Real Estate News and Commentary

January 14, 2009October 5, 2019

Transparency in Real Estate

Since September, transparency has become the buzzword. Everyone is trying to fit this buzzword into the conversation without regard to context or meaning (such as: government transparency, intervention transparency, etc). However, the new buzz is about Realtor transparency.

Realtor Transparency may be the ideal quality for a Realtor. Realtor transparency is not about disappearing real estate agents because of a sluggish market. Instead, Realtor transparency is about Realtors facilitating the transaction to the point of making it effortless for their clients. Although most Realtors strive to make each transaction as effortless and stress free as possible, all transactions are different due to unique issues and crises which challenge meeting a client’s high expectations.

Certainly, if your expectations are set too high, your Realtor may never meet your needs. So, what can you realistically expect from your Realtor? The National Association of Realtors (NAR) requires Realtors to follow a Code of Ethics and Standards of Practice (Realtor.org). Additionally, the Annotated Code of Maryland (COMAR) has incorporated some of the NAR Code of Ethics for Maryland real estate agents to adhere to, which includes the duties of a licensee.

Both the NAR Code of Ethics and COMAR emphasize the fiduciary duties of a Realtor. For example, Article 1 of the NAR Code of Ethics (Realtor.org) states: “When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve Realtors of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, Realtors remain obligated to treat all parties honestly.”

The NAR summarizes the duties of a Realtor as: “Loyalty (to act at all times in the best interest of the principal and to put those interests above all others, including yourself); Obedience (to obey promptly all lawful instructions of the principal); Disclosure (to disclose all known, relevant facts to the principal); Confidentiality (to safeguard the principal’s secrets, unless keeping the confidence would violate disclosure requirements about the property’s condition); Reasonable care and diligence (to diligently use real estate skills and knowledge when pursing the principal’s affairs); and Accounting (to account for all funds and property entrusted by the principal)” (Realtor.org).

So what do you do if your Realtor does not meet your expectations? First, try to communicate what you need from your Realtor. If there is a breakdown of communication, you should next try contacting Realtor’s managing broker. By communicating with the broker, you will (hopefully) find a sympathetic ear to assist you in achieving your goals. The broker may be helpful by acting as a facilitator; in some cases the broker may assign another Realtor to represent you.

If you find that your concerns are falling on deaf ears, you can contact the Maryland Real Estate Commission (MREC). Although it is common knowledge that some consumer complaints to the MREC are due to the client’s unreasonable expectations, the commission takes every consumer complaint seriously.

Regardless of your Realtor’s transparency, your Realtor should be acting within the NAR and COMAR guidelines. Communicating your expectations with your Realtor prior to your entering into any agreement or contract can increase your chances of meeting your housing goals.

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 January 5, 2009. Copyright © 2009 Dan Krell.

January 13, 2009October 5, 2019

If you want to settle on your home, bring your money!

Most people don’t think much of settlement day, other than preparing to sign a lot of documents. This is an exciting day to be sure, but there are still many items to consider to make sure your settlement is stress free. One item often overlooked and taken for granted is your funds to close.

Preparing your funds for settlement begins when you receive your Good Faith Estimate (GFE) from your lender. The GFE should provide you an estimate of your closing costs. However the GFE is just an estimate, your settlement agent will provide an accurate closing cost figure by preparing your settlement sheet (also known as the HUD-1).

According to the Real Estate Settlement Procedures Act (RESPA), the home buyer can request a HUD-1 one day prior to settlement (HUD.gov). If requested, the settlement agent must provide a completed HUD-1 to the home buyer with the information available to the settlement agent at that time. Sometimes, the settlement agent does not have all the figures to provide an accurate HUD-1 a day before settlement because lenders sometimes wait to the settlement day to provide their closing instructions, lender charges and required escrows. If you are unsure of the amount to bring to settlement, you should ask your settlement agent. When HUD-1 is delayed due to the home buyer’s lender, some settlement agents often recommend preparing funds based on your GFE.

A common mistake for first time home buyers is not having their funds at settlement or having the funds in the wrong form. Although the home buyer receives a GFE from their lender, some home buyers forget to make those funds available (through account transfers and/or gift funds). Not having your funds will certainly postpone your settlement.

Additionally, the form of the funds brought to settlement is often another point of confusion. Settlement agents prefer a “cashier’s check” for the amount owed, because this type of check is “guaranteed” by your bank and treated as if it were cash.

