Tighter Lending Rules Keep Some Buyers Out

In response to the current situation in the mortgage market, where foreclosure rates are at an all time high, lenders across the board are tightening up their lending requirements, making it more difficult for buyers to qualify for a mortgage.

Gone are the days of 100% loan-to-value mortgages. While some may see this as a barrier to homeownership, it is actually a blessing, because nothing is more financially devastating than a foreclosure on one's credit history. According to Carolyn Said of the San Francisco Chronicle, who interviewed a number of larger lenders, explained that the new standards fall into the following areas:

"Ability to repay. Buyers are no longer being qualified at the low initial rate. They must qualify for the loan payments at rates equal to what the loan would be if it reset at a higher rate."

"Down payment. Lenders want buyers to put some money down, even as little as 5 percent or 10 percent. Loans for 100 percent of the price are very hard to get."

"Credit score. Credit scores range from the high 300s to the low 800s. Borrowers with a credit score above 680 are likely to qualify for a reasonable deal. Between 660 and 680, they may qualify, but the deal could be pricey. Potential borrowers with a score of 620 or less need to raise their scores before they can qualify."

"Income and income verification. Producing proof that a borrower has a job is key; “stated income” loans are much more difficult to get. Also lenders are unlikely to approve a loan in which the home buyer will spend more than 45 percent of his gross income paying off debt, including paying the mortgage."

Cite Source from Realtor Magazine,click here.

While these changes may delay homebuying plans for some buyers, this is actually a blessing in disguise--because these new standards will cause buyers to improve their financial situation before taking on the huge financial burden of taking of a mortgage. It will also benefit buyers in the long term, because these new standards will ensure that they stay on path to a healthy financial future. For buyers who are financially capable of maintaining mortgage payments, but who do not qualify due to credit scores, there are still alternatives available such as lease-to-own.

However, buyers need to keep in mind that a mortgage will come into the picture, at some point in the future. Therefore, buyers who choose this route should plan to financially position themselves during the lease period in order to qualify for a mortgage when the lease period is up. Buyers should also have a decent down payment--at least 10% of the purchase price--to demonstrate financial capability to sellers who would consider lease-to-own arrangements.

Bottom line...

While it is now tougher to qualify for a new mortgage, the path to homeownership is not dead in the water. It just takes more long-term planning and financial considerations on the part of buyers, which will only help to benefit them over the years. It is well worth the peace of mind that buyers will have--knowing that they have made the right moves to make sure they can stay in their homes, and stay on the right path to a secure financial future.

Why Buyers Do Not Pay Commissions on Listed Properties

A real estate company is misinforming the public by saying that buyers actually pay for real estate commissions on listed properties. According to information on their web site, "the buyer is the only person bringing a checkbook to the closing, and both commissions come out of the money the buyer provides."

While it is true that buyer's bring the money to the table, the seller's costs of sale are not the buyer's expense or responsibility. If buyers actually paid commissions, they would be paying the purchase price PLUS sales commission. However, this is not the case with listed properties.

The truth is that commissions on listed properties are actually deducted from the seller's side of the closing statement--not the buyer's side.

This means that the seller receives the purchase price first, and then his or her costs of sale are simultaneously deducted to result in net sale proceeds. The notion that buyers pay commissions on listed properties makes about as much sense as employers paying for their employee's income tax deductions. For example--an employee's paycheck--he or she must receive his or her pay first (aka. gross pay) before taxes are simultaneously deducted to result in the employee's net pay.

Likewise, buyers do not pay the seller's costs of sale on listed properties, because these costs are deducted from the seller's gross sale proceeds, which gives them their final net sale proceeds.

It needs to be said that inciting consumer bitterness with skewed information is wrong. It is better to bring about positive changes in the real estate industry without distorting the truth. Buyers can save money by negotiating buyer rebates with agents or brokers in states where it is allowed. It is not proprietary to the company mentioned in this news story.

In Response to 60 Minutes Story

The following was in response to a story done by a reporter for 60 Minutes entitled "Chipping Away at Realtor's Six Percent.". Many comments posted in response to this story were from misinformed people who made unfair sweeping generalizations against all real estate professionals.

*****Posted Comment Begins*****

In Washington State, commissions are negotiable. It is illegal to set commission rates. I am sure that this is the case in all 50 states, since this is a form of price-fixing--an antitrust violation. If sellers want to lower commission rates, then they need to speak up and negotiate it down. If listing agents "don't allow" less than 6%, then THOSE listing agents need to be reported. However, to say that all real estate agents and brokers are bad is, not only ridiculous, but it is also a sweeping generalization that is unfair to those who are honest, good, and who work very hard for the clients they serve.

As far as rebating buyers, some states don't allow this. However, in the states where it is allowed, a buyer can negotiate a rebate with ANY exclusive buyer's agent--or any real estate agent, for that matter. Exclusive buyer agents, however, only work for buyers. They are non-traditional, as discount brokers are, and their priority is to get their clients the lowest price possible on the properties they buy.
Exclusive buyer agents are truly pro-consumer. They don't take listings, and neither do the companies they work for, so there is never a chance of dual agency--which is a conflict of interest.

