Category Archives: Industry Talk

Savvy Homebuyer saves 83% using Trulia Voices

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truliaHomebuyer saves 83% on his Buyer Agent fee by using Trulia Voices.

Around noon on Sunday a homebuyer named “Patrick” posted this question on Trulia Voices:

Need a buyer’s agent

Patrick
Both Buyer and Seller
Seattle, WA

I plan on making a $1M offer on a home in Queen Anne. I found the property myself. Was shown the home by the listing agent. She does not have a claim for procuring cause, as I told her I was working with an agent when she showed me the property. I am looking for an agent to write up my offer and take the transaction through closing. The offer will be cash, with only the standard inspection contingency. At closing, you will refund the entire 3% co-broker fee to me minus a flat fee of $5K. We will be asking for closing within 2 weeks.

The question caused “quite the stir”, with 137 comments as of this moment.

Just “a moment ago”, Patrick posted this result of his inquiry and endeavor:

I see my post has caused quite the stir. If any of you must know, my inquiry here, and through other channels, has lead me to interview many agents and hire one who was more than happy to accept my offer. We have put our first offer together and received out first counter. I expect to reach mutual acceptance within the week.

For those of you who question if this is real, why I don’t use an attorney, if I’m trying to scam you, if I have the cash, etc… I really don’t care what you think. All I know is that in a few weeks, I will have closed on a property, saved tens of thousands of dollars, my agent will have made $5k, and we’ll both be celebrating at Canlis with our wives. And those of you still holding out for your 3% because you’re “worth it”, will still be sitting in front of your computers typing bad things about us.

And for those of you who continue to tell us buyers that “you don’t pay the commission” and “commissions are not negotiable,” this thread alone has proven otherwise. Most agents get it, some still do not, and may never. But again, I really don’t care. Goodnight to you all.

For anyone wondering what “The Future of Real Estate” is going to look like, this just might be a peek into the future. The possibilities are endless. It’s a great time to be a participant in the changes afoot for consumers in the real estate arena.

Squatter Claiming Adverse Possession in Puyallup

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I’m just watching King 5 news tonight where they are covering a story about a home in Puyallup that is in process of being foreclosed.   Sadly, that’s not news.  What is news is that a mom and her kids have decided to move in claiming “adverse possession”.  

Adverse possession typically takes 7-10 years of someone using a property to claim as their own (very rough description–please speak to your attorney).   Clearly since she has only been occupying the property for days, she has no claim.   Here’s her side of the story:

“on the phone she said she is paying rent to a property management company that she works for and that they are trying to obtain the property under adverse possession. She says she feels they are actually helping the community by living in a house that was an abandoned eyesore and they feel they’re not doing anything wrong.”

What is she going to do when somebody legitimately buys the home and the appraiser comes by? Or when the title report discloses an erroneous claim to the title?

It appears as though the homeowner purchased the property in mid-2007, near the peak and financed his home with CTX Mortgage…from what I can tell from public records, it appears the home was 100% financed.  (Regardless, the squatter still has no claim of adverse possession, in my opinion simply due to the time requirement).

A Notice of Trustee Sale was recorded on May 29, 2009 to take place on August 28, 2009 in Tacoma.

As far as I can tell, there was no sale.   No new deed has been recorded (with exception to an attempt to establish a family trust).   

I’d like to find out more about the “rental company” the woman who is making the claim on the property says she is paying rent to for the home and is employed by.   

Facinating times.

Should you sell your home?

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houseFive to one, more people are asking me if they should sell their home vs. if they should buy one. That said, I have more buyer clients than seller clients. Those buyers are simply not asking IF they SHOULD buy. The most difficult scenarios are those who need to do both at the same time, who cannot buy unless they sell, and who don’t want to put their home on the market until they know where they will go if and when it sells.

I ask three questions when someone calls or emails me asking if they should sell (now).

1) Why are you thinking about selling it?

2) When did you buy it?

