Archive for July, 2009
Why Use a Buyer’s Agent?
July 24th, 2009 categories: Folsom Lake, Home buying, Real Estate
A buyer who represents himself has a fool for a agent
Buyer-broker representation in the purchase of a home is one of the smartest things you can do for yourself. One of my pet peeves is finding out, after the fact, that someone purchased a home from the listing agent because they thought they would get a better deal. My question is who got the best deal?
First, let me explain what I mean by a buyer-broker. According to California real estate code we, who sell real estate, are required to explain who we represent in any given transaction. This is called an agency disclosure. So, if you hire me to list your house, my job is to bring buyers and I am a listing agent. If you hire me to help you find a house, my job is to show you homes that meet your criteria and I represent the buyer as his agent.
A buyer-broker agreement adds to the usual agency duties and requires that I work exclusively for the buyer to find a property that meets his criteria. For example, if I see a home that is For Sale by Owner (FSBO) then I need to contact that owner and ask them if I can show my client the home. If the seller says they will not pay a commission to me then I am still bound to show my buyer. Typically the buyer-broker agreement outlines the compensation to the agent. In most cases the buyers agent is paid from the proceeds of the sale, but technically the buyer is responsible for the commission.
So back to my pet peeve. If you call me about a property that I have listed and you tell me you have an agent, I am required to respect that relationship. Failure to abide by that simple rule results in well over 50% of the complaints received by our board of Realtors. The problem arises when the listing agent alludes that he can get the buyer a better deal for the house by dismissing his agent. Actually, the California Association of Realtors (CAR) boiler plate listing agreement shows the amount of commission to be offered to the selling (buyer’s) agent. So, if the broker doesn’t have to split the commission he gets to keep the whole amount. Do you think that motivates the listing agent to find a buyer who isn’t represented? As Sarah Palin says….you betcha!
This happened in once instance when I was representing a buyer a few years ago. My buyer had a budget that she could not exceed and the market was still going crazy. In the heat of the moment she walked into an open house, told the agent (who also happened to be the owner) that she had a buyer’s agent. He persuaded her to cancel the contract she had with me on another house. He then said he would reduce the price of the home to the amount she told him she was budgeted for.
Do you think she was represented well? The owner/seller wanted out in a big way and exploited her ignorance. We see this a lot in hard markets such as now with investors buying and flipping properties as fast as possible. As if this wasn’t unethical enough, after the escrow closed she finally read her paperwork and found various things wrong or misrepresented. She called me to see if I could offer her counsel. The saddest part was that because this real estate agent was not a member of our local board, and only joined the MLS, there was nothing the board could do to help this consumer.
The lesson is two-fold. One, make sure you understand your agency relationship and if you want single representation (no dual agency) then tell your agent. Buyer broker agreements require that you will be responsible for paying your agents commission. IF you default on your agreement and do what my client did, then not only do you risk owing the commission, but you open yourself up to unethical agents. It’s funny how more green on the table causes failure to highlight items easily missed on reports or disclosures.
And two, hire a Realtor…this is a trademarked designation to be used only for agents who are members of the local, state and national boards of realtor’s. IF they do something unethical you have some recourse and can make their work life very difficult until they resolve your complaint. I’ve always maintained that you can’t teach ethics…people either have them and live by them or they don’t. One thing I do know and that is, that nothing stands in the way of what unethical people think they deserve.
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Who has the Advantage? Buyers, Sellers or Lenders?
July 20th, 2009 categories: Finances, Home buying, Real Estate
Getting Your Offer Accepted
I read an interesting article recently that outlined the differences between a buyers market and a seller’s market but added the newest player…the lenders. Yes, it’s true that prices have dropped significantly and interest rates are hovering around 5%, and it would appear that the buyer’s have the advantage but it’s really the lenders that seem to be calling the shots.
It’s easy to see the truth of this when you realize that the banks have a shadow inventory of about 2/3 of the current inventory on the market. Lending requirements have been tightened to the early 1990’s standards (10% down) with only FHA or VA alternatives. Additionally, they disregard the time frames and procedures regarded as standard operating procedure for the real estate industry as a whole. It’s no wonder the buyers get frustrated and walk away from offers. Some real estate agents refuse to show short sale properties even though they represent 75% of the current inventory on the market.
So what is the solution for buyers eager to take advantage of the situation? The first rule of order is to get your finances organized. Once you have your paperwork in hand and can sit down with a lender, they will be able to qualify you for a loan. I always tell my buyers to make sure this is done first BEFORE you go shopping. Once you find that perfect house you don’t want to feel as though you’re being held hostage to the lender, so get the financing out of the way so you are confident in your offer.
Always get a Good Faith Estimate (GFE) from your lender because this is what you can use to shop around for the best rates. Once you decide on who you are going to work with get a Desktop Underwriting (DU) approval which is considered gold when it comes to offer submission. Remember that once an offer has been accepted the seller is required to show the home as pending sale and cannot continue to offer it for sale. You want to reassure the listing agent by submitting your offer with a DU so they can tell the seller with confidence that you can complete the transaction.