Dual agency is a conflict of interest, because a seller expects their agent (and their agent's company) to get the highest price possible for their property, while a buyer expects their agent (and their agent's company) to help them negotiate the lowest price possible.

When there are two agents working for the same real estate company, and they are working on opposite sides of each other in the same transaction--these commitments are conflicting. This is dual agency, or "dual representation," on the part of the company.
Dual agents are required to remain neutral to both parties, meaning, that neither buyer nor seller receive the level of service they originally expected, and signed-up for. However, with Dual Agency, the real estate company makes double commissions. It is a long-standing practice in the real estate industry called "double-dipping."

The company being interviewed in this news story has contradicted itself by claiming that they do not allow dual representation (as stated on their web site), yet they take listings--so if a buyer wants to make an offer through them, on a home listed with their company--this is dual representation (aka. dual agency) on the part of the company. A dual agent will make money from both sides of the same transaction, while remaining neutral to both sides. Who is really benefitting here?

Buyers can completely avoid dual agency by hiring an Exclusive Buyer's Agent or broker, because they do not take listings--and neither do the companies they work for. They will also work very hard to save their clients money, because a satisfied client means the possibility of a long-term business relationship.

A True Greater Good in the Real Estate Industry

There was a recent blog from a Realtor discussing the "Skyhook Theory" in real estate. He basically explained that this theory encompasses the principle of finding a greater good in the things we do--and that aspiring to do this makes us better people. While I earnestly believe and agree that finding the greater good in all things is the ideal way to be, the reality of the situation in the real estate industry, is that the greater good is generally neglected when it comes to consumers.

The greater good in the sense of the real estate industry is not just about touting superior service, because a higher level of service should go without saying. I believe that the greater good goes much deeper than that. It should be about ensuring equal footing for buyers and sellers alike. It should be about real estate professionals doing everything they can within their power to prevent either side from being exposed to dual agency--which is a conflict of interest.

It should mean that traditional real estate companies demonstrate a willingness to relinquish the age-old tradition of double dipping--which happens when one real estate company collects commissions from both sides of the same transaction. It should mean that the real estate industry, as a whole, be completely honest with real estate consumers about all available agency options--including Exclusive Buyer Agency.

Not so long ago, real estate was ruled by seller representation. This is no longer the case. The real estate industry is, and has been, transforming to a level playing field between buyers and sellers. As more consumers become aware of dual agency, they are realizing that it is not in their best interests to consent to it, because dual agency is a conflict of interest. The way buyers can be assured that an agent is truly working for them, is by hiring an Exclusive Buyer Agent, or an Exclusive Buyer Broker.

Until the real estate industry owns up to what is truly in the best interests of consumers, we cannot really begin to speak about a greater good in the real estate industry.

The Importance of Honest and Direct Communication in Real Estate

The relationship between real estate consumers and real estate professionals is that of a partnership, and a team. It means that they are working together to get the best possible results, whether one is buying or selling real estate. It is of great importance to have direct and honest communication. Without establishing this, goals cannot be accomplished, and trust can break down. Having honest and direct communication will put a working team on the right path. Important issues will be clear, and there will be synergy between team members.

According to a book called "Tools for Teams: Building Effective Teams in the Workplace" by Leigh Thompson, Eileen Aranda, and Stephen P. Robbins:

"Finally, teams develop synergy. Synergy means that team members together achieve more than each individual can. Whereas group members combine their efforts to achieve their goals, teams reach higher performance levels." (Thompson, Aranda, Robbins p. 6)

An effective team is not developed through hearsay. I recently declined a buyer referral because the buyer wanted to communicate through a third-party, instead of communicating directly. Working under these conditions does not make sense, because it leaves too much room for misunderstandings to develop. It should go without saying that real estate is not the place for hearsay. It is important that prospective clients are willing to communicate honestly and directly. Clients should be open, honest, and straight-forward about their situation. This allows an agent or broker to give them the best level of service.

Direct and honest communication prevents the possibility of a misunderstanding or confusion. It is not only a matter of principle, but it is also a matter of common sense, because it is critical that clients maintain clear communication with their agent or broker during a real estate transaction.

Keeping these things in mind will ensure success, synergy, and positive results, as well as, a satisfying closing experience for all members of a real estate team.

A Word to Relocation Companies About Exclusive Buyer Agency

As an Exclusive Buyer Agent, I feel it is my duty to educate the public about the purest form of buyer representation. Here is what I recently sent to Promissor, a relocation company, which claims to value the avoidance of conflicts of interests. They were not clear about whether or not they had Exclusive Buyer Agents among their service providers. However, it needs to be said that in order to ensure that their clients' employees are truly free of conflicts of interest, relocation companies should make certain that their clients' employees are not exposed to the risk of dual agency, which is a conflict of interest.

