[photopress:images_1_2_3_4_5_6_7.jpg,thumb,alignright]The Real Estate Agent’s Role in the Lending Process runs the gamut from “not needed” to “key ingredient”. To follow this Article, I recommend you first read Jillayne’s article and the comments therein.I pulled this sentence” “A fiduciary would simply recommend and justify the most appropriate products and would still offer alternatives if requested to do so,
Rain City Guide
Your Guide to the Seattle Real Estate Market
P.S. to Jillayne,
My off the top of my head assumption, in my comment on your article, was that 20% of the Education Requirement to get a real estate license involved “Qualifying the Buyer and Financing Programs”.
I just did the actual math. Calculator says EXACTLY 20% 🙂
I’ve taken the Licensing Exam in NJ-1990, PA-1991, FL-1996, CA-1999 and WA-2004. I have a pretty good finger on reality.
Ardell, thanks for taking the time to post this scenario. It’s an excellent starting point to drill down into the real estate agent’s role in the financing process as you suggest.
I think this approach provides an opportunity to contrast, among other things, how things used to work, what has changed since then, and how those changes have influenced how things work now. It is my belief that the “what has changed” is the (root) “cause”. Industry participant’s responses to “what has changed” is “effect”. The ultimate solution may involve fixing a bit of both.
Many of the changes (“innovations”) perhaps came a little to fast to be “absorbed” without negative consequences.
Here’s a list of some of the “innovations” – the rise (and fall?) of:
1) New lenders – explosion of non-bank and non-S&L lenders
2) New IRMS’s – independent retail mortgage salespeople
3) New Products – ie, NINJA loans – no income, no job or assets
4) New money – artificially low interest rates and high liquidity
5) New derivatives – CDO’s, related asset-backed securities and structured finance products
6) New credit – massive easing of lending standards
7) New psychology – ie, “this will get you in the door, you can always refi out of it later”
How did these change effect how people worked together and how did they impact the real estate agents role in the process? How can the real estate agents role, going forward, become part of the solution? Personally, I in favor of the real estate agent continuing to play a fiduciary role in the financing process. However, I do not think that alone would go far enough. Alone, it would be like putting a Band-Aid on a bad infection. Don’t get me wrong – putting a Band-Aid on an infection is a good thing (it keeps dirt out and it looks and feels better), but you also need to treat the underlying infection!
Jeremy,
If the agent did their job up front, as in the above scenario, they would at least know that when it “got difficult” for them to complete the questions, they were all moving into “the darkside”.
By the agent not doing ANY of it, “the darkside” became more “normal” without forewarning.
Does that make sense? I know the resons WHY this happened,and there are two really big ones…make that three. Problem is one hand doesn’t know what the other is doing. One change took place at the State Law level, one at the Real Estate Broker level and the other in the Lending Industry. These three combined created the mess, and these three entities don’t “communicate” well enough with one another. So each was 33 1/2% responsible for a 100% problem, without realizing the extreme fallout that would follow, as it did.
Fix one of the three, and you only get 1/3rd of the problem solved. Fixing all three could be impossible.
Jeremy,
Can you give us a little glimpse at “Who You Are”? Are you local here in the Seattle area? Are you employed within the “real estate industry”? Just helps us to know if you are a “straight consumer perspective” or an elevated perspective person.
You obviously HAVE an elevated perspective, just trying to sort out why that is for the benefit of future articles generally.
Thanks.
This is an interesting post, Ardell. I’m glad you wrote this. 🙂 My experience has been that a majority (75-80%) of the agents I work with determine if their buyer is “ready, willing and able” by sending them to me first for a preapproval. It’s not that they don’t want to know all of the buyer’s information, or that maybe they don’t want to go through the extra legwork (ok…maybe it could be a bit of both); it’s that they trust me to do my job. They expect me to review all of the possible programs and to provide guidance, in the event the buyer needs some help getting on track. The agent expects me to make sure we have a solid preapproval and that the buyer understands their mortgage and the mortgage process. Typically for me to have a relationship like this with an agent, we have known each other for a while and have a couple transactions under our belts together.
