Real Estate Investing

It’s in the best interest of real estate agents to gather once or twice each month to talk about the housing market, community news, and legal issues.  My former broker once said that he couldn’t afford the liability of carrying agents who don’t attend meetings because they don’t hear the updates on what’s new and how to handle different situations morally, ethically, and legally.

That said, a colleague brought one issue to the room that was teeming with knowledgeable agents … a little clause in a new construction contract by a builder that is actually quite well-known across the country.

The contract stated something to the effect of buyers having the right to seek arbitration should they have problems with the home or contract, but that they GIVE UP THEIR RIGHTS TO A TRIAL.  In fairness, most builders do state that conflicts shall be resolved through arbitration, but rarely are they so specific that they spell out the fact that buyers give up their rights to a jury trial.

In California, the Castleman Law Firm specifically addresses the concern,

If a provision for binding arbitration is included in a printed contract, it must be set out in at least 8-point bold type or in contrasting red in at least 8-point type, and if the provision is included in a typed contract, it shall be set out in capital letters.

Immediately before the line or space provided for the parties to indicate their assent or nonassent to the arbitration provision, and immediately following that arbitration provision, the law requires the following language to appear:

“NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES’ PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE “ARBITRATION OF DISPUTES’ PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.” “WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES’ PROVISION TO NEUTRAL ARBITRATION.”

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This may be the cause for the one builder to have it so clearly spelled out here in the Tennessee contracts.  However, whether it’s this specific or not, buyers should be wary of the language that limits their legal rights to arbitration only (e.g., “binding” arbitration).  You have the right to cross it out, though it’s likely that builders may say that if you don’t sign it they won’t sell to you.  If that’s the case, perhaps it is advisable to walk away.

In any case, if there’s anything in the contract that give you reason to pause, be encouraged to take the contract to a real estate attorney for review.  Don’t get caught in a trap where you have no legal recourse.

As a side reference, here’s a link to an article about California’s Arbitration Lemon Law.  Cartoon from this site!

Without meaning to be completely flippant about this post, my friend Brittney Gilbert who is editor of Eye on Blogs in San Francisco tagged a couple of interesting stories that I wanted to share.

First, have you ever seen bags of hanging water at restaurants?  Apparently they repel flies according to Lifehacker.  I plan to try this trick immediately because I really hate flies.  I cheer President Obama for nailing the one at his interview several weeks ago - with insincere apologies to PETA.

Evidently, houseflies, being highly edible and defenseless, are nervous types, and don’t like to sit still when they see something moving nearby, because it could be a predator. The water bag acts a bit like a lens—try it some time—in which the movements of people in the area are reflected. Even if the fly is too far from the action to see it directly, it can see a shifting of light and dark in the water bag, which it interprets as nearby movement, and it will fly away from the bag.

Secondly, Brittney linked to Curbed SF - another of my favorite sites - because they feature a short-film about hoarding.  Originally featured on the Consumerist, here’s the description,

Possessed, a short film by Martin Hampton, explores the lives of four people who obsessively collect consumer detritus of one variety or another.

I’m going to try to embed it here, but if this doesn’t work, do go watch the movie at the Consumerist or Curbed SF sites.

POSSESSED from Martin Hampton on Vimeo.

Always with an eye to the real estate and other financial markets, my fellow Tennessee blog-bud brought this article to my attention, How Irrational Were California Real Estate Prices?  This divey little house …

… was assessed by the county in 2004 for $26,352.  In 2005, it was valued at $27,414.  In 2006?  (Are you sitting?) …

$522,000

You read that right.  Les found the article about the insanity over at Dr. Housing Bubble, where more details are provided (and more photos!).   Dr. Housing Bubble explains step-by-step how the housing bubble grew before it popped,

We saw this error or bias played out many times.  I would speak to people during the peak and get responses like, “all those other people paid too much and are stupid with getting a fixed mortgage.  But see, we are smart because we got an option ARM and are going to sell it off in 3 years at a nice profit.”  After all, this belief is central to any mania especially in a speculative bubble.  People want to believe that an endless pot of gold is at the end of every rainbow and don’t want to think about a greedy penny pinching leprechaun who is ready to take their credit cards away.

The excerpt is followed by the steps to the burst.  For example,

(d)  Going mainstream:  The masses believe real estate never goes down.  The media saturates the airwaves usually bringing on snake oil salesmen to prime the pump.  Now, not only does real estate only go up it goes up big.  The bubble inflates exponentially.

(e)  Manic rush:  Everyone races in.  Mortgage equity withdrawals.  Flipping by amateurs is not only done, but has a television show dedicated to it.  Real estate is now romantic like stocks during the 1920s.

And then POP!  This cautionary tale is one for the history books.  Thanks Les.  And thanks, Dr. Bubble.