In essence, relocation companies should stand by the things they claim to value, like avoiding conflicts of interest--or else their claims become only empty promises.

**********Letter Start***********

Hello Mr. Gimpel,

Your web site states the following:

"Consider the advantages of independence - yours and ours. Promisor Relocation is independently owned, meaning we're free from any obligations to affiliated companies and flexible to do what's best for our clients. No conflicts of interest, no hidden agendas. Quality is our only criteria."

However, you should know that if your established resources do not include Exclusive Buyer Agents that you place your clients' employees at risk of dual agency, which is a conflict of interest. I can appreciate that you value the best interests of your clients, and that is why I thought it best to inform you about the transitioning state of the real estate industry. Just to let you know, dual agency happens in one of two ways: (a) when an agent or broker represents buyer and seller, or (b) when two different agents, representing buyer and seller respectively, work for the same real estate company. The real estate company becomes the dual agent.

I am giving you this information, because you will not get the truth from traditional real estate companies. However, since your company web site states that you have a concern for preventing conflicts of interest, I thought you should know this very important information. Good luck!

Three Things to Consider Before Relocating to a New Area

If you have been researching information about the relocation process online, in almost every article, you will read about how very stressful it can be. It is reasonable to say that one will most likely experience some degree of culture shock, because lifestyles can vary dramatically between states, including the cost of living. Here are three things to consider for eliminating the anxiety of relocation:

1. Take some time to visit the area you are considering.

A little familiarity will go a long way, when it comes to knowing whether or not the area will suit your taste and lifestyle. Planning a vacation to the new area is the ideal way to experience the area and what it has to offer. Brochures and pamphlets can only do so much. If your move is job related, you will likely have a few home-hunting trips paid for. However, don’t use this time to get familiar, as you will likely be under some kind of pressure to find a place. Instead, it would be better visit the new area outside of this paid house-hunting time, so you can relax while you see the sights, and all that the area has to offer. By doing this, you will establish a degree of familiarity that will ease any potential “culture shock” when relocating to a new state, and your planning will also benefit from the insight you gain from your visit.

2. Research and plan your move well in advance.

If you can help it, put time on your side. The more time you have to plan your move, the better your plans will be, and the better your move will turn out. There are many resources on the Internet that will help make your plans as solid as possible. For example, MyDreamLocale.com has area reports that tell you about an area’s cost of living, schools, crime reports, etc. It will also let you do area comparisons, which is always good when deciding where to move. Another resource you can find on the Internet is a move planner. Moving.com has a free move planner that you can use, along with other resources on their site, to help you plan a painless relocation.

3. Find an Exclusive Buyer’s Broker or Agent in the new area.

When you have done your research, visited the new area, and you have invested enough time into your planning—you are now ready to find an Exclusive Buyer’s Broker or Agent, if you did not find one already during your initial visit to the new area.

An exclusive buyer’s broker or agent is one who works for a real estate company that does not take listings. Exclusive Buyer Agency is the purest form of buyer representation. It helps buyers completely avoid Dual Agency—which is a conflict of interest. More and more buyers are realizing that they can get caught in a dual agency situation in one of two ways: (a) When the same broker or agent represents both buyer and seller in the same transaction, or (b) when two different agents, one representing seller and the other representing the buyer, works in the same transaction for the same real estate company—their company becomes the Dual Agent.

The best thing for consumers is for them to have their own real estate representatives, separate and apart from the other side in order to completely avoid dual agency, and not giving consent when asked to give it. As a consumer, you should stand firm when it comes to protecting your interests, and being clear about who is working for you is one of the best ways you can ensure that they are protected.

Lastly, if your relocation is job-related, you should be clear on whether or not you will be able to choose your own real estate agent. If not, you should make an effort to negotiate with your employer to, at least, help you avoid dual agency by asking your employer to instruct their relocation company to assign an Exclusive Buyer's Agent to represent you in the purchase of your home in the new area.

Exclusive Buyer Agent: New Home Builder Review

On Tuesday, I viewed some very nice homes about a mile south of Hwy 16 in Port Orchard by Quadrant Homes. Nestled within the community of McCormick Woods, the area is an even mix of both new and existing homes. While the development is fairly new, their neighborhood map shows that most of its Division I lots are sold. However, there are still lots available within Division II.

Some highlights of the model homes I viewed were the lofts that were at the top of

their respective staircases. Although there is an option to make these lofts into an additional bedroom, having a loft at the top of the staircase adds a private living area to the upstairs; which I think is very nice, and it is right in line with Quadrant’s claim that their homes “are designed to use all available space as efficiently as possible.” (Quadrant Homes booklet p. 3).

Another notable feature is this builder’s eco-friendly building practices. According to their brochure, they are a founding member of the Master Builder Association’s Built Green Program. Buyers who purchase their homes will also have an opportunity to become “members of a local land conservation organization and contribute to the preservation of natural resources” (Quadrant Homes booklet p. 5).

