Archive for October, 2006

Loan Shopping - Too Few Know How

Monday, October 16th, 2006

The Mortgage maze is confusing to both consumers and real estate professionals.  For real estate firms that have their own mortgage company their preferred choice is their in-house lender.  Even though the law requires full disclosure, many consumers are drawn into the convenience of one-stop-shopping without comparing other lenders.

The truth is that most of us don’t know how to shop lenders.  We start calling various lenders to see what their rates are.  Then we hear about the bait-and switch games where one rate is quoted and later another is substituted and we throw up our hands in dismay.  In reality, the only rate that really counts is the rate available on the day you lock-in.

In addition to getting the best available rate there is the question of lender fees which can vary considerably.   Things like application fees, processing fees, underwriting fees, document preparation fees, discount fees, and hidden fees can be thousands of dollars difference from one lender to another.  Getting a Good Faith Estimate (GFE) from each lender is the only way to get anything close to accurate numbers.

Then there are various types of loans.  How do we choose from the myriad of available loans?  Is a fixed loan best?  How long a term should I pick, 15, 20, 30, or 40 year amortization?  How about an adjustable rate mortgage?  What about interest only?  Is negative amortization or an option ARM a better choice?   

To complicate things even more there are different types of lenders including banks, credit unions, mortgage brokers, mortgage lenders, etc.  We don’t know the difference, so we give up and settle for someone with a friendly face and a nice smile. 

So how do you shop for the best loan?  If we’re convinced that good homework will turn up the best loan program, how do we go about it? A buyer broker in Michigan, Jon Boyd, has a short, on-line http://howtomortgageshop.com“>video  that outlines a great approach to finding the best and lowest cost loan.   

It’s important to know your credit score before you start calling lenders.  Only call credible lenders and use the following script inserting your specific numbers. “My credit score is ____ and I’m looking for a 30 day lock on a ____ thousand dollar loan with no points.  Can you tell me what your rate lock is today and what your costs are like?��? 

Next you compare the Good Faith Estimates, identify the fees that are not lender controlled, and choose the lender that offers the greatest savings.  Even fees that are not controlled by the lender can vary.  Some lenders are able to negotiate better fees with their service providers.A good buyer’s agent can help you with this and help you match the GFE with the actually Settlement Statement you should get prior to closing.   

 

  

   

 

 

 

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How is the New Mass Agency Law Working?

Monday, October 16th, 2006

After a year of implementation how is the new Mass Agency Law working?
 

In July of 2005 a new law went into effect that changed the old agency disclosure form and included new ways for real estate agents to do business in Massachusetts.  Practically speaking, it did away with sub agency, the approach that said, “If a cooperating agent wants to show my listing and get paid they better work for my seller�.  It also introduced a replacement option for Dual Agency called Designated Agency and formalized a non-agency relationship with consumers called Facilitator.

Now that summer of 2006 is ending, how has it gone for the past year of this new law?  My experience as a real estate instructor is that there is mass confusion in the field.  Real estate agents feel the new disclosure is very cumbersome and confusing.  Many are not sure exactly what sections of the form they should fill out and sign.  And there are still those who want to change hats midstream when the particular approach they have agreed to follow is financially penalized in the MLS offer of compensation.

While some offices prefer to continue to be seller representatives the new law makes it highly difficult if not impossible.  Overnight the traditional way of doing real estate went out the window.  Sub agency relationships  are now practically non-existent. And while there may have been some good intention in the change, we may have thrown the baby out with the water.

Designated Agency has dominated the industry as the popular way to do business.  It’s a form of Dual Agency that allows individual agents within the same office to represent both sides of the transaction.  This way both seller and buyer can be fully represented and the company can collect both sides of the commission.  But the inherent conflict is still present in any office that attempts to represent both seller and buyer at the same time.

Facilitation has not yet become as popular as other approaches and some seem to think it will go away.  A facilitator does not represent either the seller or the buyer, but rather works as a matchmaker to bring the parties together.  Firms that focus on seller representation need to act as facilitators when showing properties listed with other companies since the formerly popular sub agency relationship is no longer extended.

Maybe facilitation should be practiced more.  At least it doesn’t force a buyer into a relationship they may not understand or want.   This is my concern about the way Designated Buyer Agency is done in offices that will not allow facilitation.  When the buyer walks into a Designated Agency office they will automatically be represented by the agent that shows them listings.  Whether the buyer wants it or not, they will be represented in either an in-house or cooperating firm’s listing.  Is anyone explaining to these buyers the vicarious liability they take on in this type of forced relationship?  Or are we going to live through another several decades of non-disclosure as we did in the sub agency relationship?

So how is the new agency law working?  You tell me.

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State-Mandated Minimum Standard Laws - What About the Buyer?

Monday, October 16th, 2006

State-Mandated Minimum Service Laws – What about the Buyer?  There has been a lot of hoopla over recent months about setting minimum listing service standards in real estate practices across the country.  The Department of Justice has decided to challenge these laws indicating that they are a restraint of trade for new business models.   It seems the Federal Trade Commission agrees.  Specifically, these laws have forced some flat-fee listing companies out of business because the whole concept of a flat fee is typically minimal service for a minimal fee. The industry seemed to say,  ”You can accept minimal compensation but you can’t give minimal service”.   

The DOJ has stated that sellers should have the right to determine what level of service they want to engage and pay for.  The industry says “No, because sellers need to be protectedâ€?.  The real estate industry maintains that sellers don’t realize the intricacies of a real estate transaction and, therefore, should not be allowed to list a property for a minimal fee unless the listing firm guarantees a level of service that is financially impractical for the flat-fee listing firm’s existence.  It’s an interesting debate, but one particular focus has been missing.  The real estate industry seems very concerned about sellers not getting full service in a real estate transaction, but what about the buyer? 

Having represented home buyers exclusively since 1990, I am appalled that once more the industry has taken a solely seller-focused approach.  For decades the industry has frowned upon the buyer agency movement of advocacy for the home buyer.   And, for the most part, buyers were left to fend for themselves against two real estate agencies that both represented the seller in a home sale.  But who worried about protection and a full-service approach for the buying side?  No one except buyer agencies that took a beating from the industry for years.  What about the intricacies on the buying side?   What about the buyer? 

A case could be made for the fact that buyers are more at risk in a real estate transaction than a seller.  Why should we force full-service models for sellers and still leave buyer to fend for themselves? The industry support of minimum service laws show us that it is the listing side of a transaction that is our primary concern.  And what real estate agent hasn’t heard the old adage “You’ve got to list to last�?  Our focus has always been on getting the listing. 

I prefer to think that good service is the key to good business.  I doubt that the minimum service standard movement for home sellers will go very far.  Some sellers are proving every day that they can pay less for less service and successfully sell their homes.  So perhaps all the concern for sellers has been misplaced. 

Why haven’t these new state laws mentioned buyers?  They seem to have been totally overlooked.   If sellers need all this “protection� and setting of standards why don’t buyers?  You be the judge:  Are we really concerned about service for sellers  or do we just want to preserve the higher listing fees for full service that we’ve become accustomed to?  If we’re really genuine about concern for good service, what about the buyers?  

 

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