All posts for the month January, 2012

InsuranceWhat is life insurance? The video defines the purpose of life insurance and its purpose.

Now you have successfully purchased your dream home for your family and living in a lifestyle that you always dream off. Lovely family, beautiful children and stable jobs to secure your financial needs. Then you start to wonder what’s next? You question yourself, how do you guarantee and secure the future of your children? Will they have a proper education and be able to continue the same lifestyle they have now should anything unthinkable were to happen to you as a bread whiner?

These are one of the most common question everyone dreaded and perhaps the question we try not to think about. Wether we like it or not our time will expire one way or another. But the real question needed to be answer is will it be too fast or too soon that we don’t have a chance to give our love ones time to prepare?

I’d like you to consider the following question…

1. Are you healthy? Are you prone to sickness? Do you live in a fast lane with bad habits (drugs, alcohol, tobacco use?)
2. What type of lifestyle do you have now? Is it the same lifestyle you want your love ones to have or better?
3. Could you stand seeing your love ones downgrade their lifestyle due to uncertainty?
4. Will your children be able to attain a higher education and still continue the same lifestyle they have now in the event that your income was cut off?
5. Most important question..if you have the choice would you do something about it?

As a realtor and a real estate advisor part of my job is to educate home buyers/owners about protecting their biggest investment by providing a straight to the heart advice, an awareness to the reality and a prevention to any inevitable loss.

Life Insurance. How educated are you when it comes to life insurance or some people call it life assurance? Unfortunately, most people associate life insurance as just an extra expense, pyramid scheme or sales people knocking at your door selling an insurance policy for a quick commission. Those days are long gone! I’m sure by now you are now familiar with economic downturn, uncertainty and familiar with the term economic word “bailout!”

What is Life Insurance?
Life Insurance are meant to replace or offset an income loss should an unforeseen and catastrophic things were to happen such as disability, illness, injuries or death. Life insurance is in place as an assurance of the enjoyment of a normal day-to-day life should unforeseen or unthinkable things were to happen and caused a loss of income. Just like a concept of a bailing out a company they need an income stream to be able to continue on with a current business!

Some people may argue what about Mortgage Insurance? I have a mortgage insurance what is the difference?
Believe it or not a mortgage insurance are meant to protect the bank (lending institution) and not to protect you. Mortgage insurance is an assurance by you to the bank (lending institution) that you will repay your mortgage entirely if anything happens to you and you can no longer pay back your debt.

You don’t believe me? Let me give you a quick example of the difference between the two. As an example:

Let’s say you took out a mortgage of $500,000 amortization of 25 years. For the sake of this example let’s pretend you are paying $40,000 annually towards your mortgage.

Year1: $40,000
Year2: $40,000
Year3: $40,000
Year4: $40,000
Year5: $40,000
Total payment accumulated on year 5: $200,000

In five years you had accumulated and paid an amount of $200,000 against your $500,000 mortgage and therefore your outstanding balance owing is $300,000.

Let’s say for an argument you have chosen a “mortgage insurance” for a sake of an argument, in this example you passed away on your 5th year of your mortgage term. The bank (lending institution) who assured you of your mortgage will only have to pay the remaining balance of the mortgage owed which is $300,000.

Quantitative Analysis:
$500,000 – $200,000 = $300,000

You ask yourself a question is this a good deal? Certainly not! Because if you were to take on a separate life insurance policy using the above example you are entitled to a $500,000 coverage regardless if you passed away on day one or year 5 of a policy. A $200,000 using the above example is considerably huge amount of money that your children can use for their education purposes or to taken care of any other financial obligation.

Another thing to consider when choosing a mortgage insurance over life insurance is how accessible a policy is when it is needed. The advantages about choosing a mortgage insurance over life insurance is it is easy to acquire and doesn’t need a lot of requirement to qualify for. It is also cheaper in most cases compare to life insurance policy. But don’t get fooled by the convenience and cost! The whole point of having insurance policy is to have access to it when it is needed.

