Real estate agents getting back to basics and focus on relationships

real estateDon’t be surprised when you’re getting more real estate agent phone calls, or seeing more agents at your doorstep. You may be surprised to know that in this increasingly tech dependent world, agents are getting back to business basics; which is founded in personal introductions, building relationships, and providing personal service.

You see, many real estate agents (like the rest of the population), are realizing the limitations of the internet. What was once the promise of a new market place for products and services has become a super-saturated arena of information, advice, and “content” clamoring for your attention; and is a growing disappointment for many due to the increasing irrelevance of information, not to mention the surge of fraud and hacking.

The National Association of Realtors® (realtor.org) has reported on the growth of internet use in real estate over the last fifteen years in their annual Profile of Home Buyers and Sellers (the 2014 Profile indicated that 92% of buyers “use the internet in some way in their home search process…”). And although the statistic is astounding, it is becoming clear that is still not wholly understood how home buyers and sellers use the internet.

You may not be surprised to know that home buyers and sellers don’t entirely rely on the internet for choosing their agent. In fact, many choose an agent through friend/family referrals, personal introductions, and even serendipitous meetings (such as visiting an open house). Furthermore, buyers and sellers are increasingly aware of the internet’s limitations as well; as one home buyer’s recent statement of “…this home is not what was advertised on the internet…” illustrates the type of misleading information that is often found.

Although many are just waking up to the fact that “point and click” does not sell homes, “big housing data” knows it generates online revenue by capturing your information and selling it to real estate agents, loan officers, movers, and others. Last year’s acquisition of Trulia by Zillow was thought by many analysts to be an industry game changer by merging two of the most visited real estate portals. However, many did not consider that the move was to increase traffic and revenue for two companies that were reportedly not “yet profitable” on their own, by “grabbing a bigger slice of the advertising market” (Logan, Tim. “Zillow Deal to Buy Trulia Creates Real Estate Digital Ad Juggernaut.LA Times. 28 July 2014.<latimes.com>).

More recently, HousingWire’s Ben Lane reported on Zillow’s downgrade by Barclays (“Is Zillow in Trouble?” HousingWire. 20 July 2015. <housingwire.com>), referring to a slowdown of traffic due to saturation and competition. Months after the major acquisition, growth of the online real estate portal is “slowing significantly.”

Just as the growth of the internet created markets and changed how real estate agents conduct business; personal needs and attentions are changing how consumers view the internet, as well as producing voids left by agents and brokers who heavily relied on the internet for business.

The NAR’s recent DANGER Report misses the mark by highlighting perceived shortcomings in Realtor® ethics and competency.  However, the real issue may be more about the lack of professional intimacy; which is necessary for commitment, integrity, and building trust. While some already know it, others are waking up to the notion that the quality of the professional relationship is vital to the consumer’s satisfaction – and it all begins with an introduction.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Herding behavior can interfere with real estate decisions

herding real estateHave you ever wondered why real estate trends develop? When we’re buying and selling a home, we like to think we act rationally and with intention. However, our decision making is influenced externally. We are affected by the attitudes of the experts, family and friends, from whom we solicit advice. We are also consciously and unconsciously influenced by information we get from TV, the internet, social media, news papers, and even from eavesdropping conversations. Your decision making may be based on others’ behaviors that signaled it was the correct thing to do, and in turn magnifies and strengthens the signal to others – which is described as herding behavior.

Herding behavior plays a large role in our daily lives, as well as in our real estate choices and conclusions. Decisions about home buying and selling, which agent to hire, sales prices, and even whether or not we should default on our mortgage can be influenced by herding behaviors.

A 2013 study of herding behavior in strategic default revealed significant findings about our vulnerability to information (Luchtenberg & Seiler (2013).The effect of exogenous information signal strength on herding. Review of Behavioral Finance, 5(2),153-174). To refresh your memory, strategic default (allowing a home to go to foreclosure when financially able to pay the mortgage) became a significant trend that was widely covered in the media during 2010-2012. Luchtenberg & Seiler’s research into decision making and herding behavior suggested that those who are susceptible to information can be easily swayed. Their findings among professionals revealed that low consensus information (“weak information signals”) caused herding when asked to make a personal choice; while high consensus information (“strong information signals”) caused herding when providing advice to a friend.

The notion that the housing and financial crises were caused by herding behavior is not new. However, economist Christian Hott researched if housing bubbles are caused by herding behavior (Hott, C. (2012). The influence of herding behaviour on house prices. Journal of European Real Estate Research, 5(3),177-198). Citing others, Hott explains that herding behaviors are formed by those who are “imperfectly informed” and “learn from the decisions” of others; and that people tend to “overestimate the likelihood of an event” to occur to them when they hear it happened to someone else (expecting the same experience that someone else had). Although Hott concluded that herding was not the only contributor to the housing market collapse, and suggested that mortgage banking was also likely responsible; the findings indicated that herding behavior does play a role in home price fluctuations and housing bubbles.

