Did you know that if you’re reading this chances are you’re a statistic?. Now there’s nothing wrong with being a statistic but the fact remains that you are and you’re not exempt from these common online home shopping pitfalls.
“According to the 2008 National Association of Realtors, 87 percent of home buyers used the Internet to search for homes in the past year”
Assuming you are the all knowing real estate master.
Although you may have possibly found the home of your dreams online all by yourself and you’re proud of that fact (that’s a big deal!) let’s not assume that you should throw in the towel and go get your real estate license. Yes it is true that the web can offer you mounds of useful tips and research, it would be a mistake to assume that the internet is all you need to buy a house. The real estate transaction itself is full of many legalities and could end up costing you more in the end if you don’t have an expert advisor (aka a Realtor).
Becoming Too Dependent on Mega Listing Sites.
Many home buyers who start their search for a home online often become dependent on some of the larger listing sites like Realtor.com and Zillow. What you should know about these sites is that though they can be a great resource for searching listings they are not hyper focused to the specific areas you are looking. The best way to get accurate, up to the minute information on the neighborhood you are looking to move is to search for a local real estate blog. The way to tell if you are on a legitimate blog worth reading is to check and see how often the posts are updated. A good real estate blog is updated at least 4-5 times per week. You can do a google blog search for [your city] real estate blogs and this should bring up some sites for you to start combing. Also try ActiveRain.com for some great local real estate blogs.
Did you know that before you even step foot onto American soil one or many estate agents may have already had their hands in your pockets? It’s called a builder’s registration and it works like this:
- When a potential home buyer, we’ll call them Buyer A, is interested in a new construction community Buyer A generally contacts the person, we’ll call them Broker B, that was advertising the information.
- Broker B then gets your information and knows which community you are interested in.
- Broker B calls the builder and fills out what’s called a “broker registration” and that basically says that Buyer A is a client of Broker B and if Buyer A purchases a property in that community Broker B gets paid the commission even if Buyer A doesn’t know about it.
- Broker B doesn’t even have to be there for this to happen Broker B just needs Buyer A’s information registered via fax or e-mail before Buyer A arrives at the property.
Now this is not a bad thing in the event that it’s YOUR chosen estate agent that is registering you however, it’s usually not. Because builders are allowed to pay a commission to brokerages all over the world it’s usually an estate agent in your own country that you spoke with, or even your travel agency that knows your coming to the states, that obtained your information and registered you with virtually every builder within a 50 mile radius of where you are staying. This affects you because if you end up working with a great estate agent here in the states and they take you around and show you all the new communities and guide you through the whole process, when they try to register you they find out somebody else that you don’t even know or trust has already done so. It complicates the whole process for you and the agent and also affects you if that agent has offered you a rebate or incentive, you may not be eligible for that anymore. It happens everyday and we see it all the time. Buyers beware of who is taking your information, not just here in the states but in your country as well. The last thing you want to do is become somebody’s paycheck!
So you want to purchase a holiday villa here in the states and your plan is to buy it and rent it out to short term renters while your not using it. You have it all figured out, your estate agent has got you all excited about how you’re going to receive a cash flow on the property and it will pay for itself
I hate to be the one to tell you this but they lied to you. It’s one of the biggest myths you are going to hear when you come to Florida to buy a vacation home. Realtors and management companies often tell you this because they want to make the sale and they think it’s what you want to hear. It may be what you want to hear but it’s simply not usually true.
When you turn your property over to a management company to be rented out you can expect that rental income to only offset your expenses and reduce your payment but certainly not bring you in an income. With all the related expenses to management and owning a home it’s just simply not possible unless you pay all cash for the property and do not hold a mortgage. The reason being is that the average booking on a villa is about 20 weeks per year. After you pay out taxes, management fees and cleaning fees there just simply isn’t much money left. With bookings being down due to the economy it’s just not enough cash to cover all the expenses.
You should strongly consider your financial situation before you buy based on the full load of home expenses just in case. Beware of any agents or management companies that tell you any different, they are just trying to get you to buy.
This concept seems to be a new trend and a rather desperate attempt at property management companies trying to put more money back in their pockets. This scam targets unsuspecting holiday makers who are staying in a short term vacation rental property. You will generally experience this after you have arrived at the home. It’s similar to the oh so famous time share prospecting methods.
You’re unpacking, settling in and planing your week here in Orlando, all of a sudden you hear the doorbell ring. You open it up and it appears to be a nice man or woman dressed in everyday casual clothes or sometimes even a uniform with name tag. This person claims to be your “concierge” and they are here to help you with anything you may need. This pretend concierge asks if he/she can come in and check on the house to make sure everything is functioning just fine. Once in the door your done. You are now officially their prey and the predators one main goal is to SELL YOU A HOUSE!!!
