Thought I'd take some time to address the question of how to choose an agent - too often an agent is chosen because they are willing to cut their commission or even worse yet, make unfounded claims about getting some inflated price for your property.
First things first: ASK FOR RECOMMENDATIONS - ask to speak to several past clients as well as current sellers of the agent you are interviewing. You would be best served to do this prior to your actual face to face appointment.
During the interview: ASK THE AGENT QUESTIONS - in addition to the standard qualification questions, a few pertinent questions might be:
What is the agent's production (sales) in the past 12 months?
Where is the agent's market concentration, have they sold recently in your neighborhood?
What price range do they work in - the price ranges of their past 6 months or so sales
What services does the agent provide for their fee - Agents with higher fees may offer more selling experience and exposure and could result in a higher selling price!
How would the agent establish the price for your home
How would the agent promote your home - do NOT be shy in asking for a comprehensive marketing plan - all good agents have them!
Is the agent a direct member of the MLS
How many websites doe they have and do they target market?
Does the agent have a staff to handle the many clerical items during the selling process
How often will you be speaking directly with the agent - will there be a regular schedule of "check in and discuss progress calls?"
Now, did the agent ask you to compile an information sheet featuring your home's strongest selling points? Top agents will, it creates the basis for writing eye-catching, attractive listing descriptions that will aid in the sale of your home!
After the agent has visited your home, visit his or her office! Is the office professional, attractive and well-organized? Does his/her office offer accessibility and make you comfortable?
Now ask yourself - Do you trust this individual? Could you have a solid working relationship? Did the agent make you feel comfortable and secure with their knowledge?
If you are unsatisfied with the agent's plan or personality, thank the agent for their time and repeat the process with another agent. If you are happy with the agent, make the commitment to yourself to stick with him or her - it can be time-consuming to switch agents and the passage of time during a listing can certainly be a negative on the sale of your home!
REMEMBER - BE INFORMED AND CHECK BACK HERE OFTEN!
Sunday, January 6, 2008
Saturday, January 5, 2008
Discussion on Rent to Own for Sellers in a Down Market
Hopefully you have had the chance to read yesterday's posting. If you are having trouble selling your home in a down market, this could offer a wonderful opportunity. The hammering of the sub-prime market and the drying up of loans to underqualified buyers obviously has added to the current conditions. This does, however, open up more of a market for the Rent to Own buyer who needs time to save money or improve their credit scores to qualify for a better loan.
We have had a number of sellers who have stated that if they did not sell the home in a reasonable amount of time for a reasonable sale price they would just rent the house for a year or two and see where the market goes. That's a very iffy proposition. The rental market is also soft and that means lower rents received. Add that to the expense of renting - real estate commissions, maintenance, insurance, depreciation and worst of all the condition of the property at the end of the lease term. You could be lucky and get a tenant who takes care of the property and who pays their rent on time, or you could get the opposite and it could get costly. There's also no guarantee that after the lease term the market will have improved or appreciated.
If you could sign an option for full asking price (that in itself is a bonus), get a 1% to 5% option fee and rent the property for several hundred dollars over the going rate, that could be a pretty good deal! It's a good deal for the buyer, too - rental payments are generally less than mortgage payments, they have time to get a "feel" for the home and neighborhood, they build equity (remember, the option fee and the premium on the rent would apply to the purchase price if the option is exercised), and chances are they will respect the house as if it were already their own.
We do a rent versus sell analysis (spreadsheets we have developed ourselves) that is truly an eye-opener to homeowners. You can do this analysis yourself, but you might be better served in seeking the help of an unbiased professional. I know many realtors will do this for you and they have the knowledge of the market and know the costs and pitfalls as well.
So, just some other options and opinions for your informatioin!
BE INFORMED AND CHECK BACK HERE OFTEN
We have had a number of sellers who have stated that if they did not sell the home in a reasonable amount of time for a reasonable sale price they would just rent the house for a year or two and see where the market goes. That's a very iffy proposition. The rental market is also soft and that means lower rents received. Add that to the expense of renting - real estate commissions, maintenance, insurance, depreciation and worst of all the condition of the property at the end of the lease term. You could be lucky and get a tenant who takes care of the property and who pays their rent on time, or you could get the opposite and it could get costly. There's also no guarantee that after the lease term the market will have improved or appreciated.