Cognitive dissonance may also be at work to reinforce your herding behaviors. You may act on information that is not widely acknowledged just because the source is significant to you (such as a relative, close friend or co-worker). And the stronger your belief in the information, the more likely you will in turn confidently give the same advice to others, even though it may be inaccurate and/or irrational.

Breaking away from the herd is difficult; buying and selling a home may not seem to be a rational process – even when confronted with facts. People don’t always base decision of logical choices, but rather base decisions on psycho-emotional needs and/or fears (such as status, acceptance, and avoidance of failure). However, seeking balanced information and becoming aware of your motivations may improve your decision making.

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TRID implementation remakes the home buying process

real estateEarlier this year I informed you about the upcoming Consumer Finance Protection Bureau (CPFB) TILA-RESPA Integrated Disclosure (TRID) rule that was to begin in August. The implementation date was moved to October 3rd for a number of reasons, including feedback from the lender community indicating that they needed more time for compliance.

Fast forward to the present, and we are several weeks away from implementation. Overall, lenders are ready to comply with new disclosures and procedures. Realtor® Associations have also been busy getting members up to speed on expected changes and how to cope with potential issues that may arise. However, many are bracing themselves for the initial implementation to see how transactions will be affected.

Some have offered a different perspective on how the initial implementation may happen. For instance, the CFPB requires lenders to provide new disclosures three days prior to closing; however, some lenders may superimpose a longer waiting period (such as five or seven days) so as to ensure their compliance with the new rule. So any delay would tack on those extra days. Additionally, I have been told by loan officers that the 30 to 45 day mortgage closing process will go by the wayside, and that home sale contracts should allow for at least 60 days to go to closing; as well as allowing for flexibility if glitches arise to ensure compliance with the new rule.

The settlement process will be different. Closing documents will no longer emanate from the title company, but instead will be prepared by the lender and sent to the buyer and seller. Closing will occur at least three days later. Lenders are vetting title companies to ensure compliance with the new rule. As a result, an unintended consequence may be that home buyers will not be able to choose their title attorney like they are used to (as provided by RESPA and state law); and will have to choose from a list of lender “approved” title companies. Hopefully the lenders are not steering buyers to title companies where affiliated business arrangements exist, as that is an entirely another issue that the CFPB is pursuing.

If you’ve bought or sold a home in the past, the current contracts may seem somewhat familiar. However, as of October 3rd, new contracts and addenda will be in use to address the new rule; making it a new experience for everyone. If you’re planning a sale or purchase after October 3rd, make sure your agent is familiar with the new contracts and addenda so as to ensure they are managing timelines properly and understand how contingencies are affected.

The lingo will change too. If you’re borrowing money from a lender, you will no longer be a borrower; but instead you’ll be called a “consumer;” and your lender will be referred to as the “creditor.” Your good faith estimate will be a “loan estimate.” The time tested HUD1 with which we are familiar seeing at closing, will no longer be in use; and in its place will be the “closing disclosure” sent to the buyer and seller.   You will no longer look forward to your settlement day, but instead you will look forward to the “consummation.”

If you are planning to be in the market, you can familiarize yourself with expected changes to the buying/selling process by visiting CFPB’s “Know Before You Owe” (consumerfinance.gov/knowbeforeyouowe).

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

New settlement rules may facilitate much needed communication

homesSigned into law July 21st, 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act (aka Dodd – Frank) was intended to improve accountability and transparency in the financial system, to protect consumers from abusive financial services practices, and to end “too big to fail.” The Act created the Consumer Financial Protection Bureau, which enforces regulations to protect consumers and implements rules such as the Qualified Residential Mortgage (also mandated by Dodd – Frank).

Five years after enactment, Dodd – Frank seems to be the Act the keeps on giving with the upcoming implantation of Sec 1098; which states that the Consumer Financial Protection Bureau (CFPB)shall publish a single, integrated disclosure for mortgage loan transactions” in a “readily understandable language” so as to help borrowers understand the financial aspects of their loan clearly and to be nontechnical.

The new disclosure and settlement statement is intended to present important information conspicuously to help consumers decide if the mortgage is affordable and give warning about undesirable loan features. The new forms seek to standardize fee and cost disclosures so as to make shopping for a mortgage easier. One of the more important aspects of the new regulation is that the new Closing Disclosure is to be given to the borrower at least three days prior to settlement. During the three days prior to closing, changes to the Closing Disclosure that increase charges are prohibited (unless allowed by exception).

