April 25, 2018

5 Fatal Brokerage Beliefs

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5 Fatal Brokerage Beliefs

Poor financial or risk management can result in more than a loss of income; it can mean losing your business. Some small ways you can get tripped up if you’re not careful:

1. Believing there are more than 100 pennies in a dollar.

If you don’t include a line item in your budget for 5 percent profit, invariably you’ll let fixed and variable expenses eat up 100 percent of your company dollar. Absolutely limit variable expenses to 70 percent and fixed expenses to 25 percent of your revenue; otherwise you’ll never get out from behind the financial eight ball.

2. Believing confidentiality ends with the client relationship.

Don’t let your sales associates shoot from the lip. A sales associate who’s no longer working with a buyer isn’t entitled to disclose information about the buyer to a seller; confidentiality rules carry beyond the end of the relationship. An associate who thinks otherwise puts you at legal risk.

3. Believing without seeing.

When a seller hands your sales associate a document and says it’s a report on the results of a test he’s had done on the house, your associate mustn’t put the paper into the transaction file without verifying what the seller says. Sellers commonly misidentify documents. In one case, a seller was correct in calling a document the results of a “perc” test (a gauge of ground absorbance), but the results were for a different property — something the associate never caught. The issue later came up in a claim.

4. Believing the unbelievable.

If your associates can’t resolve differences with a client over what to disclose on the seller disclosure form, they should drop the client, especially if they believe the seller is lying. Even if associates believe a seller is telling the truth, they risk becoming vicariously liable if a claim is filed and the seller is determined to have lied. The question in such a case is, “Why didn’t the associate know the client was lying?”

5. Believing in a deal that’s too good to be true.

Caution your associates to exercise great care if sellers, with the OK of a lender, offer their buyer client a roundabout way to get 100 percent financing. In a growing number of deals, the seller inflates the home price, typically by 20 percent. The lender originates the mortgage loan as 100 percent financing on the original, uninflated price, but the mortgage is listed on the secondary mortgage market as an 80 percent loan-to-value loan based on the inflated price of the property. The seller then provides, at least on paper, a second loan to the buyer to cover the 20 percent down on the inflated price but forgives the loan after closing. Deals like this amount to fraud.

Source: Bonnie Sparks, CRB, CRS®, Mel Foster Co., Davenport, Iowa

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