If you could sign an option for full asking price (that in itself is a bonus), get a 1% to 5% option fee and rent the property for several hundred dollars over the going rate, that could be a pretty good deal! It's a good deal for the buyer, too - rental payments are generally less than mortgage payments, they have time to get a "feel" for the home and neighborhood, they build equity (remember, the option fee and the premium on the rent would apply to the purchase price if the option is exercised), and chances are they will respect the house as if it were already their own.
We do a rent versus sell analysis (spreadsheets we have developed ourselves) that is truly an eye-opener to homeowners. You can do this analysis yourself, but you might be better served in seeking the help of an unbiased professional. I know many realtors will do this for you and they have the knowledge of the market and know the costs and pitfalls as well.
So, just some other options and opinions for your informatioin!
BE INFORMED AND CHECK BACK HERE OFTEN
Friday, January 4, 2008
AS PROMISED: RENT TO OWN INFORMATION
As I started compiling my "Rent to Own" information for this blog, I came across the following explanation which, I believe, is not only chock full of great information, but well written and easy to understand. Written by Jack Guttentag (you can see more information about Professor Guttentag at the end of the article) and reproduced here with his gracious permission, I'm sure you will find this information of great interest..... Here Goes.....
What Is a Lease-to-Own Purchase?
A lease-to-own house purchase (also "rent-to-own purchase" or "lease purchase") is a lease combined with an option to purchase the property within a specified period, usually 3 years or less, at an agreed-upon price. The borrower pays an option fee, 1% to 5% of the price, which is credited to the purchase price. The borrower pays rent, and an additional rent premium that is also credited to the purchase price. If the purchase option is not exercised, the buyer loses both the option fee and the rent premium.
As with any kind of financial contract, lease-purchase deals can be structured in such a way that all the benefits flow to one of the parties and none to the other. Buyers especially need to be careful. But lease-purchase plans have a solid economic rationale, which means that they can be structured so that both parties benefit.
Contract Features of a Lease-Purchase
A lease-purchase has 5 major provisions. The sale price of the house and the rent are market-determined, yet subject to negotiation just as in a straight purchase or rental transaction. Buyers often know less about the market than sellers, which places buyers at a disadvantage unless they do some homework, which is advisable.
Buyers generally prefer a long option period because it provides more time to build equity and repair credit. A long period can boomerang on them, however, if they are never able to exercise the option, since they lose the rent premium they have been paying all the while, in addition to the option fee. Sellers generally prefer a short option period, but if it is too short, the house won’t be sold.
The option fee and rent premium are viewed differently by buyers and sellers. To the buyer, they are part of the equity in the house they will soon own. Fully anticipating that they will exercise the option, the only cost is the interest they would otherwise have earned. To sellers, however, these payments are the best guarantee that their houses will sell; if they don’t sell, the payments are retained as income. That the benefit to the seller generally exceeds the cost to the buyer makes the lease-to-own deal a possible win-win.
Using a Lease-Purchase to Buy
The lease-purchase offers homeownership opportunities to consumers with little cash and/or poor credit, who are prepared to bet on themselves. The bet is that before the option period expires, they will qualify for the mortgage they need to exercise the purchase option. During the option period, they have the opportunity to rebuild their credit and accumulate equity while living in the house.
The development of the sub-prime market, in which consumers with poor credit or no cash can obtain loans, does not seem to have lessened interest in lease-purchase. It is very likely that those who succeed in exercising their option under a lease-purchase do better than if they had financed a conventional purchase in the sub-prime market. The savings in finance costs will more than offset a higher price on the house. But those who can’t exercise their option will lose their bets.
Consumers who need to rebuild their credit rating during the option period should understand that paying their rent on time won’t do it. Rent payment information is not used in compiling credit scores. While Fair Isaac, the company that developed credit scoring, has recently unveiled an “expansion” score based on “non-traditional credit data,” it does not yet include rent payment information from individual home owners. Lease-purchase buyers who need a higher credit score must focus on their credit cards and loans.
Even though it is costly, the right not to exercise the option is of value to buyers. If there is something seriously wrong with the house, neighborhood, or neighbors, the money left behind on a lease-purchase is much smaller than the cost of an outright purchase followed by a sale.