Now that your guard is down and you think this person is your friend it’s time for him/her to play ball. He/she sits you down (usually at the dining room table) and pulls out some type of a folder with lots of worthless and usually cheesy information in it (this is just to distract you from their real goal) After the pretend concierge is done he/she will then ask the final question. . . “Can I interested you and your family in a free dinner at one of the local dinner show theaters?” Who is going to say no? Perhaps you’re one of the smart ones and you say “what’s the catch?” The catch is this, you have to sit through a 30 minute hard hype presentation with a Realtor from their real estate company while they try to hard sell you a vacation home. Once in that room with the Realtor their is no getting out without agreeing to at least view some homes.
To those of you who actually want to spend your holiday viewing homes this can be a win-win right? Wrong, and this is why. Anything they are going to offer you in terms of a reward for putting up with their sales pitch is never going to equal out to more than $50. It’s just not worth it to them. The Realtor you get stuck with may not have your best interest in mind and you were caught off guard any way. How do you even know if what they are showing you is really the best deal? You’ve had no time to research this agent, company or even the market and here you are getting ready to purchase a vacation home based on pure emotion. STOP! Take a deep breath, get to your nearest computer and start doing your homework. If you like this Realtor that’s great but spend some time researching the Realtor’s website and credentials and also consult with at least one other agent that you choose before deciding to work with this one Realtor. If you came to Orlando with the intention of making a purchase than most likely you’ve already developed some type of rapport with another Realtor who has been sending you properties online. Try calling this Realtor and getting a second opinion from someone who’s not there to hard sell you.
To avoid all of this hype and in my opinion pure abuse, you could also let the management company or owner know ahead of time that you don’t want any unexpected visitors and if they send anyone by they MUST call you first and explain exactly what they want.
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I recently sold a house in Legacy Park in Davenport (that was an absolute deal). As a closing gift to my clients I had the home cleaned for them prior to their move in (houses can get pretty funky when they sit for too long). When the cleaning service was cleaning the toilet they noticed something very odd about the water, they noticed that the water was very warm, we’re talking bath water warm. They thought it was unusual for a toilet to be heated so they told me about it.
My first thought was. . . “What the heck?” and I pretty much spent about five minutes after that trying to figure out why someone would need heated toilet water. . . I still can’t come up with any reasons (at least normal ones).
The significance of this is that the plumbing in that toilet is somehow connected to the hot water heater and is using a large amount of energy to heat that toilet. There is no hot or cold button on a toilet to conserve hot water so it’s just always sucking up electricity when the water heater is on. You can imagine what that will do to an energy bill.
After consulting a plumbing company about this I was told that this “glitch” could end up being a situation where in order to fix it the entire plumbing system in the bathroom would have to be re-routed or whatever they do. This could cost thousands. It could also be a quick and simple fix but there is no way to tell until it’s looked at.
None of us, including the home inspector, thought to stick our hands inside the toilet to “test the waters” however if that was done and we knew about this before the closing we probably could have negotiated a credit because of this problem.
So I stand here today telling all of you to stick your hands in toilet water when buying your next home (or pay somebody to do it for you). This two second act could save you thousands and possibly even give you a nasty disease but at least you’re saving money on your home purchase.
This is so important in our area because 70% of our buyers right now are Foreign Nationals and their main objective is to purchase a property and place it under short term rental management while they are not using it.
I just got done speaking with a sales rep from one of the new homes communities here in Davenport. He was giving me some of his marketing materials for me to pass on to my clients and was explaining to me about how his community is such a wonderful place for my Foreign National clients to buy in. When I asked him if the lots were large enough for pools he told me that only some of them were but you could not put a pool in all of the models. That is a huge problem because 90% of the short term management companies up here won’t take on homes without pools and the ones that do can’t really rent them. The last thing you want to do is spend $100,000 or more on a second home and not be able to rent it out to offset your expense.
To any prospective buyers out there who are considering purchasing a second home in Florida. I recommend you work with a Realtor who specializes in vacation homes so they can help guide you away from these potential problems. The sales people at the new home communities are great but most of them are not aware of the key factors that contribute to a sound second home investment. Have your Realtor escort you to all of these communities that you are browsing. The service is free and could save you thousands in the long run.
I never wanted to be a whistle-blower but I just can’t sit back and watch good people get ripped off by property management companies on their vacation homes. Having worked for a management company briefly in the past and seeing what goes on behind closed doors I have a first hand view of the hidden expenses that most companies don’t tell you about when giving you their sales pitch.
The first thing one does after placing an offer on their cozy, sunny holiday villa is shop about three or four property management companies to find a reputable company who is going to get their home rented out while they are gone. The first question many people ask the sales rep for the management company is “How Many Weeks Can You Book My Property?” They are most likely going to quote you a lovely figure that sounds nice to you and entices you to want to turn your home over to them. STOP! Before you start celebrating and getting excited you MUST know that 98% of the time this figure may not apply to your home. It most likely applies to one or two particular homes they have under management that are rented like crazy and often because the owner is very active in the process. This doesn’t mean you are going to see those numbers. Request booking reports on a home similar to yours to see what it’s really doing.