While all of these points are very good, what I found most impressive about the work ethics of is this builder is that they work with buyer agents, and they respect their client-broker relationships. This means a lot, because it means that buyers can avoid dual agency. After all, the builder is the seller.

This builder has a proprietary homebuying process that includes Community Sales Managers, Home Mortgage Consultants, Superintendents, and Personal Service Representatives. Although they have their own mortgage consultants, the builder states that buyers are free to choose their own lender. I should add, for buyers who are interested in shopping around for the best mortgage rate, that they should go with a lender that is well-versed in new construction lending. If you are considering buying a new home, this would be the first important question to ask any lender outside of the builder's in-house mortgage consultants. With that being said...

Here are some photos from my tour:

First Home Viewed (2011C):

Second Home Viewed (2323A)

Third Home Viewed (2733B):

Fourth Home Viewed (2431A):

Buyer Beware: Read Mortgage Documents Before Signing Them!

Closing day can be a very hectic and stressful time. However, I cannot stress the importance of taking the time to read the fine print of your loan documents before signing them. It could be your last chance to spot items that need correction before they are recorded, and before the loan funds.

For example, if you told your lender that you preferred a fixed rate, and after taking the time to read the fine print, you discover that the loan documents show the mortgage will actually be adjustable, you can have this corrected before you go through with closing. It will be too late if you wait until after closing.

Make sure you read everything, or if you have an attorney, have them review these loan docs for you. Don't let anyone pressure you into signing without reviewing your mortgage documents, and make sure that you clearly understand what you are agreeing to. All questions should be addressed prior to signing your loan documents, and all corrections should be made prior to signing your closing documents.

It will be well worth the peace of mind you will have when all is said and done.

The Truth About Exclusive Buyer Agency Services

Exclusive Buyer Agency - A Value to Buyers:

Many traditional agents and brokers have nothing good to say about exclusive buyer agency, for the obvious reasons. The truth of the matter is that exclusive buyer agency offers something that traditional agencies do not; loyalty and commitment to the buyer only--without any possibility of dual agency conflicts.

An exclusive buyer agency agreement spells out in writing the expectations between client and broker. It is a negotiable instrument that protects both broker and client. It demonstrates that a buyer is serious, which allows room for other types of negotiations--such as buyer rebates. It will contain a cancellation clause that will allow a buyer or agent the option to cancel the agreement, should either party decide that the association is not working for them. It establishes mutual respect, loyalty, confidence, honest communication, and trust--five elements that create a fantastic working environment and team synergy.

If a client does not agree with certain elements of the proposed agreement, then they should raise their concerns and negotiate for better terms. The best agreements are those that are win/win, meaning that both client and broker feel good about the terms negotiated, as well as, feel good about working together. It is very important to establish honest communication, mutual respect, trust, and loyalty between broker and client upfront--and this is the primary purpose of the agreement.

An exclusive buyer agency agreement assures a buyer that the agent or broker working with them is only working for them. It means that they will have maximum choice of available properties, listed and unlisted, as well as, properties that are both on and off the market. It also means opening up the possibility of negotiating special terms, as already mentioned above.

Favorable feedback from traditional real estate brokers and agents about exclusive buyer agency is highly unlikely:

Buyers need to understand that getting honest feedback about exclusive buyer agency from traditional agents or brokers is highly unlikely, because their priority is to get your business, and if their company takes listings, they will not be able to sign an exclusive buyer agency agreement with you even if they hold an ABR designation.

Their first priority is to keep your business with them, and not necessarily talk to you about the purest form of buyer representation; which is always the best option for buyers. As a matter of fact, there is plenty of mixed information on the Internet regarding whether or not a buyer should sign a buyer agency agreement, let alone an exclusive buyer agency agreement. The negative information found happens for reasons already described above.

Working with clients:

As a policy, my company only works through exclusive buyer agency agreements, also known as, Service Engagement Letters. While there are some buyers out there who prefer not to work this way, we prefer not working with such buyers, because clients receive the highest levels of loyalty, integrity, advocacy, and commitment. Therefore, it is only fair to expect the same in return. Ideal clients understand that it is a good thing to give and receive mutual consideration and commitment in writing--as all real estate agreements are supposed to be.

A Word About Fees:

Fees are negotiable and depend on the type of property purchased, for example, if the property is listed or unlisted. For properties listed on the MLS, fees are covered by the “Selling Office Commission” through the listing company. This means that clients receive the purest form of buyer representation at no cost to them. While there are real estate companies out there that would like the public to believe that buyers actually pay for real estate commissions on listed properties, the truth, is that commissions on listed properties are deducted from the seller's side of the closing statement, not the buyer's.