Dangers to Buyers
On October 2, 2005, Bob Mahlburg, an investigative reporter for the Sarasota Herald-Tribune, published an article on a substantial lease-to-own program in Florida that had generated numerous complaints. Over a 5-year period hundreds of deals were executed under this program but only a handful of purchases. In fact, there were more evictions than purchases.
The contract used in this program made it all too easy for the seller to avoid having to sell when it was more profitable to evict the tenant and do another deal with another hopeful buyer. The moral: read the contract very carefully to make sure you are confident you can live up to all the terms, such as paying your rent on time, every time.
Using a Lease-Purchase to Sell
Most home sellers want a cash sale, but for those prepared to hang on to the property awhile longer, the benefits can be compelling. Bob Bruss, an expert’s expert on lease-purchases, says that in this market, there are always more buyers than sellers – he has been both. As a result, buyers generally pay top dollar, perhaps including some assumed future appreciation.
To be sure, the deal may fall through, but in that case the seller gets to pocket the option fee and rent premium. The seller also enjoys the tax deduction on his mortgage interest payments during the option period.
The writer is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at http://www.mtgprofessor.com/
AS ALWAYS, BE INFORMED AND CHECK BACK HERE OFTEN.... YOUR COMMENTS, QUESTIONS AND SUGGESTIONS WOULD BE APPRECIATED!
What Is a Lease-to-Own Purchase?
A lease-to-own house purchase (also "rent-to-own purchase" or "lease purchase") is a lease combined with an option to purchase the property within a specified period, usually 3 years or less, at an agreed-upon price. The borrower pays an option fee, 1% to 5% of the price, which is credited to the purchase price. The borrower pays rent, and an additional rent premium that is also credited to the purchase price. If the purchase option is not exercised, the buyer loses both the option fee and the rent premium.
As with any kind of financial contract, lease-purchase deals can be structured in such a way that all the benefits flow to one of the parties and none to the other. Buyers especially need to be careful. But lease-purchase plans have a solid economic rationale, which means that they can be structured so that both parties benefit.
Contract Features of a Lease-Purchase
A lease-purchase has 5 major provisions. The sale price of the house and the rent are market-determined, yet subject to negotiation just as in a straight purchase or rental transaction. Buyers often know less about the market than sellers, which places buyers at a disadvantage unless they do some homework, which is advisable.
Buyers generally prefer a long option period because it provides more time to build equity and repair credit. A long period can boomerang on them, however, if they are never able to exercise the option, since they lose the rent premium they have been paying all the while, in addition to the option fee. Sellers generally prefer a short option period, but if it is too short, the house won’t be sold.
The option fee and rent premium are viewed differently by buyers and sellers. To the buyer, they are part of the equity in the house they will soon own. Fully anticipating that they will exercise the option, the only cost is the interest they would otherwise have earned. To sellers, however, these payments are the best guarantee that their houses will sell; if they don’t sell, the payments are retained as income. That the benefit to the seller generally exceeds the cost to the buyer makes the lease-to-own deal a possible win-win.
Using a Lease-Purchase to Buy
The lease-purchase offers homeownership opportunities to consumers with little cash and/or poor credit, who are prepared to bet on themselves. The bet is that before the option period expires, they will qualify for the mortgage they need to exercise the purchase option. During the option period, they have the opportunity to rebuild their credit and accumulate equity while living in the house.
The development of the sub-prime market, in which consumers with poor credit or no cash can obtain loans, does not seem to have lessened interest in lease-purchase. It is very likely that those who succeed in exercising their option under a lease-purchase do better than if they had financed a conventional purchase in the sub-prime market. The savings in finance costs will more than offset a higher price on the house. But those who can’t exercise their option will lose their bets.
Consumers who need to rebuild their credit rating during the option period should understand that paying their rent on time won’t do it. Rent payment information is not used in compiling credit scores. While Fair Isaac, the company that developed credit scoring, has recently unveiled an “expansion” score based on “non-traditional credit data,” it does not yet include rent payment information from individual home owners. Lease-purchase buyers who need a higher credit score must focus on their credit cards and loans.
Even though it is costly, the right not to exercise the option is of value to buyers. If there is something seriously wrong with the house, neighborhood, or neighbors, the money left behind on a lease-purchase is much smaller than the cost of an outright purchase followed by a sale.
