Real Estate News and Commentary

December 10, 2009October 5, 2019

What is DOM; why some agents choose to manipulate the material facts about DOM

“Days on Market,” or DOM is self descriptive – it is basically the number of days a home is “active” on the market. DOM is used by real estate professionals and economists to gauge the market and home inventory. Since real estate is a major component of the United States economy, these statistics are used by economists in examining the condition of the real estate market and the economy as whole.

Home buyers and sellers have also given meaning and significance to DOM. To some home buyers, the belief that an inverse correlation exists between the length of time a home is on the market and the seller’s motivation gives them the justification to make a lowball offer. But is the correlation accurate? If a home has been on the market 120 days when the average is 60 days, the seller maybe more motivated- but not necessarily ready to take a lower offer. Realistically, the high DOM may be an indication of a home that is over-priced to begin with; some sellers may reluctantly reduce the price as time goes along, while some are apt to hold on to the higher price.

In addition to supply and demand, home prices can be correlated to various factors through equilibrium models, such as price and condition, and price and size. As far as I know, no one has discussed an equilibrium model to indicate a correlation between price and DOM; DOM is not only dependant on market conditions but also dependant on variables such as seller’s personality and financial situation.

Just like home buyers, home seller’s assign meaning to DOM based on conjecture rather than sound reasoning. If a home is on the market longer than the average DOM, many sellers tend to focus solely on their real estate agent’s effort (or lack of effort); conversely, some sellers are led to believe they may have sold for too little if the home sells in less than the average DOM.

Real estate agents give credence to the emphasis of DOM placed by home buyers and sellers; and some agents add their own emphasis such that they are compelled to manipulate a material fact about a home. Yes, my local MLS (MRIS) considers DOM a material fact about a home. Manipulating DOM is not only manipulating a material fact, it also appears to be a violation of National Association of Realtor’s Code of Ethics Article 1 (“…REALTORS® remain obligated to treat all parties honestly.”) and Article 2 (“REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property…”).

If the reasoning behind the emphasis for DOM by home buyers and sellers is speculative, and the DOM may be manipulated by the listing agent any way- what’s the big deal anyway? I honestly have never had anyone list DOM as criteria for their home search. Need more information about DOM? Talk to your Realtor about DOM and its significance to your purchase or sale.

This article is not intended to provide nor should it be relied upon for legal and financial advice.

December 9, 2009October 5, 2019

Be your best advocate; get to know RESPA

One of the most important pieces of legislation that home buyers need to be aware of is The Real Estate Settlement Procedures Act (a.k.a. RESPA). Although RESPA has been around since 1974, it’s a wonder that the professionals whom consumers depend on have had trouble understanding the law. And in some cases it’s more of a problem of following the law.

To protect the consumer, RESPA clearly spells out some of the many do’s and don’ts for those in the real industry. According to HUD (HUD.gov), RESPA is a “ …consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD…”

Of all the sections of RESPA, Section 9 appears to be the area that gets the least attention. Section 9 prohibits home sellers from requiring home buyers to use a specific title insurance company as a condition of sale. Seems simple enough, right? In an owner occupied resale transaction, a buyer may not encounter such pressure from the seller. However the number of Section 9 complaints from buyers may have increased in the last two years corresponding to the explosion of foreclosures and short sale transactions. Many MLS entries of such sales have remarks such as: “must use ABC title” or “settle with XYZ title,” which are direct or indirect statements that fly in the face of Section 9.

The first thought of a seller who directs the buyer to use a particular title agent may be one of kickbacks and affiliated businesses (which is regulated by RESPA Section 8). However, even if the seller may have a reasonable case to require the use of their title agent as a condition of the sale, the fact is that it is prohibited by Section 9 (caveat notwithstanding).

The reasons for a buyer to choose their own title agent include price and service. If a buyer has the ability to select their own title agent, they can compare prices for title insurance and affiliated services. Additionally, the buyer may also be able to compare title agents on their professional and service reputations. Having the title agent be responsive, file the correct documents, and distribute escrow funds in a timely manner should be taken seriously; title problems may plague you in the future if releases and mortgages are not filed correctly with the County.
Become your best advocate and get acquainted with RESPA. You can visit HUD’s consumer website to get further explanation on Section 9 and other sections of RESPA as well as the complaint process.

If you feel that the seller violated Section 9 and you were forced to use a seller’s title agent as a condition of the sale, consult with an attorney- you may be able to seek damages up to three times the amount you paid for the title insurance.

To enforce RESPA, HUD wants to know about your RESPA complaints by sending an outline of the violation and the violators name, address and phone number (along with your contact information) to the Director, Office of RESPA and Interstate Land Sales, US Department of Housing and Urban Development, Room 9154, 451 7th Street, SW, Washington, DC 20410.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of December 7, 2009. Copyright © 2009 Dan Krell

December 2, 2009October 5, 2019

A step backward for affordable homeownership?

In a press release circulated on Monday, November 30, the FHA announced new proposed rules to “Strengthen Risk Management.” The proposed changes include increasing financial worth of FHA lenders, tighten underwriting requirements for borrowers, and require FHA lenders to take on the liability for the loans they originate.