This means that the seller is paid the purchase price first, and then his or her costs of sale are simultaneously deducted to result in net proceeds. The notion that buyers pay commissions on listed properties makes about as much sense as employers paying their employees income tax deductions. An employee must be paid by his or her employer first (aka. Gross Pay) before taxes are simultaneously deducted to result in an employee's Net Pay. Hence, an employee pays his or her own income taxes through automatic deductions. The employer does not pay the employees income tax deductions--just like in real estate--buyers do not pay the sellers costs of sale on listed properties. The seller's costs of sale are deducted from "Gross Sale Proceeds" to result in "Net Sale Proceeds."

Buyers can owe commissions or flat rate fees, however, if they desire to include unlisted or off-market properties in their search--unless a seller agrees to cover the cost. This would require negotiating with the seller to pay some, if not all, of the fee. Since our fee is generally less than what a seller would pay to a traditional real estate company, a motivated seller should not have a problem with this. However, the portion that is not covered by the seller would be owed by clients at closing.

Clients have the choice of limiting their property search to only MLS listed properties, or including unlisted and off-market properties. It is entirely up to them, how they would like to go about it.

The bottom line:

Clients have the opportunity of customizing their own exclusive buyer agency experience to fit their individual needs, while completely avoiding dual agency, designated agency (just another name for dual agency), and the limitations of single agency. It only takes communication, honesty, and a willingness to reciprocate mutual respect.

Search Residential and Commercial Properties on WorldInvestments.com!

Our web site now offers residential and commercial property search capabilities on WorldWestInvestments.com. Some of these new features include Realty Watcher, where prospective homebuyers can keep track of the market, and a "Sold" section, where a buyer can research what properties have sold for. Be sure to visit us often for more innovative developments!

The Agency Debate Rages On

I recently came across a blog entitled Exclusive Buyer Agency Discussed in Realtor Magazine Online written by fellow EBA, Stephen Scholls, from Buyers Broker Of Northern Michigan, LLC. His blog was a synopsis of an article done by Realtor Magazine Online, which intended to gather the views of perceived innovators in the real estate industry, regarding their opinions of where they believe the real estate industry is heading.

When three brokers were asked where they saw exclusive buyer agency heading in the coming years, it was not surprising when all three responded negatively, since they were all from traditional real estate firms. What I did find surprising, and Stephen pointed this out in his synopsis, is that Realtor Magazine Online did not even consult with brokers who actually work in the field of exclusive buyer agency. This caused me to question the motives of the magazine, as well as, question the association behind it. As a Realtor member in good standing, it concerns me, because it means that my trade association does not support my company's business model. By not consulting with brokers working in the field, they demonstrate a bias in favor of traditional agency, which can introduce the risk of dual agency to consumers.

The general negative attitude towards exclusive buyer agency is apparent in the comments made on Stephen's blog by those who do not fully understand the need to completely avoid the risk of dual agency. Some believe that most consumers do not know, and could care less, about exclusive buyer agency; but, would consumers not care if an issue arose in their purchase, and their "designated agent," aka. dual agent, had to remain neutral to both parties? No one wins with dual agency, neither buyers nor sellers.

Some brokers believe that exclusive buyer agency will not last. Their reasoning is that listings have traditionally attracted buyer leads. While there is some truth to this, it is a truth that is in transition, as more consumers become aware of the risks posed by dual agency, aka. "designated agency." Real estate consumers are not simple-minded, nor are they stupid.

To imply that consumers do not have the ability to understand or care about agency issues is downright insulting to them.

There is a general confusion about agency issues that seem to be generated by those who are intent on muddying the waters, and it is worsened by law makers. Introducing terms like "designated agency" and "single agency" are designed to compete against exclusive buyer agency, but the truth, is that "designated agency" is only dual agency called by another name, and "single agency" means that a buyer will not see properties listed by their agent's company.

The bottom line, is that exclusive buyer agency helps buyers completely avoid dual agency, while having access to all properties, whether they are listed or unlisted. Buyers do not win with "single agency" because it limits their choice of available properties.

Smart real estate consumers want maximum choice of properties, with absolutely no risk of a conflict of interest. This is the ideal buying position to be in. This is only common sense.

Here is the comment I posted on Stephen's blog:

"According to Elizabeth Weintraub's definition of single agency: on Ask.com

'Single agency means a real estate broker represents the buyer and cannot show the buyer properties listed by the broker's agency.'

With exclusive buyer agency, the buyer has access to all properties. This includes all listed and unlisted properties. The issue of who pays the buyer's agent is not really an issue, because if the seller agrees to cover the buyer's broker fee to make the sale, it is no different than when the buyer asks the seller to cover closing costs.

The problem with merely being a transaction coordinator/facilitator is that consumers do not get the level of service they should receive when fully represented. After all, this is not like going to Walmart and shopping for clothes, or basic goods and services. This is what real estate consumers need to understand. No two real estate transactions are identical, and often times, problems can escalate if not swiftly and properly dealt with (as I am sure everyone here is aware). Knowing how to do this comes from having years of experience, which the average real estate consumer does not have, unless they are also in the real estate business.

