Author: Dan Krell

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Can you depend on your real estate agent?

The trite idiom, “what you don’t know won’t hurt you,” is not the catch phrase you want your real estate agent to embrace. However, home buyers and sellers are often confronted with issues that often fall into this category, but should not prevent you from asking for more information or consulting with your attorney. Some common top red flag situations include guidance regarding contracts and addenda, having an agent insist you hire their vendor, and receiving an offer to purchase with conflicting information.

Although it is recommended that a home buyer and seller consult with their attorney to explain a listing or sales contract as well as addenda, the reality is consumers often rely on their agent’s understanding and explanation of the forms they sign. An example of this is the first time Maryland home buyer addendum. Besides the fact that a first time Maryland home buyers have their portion of the state transfer tax paid by the seller, the Annotated Code of Maryland (14-104 (c) – Real Property) states that the recordation and local transfer tax is to be paid by the seller unless both parties agree to a different arrangement. Even though section 14-104 (c) is clearly stated on the first time Maryland homebuyer addendum, I am increasingly hearing how some first time home buyers were not made aware of this opportunity. One home buyer recently told me they fired their agent because after reading the addendum to their agent, the agent told the buyer that transfer taxes are automatically split between buyer and seller regardless. Although it may have been true that first time Maryland home buyers often waived this opportunity during a seller’s market, it is increasingly being asserted in today’s buyer’s market.

Another red flag situation is when an agent insists a home buyer use a specific provider. For example, it is not uncommon for some buyer agents to compel their clients to hire a home inspector they use on a regular basis; the agent wants to ensure that the deal will not be jeopardized by an inspector pointing out too many concerns. I have heard home owners regretting having hired their agents’ home inspector without an interview or checking into their credentials, because of issues that turn up after closing. Additionally, some home inspectors will recount stories of how they have been pressured by buyer agents to not report items on the home inspection report so as not to “kill” the deal.

For home sellers, a red flag situation arises when they receive a purchase offer with inconsistent terms. Listing agents are often given offers that have inconsistent information, such as deposit checks amounts that conflict with the contract, or loan approval letters that are written for less than the purchase price. Sometimes, after digging a little deeper, is not uncommon to find out that the lender is not licensed to do business in Maryland, or the deposit check bounced. Without the proper information, the seller cannot make a solid decision.

Although you might think your real estate agent should be looking out for you best interest, intentionally or unintentionally- it is not always the case. Although, seemingly innocent or harmless situations can sometimes raise a red flag in your mind, most resolve without issue; however, it should not prevent you from asking for additional information, clarification, asking for credentials, and/or a consultation with your attorney.

By Dan Krell
Copyright © 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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What’s Next for Housing Finance Market Reform

No one said change is easy, however it’s necessary. That thought is reflected in the Treasury Department’s (Treasury.gov) white paper entitled, “Reforming America’s Housing Finance Market.” The white paper, released last Friday, is an assessment of the housing market and offers proposals for reforming the mortgage markets. Being the most significant reform of the housing finance markets in 80 years, the main points for this reform are to create a robust mortgage market by “winding down Fannie Mae and Freddie Mac” and “increase the role of private capital.”

Although it was admitted that housing finance reform “will make credit less easily available than before the crisis,” experts agree that reform is necessary. However, that’s where the consensus ends; for you see, there is disagreement about what kind of reforms are to be realized. Industry groups such as the National Association of Realtors® (Realtor.org) and the Mortgage Bankers Association (mortgagebankers.org) hail mortgage market reform, but offer slightly different solutions.

Two extreme positions of reform are complete privatization and nationalization; the white paper contrasts each with the notion that actual reform would be somewhere between the two. A complete privatization of the mortgage market would limit access to financing as well as increasing financing costs; while a nationalization of the mortgage market would increase taxpayer risk and market distortion.

As possible solutions, the white paper weighs several proposals against four criteria: access to mortgage credit; incentive to invest in the housing sector; taxpayer protection; and economic stability. The best path is described as a “balance of [these] priorities.”

The options discussed are several versions of option 1, which is: “privatizing housing finance but with government insurance limited to FHA, USDA and Department of Veterans’ Affairs for a narrowly targeted group of borrowers.” The stated benefits of this option include minimizing market distortions and limiting “moral hazards” within the lending industry. Although this option would reduce risk in private markets, there is concern that it may cause capital to retreat from housing into other economic sectors (which could have an undesirable effect on home prices). Additional concerns include increased mortgage costs, restricted access to the 30-year pre-payable mortgage, and the inability for the government to quickly respond to a credit crisis.