3) Have you “cash out” refinanced it since you bought it, and if so, when?

When you read articles like this one, and see that Seattle Area home prices are at April 2005 levels (I agree) and peaked in May of 2007 generally (I say July 2007, but close enough), it should tell you that if you purchased during that timeframe, and even between April 2005 and present, it is highly unlikley that you will be able to sell it without bringing money to closing.

Funny…no one talks much about “bringing money to closing” these days, though it happens probably at least as often as a “short sale”. Everyone assumes “upside down” homes are “short sales”, when in fact many sellers simply walk into closing with a check the same way that buyers do. Even people who are qualified to do a “short sale”, often have to bring money to closing. Just because the home sold for less than was owed, does not automatically mean that the difference was waived permanently or temporarily. Sometimes the owner pays it in full, and sometimes the owner pays it in part.

Let’s take a somewhat ludicrous example to make that point. Say the net proceeds of the sale is $500 short from covering all expenses. Likely that $500 is going to be paid by someone, and not worth going through the “short sale” process. Another example: If someone is making their payments, has $100,000 in the bank and makes $120,000 a year and is “short” $20,000, not as likely that the lienholders are going to approve a short sale. That “seller” should be bringing $20,000 to closing. This is VERY important for agents to understand as many are listing homes as short sales simply because the amount owed is in excess of current fair market value. That is NOT the only criteria to “selling short” without bringing the needed difference to closing. If the owner can choose to stay in the home if they are not approved for a short sale, if they have the means to stay and plan to stay if they are not approved, that home should really not be on the market.

Given the knowledge we have that current prices are at April 2005 levels, give or take, let’s apply that to a specific example:

Should you sell your home if you bought it in January of 2004, and are relocating with your family to another State? Let’s say it is a 2,400 sf home in Redmond in X neighborhood, for example. I see several sales in the tax records of 2,400 sf homes in that neighborhood in the 1st quarter of 2005, all selling at approximately $530,000 which is about $100,000 more than they sold for in early 2004. Cost of sale is about 8%, so let’s call expected net proceeds after sale and possible repairs at inspection at about $90,000. Always best to round down to worst case scenario. Let’s call it $75,000, because you don’t want to put your house on market with the highest of expectations. Great if you get them, but not great if you have a vacant house on market for 6 months because you “want” $90,000 net proceeds.

If you would sell it if you could walk away with $75,000 plus your down payment back, then yes you should probably sell it. One reason you might want to rent it is if you want to “leave the door open” to possibly coming back if you don’t like your new job in that new State.

If you refinanced that same house in 2007 for $650,000, then you likely want to rent it for some period if you can, so you can take the loss as a write off by turning it into a rental property vs. a primary residence before you sell it. Check with your tax accountant before putting it on market for sale.

I can’t go through a lot of examples here in the blog post, but know that:

Why are you selling it?
When did you buy it”
Did you do a cash out refinance after you bought it?

are the three most important questions to be answered, that the person who is advising you needs to know before answering the question.

If an agent says “YES! You should sell it!” without asking these questions before answering, that probably means they just want a listing so they can get buyer calls from the sign and advertising, and use your home as “inventory” to get buyer clients. 🙂

Home Shoppers Unlikely to Obtain Estimated Good Faith Estimate

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As the days wear on, we are learning more and more about HUD’s 2010 Good Faith Estimate.   Yes, we’ve had the 2010 GFE to review for quite some time and HUD has offered several updates on their RESPA FAQs…however it seems to be taking a lot of practice, trial and error and communicating with fellow mortgage professionals and HUD to try to interpret what is intended and/or allowed with this new document.

HUD’s last revision to the FAQs made it loud and clear, in my opinion, that they want the Good Faith Estimate to be a tool for rate shopping… however unless the borrower has a bona fide property an address, this may not be possible.   Why?   As it currently stands, HUD will not allow later identification of a property address to create a “changed circumstance”.   A “changed circumstance” (as defined by HUD)  is required in order for a mortgage originator to be allowed to issue a revised Good Faith Estimate…otherwise, the mortgage originator is bound by that Good Faith Estimate until it expires (10 business days if the borrower does not express an intent to proceed with the application).