Designated agency is just another name for dual agency, in my honest opinion. As more exclusive buyer agents enter the field, and earn the trust and loyalty of their clients, the truth about dual agency, aka. "designated agency," and the downside of "single agency" will become more familiar to the average consumer. Exclusive buyer agency is a virtual infant, when compared to the age of the real estate industry in general. It is only a matter of time, patience, and perseverence on the part of real estate professionals who recognize the importance of establishing a fair and balanced closing table between buyers and sellers, and not introducing the risk of dual agency. Changing its' name is not the solution, but avoiding it is. I firmly believe in exclusive buyer agency, and what it means for buyers, as well as sellers, because no one wins when there is a conflict of interest.

I do not regret choosing to specialize in this field of work. I enjoy educating buyers about dual agency, as well as, helping them to avoid it. It is a calling to do this kind of work, because it is challenging, as much as it is very rewarding."

Here is the feedback I gave to Realtor Magazine Online:

"When asking about the future of exclusive buyer agency, it would have been more appropriate to ask Realtors who have chosen to specialize in this field, and not asking traditional brokers, who will naturally display a negative bias towards it. Did you really expect them to speak positively on this topic?

You do the public a great disservice by presenting biased and negative views from traditional brokers, without presenting the views of brokers who actually practice exclusive buyer agency.

For those who are confused and misinformed, exclusive buyer agency is about the complete avoidance of dual agency, which is a conflict of interest in real estate. No one wins when there is a conflict of interest, especially, when issues arise requiring the dual agent to remain neutral. The truth of the matter, is that exclusive buyer agency is here to stay, and it will flourish in the years ahead."

Study: Hot housing market turns to big chill

In an article entitled, "Study: Hot Housing Market Turns to Big Chill," Daniel P. Ray of BankRate.com tells us of a new report that shows more than half of U.S. cities that experienced housing price declines in the fourth quarter of 2006. He mentions that prices fell in 73 metropolitan areas surveyed by the National Association of Realtors; that prices rose in 71, and that five areas remained unchanged. The two states that had the biggest declines were Ohio, where the loss of manufacturing jobs has shredded the economy, and Florida, which he said enjoyed stratospheric price appreciation during the housing boom.

Despite these findings, Ray said that Realtors remained optimistic, "The ever-optimistic Realtors sounded a positive note in their report. They said the report likely marked the bottom of the current housing cycle, because the decline in prices show that home sellers have finally awakened to the reality of the declining market and were willing to negotiate lower prices."

Click here to read full article, "Study: Hot housing market turns to big chill" by Daniel P. Ray, BankRate.com!

To Pay, or Not To Pay, Discount Points.

I recently read a couple of interesting articles regarding loan points and, whether or not, it is wise to pay them; but before we venture into this question, it would be best to explain what loan points are (for those who do not know). Here is how Holden Lewis, an advice columnist for bankrate.com, describes a discount point in his article entitled Paying mortgage discount points - a primer:

"One discount point is an upfront payment of 1 percent of the loan amount, paid at closing. You receive a reduction in the interest rate in exchange for paying discount points. You end up with a lower monthly mortgage payment...Discount points are based on the loan size, not the purchase price. If you borrowed $200,000 to buy a $300,000 house, one point would cost 1 percent of the loan amount, or $2,000. Two points would cost $4,000. Paying discount points doesn't reduce the amount borrowed...As a rule of thumb, the mortgage's interest rate is reduced by a quarter of a percentage point for every discount point you pay. That's just a rough guide, though; the actual amount of the discount varies by lender and can fluctuate in response to movements in the bond markets."

Why Would Someone Want to Pay Discount Points ?

The main reason for paying discount points stems from a general desire to reduce the interest rate on a mortgage, thus, achieving a lower monthly payment upfront. This scenario looks favorable, at first sight. However, in a bankrate.com article entitled "Borrowers Seldom Score By Paying Points," Chief Economist for Quicken Loans, Bob Walters, said otherwise, "If you're going to be in that mortgage longer than the break-even point, you win...if you aren't in that mortgage longer than the break-even point, you lose." Therefore, if you intend to refinance in the short-term, you would not really benefit from paying discount points upfront. Bill Lyons, president of San Diego-based LEI Financial, says that a lot of people would benefit from making an extra payment every year, rather than paying discount points.

According to Holden Lewis you can estimate a breakeven point, to see if it warrants paying discount points, "To find out whether you'll hold the mortgage past the break-even point, you must have a notion of how long you will keep the mortgage. If you plan to sell the house or refinance within two years, it probably doesn't make sense to pay discount points. On the other hand, if you plan to keep the mortgage for 10 years or more, you'll save money in the long run by paying points." Lewis also offered a formula to calculate the break-even point:

"The simplest way to calculate the break-even point is to ask the lender how much you would save per month by paying a certain number of discount points. William Noll, mortgage consultant for Wells Fargo Home Mortgage in Hershey, Pa., likes to do it this way. He brings up a hypothetical example where $1,000 in discount points reduces the monthly payment by $15. He divides $1,000 by $15, for a break-even point of 66.6 months, or roughly five-and-a-half years...Noll doesn't think it's worth the bother if a buyer plans to keep the mortgage for only a little longer than the break-even period. Better to put the money in a certificate of deposit, he says. 'Unless the customer tells me he's maybe going to be in the home maybe 10 years or more, I generally don't recommend points,' he says. 'But I leave it up to them.'"


