Credit In order to maximize a credit score, the consumer Used. This chapter wrapped up with some common events that may lower a should have experience with a diverse mix of the credit score and some tips on how to improve a credit score. different types of credit, but he or she should not have high balances in any one account, or overall.

The types of credit available include: • Revolving Credit: Credit Cards and Retail Accounts (store credit cards) • Installment Loans: loans with regular payments, like car loans or student loans • Finance Company Accounts: these are high-interest loans that are generally offered to high-risk borrowers. These types of accounts are also commonly offered to consumers who wish to fi nance furniture, appliances, and elective medical procedures. They may have zero- interest “same as cash” offers if paid in full within X months. If a borrower does not pay in full, the interest rates are signifi cantly higher than market rates. Having this type of credit is not generally seen as a favorable item on a credit report. • Mortgage Loans: Includes fi rst mortgages and larger home equity loans

Specifi c Events that Reduce Credit Scores So many extremely responsible people have credit scores that may not accurately refl ect their credit worthiness. We may unwittingly do some of the following things that may ultimately hurt our credit scores:

Feature 5 - A Home Buyer’s Guide to Credit Scores 71 Part Three: Here is a list of sites discussed in the feature: • www.mint.com Understanding the Full • http://money.strands.com Cost of Home Ownership • www.buxfer.com An internet search will offer a number of other, similar financial tracking and budgeting resources. The sites all have different strengths and weaknesses, Many buyers are savvy enough to listen to their lender with respect to their so reading about which fits a person’s individual needs is important. monthly PITI payments (PITI = Principal, Interest, Taxes, and Insurance). However, this amount is not the complete picture. Properties need regular maintenance. Utility costs are usually significant, and it is vital to be prepared Mint for a major expense, like needing a new roof, furnace, septic system, and so on. For this course, there will be a quick overview of www.mint.com to show the usefulness of spending tracking and budgeting. This site is free, but will A prepared buyer is one who knows exactly where he or she currently stands, show ads and offers to those who sign up. how to get where he or she is going, and what costs to expect along the way. This chapter is broken up into 3 parts: Step 1: Open an online account 1. Getting a handle on current finances Step 2: Gather all account information including bank accounts, credit cards, and loans 2. Being ready to pay closing costs Step 3: Enter information on the accounts 3. Estimating a reasonable budget for home ownership Step 4: Login to the site to manually edit transactions that are not categorized Getting a Handle on Current Finances Step 5: Set monthly budget for spending categories such as groceries, So many people understand the concept of property ownership and know gas, rent/mortgage, utilities, etc. that the property they wish to purchase (be it a home or investment property) Step 6: Watch the online account closely for a month or so may be more expensive than their current situation. Too many people hope Step 7: Gain a deeper understanding of how money is spent and saved that cutting back on restaurant meals, entertainment, and those oh-so-yummy double macchiatos will enable them to comfortably afford the property they wish to buy. These sites try to make this process interesting and fun.

Significant investments, such as real estate purchases, come with risks. Does For example, if a mint.com user enters account information on retirement the buyer’s budget REALLY afford them the opportunity to buy the property accounts, automobile values, and even , mint.com will they want? Should they be looking at something more modest? Perhaps they calculate their net worth. Real estate values are updated regularly through don’t realize that they could comfortably afford something more expensive www.zillow.com (they are not formal appraisals, just rough estimates). than they originally thought. Another benefit of mint.com and similar sites is that they may seamlessly link to tax software, making tax preparation a little easier (turbo tax in the case of mint.com). Getting a full understanding of spending patterns is crucial to assessing the affordability of a new property purchase. After Financial Tracking Tracking spending is much easier to talk about than to actually do. Some people are very good at using accounting software, building spreadsheets, or Once someone understands his or her spending patterns, it is easier to make keeping good notes. Even the best spreadsheet can miss key items, so there adjustments in order to set goals, such as paying off credit card debt and are a number of services designed to track spending. The key is to find one saving for a down payment and closing costs on a property. that will securely link all accounts.

The property buyer may have an account with a bank that offers spending Being Ready to Pay Closing Costs tracking services. The account holder may simply need to enter information Closing costs may come as a big shock to many property buyers. According on other accounts (such as loans and credit cards). to www.bankrate.com, average closing costs across the United States range from $2,119 in Wisconsin to $2,919 in Hawaii. These rates are simply the loan origination and processing fees. They do not include home inspections, Track Spending and Create Budgets property tax, and insurance escrows, recording fees, title searches, and deed preparation (among others). The key to online spending tracking sites is to find one that will link all accounts while providing a high level of security and functionality. Many A recent article in Zillow.com describes common closing costs: banks offer this service to their account holders. Some banks’ tracking applications are easier than others. A common rule of thumb is that closing costs are often about 5% of the purchase price of the property. This In the last few years, a number of user-friendly websites have evolved to varies greatly and the best way to estimate closing costs meet the growing demand to know where our money goes. National Public is to apply for a mortgage and obtain the required Truth in Lending Statement, which will itemize the closing Radio recently did a feature on these sites . costs. Closing costs do not include earnest money deposits or down payments. These should be budgeted separately and vary widely depending on buyer and seller preferences and mortgage loan products. Some require more than others.

72 Feature 5 - A Home Buyer’s Guide to Credit Scores Estimating a Reasonable Budget for Property Ownership are a common curtain cost, but much more expensive items are also in this category, such as washers and dryers, lawn mowers, area rugs, furnishings, All too often, property buyers don’t have a full sense of a property’s landscaping, and so on. This is a category which is easy to overlook when ownership costs until they have taken ownership of it. budgeting!