Dangers to Buyers
On October 2, 2005, Bob Mahlburg, an investigative reporter for the Sarasota Herald-Tribune, published an article on a substantial lease-to-own program in Florida that had generated numerous complaints. Over a 5-year period hundreds of deals were executed under this program but only a handful of purchases. In fact, there were more evictions than purchases.
The contract used in this program made it all too easy for the seller to avoid having to sell when it was more profitable to evict the tenant and do another deal with another hopeful buyer. The moral: read the contract very carefully to make sure you are confident you can live up to all the terms, such as paying your rent on time, every time.
Using a Lease-Purchase to Sell
Most home sellers want a cash sale, but for those prepared to hang on to the property awhile longer, the benefits can be compelling. Bob Bruss, an expert’s expert on lease-purchases, says that in this market, there are always more buyers than sellers – he has been both. As a result, buyers generally pay top dollar, perhaps including some assumed future appreciation.
To be sure, the deal may fall through, but in that case the seller gets to pocket the option fee and rent premium. The seller also enjoys the tax deduction on his mortgage interest payments during the option period.
The writer is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at http://www.mtgprofessor.com/
AS ALWAYS, BE INFORMED AND CHECK BACK HERE OFTEN.... YOUR COMMENTS, QUESTIONS AND SUGGESTIONS WOULD BE APPRECIATED!
Appraisal Shortfall Update
Update..... The california lender will NOT allow a second appraisal and will NOT allow for the appraisal to be challenged.... hmmmm... that sure does make it tough. In any case, these are the remaining options for the buyer: He can switch lenders, there are several lenders who have already reviewed the package and can have the loan closed in time with a new and updated appraisal or he can serve notice to the seller under the financing contingency (with a supporting document from his lender) that he no longer qualifies for the loan amount he originally applied for.
The seller is standing firm on their price, they will NOT make any concession towards the price. This, again, could be a real can of worms for both parties. Nobody wins in a situation like this unless there is some agreement reached between the parties. The home has literally been off the market now for several weeks and in a buyer's market every day the house stays on the market seems to be reflected in lower offers. The next offer to the seller may be even lower.
The buyer could potentially have his earnest money deposit held by the escrow agent if the seller does not sign a release - again, this could get ugly. Since closing was originally set for the 15th of January, we need to resolve this very quickly. As I previously stated, in the contract there is a provision that the buyer is in default if he does not settle on the date specified in the contract even if the financing contingency has not been removed and even if the buyer must make up the difference in an appraisal shortfall.
So, as we stand on the rock and the other side stands on the hard place we'll see where this one goes - it's rare not to be able to find some middle ground and work an agreement acceptable to both - again, I'll keep you posted....
BE INFORMED and CHECK BACK IN OFTEN
The seller is standing firm on their price, they will NOT make any concession towards the price. This, again, could be a real can of worms for both parties. Nobody wins in a situation like this unless there is some agreement reached between the parties. The home has literally been off the market now for several weeks and in a buyer's market every day the house stays on the market seems to be reflected in lower offers. The next offer to the seller may be even lower.
The buyer could potentially have his earnest money deposit held by the escrow agent if the seller does not sign a release - again, this could get ugly. Since closing was originally set for the 15th of January, we need to resolve this very quickly. As I previously stated, in the contract there is a provision that the buyer is in default if he does not settle on the date specified in the contract even if the financing contingency has not been removed and even if the buyer must make up the difference in an appraisal shortfall.
So, as we stand on the rock and the other side stands on the hard place we'll see where this one goes - it's rare not to be able to find some middle ground and work an agreement acceptable to both - again, I'll keep you posted....
BE INFORMED and CHECK BACK IN OFTEN
Thursday, January 3, 2008
Some Quick Updates
Appraisal Shortfall - We are working with the lender in California to approve a more realistic appraisal - I'll keep you posted.
207 Years Old and Counting - Well, the home inspection is in - one would think that a house still standing after all those years can't be all bad! There are a few relatively small electrical and plumbing issues - the biggest issues are post beetles found in the joists that don't quite make it all the way to the underside of the floor! This will continue to be interesting - according to the pest inspector, those post beetles could have been there from the day the tree was cut down (207 years ago????) - and don't forget my earlier post - the seller is responsible for wood destroying insects up to 2% of the sale price. I'll keep you posted on this as well.