The mortgage industry is under going so much change right now with our guidelines tightening and certain programs vanishing while some are still here! I agree with you that an agent should definately know how to qualify and to know mortgage 101. I think it would be pretty tough to stay up on all of the programs and guidelines in today’s market plus be a full time real estate agent.
I had buyers this weekend who told me they make $45k each annually….they have both been self employed for 5plus years…when I looked at their tax returns…after deducting expenses…it’s more like $18k. This couple are not in a position to go stated or NIV. And…running their credit report showed a mortgage late Dec 06 they didn’t know about. Innocent on their part…but if an agent prequalifed them and showed them a house…they’re not going to be able to buy at a mortgage payment they would be comfortable with.
I also think it’s great that you obtain GFEs for your buyers. I include a GFE with my preapproval letters so that the agent knows how we’re sturcturing the transaction. What if the buyer needs closing costs paid for by the seller, for example?
In my opinion, an agent should know enough to qualify and to question the buyer or lender, if something doesn’t seem to be adding up.
Rhonda,
We both know that the Pre-approval boils it all down to the “sale price” when in fact, the buyer is qualified by payment and not loan amount.
I need to know the “assumptions” being made IF I don’t qualify myself, with regard to condo fee and taxes.
The Buyer might qualify at $250,000 IF the condo fee is the assumed $180 and the taxes are the assumed $200. But if the condo fee is $343 and the taxes are $212 and the pre-approval is at max capacity, the letter is worthless.
I know how it’s done, Rhonda. But that’s part of what is broken. The person going from house to house and condo to condo needs to “adjust as needed” or know when there is or isn’t “stretch” in the letter. Agent’s stretch without knowing this and then the lender’s feet are held to the fire to “make it so” which throws some buyers into the “darkside” in order to close.
It’s not your job alone, and since you have been in the business, agents have been treating it as your job alone. That is part of the problem.
The Q&A shows you that the agent doesn’t have to know the buyer’s “business” to do their job. The agent has to know how to “qualify backwards” to be a fiduciary and not a loan expert.
I, personally, would much rather work with an agent who understands, knows mortgage and cares vs. the “just close it–I don’t need to know” agent. 🙂
.
Ardell,
There is nothing like a real estate agent who gets the lending side to make our jobs easier! It’s music to my ears. The only thing I question is whether it makes sense to “make” people qualify for a conventional type mortgage product first. While I agree that an uneducated borrower can quickly get over their head by using a loan from “the darkside” I don’t believe that it can be in your best interest to force borrowers to see that they are qualified at a fixed rate fully amortizing loan to procede with a purchase. Rhonda gives an excellent example of one of myriad examples where conventional loan products don’t work for particular buyers.
Another example is the first time homebuyer. When I bought my condo with my wife we knew that in a few years we’d be moving to a larger home to start a family. We didn’t want a 30-year loan because we would be wasting resources that could be put to better use in other areas of our lives. If I was forced to qualify for a long-term fixed rate loan by my Realtor I would have simply assumed that my Realtor didn’t understand my financial and life plan. It would have made me look for other representation.
Are the intentions just to protect borrowers from being bilked by an unsavory lender, or protecting them from future pain due to an unrealistic home payment? If that is the motivation do you yield on the requirement that they qualify on traditional terms if they present to you a well thought out financial strategy as it relates to their home purchase?
Secondly, I think that if all real estate agents are like you it is safe to assume that they all play the fudiciary role, but I must admit that from the lending perspective there are more times than not when the Real estate agent calls seeing if the borrower can qualify for “just a little more” to get the home “they really want.”
Great post – got me thinking…and realizing some shortcomings I have. I worked for a builder for four years prior to coming to general real estate as a broker associate. Working for a builder, we were very hands-off when it came to financing. Our thought was, why try to be an expert at everything when you can be an expert at selling, and introduce the buyer to a lending expert and let them do what they do best.
