Category Archives: Law

ZIP, Zillow and ZAP – Part 1 of ?

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OK, let’s “Get Real” for a minute.

On the one hand we have the consumer who wants what they need, no more; no less, for a price that seems reasonable.

Now, let’s look at the “service providers”, both as you know them, and as I know them as an insider. From an insider’s perspective there are three tiers of “service providers”. The traditional full service model, the “discounted” full service model and the stripped down to “you are mostly on your own” model. None of these are “good” or “bad” in and of themselves. It’s more a matter of what is good or bad for you, depending on your skills. But that’s for another day. Just wanted you to know that each of these is good for someone. Only question is which is right for you.

Technology has added a fourth option that is not a “model” in the “service provider” sense, but one that many consumers at present are opting for, which I will call ZAP.

I have to use analogies because I am somewhat limited by my insider position in discussing commissions and companies. Straight shooter that I am, being a little vague is not my normal modus operandi, so bear with me. Hopefully my descriptions and analogies will be obvious enough for you to follow. If not, you can ask questions in your comments or by email.

Let’s discuss and eliminate the ZAP option first, since it is not a “service provider”, but a place where many consumers get trapped without knowing that they are getting ZAPPED. It is worth mentioning here that ZIP is not a ZAP. Now back to ZAPs. The most obvious ZAPs have a button that says “Find a Realtor”, or something of that nature. When you hit that button to find a Buyer’s Agent or Seller’s Agent you are decreasing your ability to negotiate the commission, without knowing it. The technology whizzes who create these websites take a portion of the commission, without disclosing that to you the consumer. They do not provide a service to you, the consumer. They provide a service , for a fee, to the agent who is a “participant” at a cost. There are many of these and we call them “lead generating” sites, “bottom feeders” or “troll” sites.

Let’s take a specific example of how these work, and there are many of these available to you. Let’s say you are a buyer, rather than a seller, of real estate. You go to look at property on one of these sites, which is how they reel you in. You then hit the “I need a Buyer’s Agent” button and are connected with an agent. Let’s say based on the price of the house you will eventually purchase, that the commission will be $9,000 as pre-set by the seller of that house when he listed it for sale in the mls. When you connect with the agent by hitting that button, you have generally spent in that process of merely hitting a button on the website, the money you could have negotiated toward your closing costs or repairs or against the purchase price.

The agent who “gets you” has paid for you. He pays for you out of the $9,000 on the table in your “transaction”. Sometimes he pays it up front in a monthly cost of say $1,000 a month. So if it took three months for that agent to “get you ” (“the lead”), he has paid $3,000 for you. When you try to negotiate something for you from the $9,000, the agent has already given $3,000 to the 3rd party ZAP company, and so you get zapped, as your ability to negotiate has been diminished or entirely eliminated without your knowledge.

Some other sites are not “pay as you go” for the agent, but “pay as you close”. In that case the agent will owe the ZAP a percentage of the commission, if and when you close escrow. Again, the monies you may have been able to negotiate with your agent have been sucked up in advance without your knowledge.

Some of these sites operate like the one sided mirror glass of an interrogation room that you see on shows like Law and Order and the like. I find these lead generating “Big Brother” website options to be exceptionally creepy, but hey, that’s technology at its “best”, I guess. When you sign up to the site to view and save property, you are assigned to an agent in the queue without regard to whether or not it is a good match. Those who have paid in to “look at you look at property”, get the leads kind of like the way a lottery ball pops up to the top and gets “pulled”. I’m trying to give you the facts without editorializing, but it’s difficult for me as I find these sites intrusive and deceptive.

OK, back to facts. The agent who “wins you in the lottery” of the moment, gets to see everything you are doing from the inside without your knowing he is watching you. He can see what properties you are viewing. He can see which ones you are saving vs. ones you are trashing, he can “get inside your head” a bit. He gets all of the info you have put in to register for the site. You then get an email from him, and maybe a phone call, saying “Would you like to go see X property”? You are dumbfounded and amazed and think he is absolutely clairvoyant! Or maybe you DO want to see that property and don’t think about how he “guessed” you might want to go see that property and you just go see that property without a second thought.

