When purchasing property, there are a lot of details to track. Failing to hire an experienced real estate broker could cost you both time and money if just one of those details is overlooked, says Eliot Kijewski, a sales associate at CRESCO Real Estate. “By following a purchase agreement abstract, the buyer can help ensure that proper due diligence is done and that there aren’t any surprises after the deal has closed,” says Kijewski. Smart Business spoke with Kijewski about how an experienced real estate broker can help you avoid costly mistakes. What is the first step when considering purchasing property? A purchase agreement abstract provides a checklist of steps to follow. It breaks down the purchase process for both the buyer and the seller and ensures everything is done properly. Following this, the first step is for the potential buyer to provide earnest money to a quality title company. In addition, almost any transaction of more than $350,000 requires an environmental policy assessment. However, if it is a known hazard area, such as a gas station or a site that is otherwise suspect, that assessment will be required. In Phase 1 of the assessment, which costs $2,000 to $5,000 and averages three weeks, the history of the property and all its known prior uses are examined. If the buyer is going through a lender, this phase may not be optional, even with a low purchase price, as the lender will almost always require it. If Phase 1 comes back with suspect information — for example, if the site had heavy industrial use or hazardous chemicals have been used on site — there will be a Phase 2. Further testing will be conducted and samples are sent to a lab. This phase generally starts at about $9,000 and can become really expensive, and it averages six weeks. Neither side may want to pay for the study, but it’s critical to provide the buyer and the seller with peace of mind about the transaction. In some cases, the potential buyer and seller may choose to share the cost. If Phase 2 comes back inconclusive and the transaction is called off, each side has lost just a little, versus the entire cost of the purchase. How can surveys help ensure buyers know what they are getting? Surveys are an important tool used to identify the boundaries of a property and can be general and inexpensive. However, an American Land and Title Association survey can provide more in-depth information should you want to know more about what you are buying. An ALTA survey is very detailed and shows you exactly what you are purchasing, such as the utilities, the topography, etc. Having this survey done is always a good idea, but it can be very expensive depending on the size of the property and the complexity. Another advantage is that you may understand the potential of existing wetlands. What are the next steps? Hire a trained professional to do a building inspection. That person will check its structural soundness, the HVAC system, the roof and electrical system mechanicals. Also have the IT system inspected to gain an understanding of its capacity. At this stage, you should also arrange for phone and IT services because those can take a long time to install. If the sale doesn’t go through, you can cancel it. Also ask about warranties on the roof, the HVAC system and other items for which a warranty may transfer from the buyer to the seller, and find out how much time is left on those to understand potential future costs. How can incentives and zoning affect a sale? Check with the municipality to see if anything is available to help you with financing or if there are incentives that can make it a more attractive purchase. Also talk with the state and county to see if there is anything they can offer to sweeten the deal. You should also check the zoning to ensure that your intended use of the property is acceptable. If you’re going to need a variance, you need to know about it before you commit to the purchase. What does a potential purchaser need to understand about financing? Assuming that you are financeable, check with your lender to see how quickly it can complete the transaction. Otherwise you might find yourself in a situation in which the due diligence is done and you’re ready to move forward, but the bank can’t finance for another four weeks. Also consult with a broker to see who’s doing deals, as banks have SBA programs that can help. With these loans, the government accepts a large part of the responsibility for the project, allowing you to lock in rates. These loans are not the easiest to obtain, but they can provide a huge benefit. Once you have completed all of the steps, it’s time to close the deal and determine when everything will be in place so you can move in. Is this process something the average business owner can accomplish on his or her own? No. You definitely need help. Even experienced building owners still hire brokers, attorneys and other professionals to help them through the process. If you try to do it yourself, you will overlook some of these critical steps because you’re not used to doing them on a daily basis. Your broker can keep things moving along and hold the deal together. Eliot Kijewski is a sales associate at CRESCO Real Estate. Reach him at (216) 906-2414 or firstname.lastname@example.org. Insights Real Estate is brought to you by CRESCO Real Estate
If all your insurance broker has done is market your health care plan to a half-dozen carriers, you may not be getting your money’s worth, says Steve Freeman, president of USI in San Francisco.