Option 2 is the same as option 1, but with a guarantee mechanism that would engage in a crisis. This would address the inability of a swift government intervention in option one; however there is a risk of increased moral hazard.

The 3rd and final option proposed in the white paper is same as option 1, but with catastrophic reinsurance behind significant private capital. (Reinsurance is the purchase and re-issue of mortgage insurance from mortgage insurance companies, which transfers the risk of the loans). This option has the government role as reinsuring mortgage securities, which is thought to reduce financing costs by increasing the flow of capital to mortgage markets. Although the Stated benefits of this option include affordable 30-year pre-payable mortgages for the average home buyer, as well as allowing small lenders to participate in the mortgage market; there are some concerns, which include the possibility of creating another housing bubble by artificially inflating housing prices due to the increased investment flowing into the housing sector.

Although it’s inevitable, there is no clear path to housing finance market reform; which means that the road ahead may be bumpy.

By Dan Krell.
Copyright © 2011

Comments are welcome. This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Does your agent have a duty to you – or their pocketbook during an open house?

I received an email from my local association indicating that there is a revised disclosure form. This is not unusual, as forms are often revised for various reasons. Often times, new forms or revisions to existing forms are often made when there are changes to real estate laws and practice thereof; or when issues arise in specific practice areas (either because of a significant lawsuit or someone received too many complaints). This time, however, the Maryland Real Estate Commission (MREC) most likely updated and clarified the agency relationship form “Understanding Whom Real Estate Agents Represent” because of complaints of agents’ behaviors (regarding their agency relationship) while conducting open houses.

The purpose of these “agency” forms are to protect consumers as well as inform of an agent’s and broker’s duty to their client. I’m not an attorney, however, I believe that the agency disclosure also provides the agent a reminder of their duty. To be fair, many brokers and agents understand their duties and their commitment to their clients. However, there are some that do not; and unfortunately, I cannot say that they know who they are.

An “agency relationship” is defined by COMAR (Title 17 – Real Estate Brokers) §17-528 as a “relationship in which a licensee acts for or represents another person with the person’s authority in a residential real estate transaction.” Further, §17-530 states; “A licensee who participates in a residential real estate transaction as a seller’s agent, buyer’s agent, or as a cooperating agent shall disclose in writing that the licensee represents the seller or lessor or the buyer or lessee.”

It appears that there are reports of agents who conduct open houses for the purpose of steering buyers their way by making disparaging remarks about the home, as well as exhibiting other subtle behaviors that may be construed as inappropriate. An explanatory letter from the MREC describes such behaviors and clarifies how agents should conduct themselves during an open house. Besides reports of agents sitting with their laptops at the ready to show buyers other homes; according to the letter, some agents have openly admitted that their goal was to recruit home buyers while sitting an open house for a listing agent. According to the MREC, this can be a violation of the agent’s duty of loyalty to the seller; “any agent affiliated with the listing broker who holds an open house is there exclusively as the seller’s agent.”

To further clarify the agency relationship, the revised “Understand Whom Agents Represent” form states “If you are viewing a property listed by the company with whom the agent accompanying you is affiliated, and you have not signed a ‘Consent for Dual Agency’ form, that agent is representing the seller.” To attempt to circumvent this issue, some agents have had their seller clients sign a waiver of agency for open houses. However, the MREC makes it clear that an “agency waiver” is prohibited under Maryland law.

The MREC states that although it is improper to solicit a buyer while sitting in an open house, it is acceptable for agents who conducted the open house for a listing agent to contact those unrepresented home buyers another time and place. The MREC website (www.dllr.state.md.us/license/mrec) provides additional consumer real estate related information, including agency relationships.

By Dan Krell
Copyright © 2011

Comments are welcome. This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Protect yourself from the dark side of the internet: How to report internet real estate scams

There is no coincidence that the proliferation of the internet coincided with one of the largest housing booms in history. The value of receiving real time data was priceless when fierce competition to buy homes existed; having the information first often made the difference between getting a chance to make an offer on a home and missing out completely. Brokers, agents, and consumers readily adapted to new internet applications and technology increasing access to data and information sharing.

During the same time, the internet also became the preferred tool of the scammer. The internet offers scammers an easy venue to create false identities and find victims around the world. Although internet scams come in a variety of forms, internet real estate scams are becoming more prevalent.