LOL OK, I can’t stop editorializing, can I? Don’t you find this just absolutely creepy? Maybe it’s me. I’ll stop here for today and will continue after some of you comment on this so far. Maybe it’s just me. What do you think? I’d like to hear from you before I go any further. After 5 comments I will go to Part 2 of ?

As to the Title of this entry, let’s review. We are mostly talking about ZAPs that ZAP you, the buyer consumer. ZIP is NOT a ZAP. While you all sit at the edge of your seats awaiting Zillow and it’s wonders, we’all (the insiders for lack of a better term) are sitting back expecting another exploitative ZAP type. Of course “No one knows, but the Shadow”, but at least know what to look for when it comes. My expectation is that it will not give you what you want. That being “What you need, no more; no less, at a reasonable cost” as noted in the second sentence of this entry above. (Someone let me know if that IS what the consumer wants, please. Thanks.)

But it will WOW you with it’s technology, reel you in, and then sell you off to the highest bidder. No one knows yet, but if you hear anything new about it let me know and I will decipher the code.

Five comments from YOU, the reader, and then we will move to the actual means a buyer has to negotiate their commission, unless they have already “shot themselves in the foot” by being totally or partially ZAPPED without their knowledge, from the ability to negotiate.

Have a good day! Look forward to hearing from you!

Ardell

Take the Money and Run!

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Be gentle. It’s my first time.

While I am waiting for an agent to get back from the Seahawks’ game to look at the offer I just presented, I’ll try giving this a whirl.

I stole the Title line from Steve Miller “Take the Money and Run” to explain something you may (or may not) find to be of interest. That is, how can you get the Real Estate Commission into your pocket. Whether or not you should or should not get it, is not going to be discussed here. Let’s just assume you want it, and that is reason enough for me to describe how you may or may not be able to get it.

Let’s assume that if a real estate commission is involved, that you are either a buyer or a seller of real estate. If you are a seller, well that’s easy. You simply negotiate the fee and you get to keep the money. Trick is to get the best agent for the least money. Most think that they need to take the worst agent to pay the least money by signing up with some cheap service. NOT TRUE! All real estate commissions are negotiable with the seller, always.

I think it’s a crime and a shame that most sellers think they can’t get a top agent, without paying top dollar. I think it’s a crime and a shame that sellers think they have to go to those who advertise low fees, to get low fees. I think it’s a crime and a shame that sellers think they can’t get a really good agent, if they want to save money. Do you really think builders pay top dollar? Do you really think builders get less than superlative agents? They can do it; so can you. There is no set fee. All commissions are negotiable.

That’s the easy part. Now for the hard part.

How does the buyer get to “Take the Money and Run!”. Not quite as simple. Especially if you want the cash in your pocket, rather than an adjustment in the price of the home.

First, the basics. The contract that determines the Buyer Agent’s fee is already signed by the seller before the house ever gets in the mls. The Buyer Agent represents you and doesn’t even know the seller (usually), but the seller is the one who put the Buyer Agent’s fee into the asking price. Technically the Buyer Agent is not paid by the seller or the buyer. The Buyer Agent is paid by the Listing Company, and if the buyer takes the money from the seller, the Listing Company may still have to pay the Buyer Agent, even if that money went directly from the seller to the buyer. The Listing Company may have to pay, what they promised to pay in the mls, simply because they promised to do so. Now if that makes no sense to you whatsoever, I’m not surprised. But it’s the truth and one of the reasons why it is hard for a buyer to go around an agent they have “used” to see property.