Per the most recent HUD RESPA FAQs  from January 28, 2010 on page 17 regarding what qualifies for a changed circumstance:

Q&A 8ii:  If a loan originator issues a GFE without identifying a property address, the subsequent identification of the property address, in and of itself, is not considered a changed circumstance.

If a mortgage originator issues a good faith estimate without a property address, they do so at considerable risk as the later identification of a property address does not constitute a changed circumstance.     For example, a GFE was issued with the property address TBD and Block 8 = $0.   The borrower later identifies a property and Block 8 should have been $2,000, but the originator cannot issue a revised GFE and is bound to the original GFE.     Excise tax in most parts of King County is 1.78% of the sales price which would be a very bitter pill for a mortgage originator to swallow.   

As a side note, it’s still hit and miss if lenders are disclosing seller paid excise tax on their Good Faith Estimates in Washington State.   I’m hearing that some are making the mistake of not showing the owners title policy since it is also seller paid–this if flat out wrong–the owners title policy (even though it is paid by the seller) must be disclosed on the 2010 GFE.

I’m hoping for a revised FAQ soon (funny thing to hope for) where HUD may reconsider or clear this up.  If they truly want home shoppers to be able to use the Good Faith Estimate to shop for a mortgage before they’ve signed a purchase and sales agreement…they need to provide us with more clarification…and soon!

The Morality of Walking Away

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This is not legal advice. For legal advice, consult an attorney not a blog.

I came across this interesting article in the Wall Street Journal, that bastion of conservatism. The article goes into some detail encouraging homeowners to just “walk away” from houses that are deeply under water (not literally, of course; rather, the owner owes much more on the property than what the property is worth). For the record, I agree 100% with the sentiment expressed by the author. Any successful business — or business person, for that matter — would not think twice about breaching a contractual obligation if fulfilling that obligation made no business sense whatsoever. In this regard, and as noted by the author, the economy is fundamentally amoral. It is high time that “regular” people take the same approach as the wealthy and Big Business.

That said, is it really a good idea? I’ve discussed the issue previously (in two parts). Here, I’ll only say that Washington is generally a non-recourse state, but that the situation is much more complicated if you have a second mortgage. Whether you decide to walk away or not, though, that decision needs to be based on what is in your (and your family’s) best financial interests. “Morality” should not factor into the equation.

Coming Soon: Pacific Northwest Housing Summit and Seattle RE Barcamp

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I’m very excited about two events that will be taking place next month at the Seattle Center on March 18 and 19, 2010 for the real estate community.   Full disclosure:  I’m actually involved on the planning committees for both.  🙂

The Pacific Northwest Housing Summit is on Thursday, March 18th and consists of panelist from across the country reprensenting all aspects of the real estate industry and various levels of government.

panelist
At this time, the featured panelist include (in no particular order):

  • Lieutenant Governor Brad Owen
  • David Horn with the Federal Trade Commission
  • Ohan Antebian with Realtors Property Resource (RPR)
  • Bret Bertolin with the Washington State Economic and Revenue Forecast Council
  • Spencer Rascoff, COO of Zillow
  • Stan Sidor Chairman of the Appraisal Coalition of Washington
  • Brenda Rawlins, President of the Washington Land Title Association
  • Frank Garay and Brian Stevens from Think Big Work Small
  • Marc Savitt of the National Association of Independent Housing Professionals
  • Ken Reid of Genworth Mortgage Insurance

We are still adding panelist to the event–I’m pretty amazed at how its all coming together!   It will be interesting to hear from these folks what they see for the near future of our housing market.   The Pacific NW Housing Summit has been approved for clock hours (some pending approval).    If you pre-register, you can save ten bucks (that’s 2 or three lattes!) vs. signing up at the door on the day of the event.    Registration includes a gourmet boxed lunch from Gretchens on Thursday.