It sometimes to your advantage to pay a little more and to go through rigorous background checkup prior to acquiring a life insurance policy. I say this because if you make a mistake on the application form when filling up an insurance document you could easily be denied of a coverage. For example, let say you declare on the application a non smoker and you happen to die in lung cancer causing tobacco use the insurance company may simply deny your claim. In the insurance point of view you are a smoker if you smoke one cigarette a year. I will say this again, you are a smoker if you smoke one cigarette a year and yes they have the ability to trace nicotine in your body.

On the other hand when you are applying for a life insurance policy, the insurance provider will most likely require you to be subjected to a stringent blood, urine or even sometimes fitness testing. Depending on the result of the test will determine how much premium you will need to pay for your insurance policy. In other words once you are approved by an insurance provider you are entitled to your policy and have access to claim when it is needed.

There are different flavours of life insurance policy. Term, Whole Life or Universal policy and these policy serves different purpose. Just like buying a car not all car are made for the same purpose. Some are built for speed some are built for comfort. So it is important to know which is the right policy for your needs. You can do this by consulting a licensed life insurance agent. I will post a follow-up blog on different types of life insurance policy out there and their purpose on my next blog. So stay tuned…

FSBOBefore you sell your own home consider the following:

Saving the Commission – The principal reason FSBO make is that they can save the commission by cutting off the middle man by selling their home on their own. Experience proves that this usually is not always the case. Buyers nowadays are knowledgeable. They search on the internet, they prepare their own research, they often talk to realtor for advice and they feel, whether the asking price is true or not, that a.) Owners overprice their homes and b.) That what the owner really expects and wants to get for his home is inflated by the amount of the commission in order to cover advertising and other expenses required in the sale of a home.

Qualifying Buyers – The owner, unless a former real estate salesperson, or with specially applicable experience, has had neither the training nor experience in qualifying buyers from all aspects, including financial ability of the purchaser to buy a home. Experience shows that real estate market are driven by the first time home buyers. If there are no first time home buyer entering the real estate market there will be no movement in the market. First time home buyer unless experience, will choose to work with a realtor to guarantee their safety.  Therefore, a loss of first time home buyer market share. Afterall, it is free for them anyway!

Inviting “Lookers” vs “Buyers” – FSBO advertisement bring many “lookers” as suppose to “buyers” who are not really qualified to buy, or real estate salesperson fishing for a client wasting owner’s time and perhaps losing a real prospect for him. Brokers bring people to view and inspect homes, people who are qualified financially and had already gone through the pre-qualification process. A serious buyers who often works on their own schedule accompanied by a real estate salesperson that sometimes book an appointment in odd hours. By not having registered lock box at the door can cause loss of opportunity for the seller.

Safety Concern – Real estate salesperson who brings client for showing brings serious buyers that already had gone through background checks by the brokerage. It is the salesperson’s responsibility to ID a buyer and hold accountability of the entire home showing. Most of the time the listing brokerage verifies the buyers appointment by contacting the buyer’s brokerage first for verification and to retrieved a key to the lockbox. It is hard to imagine what would happen if a home were to be left unattended open for public access without accountability. Any strangers have access to your home – the “For Sale By Owner” sign in the yard is an invitation to anyone to ask to see the home. While such occurrences may be infrequent, it has happened, and can happen, that undesirable strangers gain access to the home when the wife is alone. There also have been instances when thieves have posed as prospective buyers to learn what might be of value in the home, which they can later steal when no one is home. If the sign is home only when the husband is home, this means that good “drive-by” prospects may be missed. The real estate representative , on the other hand, pre-selects those who will be shown the home, making as certain as possible that the people are legitimate home buyers. Those with felonious or criminal intent do not take the risk of being accompanied by a licensed representative, who later could be a witness against them.