Source links:

"Paying Mortgage Discount Points: a Primer" By Holden Lewis • Bankrate.com

BankRate.com: "Borrowers Seldom Score By Paying Points"

'Flipping' is not always a dirty word

There was an interesting article delivered to my inbox today, regarding residential rehab projects, also known as, "flipping." In recent times, this practice has garnered an unflattering reputation, because of unethical people, which abuse the system. The truth is, rehab projects can yield decent returns, without resorting to greedy tactics.

Here is a glimpse of Q&A article "Flipping Is Not Always a Dirty Word" by Steve McLinden of BankRate.com:

Q. "Dear Real Estate Adviser, Why is it called "flipping" when an investor buys a house under value and sells it for what it's worth? Whenever I hear the word, it seems to have a negative connotation. -- Tina R."

A. "Dear Tina,You've really hit on something here, especially with your 'sell it for what it's worth' comment. But let's back up for a second. Some honest and handy rehabbers who buy properties that are physically and (or) financially distressed, then promptly fix them up and turn them over -- or 'flip' them -- to a new owner are being punished because of rising mortgage fraud over the past decade.

Sadly, it was the old 'one-bad-apple' syndrome that caused most of the acrimony. During the overheated housing market of the late 1990s and early 2000s the distinct odor of greed wafted over the industry. Not satisfied with healthy profits, a number of participants sought excessive profits and didn't let things such as ethics and the laws get in the way."

Click here to read full Q&A article by Real Estate Adviser Steve McLinden • Bankrate.com

How to tell if an income property is over-priced:

Investing in real estate is riskier than investing in a Certificate of Deposit, so why would an investor be satisfied with buying income property at a 3%, 4%, or even a 5% cap rate?

Real estate investment opportunities that pencil out to low cap rates like these are overpriced, because investors can earn the same rates of return in a safer investment vehicle. Investments should earn more of a return for assuming the increased risks associated with real estate investments.

With a high-yielding CD account, money can earn between 4 – 5%, safely without lifting a finger. With real estate investments, an investor assumes more work, more risk, and therefore, warrants more of a return on money invested. This assumption is practical, and makes sense from an investor's perspective.

Experienced investors of all types know that with increased risk, they can (and should) expect more of a return on their invested money. You know you are looking at an overpriced income property, if it pencils out to a cap rate of 3 – 5%. Buying properties with low cap rates like this does not make sense, because an investor can earn these rates in a safer high-yielding CD account.

CD rates as of 12/09/2006 (source cited from bankrate.com, for informational reference only.)

TYPE
TODAY
+/-
LAST WEEK

6 month CD

4.64%
4.66%
1 yr CD

4.83%
4.86%
5 yr CD

4.70%
4.72%
1 yr IRA CD

4.64%
4.66%
5 yr IRA CD

4.59%
4.60%

Smart investors compensate themselves for the added risks they assume by establishing higher performance expectations for riskier investments, including real estate.

Buying overpriced income properties does not make much financial sense. Properties that produce cap rates under 5% is overpriced, in all honesty, because you can make these kinds of returns in a safer CD investment. Risk and reward go hand in hand.

Complacent Bureaucracy In Washington State!

Dear real estate consumers of Washington State:

We cannot depend on state agencies to do their job of protecting our freedom of choice. Our state Attorney General’s office is under the impression that some "exclusive dealing" agreements have pro-competitive benefits.

I fervently disagree.

It was disturbing to read the following statement from Jonathan A. Mark, an Assistant Attorney General at the Office of the Attorney General Of Washington State.


"While exclusive dealing can, under a particular set of circumstances, give rise to antitrust concerns, it is not presumptively illegal to enter into exclusive dealing contracts. In fact, antitrust law recognizes that, in many circumstances, exclusive dealing contracts can have significant procompetitive benefits. Consequently, exclusive dealings
are not disfavored under the law and generally constitute an antitrust violation only when it lessens or substantially forecloses competition in a particular market."

The truth of the matter is that Seattle.com lists:

1. Thirty-three businesses under "Dining"

2. Twelve businesses under "Hotels"

3. Eight businesses under "Attractions"

4. Thirteen Seattle travel guides under "Visiting"

5. Fifty-two businesses under "Nightlife"

Yet under their "real estate" category they exclusively refer all inquiries to only ONE company for an entire region.

