The collective goal for the stager, the real estate agent and most importantly, the homeowner is to sell for top dollar in the shortest amount of time.
The housing market has its up and downs as does any industry. The spring market is usually strong for new listings on the market, where the problem lies for agents is getting that listing, and then selling the property with the highest sale price in the shortest amount of time.
We took a look at a few stats only to discover there are almost 3000 real estate agents as members of Real Estate Board and currently from what we can tell, approximately 2000 listings currently. (and not all of these are residential properties). Do you see the problem here?
Not only are there more agents than there are listings, it is quite conceivable there are more buyers than there are listings.
“After a record-breaking 2019, January saw a minor dip in sales; however, February’s numbers suggest Ottawa’s resale market is heading back into overdrive,” observes Ottawa Real Estate Board President Deborah Burgoyne. “Activity overall has gone up with more listings coming on the market (though still well below the five-year average) and the highest number of February transactions in over 15 years.” ~ February’s Resale Market Back in Overdrive – March 4, 2020
With the spring market starting to gear up now, the listing numbers are sure to increase, but so will the number of buyers looking to purchase their new home.
So how does an agent stand out in a crowded market to
attract home sellers; and
effectively market the property for a fast and profitable sale for the homeowner?
As an agent, your competition is tough – did you know in the U.S., most agents do not make it through the end of their second year selling real estate before they move on to a new career? We’re pretty sure this isn’t what you want for your real estate career, so we ask again how do you stand out as the go-to-agent in Ottawa?
One of the ways to be that go-to-agent is to have a sound marketing program for your listings to consistently achieve the results your sellers are seeking. People talk, word of mouth will give you the edge you need as your listings consistently sell quickly for list price or more. A sound marketing strategy includes enlisting the assistance of a certified staging professional®.
As a certified staging professional® serving the real estate industry, our role is to collaborate with real estate agents and home sellers to prepare the properties for market. Our collective goal is to sell for top dollar in the shortest amount of time possible. In today’s competitive market the property needs to have a competitive edge over other houses for sale and that’s precisely what staging does.
As professionals (agents and stagers) we must do everything we can to help the home seller realize this. Even in a hot, sellers market, money will still be left on the table if the property isn’t staged, or isn’t staged properly.
For the home seller it is important to list with a real estate agent who partners with a certified professional stager® to achieve these goals.
ACCORDING TO RISMEDIA THE SIX CHALLENGES AGENTS FACE ARE:
Crumbling infrastructure
Affordability
Climate Change
Design Trends
Technology
Competition
Stagers will help with affordability, design trends and competition – there isn’t much we can do for crumbling infrastructure, climate change or the technology to help you run your business however.
HERE ARE 5 WAYS PROFESSIONAL STAGERS HELP REAL ESTATE AGENTS.
To achieve this, a thorough staging consultation needs to be completed to identify the condition issues to be met after which the property needs to be staging to present as it’s finest.
Added Value to Offer your Clients – bringing in a certified staging professional® at the beginning of the listing process will show your seller you have a professional team available to help get top dollar in the shortest amount of time; the stager will take those hard conversations off your shoulders and will explain the process to the homeowner, helping to identify anything that will cause equity leakage which is done through the staging consultation process, share testimonials and stats as proof of the staging marketing strategy, and provide the top recommendations that will bring the highest return on investment for your homeowner.
CSPs are trained to have the conversations about sensitive issues such as personal collections and displays, pet or cooking odours, pets in the house, too much stuff, cleanliness issues, dated décor, wall colour. All of which will affect the bottom line.
CSPs can communicate the importance of staging and the benefits so the home seller is motivated to invest to sell. Many homeowners believe staging is just decorating, and many more think they can do it themselves. Staging is a systematic and coordinated methodology in which the knowledge of real estate, home renovations and creative design principles and trends are applied to attract the broadest range of buyer.
The bottom line is, stagers will create the WOW factor for that all important first impression which usually happens within 3 to 8 seconds and often online when viewing the listing. Staging puts your client’s property on the must-see viewing list.
Stagers motivate the home seller to complete the recommendations. We understand the overwhelm sellers feel and help by putting together a plan to complete the work and inspire them. The staging consultation uncovers the areas of the property that will leak equity, we address these and help your seller understand that buyers want move-in-ready condition. CSPs also have suppliers and contractors at their fingertips to help with sourcing or offer savings to your homeowner via the CSP buying network. We will assist in keeping your seller on track conditioning the property to be ready for the showcasing (staging) at the designated time.