That being said, let’s get back to the subject at hand “Take the Money and Run!” Understand that the amount of money you can receive is limited by your lender, not by the real estate agents or the seller. If you get any money, it has to be shown on the closing sheet and your lender can and does “disallow” it at the last second. So just when you thought you were going to put the money in your pocket, the lender says “No you can’t”. Getting money “off the sheet” is illegal. It’s called lender fraud. The person committing the fraud would be you the buyer, not anyone else, so be careful.

Jeez, they don’t make it easy for buyers to negotiate their agent’s fee do they? Well it can be done, and I have done it successfully and legally, but not easily.

But the Seahawks just WON!! and I have to go finish negotiating that offer. I’ll take this up again later.

Thank you for your time…and remember…be gentle…you’re my first.

Is it bad if everyone else does it too? What if you're one of the best?

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Realtors are the subject of another balanced-but-critical New York Times article today. This time it’s for a whole host of lobbying-related fair market-blocking activities.

Frankly, I don’t have a lot of sympathy for banks, but the strong-arm tactics of the National Association of Realtors described in the article make banks look like victims of injustice. The story meanders away from bank-blocking tactics to easier to explain subjects, like the federal suit brought against the National Association of Realtors for locking low-cost realtors out of many listings. It appears the government (a very pro-business administration, at that) wants to create a level playing field:

When the suit was filed, J. Bruce McDonald, a deputy assistant attorney general, said, “Our job is to ensure that one group of competitors doesn’t tell some of its members they can’t compete in a certain way and undercut the level playing field.”

The defense:

Ms. Janik warns that major changes to the multiple listing services could cause large nationwide brokerages to pull out of the system and establish their own private listings. That, she said, would be a far greater threat to small firms.

So what’s the story? As I understand it, the progressive (egads!) North West MLS does not allow brokers to selectively block listings from competitors sites, which is what the realtors say they have a right to do. And, as far as I can tell, Windermere and the other monsters still list their houses with the NWMLS. Why? Because listing on the MLS allows way more potential buyers to see their houses and, sorry FSBO lovers and separate MLS creators, having more potential buyers increases the speed and price at which your home sells. Also, it would be extraordinarily two-faced if they first said “don’t do For Sale By Owner (FSBO) because you won’t get the exposure that you would get with a full-service brokerage” and then said “list with us even though only we’re going to intentionally reduce the visibility of your property to only buyers who talk to our agents.”

If anything, the Justice Department’s suit should keep realtors in business longer. If the system is open just enough that innovators and alternative pricing models will use it, they keep people in the fold and maintain some pricing power. If the system is locked down, innovators will tend to create MLS replacements systems until one of them succeeds.

Realtors: a PR campaign is in order. Your organization is blocking open markets left and right in order to enforce a 5-6% commission structure. The reputation of the National Association of Realtors is headed toward car salesman and lobbyist territory and when other folks find themselves having monopoly-like pricing power, they spend some of that money on goodwill (see: Microsoft). When other organizations find themselves in this making lots of money, not very popular pickle (for good reasons or bad), they also advertise on NPR (see: ADM, Exxon, Walmart).

On a side note, why haven’t I heard of the sell-your-home-get-a-Toyota model?

“Because the industry functions as a cartel, it is able to overcharge consumers tens of billions of dollars a year,” said Stephen Brobeck, the federation’s executive director. “Consumers are increasingly wondering why they are often charged more to sell a home than to purchase a new car.”

-Galen
ShackPrices.com

Terminating a Contract

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(This is a guest post by Craig Blackmon, an attorney in Seattle whose practice focuses on residential real estate — see www.lawofficeofcraigblackmon for more information. Please note that this post is not legal advice. You should consult an attorney for specific legal counsel.)

Last week, the Washington Appellate Court decided a case dealing with a buyer’s termination of a purchase and sale agreement. The case will not be published, and accordingly it has no precedential value for similar cases in the future. Nonetheless, the case does provide some interesting insight on the factors a buyer should consider before walking away from a purchase and sale agreement.