Interesting question of the day - how do rent to own or lease to buy options work? In a buyer's market, this might be a very realistic and appealing option for sellers - I will write more information on this tomorrow.
Sorry the posting today is lean, getting up to speed after a holiday is always a challenge. Remember, questions, comments or interesting stories are appreciated.
BE INFORMED AND CHECK BACK HERE OFTEN
207 Years Old and Counting - Well, the home inspection is in - one would think that a house still standing after all those years can't be all bad! There are a few relatively small electrical and plumbing issues - the biggest issues are post beetles found in the joists that don't quite make it all the way to the underside of the floor! This will continue to be interesting - according to the pest inspector, those post beetles could have been there from the day the tree was cut down (207 years ago????) - and don't forget my earlier post - the seller is responsible for wood destroying insects up to 2% of the sale price. I'll keep you posted on this as well.
Interesting question of the day - how do rent to own or lease to buy options work? In a buyer's market, this might be a very realistic and appealing option for sellers - I will write more information on this tomorrow.
Sorry the posting today is lean, getting up to speed after a holiday is always a challenge. Remember, questions, comments or interesting stories are appreciated.
BE INFORMED AND CHECK BACK HERE OFTEN
Wednesday, January 2, 2008
Appraisal Shortfall - Part II
Well, we got a copy of the appraisal, the biggest problem seems to be the appraiser doesn't know this area very well, nor is some of the information on the subject home correct! We have calls in to the appraiser to discuss this. The lender is an on-line lender based in California (we're in Maryland), and although the rates were very good, long distance borrowing on real estate can be problematic. The $50,000 shortfall on the appraisal in this case is one of those problems that can arise.
We have information for the appraiser to show where the value of the house should be higher (the current owner paid $820,000 in 2005 and homes in our area have not depreciated to that extent) as well as errors in the appraisal itself. We'll see where that leads. We have spoken to the listing agent and the seller is not going to adjust the price, period.
Where does that leave the buyer? Under the financing contingency of the contract, if the buyer cannot obtain the specific financing, the contract can be voided - this is extremely subjective - the specific financing that the buyer had arranged was for 80% of the purchase price of $795,000 or $636,000 - because the appraisal was for $750,000, the maximum amount of the loan would be $600,000 - the buyer would have to come up with an additional $36,000 in cash. It actually gets more complicated, the original offer on the house was $770,000 and the lender approval is for that sale price. So, is the specific financing for $770,000 and the buyer should make up the difference of $25,000? If this is the case, there is still $11,000 in shortfall for the mortgage, the appraisal did not even reach the $770,000 original offer.
Is the contract voidable if, in fact, the buyer is still qualified to finance the property under a different program or with a different lender? According to a local real estate attorney, the new language of the contract finds the buyer in default if he does not close by the specified date, even if the financing contingency has not been removed, and even if additional cash is needed because of an inadequate appraisal. So, this may turn out to be a test of the new financing provisions of our contracts, I'll keep you informed as we progress!
So, the lesson to be learned thus far (even without the final outcome)..... If you are a buyer, get your best rates - even from on-line lenders, but shop those rates to local lenders, it could save you much heartache down the road. As far as appraisal contingencies go, make sure there is one in the contract! No matter how good deal you may believe you have gotten, a seller should not object to a short appraisal contingency - call your lender before presenting the offer (your agent should do this for you) and find out how much time he/she needs to do an appraisal - that will help you determine the amount of time needed for the contingency - keep it as short as possible, that always makes a deal more attractive to the seller.
To be continued.....
BE INFORMED AND CHECK BACK HERE OFTEN!
Comments and Questions Appreciated!
We have information for the appraiser to show where the value of the house should be higher (the current owner paid $820,000 in 2005 and homes in our area have not depreciated to that extent) as well as errors in the appraisal itself. We'll see where that leads. We have spoken to the listing agent and the seller is not going to adjust the price, period.