Stagers market the property for you. As we mentioned above, staging is not decorating. Staging is preparing and showcasing a property for sale. It is merchandising. There is not a product on the market from a small package of gum, to an article of clothing, our food, car, or computers that is not “staged” to sell… The homeowner’s property is typically the biggest investment they have. When it is time to sell, they want the best return on their investment as possible – as often, it is funding their next major investment. Staging ensures the property is in the best possible condition, to attract the right buyer and sell for the most money, leaving nothing on the table.
By consistently working with a certified staging professional, you will develop impressive statistics to share with future sellers as to why hire you as their real estate agent. Staging consistently brings offers within 7-9 days and more often than not the property will sell for list price or over-asking.* If you establish a reputation with this kind of result, you will become the go-to-agent in your market area.
As staging becomes more and more the norm when selling property in Ottawa, the stager also develops a reputation for homeowners achieving their desired result. Homeowners are now starting to call staging professionals prior to calling a real estate agent, meaning, a professional stager that you consistently work with will also become a source of referrals for you – further establishing your reputation as the go-to-agent.
What is earnest money? How much is earnest money? How does earnest money work? What’s the difference between earnest money and down payment funds?
These are all common questions that home buyers ask real estate agents daily. By the time you’re done reading, you’ll have a solid understanding of the answers to these questions.
There are plenty of terms and concepts in real estate transactions that can prove confusing or complicated, especially when you have never encountered them before.
Earnest money proves to be more complicated than confusing for most people since the term does a good job of describing what it is – money the buyer gives to show they are earnest, or sincere, in their intention to purchase a home.
Although the term is easy enough to understand, the practice can become somewhat complicated, particularly if the deal falls through.
Both buyers and sellers need to understand the ins and outs of earnest money. Three other terms used in place of earnest money are a house deposit, an escrow deposit, EMD, or good faith monies.
Earnest money or house deposits are a crucial element of any home sale. Buyers should never confuse the difference between earnest money and a down payment.
What is Earnest Money?
When a buyer makes an offer on a home, the buyer and seller will enter into an agreement that pulls the property off of the market so that the next stages of the sales process can happen – like the home inspection and home appraisal. But the agreement does not require the buyer to purchase the home, at least not yet.
That wouldn’t work since guaranteeing you will buy a property before it is inspected or appraised is a recipe for disaster. The seller needs some motivation to take the home off the market, though, because they lose out on any other offers that might come through. After all, even if the inspection and appraisal go well, the buyer’s mortgage commitment could fall through.
With earnest money, the buyer is showing the seller that they are serious about buying the home. The earnest payments are protection for the seller so that a buyer cannot just walk from a sale on a whim. The last thing a seller wants is to feel uneasy that a buyer could be out shopping for something better to come along.
An EMD is Insurance in Case a Buyer Defaults
By having earnest money, the seller would be compensated if the buyer decided not to purchase without a legitimate reason outlined in the real estate contract. Another way to think of these escrow funds is insurance in the event a Buyer defaults.
Just how serious the proof shown by the earnest money needs to be, depends on the market. Earnest money amounts tend to go up in markets where homes are selling like hotcakes.
It is also essential to note that the seller is limited to collecting earnest money as liquidated damages in many locations. In other words, they can’t sue the buyer for more money for their lack of performance.
The language in purchase and sale agreements will often look something like this:
If the buyer doesn’t fulfill the buyer’s agreements herein, all deposits made here-under by the buyer shall be retained by the seller as liquidated damages. This shall be the seller’s sole remedy at law and in equity.
How Does The Earnest Money Process Work?
How Does Earnest Money WorkUsually, the earnest money or house deposit is handed over when the buyer and seller sign the purchase agreement or sales contract. However, there are certain situations where the money might actually be handed over when the offer is made.
It all depends on the market conditions and the customs in the particular area you are buying.
When a buyer wants to purchase a home, they make an offer in a home purchase contract. The contract is designed so that, as conditions are met, the buyer increases their commitment to the sale.
The commitment begins with the earnest money deposit. These funds are known as “consideration,” which is an integral part of a real estate contract.
In the beginning, the earnest money is fairly easy to get back for the buyer. But as the sale process moves along, the money becomes more difficult to get back – eventually, it gets to a point where the seller gets to keep the earnest money if the sale doesn’t go through.
The time in which a seller would keep the house deposit is when all of the buyer’s contingencies have lapsed.
Typically, one of the last contingencies to clear on the buyer’s part would be getting their mortgage. If a buyer has a firm mortgage commitment and no other contingencies are left, a buyer would lose their funds if they did not proceed with the sale.
Real Estate agents are more confident to mark homes under agreement vs. contingent when there are no more hurdles left to clear.
Where is The Earnest Money Held?