PITI Payments Emergency Savings Of course, buyers who are approved for mortgage loans are given an estimate of their PITI payment (PITI: principal, interest, taxes, and insurance). PITI With real estate ownership, expensive maintenance and repairs are payments tend to be relatively stable, but do go up over time as taxes and commonplace. In an ideal situation, an emergency fund should be in place insurance premiums increase. before the sale. These funds can be used for unexpected emergencies, like a backed-up septic system, as well as for hardships, like loss of a job. Utilities Property disclosures often have utility estimates for heating and cooling. Financial gurus like Dave Ramsey suggest an emergency fund of $1,000, It is often wise to call the fuel provider directly to verify these amounts. plus 3-6 months of expenses, while Suze Orman suggests an emergency fund Buyers should be aware that buildings that have been vacant prior to sale of 8 months’ worth of income. may have been winterized, or kept at a temperature that is not comfortable for habitation, so actual heating and cooling costs could be much higher. Regardless of which fi nancial advisor you listen to, most will suggest an Many fuel companies are willing to provide a few years’ worth of usage emergency fund to keep a property owner out of foreclosure. amounts and it usually doesn’t hurt to ask!

Electricity costs vary dramatically from resident to resident. Some people are very good at conserving energy and “phantom loads” (energy drawn Page 8: Pulling it all Together when appliances are plugged in, but not in use). Other building residents Combining the system to track spending with a solid estimate on property may leave lights, air conditioning, and other electronics running much more ownership costs will give buyers a realistic sense of affordability and brace frequently. them for the costs they may face. Many fi nancial tracking tools include a function to budget. Once the full property ownership costs are estimated, Water and Sewer the buyer can add a “goal” to his or her spending account. Many real estate professionals suggest that homebuyers should estimate the full cost of home Some properties are on public water and sewer. A trip to the local municipal ownership. If these costs are more than they are currently spending to rent, offi ces can help to get these costs. Having public water and sewer does not the buyers should put the excess into a savings account and live that way mean that the municipality will pay to maintain the entire systems. Pipes for a while. The same principle holds true for people buying other types of within the building(s) and out to the street are usually owned by the property property as well (such as vacation or investment property). owner. If a buried pipe needs replacement, that can be a signifi cant expense.

Taking the following steps will help the property buyer have a solid Other properties may be on private well and/or private sewer (septic, foundation on which to build his or her investments: cesspool, etc.). In the case of private water and sewer, a thorough inspection can help to estimate the operation costs and likelihood that the system may 1. Boost credit scores need extensive repairs or replacement in the near future. 2. Track spending 3. Collect realistic costs of property ownership Unexpected Expenses 4. Budget for the change in expenses As mentioned above, a good home or building inspection is vital to anticipating future maintenance expenses. Keep in mind that these inspectors are usually not contractors, so it is often useful to follow up with contractor estimates after a home inspection is complete. In new construction, many Summary buyers assume that the building is in top condition, with no inherent fl aws. Building inspections on new construction frequently uncover issues. Just This chapter was short, but very important. Too many buyers think they have because a building is new does not mean a building inspection is unwarranted. a full understanding of their income and spending, when they could use more thorough information. Today, there are wonderful fi nancial tracking tools that are eye-opening even to the most budget-minded person. Combining Home inspectors may not see everything (they do not have x-ray vision), so this information with a credible estimate of closing costs and a complete having an emergency account for unanticipated expenses is important. forecast of ownership costs can help a buyer become truly prepared for property ownership. The fi nal step is to add additional costs of the property Curtain Costs ownership with monthly fi nancial tracking to see if the purchase is money- wise.

Rarely does a property buyer take possession of a property and use it as is. There are usually “curtain costs.” These are costs incurred by a new owner in order to make a property comfortable for his or her needs. Of course, curtains Feature 5 - A Home Buyer’s Guide to Credit Scores 73 FEATURE 5 PRACTICE - A HOME BUYER’S GUIDE TO CREDIT SCORES

NOTE: You are not required to answer the practice questions below to complete the 14-hour course. Their intention is to help you prepare for your Final Exam.

Final Exam Questions can be found on page 79 or online at www.McKissock.com/FLRE.

1. How many credit reports per year are available to people in the U.S. with a social security number or tax ID? a. None b. One (the consumer may choose which credit reporting bureaus) c. Two (one from each reporting bureau) d. Three (one from each reporting bureau)

2. What is the range of the basic FICO® score? a. 1-10 b. 1-100 c. 300-850 d. 250-750

3. What does PITI stand for (as in PITI payment)? a. It isn’t an acronym. It is statement on how we should feel about people who are faced with these payments b. Principal, Interest, Taxes, and Insurance c. and Title Insurance d. Property Investment Taxation Incentives

4. What are some benefits of financial tracking services, such as www.mint.com? a. Tracks spending b. Calculates net worth c. Allows users to set budgets d. All of the answers shown

5. How is debt-to-income ratio calculated? a. Minimum Monthly Payments on Debt ÷ Monthly Gross Income b. Total Debt ÷ Annual Adjusted Income c. Monthly Gross Income ÷ Minimum Monthly Payments on Debt d. Current Credit Balances ÷ Credit Limit

Ready to take the Final Exam? • Go to www.McKissock.com/FLRE or scan the QR code with your smartphone to get started. • Purchase the 14-Hr Online Correspondence Course and complete the Final Exam online. • Print your certificate instantly. OR

• Answer Final Exam Question at end of this book and mail or fax your completed forms in. Answers: 1d, 2c , 3b , 4d , 5a , 4d , 3b , 2c 1d, Answers:

74 Feature 5 - A Home Buyer’s Guide to Credit Scores Feature 5 - A Home Buyer’s Guide to Credit Scores 75