Firm timelines for closing and mortgage associated matters, have always been a crucial aspect of the home purchase contract. Not adhering to the dates specified in the contract usually has consequences. However, changes to Realtor® contracts are being considered to reflect the three day waiting period. What was once a firm timeline may no longer have the “time is of the essence” feel, as future contract revisions may not hold the buyer in breach of contract if the home does not close by contract settlement date. Carryover issues may also include implications to meeting loan commitment and appraisal contingency timelines.

If you’re buying a home, note that there are a number of situations that could cause your closing date to be rescheduled because of a “reset” to the three day waiting period, including a loan product changes, 1/8% increase in APR, and/or there is an added pre-payment penalty.   Additionally, other lender actions may also require you to reschedule closing; such as a lender required repair with reinspection.

Many in the industry are also concerned about routine buyer and agent pre-settlement walkthroughs. Rather than prior to closing, they will have to be scheduled to allow for negotiation on potential issues without resetting the three day waiting period (and cross your fingers that nothing happens to the home the three days prior to closing).

However, CFPB Director Richard Cordray was quoted emphasizing “The timing of the closing date is not going to change based on the final walk-through…” in a National Association of Realtors® (realtor.org) May 12th press release reporting on speakers at a regulatory issues forum.

The complexity and implications of the new regulations will undoubtedly cause some confusion in the first days of implementation. However, the new rules inadvertently address one of the weak links to the real estate transaction – communication. Many are beginning to recognize the necessity for everyone involved in the transaction to be proactive and communicate with each other to ensure compliance.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Trust and verify – home buyer due diligence

home for saleIf you’re a home buyer who’s ready to jump into the housing market this spring, you’ve probably begun searching to see what’s on the market. You may have already met a real estate agent or two; and if you’ve haven’t yet talked with a mortgage lender for a prequalification, it’s probably high on your priority list.

Before you know it, you’ve selected an agent, mortgage lender, and title attorney to assist you; and you find yourself increasingly perceptive and selective about the homes you view. Guess what? You’re in the process of buying a home! But before you put the buying process on cruise control, how much trust should you put into the professionals helping you?

It’s not to say that real estate agents, loan officers, home inspectors, and anyone else assisting your home purchase are not qualified – but no one is perfect. Buying a home is probably one of the biggest purchases you’ll make during your life. The idiom “trust but verify” should be your mantra throughout the home buying process to ensure due diligence.

Have you verified the credentials of those you’ve hired? Believe it or not, there are some who are doing business without the authorization of the corresponding licensing agency. And yet, some reasons given for not having a license may sound innocuous, such as forgetting about a license renewal deadline; other reasons may not seem as innocent (for example, licensed professionals from neighboring jurisdictions, DC or VA, attempt to do business locally where they are not licensed).

Professional licensure is a regulatory safeguard that provides consumers a pool of professionals that meet or exceed a minimum professional competency. Agencies such as the Maryland Real Estate Commission; Maryland Home Improvement Commission; Maryland Commission of Real Estate Appraisers, Appraisal Management Companies, and Home Inspectors; Office of the Commissioner of Financial Regulation; and the Maryland Insurance Administration offers an internet portal to verify a licensee’s status, check for disciplinary actions, and also explains how to file a complaint.

Information is believed to be accurate, but should not be relied upon without verification. Accuracy of square footage, lot size, schools and other information is not guaranteed…” is a disclaimer used by Metropolitan Regional Information Systems, Inc (MRIS) prompting you to verify MLS listing information. Although MRIS strives for accuracy in MLS listings, providing guidelines and standards for MLS data; exactness and truthfulness can vary because data input is performed by many agents and/or their staff. You can verify schools by checking the Montgomery County Public Schools “School Assignment Tool” (gis.mcpsmd.org/SchoolAssignmentTool2/Index.xhtml); zoning, development and other information can be verified through the Montgomery County Planning Department (montgomeryplanning.org).

Was the home seller into the DYI (do-it-yourself) trend? Is it possible the seller hired unlicensed contractors to repair or renovate the home prior to listing? Make sure any improvements and recent repairs have had the proper permitting! The permitting process certifies that repairs/renovations comply with building and zoning codes, which are in place to ensure that houses are safe, structurally sound, and meet health standards. Most permits can be checked online via Montgomery County Department of Permitting Services (permittingservices.montgomerycountymd.gov) “eServices” data search portal.

Most home buyers are familiar with basics of the home buying process. However, “trust and verify” can help identify and reduce hidden and obscure risks; conducting due diligence can make your home buying experience increasingly trouble free and more enjoyable.

© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.