Which of the following is considered chattel in the transfer of real property?
a) Oil or mineral reserves beneath the land;
b) Unpicked apples;
c) Unharvested corn crops;
d) All of the above.
Well, the answer is clearly “c”. Corn, as a rotational crop, is considered chattel (personal property) that does not convey with the land.
This is similar to a question I had to answer on my real estate licensing exam and, as you can imagine, this information came in mighty helpful as I embarked on a career in home sales in Southern California. If I only had a nickel for every time a seller wanted to reclaim his unharvested corn after close of escrow, or for every time I have had the need to use the word “chattel” in a sentence! A real estate license is all that is needed to represent principals in a sales transaction yet the license itself does little to actually prepare you, or practically speaking, qualify you to provide solid representation. And, as The Phoenix Real Estate Guy so eloquently pointed out, a license is just too darn easy to get.
I began thinking about this recently when past clients contacted me with questions regarding personal investing. Specifically, they are planning on acquiring properties for their own porfolio and, like many over the past several years, have become licensed. Keeping in mind that they have no intention of working in the industry, but only wish to represent themselves in their own transactions, their questions related to where they should hang their license, how much they should expect to pay for Errors and Ommission Insurance, and most importantly what commission split they should expect to negotiate given that “we will be doing all of the work”.
First let me say that it is nearly impossible to represent yourself well in a real estate transaction; most companies will not even permit it due to liability concerns. More importantly, perhaps, you are not detached enough to negotiate as effectively as a third party. Argue if you must, but this is simply the case. When Steve and I have had occassion to purchase or sell properties, we have always hired another agent and gladly paid the associated fee. What concerned me more, however, was the prevailing perception that they would be doing, or even were prepared to do, “all the work”. There is a reason that real estate brokerages provide extensive training for new-hires and an arsenal of attorneys on call; the knowledge acquired to pass the licensing exam is not even remotely related to the practical knowledge required to fulfill the statutory and other obligations associated with a real estate transaction. And if your company is prepared to provide this support to equip you with the necessary tools, how realistic is it to expect that they will pass the lion’s share of your one commission a year through to you because you have done all the work? Further, the broker incurs costs each time a license is hung, costs for forms, administrative support, phone and other overhead. If your goal is anything less than full-time involvement in the industry, the companies that will be enthusiastically welcoming you will be few.
What we are really talking about here is a desire to benefit from not having to pay a real estate fee or, rather, to “earn” the fee thereby reducing the effective price of the property. As an example, a $400,000 property offering 3% to the buyer’s broker would result in a $12,000 savings to the licensed principal, assuming the licensee’s broker takes nothing. In a typical new-hire scenario, this number would be closer to $5,000 after paying franchise fees, broker splits, insurance and Board dues. If you believe that this pencils out when you consider the loss of detached advocacy and your investment of time, and if you are confident that your pre-licensing studies have truly equipped you with the required knowledge, then go for it. Be careful, however, that it isn’t a case of “I don’t know what I don’t know.” Here’s the punch line: I think I have finally found a Redfin match. If you are licensed but not trained and not practicing, perhaps you would be better served to find someone who is and who is willing to credit back some of their commission. And if you want the corn, you can instruct them to write it into the contract.