$100,000 for the "no show" agent

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[photopress:thecast_biopict_jerry.gif,thumb,alignright]Joe asked: Ardell, I was wondering if you would care to comment on the Jerry Seinfeld case.

Thanks Joe, for the opportunity to sort out this “No Commission for You!” case. It’s a shame Seinfeld is no longer on TV, as this would make a great episode where they could play the “No Soup for You!” Soup Nazi theme in a different light.

There are a lot of missing facts in the linked story, so I have to expand the information first.

Gist of the Story:

The Seinfelds used a personal manager to view property with the agent, before they themselves viewed property.

From September of 2004, the Seinfeld’s real estate agent showed various properties to their representative.

In January of 2005 the agent showed the property the Seinfelds eventually purchased, to the personal representative of the Seinfeld’s.

On February 11, 2005 the agent again showed the property, to both the personal representative, AND Mrs. Seinfeld.

Then came the Sabbath, that same night, and the agent was not available for a 24 hour period either by phone or in person. That happened to be the day Jerry wanted to see it and he went there and struck a deal with the owner direct.

Seinfeld refused to pay the agent because she was unavailable for the 24 hour period he was ready to go, see and buy.

Joe,

My thoughts are that the agent should have had someone covering for her during her “24 hour shutdown”. It’s not like it was an unforeseen emergency, like she was rushed to the hospital. This “I don’t work on the Sabbath” is a weekly event. No reason she can’t hire someone to answer her calls, and someone to show property for her, during those 24 hour time periods.

I can see a buyer not wanting to risk losing a property during that time. What if there were another offer that day? Should a buyer lose a house so an agent can take a day off? Or should the agent provide a back up number for them, like a doctor would.

So I do fault the agent for not having a back up person. But it would appear from the facts that the agent was entitled to the commission, and the Seinfelds would not have lost the property, had they waited until Sunday.

New seminar in Los Angeles this week…

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Last time I ran a seminar with Russ Cofano, I mentioned that I was considering creating a new seminar by slightly adjusting the topic… Instead of the seminar being “all about blogging”, or a “bloginar”, I really wanted to focus on the bringing an understanding to how online technologies are radically changing the industry and how agents can not only adapt, but thrive in this new environment.

After a few conversations about this idea with Errol Samuelson of Top Producer, he also showed a huge amount of excitement in the idea and offered to organize, promote and sponsor the entire thing. The result is that this next Tuesday and Wednesday I’ll be giving the new presentation (50% how the competition is changing the industry, 50% how agents can use online technologies to build up their online brand) in Los Angeles. We have tentative dates set for the end of the month in both Oakland and Seattle (to be announced soon) and assuming the seminars are well received, there’s no reason I couldn’t travel around the entire country giving advice to agents on how to enhance their existing business with social networking technologies.

If you are in the LA area, then consider visiting the seminar website to sign up (or the blog I created for the seminar). The event has already been picked up by both Greg and Brian, and from the comments on both sites, it looks like there should be more than a few people from ActiveRain and the RE.net in attendance! 🙂

Hope to see you there!

APR: Just One Part of the Mortgage Machine

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One of the reasons why we have the federal Truth in Lending Act (TILA) was to help consumers gather enough information to make an informed decision on the cost of a mortgage loan.

Annual Percentage Rate, or APR is defined as the total cost of credit to the consumer expressed as an annual percentage of the amount of credit granted. APR is intended to make it easier to compare lenders and loan options.

TILA directs lenders to compute their APR using the actuarial method OR the US method. “Either method is fine,” says mortgage industry consultant Gordon Schlicke, “and both are very long, complex math equations if done by hand.” Today, we all use computer software pre-programmed to compute APR.  The actuarial method and the U.S. method will result in different APRs. This is fine because TILA allows for variances in APRs: .125 (1/8)% on fixed rate products and .25 (1/4)% on adjustable rate products.

The APR is computed on the amount financed, which is the loan amount LESS prepaid finance charges.

HUD provides suggestions for how to define prepaids.  However, our federal government also understands that different areas of the country have different local customs and lending practices so HUD allows each lender to choose how they define prepaids, but ONLY if the lender receives legal counsel to that effect.  So, for example, Lender X wants to define prepaids in their own way.  They receive legal counsel in the form of a letter on file as to how they are defining prepaids based on local custom.