I have taken this hands-off approach into general RE, and have not run into any problems – YET. I wonder how many clients thought I was an idiot for shoving my cell phone in their face the second a mortgage question came up. I do understand the basics, and could get through the example, but my mindset has never been inclined to do so. I still think my mortgage broker is a far better authority on the subject than I am, but I guess there is no harm in meeting with him for tips on incorporating it into my client conversations better.
Ardell,
Home run over the Starbucks sign in left field.
I could critique a minor point or two but this post is a thing of beauty.
Ardell, I think we agree on more things than we disagree on – which is nice 🙂
All three elements you mentioned (state law, real estate agent, and loan industry) and how these parts inter-operate surely are central to both the problem and its solution. I just happen to think that there are even more moving parts. I also agree that you, as a real estate agent, has a lot to offer to avoid these problems; I just don’t think you can fully compensate for the deficiencies elsewhere in the system or that all other real estate agents uniformly share your views 🙂 Personally, I think it’s going to take leadership and coordination in all the moving parts to make real progress.
In your subsequent post you also asked for some information about me to help put some of my comments in context. To answer your questions: yes, I’m local, and no, I’m not employed within the “real estate industry”. My perspective is that of an interested bystander (that’s “interested” as in “this is interesting” and not “I have a self-interest in the outcome”).
So why is this so interesting to an industry outsider? I think some of the topics being discussed are at the intersection of key social, political, and economic issues challenging our society today with broad ramifications for our future. I was drawn into this blog initially due to its geographical proximity to where I live, but more importantly, I found the contributors here to be genuine and interesting. Many here have had the courage to discuss what I think are some pretty tough issues (certainly ones not commonly discussed on many other real estate blogs). It’s kind of funny, but when I read people’s blog entries for a while I almost feel like I get to know them personally, so participating in the discussion becomes much more compelling. I appreciate hearing and learning from everyone’s point of view – it’s refreshing and it gives me the opportunity to broaden my own horizons.
Brian, you crack me up. Are we going to meet at Inman Blogger’s Connect? I’m speaking at one of the presentations on 8/1. The Early morning one ugh! I am not a “morning person”.
Shaun,
You are missing a VERY BIG point. When you worked for the “builder” you worked for THE SELLER and not the buyer. Big, big difference and you practices in representing buyers and being “the agent of the buyer” can replicate those that you learned as “agent for the builder/seller”.
You were NOT incorrect when you worked with the builder. But carrying those same “practices” into the Real World as a Buyer’s Agent was not a correct thing to do.
Can you see the difference?
Shaun,
P.S. When you worked for the builder, the buyer was your customer. When you represent a buyer out on the street, the buyer is your client and not “just a customer”.
Morgan,
I’ll do the “harder” version for you. You are misinterpreting this post to be “the be-all-end-all”. It is just the “easy example”. There are probably ten or more different real life sceanrios, depending on the client.
I thought starting with “the easiest” would give a good skeleton outline of who does what and how. I’ll do a “darkside” post for you, hopefully in the next hour or so.
Cool Ardell! Thanks – I look forward to it; and appreciate your insight as always.
cheers!
Ardell,
I do understand your point. Thing is, when a “customer” walked in unrepresented, we had a fiduciary relationship with them. Actually, our builder requested we have them sign a no-brokerage relationship AND a single-agent notice. HA! I took it to our legal department and was told I needed to have both signed. That makes a dual agency – illegal in Fl. I digress (very tired). My point is that we DID represent client’s with no other brokerage relationship. My original point was that I now see the err in my ways, and will be changing it asap. Just took this post to make me realize I carried a bad habit (or standard practice for a different relationship as you stated) with me into a whole new world.
Jeremy,
I try to write to the audience of “consumer” as much as possible. I am very happy that you fit that “category”. I wish more consumers would raise questions and express their thoughts as you do, as your perspective and our answering your perspective, is more helpful to REAL WORLD people, than our talking with each other.
Thank you for the background. I had assumed as much, but like knowing for sure.
I did NOT learn all this from being in banking. I learned all this because it was made clear to me by licensing classes, and my Brokers, and the other agents in my midst, that this is HOW WE DID OUR JOB.