This next part is the one you’re really going to love. . .so you want to know what type of rates they will be charging for you home? They give you a print out with their rental rates on it quoting you low season and high season rates. STOP! The rates that you are looking at on that paper are RETAIL RATES not wholesale rates. Retail rates are what you will see IF the management company is able to book the stay directly through their website or marketing efforts. This only happens on average 20% of the time!!!! The main way management companies get their bookings is through travel agencies (tour suppliers). The tour supplies book their guests in your home at a discount of nearly 50% off the retail rates! The concept behind this is that they supply so much volume that it makes it worth it, and often time it does but beware!
So when they pull that pretty little rate sheet out and start quoting you these wonderful rates you now know it’s a sales pitch and you need to ask them, “What are your tour supplier rates and what percentage of your bookings come from that source?”Once you get that figure subtract the 13% state and county taxes off the top and then subtract whatever fee your management company is charging off the booking and you will then be left with a real figure that goes into your pocket.
Lets just do the math: (these are just example figures not real figures)
Here is an example for a 3 bed Single Family Pool home in high season per week:
$665 (Retail, this is what they quote)
-13%= (Taxes for state and county, will vary among states)
25%= (This is an average figure of what management companies charge per booking)
$431.66 (This is what you are left with on a Retail Booking)
Keep in mind the wholesale rates are 80% of bookings so even if the whole sale rate was only 30% less than retail you would be walking away with a figure closer to $300. So you can see it’s less than half of what was quoted on your retail rates.
Now that you are armed with knowledge you can negotiate lower management fees on wholesale bookings.
I’m sure by now most of you have heard about XL Leisure Group, Britain’s third largest holiday company, going under and leaving stranded nearly 50,000 holiday-makers abroad. Due to the skyrocketing price of fuel and the sagging economy it may not be the last story you’ll hear about a large tour operator going under.
How does this affect you, the investor who owns a small piece of the pie in Florida that just wants to get some solid bookings to help cover your expenses? It may have a bigger affect than expected due to the fact that 80% of the bookings that come through your management company are directly from tour operators such as XL Leisure Group. This means that if more tour operators start tanking you could also see a dramatic decline in your bookings. This is not necessarily something to be too concerned about as I don’t think it will last long term and as the economy bounces back so will your bookings.
My suggestion to you would be to contact your management company to find out if your bookings have been affected at all. If they do not do business with XL than you have nothing to worry about however, it’s highly likely that they do and you should find out what their plan is to fill those bookings. On the bright side, this may be a fantastic opportunity to those of you who depend on your own bookings. With thousand of people out of a holiday they will most likely be looking online to make other arrangements. Now would be a great time for you to start advertising your villa.www.VRBO.com is a great site to list your holiday rental villa on without having to pay any management fees.
In closing I just want to say that this is yet another reason why management companies need to start becoming more independent of tour suppliers. If you are in the process of looking for a management company please find out how much of their bookings come from tour suppliers vs. their own marketing. It’s very important and it DOES affect your rental income.
Haven’t you ever wondered what’s the deal with that condo community that used to be so nice but now it’s looking a bit run down, you know the one where half the community has a new roof and the other half doesn’t? This is yet another side effect of the foreclosure crisis facing America today. Condo associations, mostly newer ones, are facing serious financial crunches as more and more homeowners default on their payments and foreclose.
Many of the newer associations often don’t have enough reserves built up yet to cover the everyday expenses that are required to maintain the upkeep of the property. It makes sense, if nobody pays than there isn’t going to be enough money coming into the association. What happens when the community needs a new roof? New elevators? New paint? These things are required to be maintained by the Condo and Homeowners associations but lately there hasn’t been enough in the budget to cover it. Many associations are finding there reserve accounts tapped out.
Many homeowners in gated communities have been living with gates that don’t work and are always broken. They pay their monthly dues to have these amenities yet they can’t enjoy the benefits of them if they never work. One gated community in Winter Garden has a gate that is almost always broken. It sits open on a daily basis and anyone can just drive in and out of the community. The homeowners still have to pay their regular dues yet the association is unable to come up with the money to have the problem fixed due to their limited budget.
Until the inventory starts to clear out and more and more bank owned homes are purchased, this will be a common issue. Things like broken hot tubs, gates, old roofs and ugly entrances in need of some TLC will continue to remain in the equation. It’s a good idea to investigate the stability and financial condition of the Condo or Homeowners association of the community you are thinking of purchasing in. You don’t want to get stuck paying for someone else’s mistakes.