So we started with a great federal law intended to help consumers become better informed as to how much a loan will cost the consumer. What we end up with is a wide variety of ways to compute APR, all of which are allowable.

Shopping for loans only using APR is a mistake. Shopping for a mortgage loan and only focusing on one piece of a mortgage loan is a mistake.  Consumers who only focus on the note rate or monthly payment and who ignore the other many moving parts of a mortgage are very easy consumers to take advantage of.  Until higher standards are in place regulating the ethical conduct of mortgage loan originators, at minimum, a consumer ought take a look at the whole picture of a mortgage loan and how it works, from the perspective of a traditional fixed rate mortgage before deciding how a mortgage product fits in with a consumer’s tolerance for risk and the tax advantages of the many, many creative mortgage products being sold in today’s market beyond the traditional fixed rate products.

Consumers, when shopping for a mortgage, don’t focus only on ONE of these pieces, instead look at the whole machine:

Monthly payment

Loan product

APR

Closing costs

The originating lending institution

The institution to which your loan will be sold

The ancillary service costs including appraisal, title credit, escrow, and so forth

And finally, the individual people working inside these institutions providing all these services most notably, your mortgage loan originator.

Obtain a Good Faith Estimate from at least three types of institutions: your favorite local bank, a mortgage broker, and a credit union. If anyone out there from a licensed consumer finance company can make a case for why you ought to be on my list of recommended institutions, please enlighten us via posting a response. 

2012 update: That last sentence was part of the original 2007 blog post when we were seeing large, national predatory lending cases at consumer finance companies such as Household Finance and Ameriquest.  With state and federal law changes, many mortgage broker loan originators have switched over from working under a mortgage broker to….the consumer finance company licensing system. We could also refer to these types of companies as “non-depository lenders,” or “non-bank lenders.”  They loan mortgage money but do not offer checking and savings.  These non-bank lenders now make up a huge market share of all the companies originating mortgage loans.  All companies lending mortgage money must follow the Truth in Lending Act: mortgage brokers, non-depository lenders, and depository banks.  Obtain a GFE from a mortgage broker, a bank, and a non-depository lender (sometimes they like to refer to themselves as “mortgage bankers” but mortgage lenders is a better description, IMO.)

Consumer’s: slow down and take the time to meet your loan originators in person. An initial F2F meeting will help you gather valuable data as to how your loan process is going to go.  Remember, an institution or a loan originator offering the lowest rate, lowest APR or lowest payment does not always mean this is the best choice.  If it sounds to good to be true, IT IS. Trust your instincts and your rational mind.

 

Children, Can You Say "Suitability"

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If Congressman Barney Frank has his way, all mortgage originators will have to utter those words in the back of their minds when considering loan options for their clients.   Frank is not just any member of Congress, he happens to be the new chairman of the House of Financial Services Committee and his top priority is to create national laws to protect consumers from predatory mortgage practices.

Recently, on The Perennial Borrower post, I was asked by RCG readers how do I determine what loans are right for clients with all the options that are available in today’s mortgage marketplace.  It takes a great deal of determining what the available financing options are, what their financial plans are and then what mortgage makes the most sense, or is the most “suitable”.   This doesn’t happen automatically for every borrower with every loan originator.   Which is why states like Washington are now licensing Mortgage Brokers and Congress is looking into the same on a nationwide basis.  Currently, when we have subprime lenders calling on our office, they promote “how low they can go” in the borrower pool.   55% debt to income ratios are common–heck, you hardly have to be re-established out of your bankruptcy if you don’t mind the interest rate.  Can’t document your income, assets…don’t have a job but your credit is good–fantastic, we have a loan for you!  It’s true, there are a lot of mortgages that seem crazy and while they may not make sense for some, they do for other clients.  Suitability.

According to Kenneth R. Harvey’s article last Saturday, “…a new national standard might require loan officers to determine an applicant’s suitability for a particular loan program based on:

• Employment status, income level, assets and likelihood that income or employment could change;

• Other recurring expenses and the effect they could have on the borrower’s capacity to repay;

• The potential for higher future monthly payments based on the structure of the loan.

A suitability standard might also ban brokers and others from steering less-sophisticated borrowers to higher-cost mortgages than they qualify for, such as pushing them into complicated higher-rate subprime loans when they could qualify for prime rates and simpler programs.”