This event is brought to you by Washington Realtors and the Washington Association of Mortgage Professionals.

barcamp-logosmallRE Barcampis no stranger to Seattle.   This will be the third Seattle REBC (not counting Bellevue’s mini-REBC last year) and what I appreciate about RE Barcamps is that each one is unique and has their own personality.  I think this happens because the volunteers vary and even more so because the event is planned based on the attendees.    I’m betting that since this RE Barcamp is taking place the day after the Pacific NW Housing Summit, that we’re going to see more sessions on issues far beyond social media.   This won’t be your “typical” REBC…at least that’s not what I’m expecting.   No lunch is included on Friday–but with all the great restaurants located near by, you won’t have to travel far.   Even though REBC Seattle is free–your rsvp is greatly appreciated.

The venue for both days is going to be great.   It’s located at the Northwest Rooms at the Seattle Center with tons of parking.   The rooms are designed for conferences and will easily handle both days formats…and there will be free wi-fi!    

I look forward to seeing everyone next month!

Join us at the HomeQuest Social Media Summit Next Week

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David speaking at Real Estate Connect NYC '10Hey real estate professionals! I’m super excited to be taking part in the HomeQuest Social Media Summit next week in Portland…

I’m going to be speaking about creating and promoting your content… but more interestingly, the HomeQuest team has also lined up:

I know all three of these guys well and can tell you without a doubt that these are three of the smartest guys in online real estate.

This is sure to be a great event with lots of great learning (did I mention it’s free???).  You can register here!

And if you’re planning to attend, let us know in the comments. Maybe some folks from the Seattle are would like to carpool down!


[photos courtesy of Dale Chumbley of the Clark County Real Estate Blog, who always brings #thefun and will almost definitely be joining us next week as well!]

Predatory Short Sale Negotiators

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I received a call the other day from a consumer who was in the process of purchasing a short sale home.  The homeowner has defaulted on her mortgage and the trustee sale auction has been postponed a few times now that this buyer’s firm offer has finally reached the lender’s loss mitigation decision-maker.  Once the offer was accepted by the seller, the homebuyer was surprised to learn that there’s a third party involved, a “Short Sale Negotiator” who is charging an additional $9,000 fee on top of the real estate commissions paid to both the agent for the seller and the agent for the buyer. The Short Sale Negotiator is demanding that the homebuyer sign an agreement that the homebuyer will be responsible for paying the $9,000 fee.  The homebuyer emailed me asking what I thought of this additional fee and could I offer some advice. 

The first thing I did was to find out the name of the Short Sale Negotiator company, the owner of the company, and the person who is doing the short sale negotiating. I discovered that the negotiation company is owned by the same person who also owns the real estate firm where the listing agent works.  I also ran the name of the short sale negotiator and discovered that this person IS a licensed real estate agent. 

Readers please note that WA State’s regulators recently changed the real estate licensing laws and there’s a great FAQ section here that answers the question: Does a Short Sale Negotiator have to be a licensed real estate agent? The answer is yes, or a licensed loan originator or otherwise exempt from licensing such as an attorney. (Clicking through from the link, scroll down to “doing business” and see the second question.)

So we have a licensed real estate agent who is earning money as a short sale negotiator who works for a company owned by the same person who owns the listing agent’s real estate company.

There are a couple of things that come to mind here. First of all, isn’t there a bit of a conflict of interest for the real estate broker/owner of that company?  Where are your duties? To the home seller, whose listing you’re charged with overseeing, or are your duties to the buyer, a client who signs the agreement to pay your other company $9K?  What are the duties of disclosure to BOTH the seller and the buyer?