In Silvers v. Lee, the seller (Ms. Silver) and the buyers (Mr. and Mrs. Lee) entered into a standard MLS form purchase and sale agreement (the “PSA

The Financing Contingency

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(This is a guest post by Craig Blackmon, an attorney in Seattle whose practice focuses on residential real estate — see www.lawofficeofcraigblackmon for more information. Please note that this post is not legal advice. You should consult an attorney for specific legal counsel.)

The financing contingency is one of the most common contingencies in a real estate purchase and sale agreement. In order to understand it, one must first understand contingencies in general. This past summer, the Washington Court of Appeals examined a financing contingency in Salvo v. Thatcher, 128 Wn. App. 579 (2005). The Court discussed the rights and obligations imposed by such a contingency, and the principles applied by the Court are summarized below.

A contingency is a condition that must be satisfied before the parties have a legal duty to perform under the contract. The parties must make a good faith effort to satisfy the condition. When all contingencies are satisfied (or waived), the contract becomes legally binding and each party must perform its obligations (i.e. the buyer must buy and the seller must sell) or face liability for not doing so. If a contingency is neither satisfied nor waived prior to the stated closing date, the contract expires and the parties are relieved of their contractual duties.

A financing contingency makes the contract contingent upon the buyer obtaining the financing necessary for the purchase. Generally, the buyer must apply for financing within a certain number of days of the contract’s creation (mutual acceptance). If the buyer is unable to obtain the financing despite a good faith effort to do so on or prior to the closing date, then the contract expires and the parties are relieved of their contractual obligations. Because the buyer had a valid reason for being unable to perform under the contract (i.e. purchase the property), the earnest money should be returned to the buyer.

In Salvo v. Thatcher, a nasty dispute arose between the buyer and the sellers when the buyer was unable to obtain financing in time to close as required by the contract. The sellers argued that the buyer failed to give notice of his inability to close; because he did not give notice, he was in default of the contract and thus the sellers were entitled to the earnest money. The Court ruled that the language concerning notice did not supersede the general terms of the contingency, and moreover the notice was optional per the terms of the contract. Accordingly, because buyer could not get financing after making a good faith effort to do so, the contract expired and the buyer was entitled to the earnest money, regardless of his failure to give notice.

Of note, the contractual language at issue in Salvo differs from the language generally used in purchase and sale agreements today. Under the current language, and unlike the language in Salvo, the buyer is specifically required to give notice of the status of the loan application. It is an open question as to whether this different language would lead to a different result under similar circumstances. Regardless, buyers (and sellers too) should fulfill their contractual obligations so that they are clearly not in default. If a buyer unequivocally satisfies its contractual obligations but a contingency remains unsatisfied, then the buyer is in the best position possible to demand a full return of the earnest money.

When Lawyers Steal the Escrow

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The NY Times has an article today describing the experience of people whose real estate lawyers have been caught stealing their escrow money. The most extreme example they give was from Jay Rosen who would intentionally create problems with the transaction in order to hold onto his client’s escrow money:

A dispute over the home’s title or its certificate of occupancy would stymie the deal, making it impossible for Mr. Rosen to release his clients’ money from an escrow account he controlled. An ancient property-line dispute would rise from the dead. Checks would get delayed. Cash transfers wouldn’t connect.

It was as if money just didn’t want to leave Mr. Rosen’s hands, clients said.

While there will always be a bad apple in the bunch, I’m actually surprised to hear of this problem. (Granted, the article makes a big deal of the problem, but then goes on to say that there were only 100 reported real estate thefts in 2004.)

I’ve yet to hear that this is a problem in Seattle, and considering that the industry relies so heavily on referrals, it would seem the bad apples would be quickly rooted out… However, if you’ve ever been taken advantage of by a local agent, broker or lawyer, I’d be interested to know so that I can adjust my recommendations appropriately.