This sounds great…however; there is always another side to the story.  NAMB is concerned this could “lead to accusations of discrimination.”  I agree, I mean, are loan originators to provide IQ test to borrowers before determining if they truly understand a more sophisticated loan?  Who are we to judge?   Many times, this surprises me, I may not physically meet my client.  The entire transaction may take place over the phone or internet.  You do get a “feel” for whether or not a person understands the mortgage product by the questions they ask, but how do you really know?   If you’re a borrower who wants an option ARM and a lender (deciding you are less-sophisticated) insists on giving you a 30 year fixed, have you been discriminated against?

2007 should be a very interesting year in the mortgage industry.

$100,000 + in consumer savings: It pays to shop

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[photopress:j0409344.jpg,thumb,alignright]Since Ardell mentioned the rebates her clients enjoyed, it got me thinking about our small business and how we stack up. During 2006, our purchase and sale clients saved over $60,000 in escrow fees alone compared to our competitors, more if you add up all the other industry inventions consumers are charged for. That figure does not even include the refinance business our office closed.

Put this in perspective:

Let’s say the median sales price in the Seattle area for a single family house is about $450,000 and the fee a seller pays to agents is $27,000, or 6% of the sales price. In contrast, the escrow fee each party (buyer,seller) pays at our office is about .0011111 or 1/10th of one percent of that same sales price. This illustration is not to say agents are overpaid.

Evidently, escrow fees are negotiable. Over the last few weeks our office has received a few calls from people asking if we will match certain title companies who are dropping their escrow fees—ironically, to levels that our clients have enjoyed and where we’ve been residing for the last three years running.

It pays for consumers to shop.

Yet more vacant property theft news in the Puget Sound area…

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Staging Thefts Reported

January 29, 2007. It was reported to NWMLS that a theft of Staging items took place in Area 21 (Tacoma). The thieves broke off the door knob to get the Keybox and were able to retrieve the keys. A long list of items where stolen, stripping the house from towel racks to bedroom doors, including the kitchen island with butcher block on top. The Police Forensics Officer said, it looked like the thieves took things they needed to complete another house. If you have any information please call the police and reference case number #070280683.

It looks like thieves are getting even more gutsy and just putting a keybox on the doorknob isn’t the most secure. Agents – take note and work with your client to set up a safe method of access. Sellers – talk to your agent about the best way to secure your belongings and property. Perhaps come up with strategies for best placement and securing of keyboxes. For those with a vacant house perhaps it makes sense to not have a sign out front that makes it obvious to thieves that your property is on the market? I don’t know if these folks are accessing online systems to find houses for sale – but certainly it might help and it would force a thief to be more crafty than just seeing a sign outside.

The information at the top of this posting comes directly from the password protected NWMLS site for agents as did the previous post that noted thefts from other areas, noted by the codes the NWMLS and agents use to define territories.

To Landlords and sellers in City of Seattle – new rules w/ fines… Get up to speed!

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Important Fair Housing Notice for Seattle

The City of Seattle has recently adopted a new ordinance that requires all real estate professionals (including brokers and property managers) within the city limits to prominently display a fair housing poster in their place of business. The poster is available at http://www.seattle.gov/civilrights/outreach.htm under the link for “Housing Issues.

$68,745.00 Paid to Rain City Guide Readers

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[photopress:dollars.jpg,thumb,alignright]Well I have to admit that it has been a very, very odd year indeed for me. I stumbled into the world of blogging, and I had no idea where it would take me. Well it took me into a totally consumer-centric view of my world.

Transparency turned out to be much more transparent for me, than for my “blogclients”. I started experimenting. I did not change how I worked in any way. But instead of simply charging what I “normally” charged, or what most agents charge, I decided to view the commission as “a retainer fee”. I then changed it at the close of escrow, to what I perceived to be a fair value for the services rendered.

Sometimes I changed it on day one and that worked out OK. But then in some cases, I found that what I thought would be fair on day one, turned out to be too much at the end, and so I “settled up”. Only once did I have to renegotiate what was agreed upon on day one by raising it, and the client and I both agreed on a different and higher amount. We did that about halfway through, as he changed his parameters, and we both agreed the situation was greatly affected because of that. But I addressed it as soon as it was going sideways, so he had plenty of time to change agents if he and I could not come to terms on a new commission. Fortunately that was not necessary, because we both agreed that the original negotiation was based on factors which did not hold true as time went on.