For example, if I’m the seller in this transaction, charging a buyer an extra $9,000 out of pocket might preclude a number of qualified buyers to make an offer….unless I hold back this information until after the buyer has emotionally fallen in love with the home and is already arranging the furniture in his/her mind.  That seems manipulative.  Why not tell all possible prospects up front what the short sale negotiator’s fee is: Make it mandatory to display this extra fee in the PUBLIC comment section of the multiple listing service. 

You might be thinking: “Yes we could disclose this god-awful fee to the public this but that’s not in the best interest of the home seller.”  Well, okay but what happens if you end up attracting a lot of buyers but they all walk when told of this high third party fee? Now the listing agent has wasted everyone’s time.  It’s like if someone asks me out on a date and then later he tells me he’s married.  Come on! Hey, some women might say yes and it’s nice to know up front how big of an a-hole a guy is.   I say the listing agent would actually be attracting the right kind of buyer if they disclosed that their Short Sale Listing comes with baggage.  It seems to work fine for the married guys who post personal ads on craigslist day after day.

More: If there is an affiliated business arrangement going on between the two companies that are owned by the same person/people, then a RESPA-required Affiliated Business Arrangement disclosure form should ALSO be required so that the home seller and home buyer are aware of the dual company ownership. Part of that AFBA disclosure form should state that the homebuyer understands that buying this home means he/she does NOT have to use this particular short sale negotiation firm and is free to select another short sale negotiation company to do the same or similar work.  However, since a ‘short sale negotiator fee’ might not necessarily be classified as a “settlement service” then this rule might not apply. HUD are you listening? It’s highly possible that the next time a federal regulator makes it out to Washington State, the Seahawks will have won the Superbowl. Knowig this, we should look to the state regulators for assistance.

For a home buyer, a big red flag would be if the listing agent demands that you use this affiliated short sale negotiator. Demanding that a buyer use a real estate broker’s affiliated company is a licensing law violation as well as a violation of federal law when those companies are a title, escrow, appraisal company, and so forth. So why not a short sale negotiations company also?

Even more: Is the listing agent receiving part of that $9,000 fee? One way of structuring this is for the owner of both companies to promise the listing agent something like this: “if the lender cuts your commission, don’t worry, I’ll give you a portion of that $9,000 negotiator fee.”  Unearned fees are not allowed under RESPA.

Even worse: Is the short sale negotiator splitting the $9,000 with the home seller?  How fast can you say “Mortgage Fraud is now a Class B Felony in Washington State?”

The other logical problem that comes up for me when I see an additional fee of $9,000 is this: what work is being done for NINE THOUSAND DOLLARS?  That’s an awful lot of money. I could install all new vinyl windows in my 1959 house with that kind of money. I could put this in my teenager’s college fund. I could accomplish a lot with $9,000 so why would I want to pay that kind of money to a short sale negotiator?  Is this like extortion/payola in order to get that particular house for that price? 

Maybe not.  What is this third party negotiations company doing for their $9,000?  Wait, let me go find out. I’ll read their website.  Gee, there’s nothing on the website telling a consumer what their company actually does for that fee but the pictures of their team tell me they’re all good looking guys under 30. Not that there’s anything wrong with doing business with good looking guys under 30 but it should make us wonder how much experience the negotiator has at short sale negotiating.  In 2009 I believe we added ten million “short sale experts” in the real estate industry.

My advice to the consumer: Negotiate that fee down to somewhere around $1,000 to $2,000.  If the home is that close to the auction date, tell your real estate agent that you’re going to buy the home at the auction if the lender won’t approve the short sale and if the negotiators won’t go for a reduced fee.  Most of the third party short sale negotiators out there are paid much less than $9,000. 

Here’s some help with the math:  I asked the consumer to ask the short sale negotiator how many hours he’s spending on this file v. how many hours he’s working on those biceps. Consumer says the SSN said he’s spent 10 hours so far on this transation! !! !!! Wow! Well! Okay then, let’s divide $9,000 by 10 hours.  That’s a going rate of $900 per hour. That’s probably close to the hourly rate charged by the Johnnie Cochran law firm for litigation cases and I’m fairly certain that this licensed real estate agent negotiator doesn’t have as much experience or education as the JC legal team.  Counter back with $100/hour and settle around $200/hour max.