In most real estate transactions, either the listing agent or the seller’s attorney will hold the buyer’s earnest money. Sometimes they are held in interest-bearing accounts. Other times they are not. It really will depend on local customs.
When the earnest money funds are deposited, they go into an escrow account until the sale closes. When the sale closes, the earnest money is applied to the buyer’s purchase price for the property.
Sometimes earnest money payments are broken up into two different phases. This happens because, in some states, there are actually two contracts – one is the offer to purchase, and the other is the purchase and sale. For example, in Massachusetts, where I’m located, we are a two-contract state.
If the payment is broken in two, the first payment will usually be between $500 and $5,000. The second payment will be the remainder of what the agreed-upon earnest money offer was.
What’s the Difference Between an EMD and a Down Payment?
Quite often, buyers are confused about the difference between the earnest money they put in escrow and their money toward their down payment. These are two distinctly different things. The funds are coming out of the buyer’s pocket, but they serve different purposes.
As previously mentioned, the earnest money is considered a good-faith deposit to make the seller feel comfortable; the buyer is serious about purchasing the home. A down payment should not be confused with earnest money.
What is a Down Payment?
How Are Down Payments and EMD DifferentOn the other hand, a down payment is funds that a buyer pays directly to a seller at the closing. When people think of down payments, there is a common misconception that the money will be going to the lender. This is false.
The lender will want to know you have a down payment, but they don’t get these funds.
The balance of the home’s purchase price comes from the amount you mortgage. The money a buyer puts down on the house can come from several places, including personal savings, the sale of a prior home, or gift monies from a family member.
Down payments are almost always required to be made in the form of a certified cashier’s check brought to the closing. It’s also possible a buyer could choose to have funds wired directly from their bank.
Down Payments Can Depend on Mortgage Programs
The amount of down payment you choose depends on the mortgage program you’re going to use. There are numerous mortgage programs for first-time buyers. Some of the most popular include:
Conventional loans – the lowest down payment amount on a conventional loan is 3 percent. It used to be 5 percent.
FHA loans – the lowest down payment amount for FHA mortgages is 3.5 percent.
VA loans – if you are in the military or are a veteran, you can put no money down. There are other requirements to read up on, but there are certainly benefits to a VA mortgage.
USDA loans – USDA mortgages are considered rural loans. If you live in a rural area, you can also use USDA financing and put zero down.
Twenty Percent Down Payment is Not Expected
For many years having a twenty percent down payment was the holy grail of mortgage lending. That is no longer the case, and it hasn’t been in quite a while. In fact, it is a significant mortgage myth.
Right or wrong; however, many sellers and their agents will look more favorable towards buyers who have larger down payments.
There is also a significant advantage to buyers who put at least twenty percent down – they avoid paying what’s known as private mortgage insurance, which can be expensive. It is a useless fee that protects lenders in the event of mortgage default.
Most buyers will want to stop paying private mortgage insurance as soon as they are able.
What Causes The Earnest Money to be Returned to The Buyer?
The home purchase contract specifies situations where the earnest money will be returned to the buyer. It is possible to set a wide variety of conditions that would trigger a return of the money, but most of the time, only a few are specified. These include:
The home does not appraise for the sales price. The home appraisal is a significant hurdle for sellers to get their homes sold – both because buyers are not keen to pay more for a house than it is worth and because lenders almost could deny funding if the appraisal does not meet the sales price. Lenders are not interested in purchasing homes for more than they are valued because they will have trouble getting their money back through a sale if the borrower defaults on the loan. From time to time, there are errors on an appraiser’s part that could warrant fighting a low appraisal.
The home inspection uncovers a significant defect. The home inspection is the other big hurdle for sellers to overcome. Most home inspections will find flaws, but those defects are usually small enough to be repaired or accepted by the buyer eager to get the home. However, if the home inspection problem is significant enough – like a ruined foundation – the cost of repairs will be prohibitive. There may be no way to sell the home at the current price after a substantial flaw is discovered. Discovering unforeseen issues can be common when buying a fixer-upper home.
The buyer is not able to procure financing. In most real estate contracts, there will be language that’s known as a mortgage contingency clause. The mortgage contingency clause shows the amount of money the buyer is looking to mortgage, a date by which they must apply for the loan, and when they will have the commitment from the lender. If the buyer is rejected for financing, they will get their earnest money back as long as they notify the seller in writing before the expiration of their mortgage contingency. When a buyer does not inform the seller in writing before the expiry of said clause, the buyer can lose their earnest money funds.
Buyers ask real estate agents all the time if the earnest money is refundable. An earnest money refund will not be given if a buyer violates the terms of a contract.