Now that the financing is in order and you know what you can afford, determine which neighborhood you want to live in and work with someone who is familiar with the area. I once had a listing in Rocklin that a buyer’s agent recommended to her clients from the bay area. They bought it as an investment but didn’t see the property until 5 days before we closed escrow. When the agent finished showing her clients the property she called me to ask why I didn’t tell her there were numerous rentals on the same block. I countered that I had done my job in selling the home but she didn’t do her’s in telling her clients about the community. Always work with someone who you trust to be your eyes and ears…if all they are interested in doing is pushing you to sign a contract then realize who’s interest they are truly representing.
Finally make sure you understand what your obligations are when you sign your purchase offer. Too many times buyers assume they can walk away from their contracts without penalty. I recently had a seller who kept the buyer’s deposit due to her agent’s negligence. Remember that the final decision is your responsibility and as the saying goes you can delegate responsibility but you can never give it away.
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Folsom and El Dorado Hills Housing Statistics
July 8th, 2009 categories: El Dorado Hills, FHA, Folsom CA, Home buying, Real Estate
Folsom July 2009
Current Statistics 07/08/09
Single Family Homes Available 625
Short Sales Available 213
REO’s (bank owned) 20
El Dorado Hills
It seems that even though most people say they want to get a deal from the bank, once they actually see the inventory they elect to spend more up front rather than after they purchase. Traditionally, bank owned homes are in need of repair or renovations and that is where FHA loans provide the perfect remedy to an ailing house. The 203k Streamline home loan offers up to $35,000 towards renovations without having to hire a contractor. In fact, Home Depot, Lowes and other major retailers have been approved for this program, which “streamlines” the process and gets the repairs done quickly so buyers can move in without delay. Repairs include everything from new appliances to roofs and gives the new buyers the opportunity to select which finish they prefer. Once the home closes escrow the repairs start immediately but have to be finished within 30 days which is not usually an issue.
Another thing to notice between Folsom and El Dorado Hills is that although Folsom has a much larger population than El Dorado Hills it has less inventory. Currently Folsom has 270 single family residences on the market and El Dorado Hills has 355 yet Folsom hovers around 67,000 people and El Dorado Hills comes in around 42,000 population. Current stats also show the extreme lack of activity in the higher end (above $700,000) market which contributes to the glut of inventory in El Dorado Hills.
Overall, it appears that the lower end market is fueling the fire and frankly, I’m delighted to see young people who have lived here their entire lives be able to purchase a home. It should prove to be much better for the entire community as the next generation puts down roots vs. what my generation had to do which was relocate in order to afford to live. I’m sure the baby boomer grandparents are enjoying their grandchildren living closeby…I know I am. If you would like help finding a home in either community please email me and I’ll be happy to help you get started.
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Credit Scores and Home Buying
July 1st, 2009 categories: Finances, Home buying
Five points to fixing your credit
A couple of months ago a friend was telling me about some financial difficulty with their business and remarked how fortunate they were to have their credit line on their home available for backup. I advised them to check with their bank to make sure their credit line was still available. Unfortunately, I was correct because their credit line had been closed without their knowledge.
Another client called to ask about buying a home and when I asked about their credit history they said they were trying to pay down some credit cards only to find that once the amount due was paid the bank reduced their limit.
The first basic in credit scoring is to understand what the numbers mean. FICO or the Fair Isaac Corporation is the company that for the past 53 years has offered a measurable number by which creditors can determine your credit worthiness. Credit scores range between 200 and 800. Scores above 720 are considered desirable for obtaining a mortgage. They have determined five main factors will affect your score…things you ultimately have control over.
1. Your payment history. Whether you paid credit card obligations on time.
2. How much you owe. Owing a great deal of money on numerous accounts can indicate that you are overextended.
3. The length of your credit history. In general, the longer the better.
4. How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay promptly.
5. The types of credit you use. Generally, it’s desirable to have more than one type of credit—installment loans, credit cards, and a mortgage, for example.
There are some variations on the theme but the basics itemize your scores and more importantly indicate how you can improve your scores, which in turn, improves your life.
I spoke with Linda Ferrari who has a FREE ebooklet called: “Save Your Credit, Save Your Life” which is a 10 step action plan to help clean up your credit. She offers great advise starting out with only ordering your credit report when you visit the various agency websites. Apparently even the credit agencies are trying to sell additional services that you may not need. Another point she makes is that everyone is entitled to one FREE credit report each year and to be sure you order only from www.annualcreditreport.com …all other sites offer paid services so don’t be fooled.
Another option is to pay a credit repair company to “scrub” your credit. Typically this is done once you have a complete copy of your credit report from the three main agencies: Experian, TransUnion and Equifax. Thoroughly examine your report, line by line, and be ready to prove any incorrect information. Once you challenge any information they are required by law to look into and correct anything false. If you find you are having trouble this is where a credit repair service can come in handy.
First time buyers need to understand that they didn’t get into their situation overnight and it might take just as long to correct the situation so don’t despair. There is gold in those hills and it’s in the form of tax credits BUT they are due to expire Nov 30th 2009 so NOW is crunch time. Making the effort to improve your credit will pay big dividends and could ultimately result in home ownership…don’t let this market pass you by.
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