I am betting they’ll take the $2k.

Ask for the negotiator’s $2K to be put on the HUD I Settlement Statement as a seller’s closing cost.  There’s a chance the lender will pay it.  If not, the buyer needs to as himself: Is this house worth $2k out of pocket at closing?  It’s also important for the buyer’s new lender to know about this additional fee. Insist that it’s paid out through escrow and shows on the buyer’s side of the HUD I Settlement Statement if the lender refuses to pay it as a seller’s cost.

Buyers: do not agree to pay any money after closing, on the side, without disclosing this additional amount to all parties including the lender. 

Predatory Short Sale Negotiators: The world is watching you.  I wonder if your dreams are haunted the way I was haunted after watching The Hurt Locker.  Soon your predatory fees are going to explode in your face. Oh, and loan mod salesmen thinking that being a short sale negotiator is the next big way to “make six figures with no experience,” please go back to the used car lots. I’m sure there are some openings at the Toyota dealerships.

Photo: Weekend Funnies

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Weekend funnies:   I picked up my kids from school and they spotted this hilarious scene.   They took the photo from inside the car, so it’s grainy.   “Dad, loooook !…..it’s just like the Ikea TV commercial!”  The occupants of the car were actually smiling and waving at each car passing by.  A complete hoot.   Maybe they just purchased a home and are furnishing the bedroom.

Car mattresses

Loan Originators: Stop Your Crying…Let’s Love the Good Faith Estimate

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Okay, I admit…I’ve been groaning, sniveling and bitching along with many other mortgage originators about HUD’s 2010 Good Faith Estimate.   The document has it’s faults and was created pretty much because of the faults of loan originators who used the GFE as a tool for bait and switch.   We’ve had a month to mourn the loss of the old good faith estimate, which was an asset in how I explained scenarios to my clients…it’s gone.  Get over it.

I’m hearing from consumers that many mortgage originators are refusing to issue Good Faith Estimates — even if they have provided the “six points of information” which HUD uses to define a loan application.   A mortgage originator has three business days to provide you with a good faith estimate or deny your “application” if you have provided the following:

  • the borrower(s) name
  • monthly income
  • social security number to obtain a credit report
  • property address
  • estimated value of the property
  • loan amount

HUD has added an additional item (which can be vague):  any other information deemed necessary by the loan originator.

Per HUD’s most recent RESPA FAQs that were updated on January 28, 2010, a mortgage originator cannot refuse to issue a good faith estimate if they do not have supporting documentation (such as income or assets documentation) or verification disclosures signed by the borrower.   If after providing a GFE to a borrower, it is discovered that their income they provided is not how an underwriter would view it, this may constitute a “changed circumstance” allowing a revised good faith estimate to be issued.    If you read the FAQs, you can tell that HUD is well aware that consumers have been having a real challenging time getting their hands on the 2010 GFE.

Update from HUD’s RESPA FAQs (page 11, #33)

“In order to prevent over burdensome documentation demands on mortgage applicants, and to facilitate shopping by borrowers, the final rule specifically prohibits the loan originator from requiring an applicant, as a condition for providing a GFE, to submit supplemental documentation to verify information provided by the applicant on the application…

Similarly HUD has long supported a public policy goal of creating a circumstance where consumers can shop for a mortgage loan among loan originators without paying significant upfront fees that impede shopping”.  (Only a credit report can be charged to a borrower at this point).

So dry your eyes, my fellow mortgage professionals, the Good Faith Estimate IS a tool for consumers to use for shopping…whether we like it or not.  It’s time to open our arms wide and embrace it.valentinescandy 

PS LO’s:  This post (and any of my articles) are not a replacement to your employer’s compliance department or legal advice.

Happy Valentines Day