I’m quick on the uptake and a smart cookie, but every single agent learned this in real estate school for licensing. Who says we get to decide “it’s of no-nevermind” thereafter, and someone else’s problem? Not the licensing officials, I’m sure.
If they REMOVED this material from the education required for licensing, or diminished it from 20% of the material to 3%, I’d agree that all agents can’t be expected to “be Ardell” about it. But as long as it represents 20% of what we need to know to get a real estate license, I say fire the bastards 🙂 OR require them to have an AGENT partner who “gets it” until they get it.
Tossing it at the lender isn’t good enough.
Shaun,
“no brokerage relationship” means customer and NO agency duties to the buyer customer. Single agency notice means “we ONLY represent one side and that side is the seller side”.
I worked Florida the day they outlawed Dual Agency and your builder was correct, as was their legal department, that if they did not want to be Transaction Brokers for both sides, which was the “default position” when Dual Agency was outlawed, then those two papers needed to be signed to show the buyer they were “on their own” “buyer beware” “represented NOT”.
Don’t worry about the past. BUT if you are in Florida, you can act as Tranaction Broker (TB) which I value about as much as the other “TB”, but IS an option in the State of Florida, if you have the buyers full understanding and consent to be a TB and not a Buyer Agent.
I think TB should be the “drastically reduced cost” position in any state and a “choice” in every state. Problem is getting the buyers who want the lower cost to fully comprehend the diminished service level.
But if everyone is going to provide the TB level of service as the norm…hell, the buyer might as well get the lower cost that matches the service. Some of my clients only need TB services, and I give them a TB price.
Call me sometime Shaun, if you are not getting that. The Single Agency Form meant NOT DUAL and NOT BUYER. That’s why it was “single”. Single Agency for builder equals Seller Only.
Ardell,
I can tell I’m out of my league having this conversation with you, but I hadn’t learned anything today, so this is filling the, “Learn one new thing a day,” void I needed. Hell, this should carry me through the weekend.
After pulling ch. 475 FL statutes, I thought I had a very clear understanding of my relationships. When I was hired by the builder, I entered a “TB” relationship with them. I don’t see the No Brokerage as being part of this equation. I had the buyer sign that form at first contact.
Here’s where everything falls apart. If I am bound to my builder by contract, and I represent my builder as the seller, the ONLY relationship I could enter with ANY buyer would be TB. If I enter into a Single Angency relationship with the buyer, I am unable to disclose information to my builder (seller).
From FL State Statutes ch475.278
“A real estate licensee may not operate as a disclosed or nondisclosed dual agent. As used in this section, the term “dual agent” means a broker who represents as a fiduciary both the prospective buyer and the prospective seller in a real estate transaction. ”
By entering into a Single Agency with the buyer, I have a fiduciary responsibility, and by contract, I have a fiduciary relationship with by builder (seller). This seems to clearly be a dual agency.
What am I missing? I have read, and reread your response, and I still don’t understand.
Actually, I DO understand. I read it again, and you misunderstood (actually, I wasn’t clear). The Single Agency was between me, the sellers agent, and the buyer. I was being asked (required) to enter a single agency relationship with the BUYER.
Does that make sense?
Correction: I stated, “the ONLY relationship I could enter with ANY buyer would be TB.” I understand I could also leave it as no brokerage relationship (which is what I did).
“Are we going to meet at Inman Blogger’s Connect? I’m speaking at one of the presentations on 8/1.”
I’ll be the hungover guy throwing spitballs at you. I’m going, Ardell.
Now, I’ll be serious. Morgan is correct when he suggests that your presentation might be limiting because of conforming 30 year fixed loans..who cares? The point is that you have a good process for dealing with buyers that exercises your fiduciary duty. Your out is when you say, “Oops! Out of my scope! Let’s get you re-qualified with a XYZ loan”
You don’t have to be an expert, Ardell when pre-qualifying a buyer, just knowledgeable. Jim Buividas would be proud
Shaun,
No brokerage relationship and TB are not a lot different from one another. Buyer still has to fend for himself. So don’t use what you did for them there as what you should do for buyers in real estate outside of the builder’s office.