“If you have 100 employees and multiply that by $10,000, the average annual premium is $1 million,” says Freeman. “If you are paying a 5 percent commission, your broker is making $50,000 a year on your account just for negotiating premiums. And there’s not a lot of incentive to work for lower premiums, because, as premiums increase, so does his or her commission.”
Smart Business spoke with Freeman about how to create transparency in broker fees and how to get the most for your money.
Why are broker fees becoming more transparent?
The Accountable Care Act requires a minimum loss ratio of 85 percent, so insurance companies have to spend at least 85 percent of premiums on claims for employers with at least 50 employees. And that cannot include broker compensation. As a result, brokers will have to be more transparent with their services and fees.
What questions should business owners ask their broker to make sure they’re getting the best value?
First, ask, ‘How are you impacting the cost of my medical claims, rather than just shopping it to insurance companies?’ Claims costs drive premium. The broker should also be focused on changing employee behavior to make them become better health care consumers. Suggestions should include ideas around aggressive wellness programs, evaluating different funding alternatives and analyzing the overall health status of the group. The broker should un-bundle your claims to help determine what is driving your price, because, if you can lower your claims, you can lower your premiums. Businesses should understand their claims utilization. For example, they could assess whether their emergency room visits are higher than other groups benchmarked in their region or industry. If so, the broker can target employees using the ER and educate them about how using urgent care instead of the emergency room will cost them and the employer much less.
Your broker should also conduct a large claims analysis. If there are very large claims, are employees utilizing the most cost-effective facilities that have better outcomes? You can also design programs to migrate more employees to facilities with better outcomes and lower costs than, for example, a teaching hospital, whose charges may be double but that have the same outcomes.
Can a small brokerage firm meet these needs?
The one-man or 10-man brokerage is dead. If a broker says, ‘call me for everything,’ or ‘I can take care of all your needs,’ that should be a red flag. Those shops can’t survive because they don’t have the intellectual capital for all of the necessary areas of expertise. Nor do they do the volume of business with insurance companies to get the deals that someone with a large volume of premium with these companies can get.
A larger broker will have ERISA attorneys on staff to advise on compliance issues, a medical director to do clinical reviews, teams that conduct analytic and underwriting work, and individuals doing HR and IT work. Brokers should be the quarterback, with a team behind them that understands compliance, legal, clinical, underwriting and communications. The broker’s job is to understand how to orchestrate that team, not to pretend to have all the answers.
What would you say to business owners who are comfortable with their broker simply shopping their plan?
I would ask what that relationship is worth to them. There are businesses that have a few hundred employees with fully insured plans that budget an increase of 12 percent a year.
If that broker is making a 5 percent commission and you are paying him $100,000 a year, what does he bring to you in value? How much business do you have bring in to make $100,000 in profit? Is your broker worth that revenue? What is he doing to bring your costs down?
Employers think they are just paying the insurance premium, and the broker is part of it, and that it is difficult to influence cost. But brokers actually can influence cost. Insurance companies come out with a 12 percent rate increase knowing that they can be negotiated down to 8 percent. The business owner thinks the broker did a good job getting to 8 percent. But a broker with underwriting and claims experience, before you even get the renewal notice, will tell the insurance company that your renewal should be 5 percent based on the underwriting formula of what you’ve done in the past. The broker should say, ‘Our expectation is that you will come back with a 5 percent rate increase, not 8 percent or 12 percent. But based on facts and claims use, it should be 5 percent.’ There is lot of room for negotiation.
How is the commission system changing with more transparency?
Instead of staying with percentage-based commissions, employer groups are paying a flat fee per year, and the broker compensation is based on the level of service he or she is providing. It is not a function of premium, it is a function of the services that broker is delivering to the firm. The employer group negotiates a flat fee per employee per month, or a flat dollar amount per month for the services it is getting, more like fees that are paid to an accountant or attorney.
The value of the insurance benefits should be evaluated based on results and managing total cost. The more transparent compensation becomes, the more aware clients will become of the services that their brokers are providing, or should be providing.
Steve Freeman is president of USI San Francisco. Reach him at (925) 472-6772 or email@example.com.