This does not make any sense. I know that there are several other exclusive buyer agencies, aside from our own, that operate in the Puget Sound region of Western Washington. Below are some of them:

Amiad & Associates, Exclusive Buyers Agency - Vashon Island
www.vashonislandrealestate.com


The Buyer's Agent, Dream Drafters Realty - Seattle, Bellevue, Everett

www.dreamdrafters.com


Abbey Realty Exclusive Buyer Representative - Ft. Lewis area www.richgrow.com


Buyer's Data Realty - Exclusive Buyer Brokerage - Whidbey and Camano Islands
www.buyersdata.com

These companies only work with buyers.


This was my response to Mr. Mark's disturbing statement:

"Dear Jonathan A. Mark,

Your lack of concern is disturbing. Misconstruing the term "exclusive dealings" does not absolve your responsibilty of protecting consumer choice and preserving free competitive enterprise for all businesses.

You have failed Washington State consumers and the small businesses who have a right to a free and competitive marketplace. Your complacency is a disservice to the people you are charged with serving.

I have full faith that consumers would disagree with your office that exclusive dealings has any procompetitive benefits to them, as it diminishes their Right to freedom of choice. We shall let the people decide for themselves."

Final Note:

Please know, that despite bureaucratic complacency, you CAN protect your Freedom of Choice and neutralize biased referral sources by doing your own research, developing your own hiring process, and setting up interviews with a few good companies on your own. Only then will your freedom of choice be preserved, and the power taken away from those who do not respect it.

The Disappointing Truth About NAEBA

It is official. Our agency will not be renewing our membership with NAEBA (National Association of Exclusive Buyer Agents) in 2007. There are a few reasons for this, however, I will stick to the main point.

I was excited to learn about this organization, at first, because EBA's have limited avenues for support with fellow colleagues. I was hopeful that I would find camaraderie, support, enhanced growth opportunities, and the chance to compare notes about the challenging business of exclusively working with real estate buyers.

With so few of us out there, one would think that there would be more unity within the organization, but there is only political favortism towards senior members. This is especially true when a new member operates in the same market area as a senior member. You will quickly find yourself outside of a deeply engrained clique, that tends to play political games and favoritism. The instability of this organization exists not only with new members, but also from within its administration.

Here is what one member had to say about his experience with NAEBA:

"What has been most disturbing to me over the years is the amount of internal politics and ego battling over the years for various positions or policies within the organization. It turned me off and caused me to drop my membership for a long period of time. I am most disturbed and embarressed that friends of mine became victims of the internal political struggles that also prevented NAEBA from emerging as a more potent leader in buyer agency and making good on its commitments to membership."

--Barry L. Nystedt, MCBA, CEBA - Buyer Brokerage Realty, Newton Massachusetts--

Final Note:

My experience with this organization has been nothing short of a disappointment. I am relieved to be at the end of a most dissatisfying affiliation. With this thought in mind, I now speak to my non-member EBA colleagues...

You are better off investing your hard-earned $300 into your marketing budget, while remaining true to the advancement of exclusive buyer agency in the real estate industry.

Buyer Beware: NWMLS Form 41A "Buyer Agency Agreement"

This is a boiler plate form commonly used by most members of the NWMLS. This includes most real estate professionals in the Greater Puget Sound. I do not like NWMLS Form 41A, specifically, the second clause because it asks the buyer to consent to dual agency. Why would a buyer agree to such a thing, when hundreds of thousands of dollars are at stake? Real estate is not a small ticket item. Real estate is a significant purchase with no room for imposed risks, such as, those risks imposed by Form 41A. Dual agency is a conflict of interest that should be avoided.

Here is the language contained in clause #2 of NWMLS 41A:

“Buyer agrees that if Broker locates a property that is listed by one of Broker’s salespersons other than Agent, then Buyer consents to Broker acting as a dual agent. Buyer further agrees that if Broker locates a property listed by Agent then Buyer consents to Agent and Broker acting as dual agents.”

It is unwise for buyers to consent to dual agency in any sense, because it is a conflict of interest. A well-informed buyer would be wise to draw a line through this language.

Our company does not use this form.

Does Agency Really Matter?

Buyers are best served by exclusive buyer agents and brokers. These dedicated buyer advocates do not take listings. They help buyers avoid Dual Agency, which is a conflict of interest. For example, a buyer finds a property listed with their agent’s company, the property is listed with a different agent within the same company, the company becomes a Dual Agent.

Dual agency becomes a problem when issues arise between buyer and seller. The company cannot fully go to bat for either side, because dual agents are required by law to remain neutral to both parties. Since problems can and do arise between buyers and sellers, it is better for buyers to eliminate the possiblity of such conflicts of interest before stepping into the market. Engaging the services of an experienced exclusive buyer’s agent is a good way for buyers to avoid dual agency and its inherent risks.

As the general public becomes more aware of these risks, we will see more buyers come to know and understand the value of buyer agency agreements; especially, exclusive buyer agency agreements, which is used to engage the services of an exclusive buyer agent (EBA).