To collect and research internet related criminal complaints, the Internet Crime Complaint Center (IC3.gov) was created as a collaboration between the Federal Bureau of Investigation (FBI.gov) and the National White Collar Crime Center (NW3C.org). Once known as the Internet Fraud Complain Center, the IC3 provides victims of internet crimes a “reporting mechanism” to alert authorities of possible criminal activity and/or civil infractions.

Numerous complaints regarding real estate internet scams prompted the IC3 to issue a warning in March 2010 to those who post ads on internet classified websites. Among the many forms of internet real estate scams, rental scams and duplicate real estate postings top the list.

Rental scams involve a potential tenant sending a deposit or rent check (usually without seeing the home). The scam is that the potential tenant will ask for their funds to be returned to them (either as an excess refund or a total refund) after their check is deposited in the victim’s bank account. Because the check appears to have cleared and the victim returns the funds, the victim later finds out that check was bogus and they are now responsible for the full amount of the scammer’s check.

Another scam garnering complaints is the duplication of legitimate real estate ads by scammers, posing as the home owner or real estate broker. This scam has the scammer posting a duplicate ad on internet classified sites using the wording and photos that are copied from the valid real estate ad (originally posted by the owner or the broker). The scammer creates a fake email address using the owner’s or broker’s name to make their post appear legitimate. When the victim responds to the fake post, they receive an email from the “owner” saying that the home needs to be rented while they are out of the country; the victim is asked to send funds out of the country to the “owner”.

Popular classified websites, such as Craigslist.org, warns consumers of internet scams. In addition to the warnings, Craigslist also posts tips to protect you from scammers. Craigslist says that if you follow their first tip “Deal Locally with Folks You Can Meet in Person…” you can avoid 99% of the scam attempts on their website.

FBI.gov (“Scams and Safety” link) and IC3.gov offer an extensive list of tips to protect you from real estate and other internet scams. If you are a victim of an internet scam, you can file a complaint with IC3; valid complaints are forwarded to local, federal, and/or international law enforcement and/or regulatory agencies for investigation.

By Dan Krell
Copyright © 2011

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Comments are welcome. This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Evolution of real estate agent business models

When comparing real estate services, it is sometimes difficult to understand operational differences that could impact your transaction. Although the basics of selling real estate have not changed much over the years, the manner of delivery has changed. To understand how an agent’s business model may differ from another’s, let’s look at how several models developed.

Although real estate cycles, technology, and laws have contributed to the evolution of the real estate agent and how they deliver service, the “traditional” real estate agent is still around. The traditional real estate agent typically works solo, focusing on personal service rather than selling a high volume of homes. Since the agent is a solo practitioner, direct access to the agent is expected when issues arise in your transaction. The individual agent has their strengths and weaknesses; their experience and talent can be the difference in any transaction.

In past market surges, many agents found that their time was being stretched thin. To take advantage of the business environment, some agents felt that leveraging their time by hiring an assistant could grow their business. The idea was that the agent could spend more face to face time with clients and potential clients; while the assistant would deal with lower level functions, such as answering the phone and advertising.

Some assistants were licensed agents, so they could work directly with clients by showing homes and writing offers when it was necessary. As the market expanded, real estate assistants were spending more face-to-face time with clients as the lead agent was once again stretched for time. Agents keen on expanding their business, found that they could leverage even more time if they hired more licensed assistants to form a real estate team.

Although the “team” approach became popular about the time when buyer agency was introduced, it did not reach its peak until the boom market in the early to mid 2000’s. Initially, real estate teams were loosely comprised of a lead agent and several buyer agents (and sometimes an unlicensed assistant). The lead agent was focused on face-to-face time with home sellers, while feeding buyer leads to the buyer agents on the team (and of course retaining a part of the buyer agent’s commission). There is no coincidence that the peak of the housing market and this type of team structure coincided. As buyers became scarce, many of these teams contracted until (in many cases) the lead agent reverted once again became a solo practitioner.

To achieve an even higher volume of business, the team approach evolved further to a corporate or bureaucratic structure where licensed agents were hired to deal with specific tasks of the business or transaction (for example, one person would coordinate home inspections, another would coordinate contracts, etc). Various forms of this structure are still used today. The lead agent typically lends their name to the sale while team members conduct the day to day business of interacting with clients.

Like real estate agents, agent business models are not the same; and like individual agents, each real estate team has its own personality. Each model has pros and cons. The most touted benefit of working with a real estate team is that you have the team’s combined experience at your disposal. Conversely, a solo practitioner provides direct communication and typically excels in local real estate knowledge.

By Dan Krell
Copyright © 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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