A builder never wants someone in their “store” to do anything except “close them”.
Ardell,
Understood. I’m going to bed.
Just so there is no misunderstanding. I do NOT operate in general real estate the way I did with the builder. I completely understand my current role, and my prior role, and the major differences between the two. To pull this back to the original post, I carried over a very bad habit and intend on changing it.
By the way, Ardell, I subscribed to your feed a few minutes ago. Love knowing what’s going on on the other side of the country. Thanks for the discussion tonight, and I’m sure we’ll talk again.
Hey Brian,
Tell me Connie Mafucci would be proud, not Jim Buividas 🙂
Point is Brian, when the scenario moves from easy to harder…the buyer is by that fact, put on notice that this is NOT a run of the mill situation.
Not saying they shouldn’t push the envelope. I’m saying the agent should be making them aware that they ARE pushing the envelope and where and how. Covers the lender better too, for the agent to be “witness” to the fact the buyer chose to push the envelope, so the buyer can’t later “point fingers” saying “they didn’t know”.
I’m doing “The Darkside Post” now to make you guyes happy and to show I’m not saying everyone needs to be the Pollyanna Version. But agents can’t put blinders on either. If they can at least to Pollyanna Version, I’d be a lot happier.
Besides Mr. Hard Money Loan…I run when I just see your blog and the words “Hard Money Loan”. I take out my garlic and wooden stake when I hear the words “Hard Money Loan” 🙂
“I take out my garlic and wooden stake when I hear the words “Hard Money Loan”
then I need to educate you. A real life example: A hard money loan helped a 30 year old buy a ten unit that he sold for a $900,000 profit six months later. I’ll head over to the dark side (post)
Brian,
I do residential 95% of the time and investor only when the “investor” is really a “residential type” of person and the property is RESPA 1-4. I shouldn’t need “hard money” for residential…should I? Correct me if I’m wrong there.
I don’t believe in “cross over” for me or our agents. If Commerical or Investor is their forte…great. But pick one side or the other and don’t dabble in Commerical and Investor…refer it to someone who does it day and night, is my mantra. Don’t do too many things half-butted. Do what you do, well and often.
Hard Money equals “not my thing” all the way around the way I see it, Brian. But please do correct me if I’m wrong there. The “darkest side” I get to, and not often, is pre-payment penalty.
I am going to write a piece on “the practical aspect and legitimacy of ‘pre-payment’ penalties, so people understand when they are appropriate and when they are not appropriate and why they are there in the first place.
Agents role in the lending process? I don’t really think there is much an agent has to do in the lending process except that it’s their responsibility to tell the clients where they can avail the best loan options. I’m not sure if there are cases where banks and agents connived so clients will have no options than to apply the loan to banks where agent shave exclusive contracts.
In general, borrowers can apply to any banks they want and explore the best loan packages in terms of interest and payment flexibilities. Though I personally prefer agents with this kind of knowledge, I don’t agree that they should charge more than the agreed commission just because they have access to lenders.
Johnny,
Yes, it is true that some buyers do not want or need any assistance at all with the loan process. I never did, but I did use the agent’s lending resources or the relo company’s lending resources.
I have to say that usually my primary consideration was getting the house and not getting the best deal on the loan OR the house. Just thinking back over the years and the houses I’ve bought.
A couple of times it was about the best deal, but not usually.
Hard money is appropriate in residential for:
1- flippers (when they buy below 70% of real market value)
2- credit challenged with scores below 500 but expect to be cleaned up within a year
Mostly, the hard money borrower shouldn’t be buying a owner occ home until they can qualify for a good loan. However, you sometimes find a borrower who is right out of BK who needs us.
If the seller carries 30% in a second position, and the price is “such a deal”, the private money mortgage can make sense.
I’ll bet you encounter this maybe once in the next 10 years. So your earlier statements are correct.