Sending funds electronically (wiring funds) to your settlement agent is another option to get funds to settlement. Funds are often wired when the home buyer’s bank is not local or large amounts of money are needed for settlement. In today’s digital age, it may seem easier to “instantly” wire funds to your settlement agent; however you are relying on a person to physically input the information, which could cause a delay if not executed immediately. Additionally, there is usually a fee associated with wiring funds.

If you are fortunate to receive a completed HUD-1 a day before settlement, the amount you owe is sometimes not accurate as mistakes are often made on adjustments to property taxes, HOA fees, and seller concessions. These mistakes are often discovered at settlement, so you may actually owe a bit more or less. If while in settlement you find that you owe more, the settlement agent will usually take a personal check for the difference (if the amount is less than $1,000). If you find that you brought more money than you owe, you’ll receive the difference at the end of settlement.

The process of buying and selling a home can be exciting as well as nerve-racking. Being prepared for settlement can reduce anxieties as well as prevent unnecessary delays.

January 7, 2009October 5, 2019

Strategies to sell your home in a sluggish market

If you are a considering selling your home this spring, you can expect more of the same from the local real estate market (picky home buyers and lots of competition). You can better position yourself and make your home stand out by doing what many other home owners are doing- returning to the basics of home selling. Homeowners are hiring Realtors to list and sell their homes, as well as making their homes more appealing for prospective home buyers.

Hiring a Realtor can help you decide on a list price as well as executing a marketing plan once the home is listed. Pricing your home appropriately is crucial to a successful sale in this market, so consulting a Realtor early in the decision process to get an understanding of the neighborhood market dynamics will be helpful. Every neighborhood is different and you cannot judge what your home will sell for based on media reports or general statements about market conditions. Having a Realtor analyze your neighborhood listing and sold information will help you understand the trends and prices.

Analyzing the days on market trends to understand the consequences of listing at a higher price is important. Many home sellers make the mistake of listing at a higher price believing that home buyers will make lower offers and ask for closing cost assistance; however, this strategy has left many homes languishing on the market. A more realistic approach is to have your Realtor determine a list/sale price for a 30 day sale, 60 to 90 day sale, and a 120+ sale. Although a 30 day pricing strategy is aggressive and not for everyone, you will see that it makes sense compared to carrying costs (paying mortgage, utilities, insurance, taxes, etc.) of an extended sale.

The Realtor you hire should have a detailed marketing plan to advertise and attract interest in your home. Some Realtors rely on their broker to market your home, while others take a more personal approach to marketing your home. Although marketing strategies vary, you can decide what marketing strategy is best for you based on the data provided.

With pricing and marketing in place, how will you satisfy picky home buyers? Discerning home buyers can be influenced by making the best impression when the home is viewed. To make the best impression, you may need to make repairs or updates. For repairs and update ideas, consider having a pre-listing home inspection, a home energy audit, and hiring a home staging professional.

Having a pre-listing home inspection will allow you to find out what items need repair and which systems need updating. Don’t worry about having to make all repairs; the home inspector will explain which repairs are a priority (due to safety) as well as offering recommendations on system updates.

Since home buyers have become more concerned with energy efficiency, having a home energy audit may reveal areas in your home that need updating or repairing to increase the efficiency of the home’s energy use.

Finally, a home staging professional can create an environment within your home to give a home buyer the best first impression.

Selling your home this coming spring will be challenging. However, being prepared and hiring the right professionals can sometimes make the difference to making the sale.

December 30, 2008October 5, 2019

Don’t become a victim of a real estate crime

You might think that since the real estate market has slumped, incidents of real estate related crimes (including mortgage fraud) would have decreased also. However, the Federal Bureau of Investigation (FBI.gov) reports that “mortgage fraud continues to be an escalating problem in the United States.” Real estate related scams are a common form of white collar crime that is constantly being investigated by the FBI and the office of the Maryland Attorney General (www.oag.state.md.us).

Maryland has been a hot spot for real estate related scams and mortgage fraud for years. In fact, the FBI included Maryland in the “top 10 mortgage fraud states” as reported by the 2007 mortgage fraud report, and rated within the top 5 states by the Mortgage Asset Research Institute’s Quarterly Fraud Report for the first quarter of 2008 (marisolutions.com). Among mortgage fraud types, Maryland ranked first in “tax return and/or financial statement misrepresentation.”