The stories, which I will try to detail on my blog tonight, will be covered in a somewhat vague manner, as I have to retain the confidentiality of my clients. But I will try to give the stories in a way that we can all learn what a true sliding scale of different fees for different services might look like. A commission schedule that is so fair, that no client felt like they overpaid, and several even felt like they underpaid. And the one man who got the service for free, almost forgot that he wasn’t my client at all 🙂

I never calculated the end result of the total monies returned at the end of the day, until tonight. It is almost three in the morning, and no one is more surprised than I to see that $68,745.00 was paid to my “blogclients”. While most of those clients had read both my writings here on Rain City Guide and my blog, I have to attribute the bulk of the clients to having come to my blog via Rain City Guide.

There were a couple of times when I went a bit overboard, and I admit there were a few times when it hurt like hell, especially in the beginning when I was “training myself” to view the settle up at the end as fairly as I could. But I can honestly say that the couple of times I erred with regard to fairness, I erred on my side of the fence. I did that because those particular clients were injured by someone before me, someone in the industry who “did them wrong”. I felt the need to compensate them for what happened to them, before I entered into their world.

Most importantly, when you treat your clients fairly, when you discuss commission issues openly with your clients, both buyers and sellers, everyone is happy at the end of the day. I treated them all like family. I charged them what I might charge my Mother or my Sister or even my own child, well…maybe some more like my cousin 🙂 I charged a fair value for the work at hand. And while even I am amazed at the total tonight, and frankly it hurts…it really does, I know in my heart that every single time, it was a fair assessment of a valid cost for the services rendered.

It doesn’t break down to a flat fee or a fixed percentage. Some needed a lot more assistance than others. Some found property quickly and some took a very long time. Some sold their property quickly, and some took a very long time.

I’m looking over my list and only $2,175 of the $68,750.00 was paid to someone who “asked for a discount”. Almost all of it, was offered to them by me, without their needing to ask for it. Most of all, my “blogclients” have truly been a joy to work with. They totally trusted me to have their back. They totally trusted me with their most important goal and they totally trusted me not to treat them unfairly in any way shape or form. Not just about the money part, but in all things. Every single one felt I had gone above and beyond the call of duty. And every single one appreciated my efforts on their behalf at the end of the day.

I would very much like to take this opportunity to thank both Dustin and Anna Luther, for this wonderful opportunity. I also thank them on behalf of my “blogclients”, who are all grateful for having Rain City Guide to help them through what might otherwise have been a more difficult process.

The internet is truly a wonderful thing, and we are all learning to use it to everyone’s best advantage. We no longer simply “surf the net” to suck up information. We use it as a vehicle to form relationships, both business and personal.

I need to put the actual stories on my blog because we are really not permitted to discuss commission specifics in a “group” setting, under anti-trust laws. And also because this post is already way too long 🙂

To First Page of Google in 7 Hours!

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[photopress:w_1.jpg,thumb,alignright]Isn’t blogging grand!  I got a call this morning from a nice Realtor from Saline County, Arkansas named Wally Fry.

I was a little ticked at first because he said he got my name from Top Producer, and they told him to check out my blog as an example of how to blog.  My first thought was Holy Sh.t! Batman…I can’t take a call from everybody in the Country who signs up for a Top Producer Blog!  But he was such a nice guy that I couldn’t be mad at him, so after talking to him for fifteen to twenty minutes and checking out Central Arkansas while on the phone with him, I came up with an idea.

Where there you go, Mr. Wally Fry of WallyFryRealtor.com is already on the first page of Google at number five or six.  Doing better than me even.  Of course it took Wally to follow through on my idea, and he was spot on it in a jiffy!  What a fabulous opportunity there is for those getting into real estate blogging today, especially for those who are in areas where the concept is still really new.

Thank God and Gore for the Internet!!  Good Luck, Wally! I’ll be mentoring him for another couple of weeks, but I can already tell that he’s very quick on the uptake and a fast study.  By the time other Realtors in his area “catch on” to the concept of blogging, he’ll be way ahead of the pack.