Difficulty in Purchaser Negotiations – Owner, inexperienced in real estate transactions, can and frequently does encounter difficulties in negotiations on possible concessions, price and other matters, specially when it comes down to disclosing material facts such as renovation that has been done in the house which might lose a qualified prospect. The broker as the “impersonal, professional go-between” is in a far better position to handle negotiations that will lead to a sale.

Prospects Hidden Objections – Prospects often are reluctant to bring out and discuss objections with the owner because of the personal element involved. They do not want to put the owner in the position of defending his own home. A home that is for sale using a realtor must disclosed any renovation or additional component made in the house. This is one of the main reason why a buyer use a realtor to protect themselves from any latent problem that an owner failed to disclosed. Thus, FSBO can’t represent himself because of a buyer’s high expectation. 

The Urgency Situation – When the time in which a home must be sold is limited, it is very unwise for an owner to take any of that time to try to sell the home by themselves, when they fail, which is often the case and a broker is finally brought in to sell the house, a broker does not have enough time to market the home properly to get it sold, depending on the market condition , as it was already suffered a negative impact by being on the market for far too long. A “looker” or a “prospect buyer” who had previously looked at that same property would want to bargain for a lower sale price.  Over exposing a property for far too long in the market can cause a principle of regression in it’s resale value.

Problems on Financing – Even though the buyer is theoretically supposed to secure his own financing for the purchase of a home, the financing normally is arranged by the selling broker. Most of the time a problem arise due to a lack of knowledge in relation to mortgage contract by the home seller. A listing broker will advise a home seller if there are any penalty a seller may have to pay if he breaks a mortgage contract. A buyer’s broker’s responsibility is to protect a client from entering into a sticky situation and therefore will impose different condition on the agreement of purchase and sale. Any breach of the condition can result in a brokerage suing each other. 

Lack of Advertising Exposure – The owner is advertising one home  –  his own. The broker on the other hand is advertising many homes by comparison. It is frequent that a prospect will call a broker on one ad but buy a home other than the one he called on first. Thus, through advertising, the broker provides many possibilities for qualified prospects. Owner’s needs to do the open house on their own time while realtor search and visit properties on clients given timeframe. Putting a lock box at the door for

Owner Expense – The owner may incur considerable expense in even succeeding in selling his home at a somewhat reduced price. Such expenses can include newspaper advertising, cost of sale sign, legal fees, etc. When the amount of the price reduction and the expenses are added up, the owner has netted little if anything, over what he would get from a broker sale. When he fails to make a sale these costs are pure loss. On the hand a broker assumes, as a part of his services, the expense for advertising a property on MLS, and can improve the chances of selling a property faster because other real estate sales people have an incentive of selling it. An experience realtor can also answer real estate transaction questions with assurances such as real estate contracts that FSBO might have to take up with a real estate attorney. Remember a closing attorney only deals with transferring deeds and ownership and ensuring that there are no liens against a property and will refuse any question related to any real estate transaction as they are not train realtor.

Don’t Know How to Justify Selling Price – Most prospects do not make buying decisions until they feel the selling price is right and justified. Rarely does a FSBO have a record of sales of closely comparable homes in a general area as one justification for the selling price. Nor does the owner know how to “build up” facts and features about the home. There are different method a train realtor can use to justify market price and market value. Direct comparison approach, cost approach or method of substitution just to name a few to quantify and justify a market price a buyer must pay. 

The Settlement Problem – Once a contract is signed by seller and buyer, a complicated process starts which leads to the date of settlement when the owner gets his payment for the home. The process involves loan processing in which “snags” or more serious problems can arise, the legal aspects of title and deeds and the possible easements and other factors involving the final transfer of property from the old owner to the new owner. These and other maters must be coordinated on a time schedule that will assure completion of the various steps in time for the settlement date. A buyer who only relies on the rules of the jungle may find himself in a disadvantage situation for example a seller contract falls through, mortgage financing were not approve or even a seller backing out of a deal specially in the seller’s market. A broker can protect both the seller and the buyer against this problem.