Additionally, Baltimore City seemed to be ground zero for mortgage fraud during the flipping scams of the 1990’s; but through coordinated efforts of many agencies, including HUD, FBI and the Maryland Attorney General, the incidences of real estate scams and mortgage fraud decreased significantly. However, law enforcement was not the only intervention; the Greater Baltimore Board of Realtors (GBBR) assisted in the reduction real estate related fraud activities due to a massive campaign to educate the public called, “Know Real Estate Fraud When You Hear It.”

Real estate related scams vary, but often include theft, fraud, and ponzi schemes. Earlier this year, the Washington Post (Wiggins, Ovetta. “Home Builders, Broker Charged With Theft” October 10, 2008; B02) reported on a local builder and mortgage broker who were charged in theft of $1 million for new homes that were never built in Prince Georges County. Along with mortgages, buyers allegedly lost large deposits for homes which were never built. Such complaints against home builders are common enough that the Maryland Attorney General office of Consumer Protection published a handbook called, “Buying a New Home; Consumer Rights and Remedies under Maryland Law.”

Another scheme to defraud consumers is illustrated by the demise of the Metropolitan Money Store. This local company promised to help home owners facing foreclosure along with credit repair and other mortgage related activities. In mortgage fraud schemes, defendants (presently being prosecuted) were accused of (among other things) stripping bulk equity of home owner’s proceeds, not making mortgage payments, and the use of straw buyers which resulted in charges to some of wire fraud, mail fraud and money laundering for their “foreclosure reversal scheme” (Baltimore.fbi.gov).

Ponzi schemes are more prevalent and local than you might think. Earlier this year, a Baltimore man was sentenced to 188 months in prison arising from a twenty-seven counts of wire and mail fraud. His scheme promised high returns to investors from short term purchase money loans to home buyers and refinance loans to home owners. New investments were alleged to pay previous investors.

As many home owners and home buyers become desperate for solutions, they become targets of schemers. The saying that “if it sounds too good to be true, it probably is” holds true. If you are approached by someone offering you a solution to your real estate problems, do your due diligence and don’t become a statistic!

December 23, 2008October 5, 2019

Pick a bailout plan (and stick to it!)

Everyone is talking about government bailouts these days, so how about bailing out the real estate industry? Ok, now that I have your attention, let’s consider a plan to stabilize the economy. Many agree that housing is a key indicator to our economy; so in an effort to stimulate the sluggish real estate market, Realtors among others are looking for solutions.

In an effort to stabilize and invigorate the real estate market, the National Association of Realtors (NAR) unveiled a four point plan in October. The plan is a proposal to Congress that includes eliminating the repayment requirement of the home buyer tax credit (an incentive created as part of the Housing and Economic Recovery Act of 2008), making higher mortgage loan limits permanent (also created as part of the Housing and Economic Recovery Act of 2008), prompting the US Treasury to compel banks to increase consumer lending, “improve the short sale process and expedite REO (homes owned by banks) sales,” and preventing banks from conducting real estate brokerage (NAR.org).

Additionally, rumors of a possible U.S. Treasury buy down of mortgage interest rates were floating around last week due to media reports linking the possible short term incentive plan to a November meeting with representatives of the National Association of Realtors (NAR). In response to these reports, NAR president Charles McMillan issued a statement saying, “We strongly encourage the Treasury to move quickly with its plan to lower interest rates to encourage current buyers to act rather than continue to wait” (Realtor.org). Although the NAR would like to have the subsidized interest rate buy down for home buyers, it is unclear how such a plan would be applied if passed by Congress.

Unfortunately, persuading people to purchase homes may only be the lesser problem of the current state of the real estate market; the greater problem may be perceived value. Even with current tax incentives and relatively low interest rates, many home buyers feel the economy is uncertain and continue to wait for the real estate market to bottom out.

Another angle on the problem was approached by Sheila Bair, Chairman if the Federal Deposit Insurance Corporation, who proposed to help home owners in danger of losing their home through foreclosure. This Fall, there were media reports of her idea to possibly use funds from the initial $700 billion rescue package to stem the tide of foreclosures, which could help stabilize the real estate market.

However, the dilemma in the present market place is not localized to the real estate market. Much like the U.S. auto industry, value not affordability is a main factor; providing incentives to purchase items perceived to have lower value does not always increase sales.

Why not a two pronged approach to the problem, provide incentives to home buyers and prevent foreclosures? There is no simple solution, as the problems are many, deep and wide spread.

Unfortunately, debate, dissention and criticism among policy makers continue to stall any clear path to recovery. Additionally, there is no guarantee that any implemented plan will be successful. Time will tell us if incentives spur home buyer activity and if delinquent home owners continue to be delinquent (even with renegotiated mortgages).