Where does that leave the buyer? Under the financing contingency of the contract, if the buyer cannot obtain the specific financing, the contract can be voided - this is extremely subjective - the specific financing that the buyer had arranged was for 80% of the purchase price of $795,000 or $636,000 - because the appraisal was for $750,000, the maximum amount of the loan would be $600,000 - the buyer would have to come up with an additional $36,000 in cash. It actually gets more complicated, the original offer on the house was $770,000 and the lender approval is for that sale price. So, is the specific financing for $770,000 and the buyer should make up the difference of $25,000? If this is the case, there is still $11,000 in shortfall for the mortgage, the appraisal did not even reach the $770,000 original offer.
Is the contract voidable if, in fact, the buyer is still qualified to finance the property under a different program or with a different lender? According to a local real estate attorney, the new language of the contract finds the buyer in default if he does not close by the specified date, even if the financing contingency has not been removed, and even if additional cash is needed because of an inadequate appraisal. So, this may turn out to be a test of the new financing provisions of our contracts, I'll keep you informed as we progress!
So, the lesson to be learned thus far (even without the final outcome)..... If you are a buyer, get your best rates - even from on-line lenders, but shop those rates to local lenders, it could save you much heartache down the road. As far as appraisal contingencies go, make sure there is one in the contract! No matter how good deal you may believe you have gotten, a seller should not object to a short appraisal contingency - call your lender before presenting the offer (your agent should do this for you) and find out how much time he/she needs to do an appraisal - that will help you determine the amount of time needed for the contingency - keep it as short as possible, that always makes a deal more attractive to the seller.
To be continued.....
BE INFORMED AND CHECK BACK HERE OFTEN!
Comments and Questions Appreciated!
Tuesday, January 1, 2008
Appraisal Contingency
We won't have an update on the low appraisal before tomorrow, obviously bankers and appraisers take off the holidays, too! I thought I'd take this time to speak to Appraisal contingencies.
When you put an appraisal contingency in a contract, you are giving the mortgage company a fixed amount of time (usually between 7-14 days) to have the appraisal done to assure the house appraisal for at least the selling price. This is most critical in the case of 100% financing - the amount of the loan will be no more than the appraisal amount, leaving a shortfall for the buyer.
In the case where an appraisal is low, the appraisal contingency allows for the buyer to give notice to the seller, with a copy of the appraisal, that he/she wants the price lowered to meet the appraisal. The seller can lower the price, can negotiate somewhere in between, or void the contract.
You should check with a realtor in the state where you live. In Maryland, although the buyer specifies a number of days for the appraisal, in reality, the contingency doesn't expire. At the end of the specified number of days, the seller can elect to give notice to the buyer giving them three days to produce the appraisal, remove the contingency, or void the contract. If the seller does not deliver this notice, the contingency for the appraisal just continues.
It is obvious that your realtor needs to keep track of these dates, make sure the lender has a copy of the contract immediately on ratification, and makes sure the lender is aware of the time frame for the appraisal. This, is one of the many things your realtor will be watching on your behalf!
That's a short version, we'll explore this further tomorrow when I have more info on the short appraisal! Happy New Year.
REMEMBER, BE INFORMED AND CHECK BACK HERE OFTEN!
When you put an appraisal contingency in a contract, you are giving the mortgage company a fixed amount of time (usually between 7-14 days) to have the appraisal done to assure the house appraisal for at least the selling price. This is most critical in the case of 100% financing - the amount of the loan will be no more than the appraisal amount, leaving a shortfall for the buyer.
In the case where an appraisal is low, the appraisal contingency allows for the buyer to give notice to the seller, with a copy of the appraisal, that he/she wants the price lowered to meet the appraisal. The seller can lower the price, can negotiate somewhere in between, or void the contract.
You should check with a realtor in the state where you live. In Maryland, although the buyer specifies a number of days for the appraisal, in reality, the contingency doesn't expire. At the end of the specified number of days, the seller can elect to give notice to the buyer giving them three days to produce the appraisal, remove the contingency, or void the contract. If the seller does not deliver this notice, the contingency for the appraisal just continues.
It is obvious that your realtor needs to keep track of these dates, make sure the lender has a copy of the contract immediately on ratification, and makes sure the lender is aware of the time frame for the appraisal. This, is one of the many things your realtor will be watching on your behalf!
That's a short version, we'll explore this further tomorrow when I have more info on the short appraisal! Happy New Year.
REMEMBER, BE INFORMED AND CHECK BACK HERE OFTEN!
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