FHA has a history of providing low down payment mortgages to millions of home owners since 1934. FHA sparked the resurgence of a very flat housing industry when it was created by providing affordable mortgages with acceptable terms at a time when mortgages had very stringent underwriting guidelines as well as very harsh terms. . FHA has played a major role in subsequent recessions and housing downturns to help stabilize the marketplace by assisting cash strapped home buyers purchase their first home.

FHA’s role in the housing industry has undoubtedly increased the value of homeownership by making homeownership affordable. Unfortunately, it seems as if FHA is another victim of the financial crisis as it no doubt suffered losses by bailing out troubled home owners through such programs as HOPE for Homeowners.

In a time when home buyer sentiment is wavering, increasing financial and credit requirements for potential home buyers will further diminish the value of homeownership. Increased financial and credit requirements in a time when recessionary forces have already reduced home buyer resources will undoubtedly affect the recovering real estate market and shift the consequences of the financial crisis to many potential home buyers by making home ownership less affordable.

This article is not intended to provide nor should it be relied upon for legal and financial advice.

November 30, 2009October 5, 2019

Overcoming the new obstacles of selling your home

The 2008 National Association of Realtors Profile of Home Buyers and Sellers reports that 93% of home buyers surveyed indicated they financed their purchase (Realtor.org). Real estate agents have become accustomed to and usually can anticipate most hurdles that came with a typical transaction; agents can usually prepare home sellers for home inspections, FHA appraisals, and shaky buyers.

These days, however, home sellers may feel as if they are trapped in an obstacle course. If finding a home buyer isn’t enough, home sellers are finding that closing the deal is getting more difficult as changes in the mortgage industry creates new obstacles.

Changes in home buyer sentiment and mortgage underwriting guidelines have created a new trend – uncertain closings. A continued disparity between the price home sellers are asking and what home buyers are willing to pay, along with increasingly tightening mortgage guidelines and indeterminate appraisals would make any home seller skittish.

Tightening mortgage guidelines are increasing the pool of unqualified home buyers, while questions of home values have made some closings problematic. Such obstacles have forced some real estate agents to using creative techniques to get their clients to close; some of these techniques have not been used since the 1980’s, when lenders also tightened underwriting guidelines in the wake of the S&L crisis.

One technique is the use of seller financing and land contracts. Home sellers looking to sell to a home buyer who does not qualify for a mortgage and/or get a higher sales price can possibly bypass the mortgage lender by offering seller financing. Once the note is consummated, the seller may decide to sell it to an investor; there are many investors who specialize in purchasing private mortgage notes.

Seller financing is not for everyone. Besides the fact that many home owners need the proceeds of the sale to purchase another home, it requires the seller to assume the risk of the home buyer defaulting. Additionally, sellers looking to cash out their notes may only get a percentage of the sale because investors purchasing these notes usually offer a percentage of face value. If considering seller financing, it is a good idea to consult an attorney to assist you and ensure you comply with local and federal laws.

Another creative technique that is gaining in popularity is “permanent” home swapping. Home swapping has been around for a long time, and has been popularized as a means of ensuring short term accommodations for vacations and sabbaticals. In fact, home swapping has become more chic as evidenced in its use in a recent episode of “Million Dollar Listing” (Bravo Channel; www.bravotv.com/million-dollar-listing) when two parties liked each other’s properties but couldn’t agree on terms. Due to an increasing number of home sellers consider permanent home swapping, more resources are becoming available to identify like minded home sellers. Of course, an experienced attorney should be consulted to facilitate such a transaction.

Although market conditions continue to stabilize, home sellers are encountering new obstacles to selling their homes. Real estate agents and home sellers are increasingly considering alternative and creative means to overcome problems. Before you embark on non-traditional means to sell your home, consult an attorney and other professionals for information that will help you determine if creative home selling is for you.

November 28, 2009June 27, 2019

Can you know your real estate agent by the car they drive?

Want to know a little about your agent, check out their car- right? When the market was hot earlier this decade, it seemed as if many real estate agents were driving some sort of Mercedes, BMW, and Lexus. So, at that time it was interesting to see what type of Mercedes or BMW being driven. Many of my colleagues drove the “S” class sedan, while some drove the less expensive “C” class. Of course, most of the cars were black, but I remember a few white and silver ones too. Of course, there were also agents who drove Hummers, land rovers and an assortment of SUVs. And of course, many drove and still drive their Camry’s.

According to Kathleen McCleary (The Car You Drive: USA Weekend Edition; 10/20/2002), a car says a lot about person’s personality (www.usaweekend.com)

The problem with ascribing a personality trait to a real estate agent because of the car they drive is that just like the clothes they wear and smile they put on when they leave their home, many agents want their car to personify a successful personality they may want to express to the public (sometimes making up for what they lack). Whether or not your agent is successful, if they drive a luxury car they want to let you know that they are successful (or at least they want to be). Of course, whether or not they can afford a luxury car, many agents opt to drive more practical cars- probably because they are sensible about money.

What does a car say about your agent? Success? Power? Assertiveness? Maybe and maybe not. Your agent’s car may tell you more about their station in life or personal aspirations than their ability and inter-personal skills. The agent’s car may scream practical, yet they’re a negotiating bull dog; or they may drive the latest Mercedes, yet not be a very effective agent. Judging a book by its cover may not yield you an accurate picture of your agent; you may not get a true picture of your agent until you see them in action!

So, what does your agent drive?