The most apparent reason why a buyer would lose the earnest money is if they back out of the contract for contingencies not listed in the contract.
If the buyer decides not to buy the home for any reason that is not listed in the contract – even very legitimate reasons, like there is a significant defect in the house – then they will probably lose their earnest money.
Other common reasons for losing earnest money include:
The buyer fails to meet the timeline in the contract. The contract will have a deadline that must be adhered to by the buyer. If the buyer fails to comply with the timetable – such as if they cannot get their loan funded by the due date – then if they break the contract and don’t buy the home, they will lose the earnest money.
The buyer has a change of heart and does not buy the home. There are times when buyers decide that they do not want to buy a home after entering a purchase agreement. If this happens and the buyer cannot link the decision to pass on the purchase to a contingency listed in the contract – like if the buyer just decides they don’t like the home anymore – then walking away from the purchase will result in the forfeit of the earnest money to the seller. Here are some of the most common reasons home sales fall apart.
Usually, house deposits will range between 1% and 5% of the home’s purchase price. However, if the housing market is scorching, the earnest money offers may shoot up to between 5% and 10% of the home’s purchase price!
Buyers may use a higher earnest money offer to sway a seller to sell them a home they really want in a high-demand area. It is one of the tactics buyers will use to win a bidding war, along with possibly an escalation clause.
Buyers should talk to their real estate agents about what earnest money expectations are in their market once they start house hunting because there is a big difference between 1 and 10 percent. One percent of a $300,000 home would be $3,000, while 10% would be $30,000.
It is worth remembering that most sellers do not consider earnest money deposits as important as how fast you can close and how much down payment you will make on the purchase.
Buyers should always consult with their Realtors to determine the best mix of terms to purchase a home they are interested in.
House Deposits Are Higher With New Construction
It should be noted that earnest money deposits when buying a new home are usually ten percent of the purchase price. Sometimes a builder will use these funds, and they will not be held in escrow like a traditional re-sale home. You should always consult an attorney before allowing a builder to keep your funds.
During the real estate bust, many builders went out of business, and buyers lost their deposit funds — an excruciating lesson, to say the least.
Earnest Money Mistakes
Avoid House Deposit Mistakes (EMD)When you buy a home for the first time, it is effortless to make mistakes when you don’t have proper guidance. This can easily happen when you don’t have a skilled buyer’s agent in your corner.
Here are some of the most common earnest money mistakes you’ll want to avoid:
Not putting enough earnest money down with your offer – In a hot seller’s real estate market, it is vital that you put at least the standard amount of escrow in your offer. You’ll be putting yourself at a disadvantage if there are other offers on the table.
Not putting any earnest money down at all because you’re getting a VA loan or USDA mortgage – Over the years, I have seen many buyers lose out on homes because they are not willing to put any skin in the game. Just because you are getting a no down payment loan doesn’t mean you should have zero earnest money deposit. Put yourself in the seller’s shoes.
Removing contingencies you shouldn’t – on the other side of the coin, some buyers, in an effort to make their offer stronger, will waive standard contingencies such as a home inspection or financing to make their offer stronger. Be certain you don’t make the kind of blunder you’ll regret.
Letting contingencies dates pass without responding – in real estate contracts, some timelines need to be met. As a buyer, if you don’t meet them, you lose that contingency. Make sure you pay careful attention to all deadlines.
Fighting for earnest money, you’re not entitled to – at times, buyers make costly mistakes and compound them by spending more time and energy trying to contest something there is no chance of winning. If you back out of a sale a week before closing for no other reason besides you changed your mind, let the deposit go.
In a real estate transaction that falls apart, it is not uncommon at all to have a dispute between the buyer and seller on who gets the earnest money deposits.
Many standard real estate contracts have language like the following:
All purchase deposits made shall be held in escrow by an escrow agent subject to the terms of this agreement and shall be duly accounted for at the time for the performance of this agreement. In the event of any disagreement between the parties, the escrow agent shall retain all deposits made under this agreement pending instructions mutually given in writing by the seller and the buyer.
If the dispute between the buyer and seller cannot be resolved, the escrow agent shall continue to hold the home deposits until a court of competent jurisdiction decides their distribution.
This means that the real estate company cannot arbitrarily release the escrow funds even if they clearly believe one party is entitled to them.
Over the years, I’ve seen a few deposit disputes where things can get really nasty because one of the parties believes the real estate company should release the funds – sorry, they can’t.
Final thoughts on EMD
Hopefully, you now have an understanding of how down payments and earnest money differ. You should also have an excellent idea of how earnest money or house deposits work in a real estate transaction. You should have a complete understanding of the earnest money definition.
