home buyer Archives - Page 11 of 41 - Real Estate News and Commentary

March 17, 2018December 13, 2022

Home buyer savings account?

Maryland first-time home buyers may soon have another program to help them buy a home. Two related bills are making their way through the Maryland General Assembly to create a first-time home buyer savings account. If enacted, Maryland would join a handful of other states that have already enacted such programs to incentivize home buying.

The bills are an effort to address the lack of first-time home buyer participation in the housing market. The lack of first-time home buyer participation has received a lot of attention since the Great Recession. Not just because of the rising costs of buying a home, but also because of the lack of home buyer savings. The lack of down payment was identified by the National Association of Realtors as one of the issues barring first-time home buyers from entering the housing market. The October 18th 2016 NAR news release (Five Notable Nuggets from NAR’s Home Buyer and Sellers Survey’s 35-Year History; realtor.org) also cited underemployment, student debt, and delayed family formation.

The idea of a home buyer savings account is not new. It was first conceived by Montana in the 1990’s as an incentive for home buyers to save money for down payment and closing costs. Virginia was the second state to enact a similar program in 2014. Several other states have since enacted similar plans, while others (including Maryland) have proposed such plans in their respective state legislatures.

The increased attention to first-time home buyer savings account during 2017 has made it a hot topic. While states are looking to provide state tax breaks for first-time home buyers, Rep. Mike Coffman of Colorado wants to provide federal tax incentives to first-time home buyers for saving down payment and closing costs. H.R.2802 First-Time Homebuyer Savings Account Act of 2017 was introduced in Congress last June by Rep. Mike Coffman of Colorado, and co-sponsored by Rep. Sean Patrick Maloney and Rep. Barbara Comstock. The bill has yet to make it out of the House Ways and Means Committee.

Rep Coffman stated in a press release:

“The American dream of homeownership is getting harder and harder to attain for those starting out on their own these days, especially Millennials, because of the challenges involved in saving up for the down payment…The First-Time Homebuyer Savings Account Act is a straightforward and bipartisan solution to this problem. If we can help Millennials attain homeownership, this would not only be a wise financial move for them, but would have broader positive financial impact for our economy as a whole“

Maryland’s proposed first-time home buyer savings plan, introduced by HB0463 and SB0972, is currently being debated in the Maryland General Assembly. If enacted as introduced, the legislation would allow $50,000 to be deposited “state tax free” into an account for the purpose of buying a home in Maryland by a first-time home buyer. Any interest earned up to $150,000 would also be state tax free, as long as the interest is also used in said purchase. However, if the funds and interest are used for any other purpose, the holder of the account would be subject to state tax and penalties.

Would a first-time home buyer savings account stimulate interest in the housing market?

Lisa Prevost, writing for the New York Times, brought attention to Montana’s struggle to get first-time home buyers to participate in their savings plan (Tax Free Accounts for Homes: nytimes.com; August 8, 2013). At the time of Prevost’s article, the Montana Department of Revenue reported that “…no more than 225 people, and as few as 125, have participated annually since the program’s inception. Their annual deposits have averaged around $400,000.” Edmund Caplis, director of tax policy and research for Montana’s Department of Revenue, was quoted in the article as saying, “What you’ve got to understand is, this is people trying to get into their first home. For most working families, trying to pull together an extra buck is a stretch.”

By Dan Krell
Copyright © 2018

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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.

February 8, 2018July 30, 2019

Mortgage Choice Act good or bad?

Monday’s Reuters “exclusive” report about the Consumer Financial Protection Bureau dropping their investigation on the Equifax data breach caused quite a stir in DC (Exclusive: U.S. consumer protection official puts Equifax probe on ice – sources: reuters.com February 5, 2018). The exclusive cited unnamed sources. However, a spokesperson for Transunion (a credit repository) suggested that cybercrime is not within the jurisdiction of the CFPB.

Later that day, Reuters cited Democratic Senators’ concerns and outrage over the alleged investigation pullback (Senators urge Trump administration to resume Equifax probe; reuters.com February 6, 2018).

The next day, Reuters reported that Treasury Secretary Mnuchin desired to meet with CFPB’s Acting Director Mick Mulvaney, based on its initial reports of dropping the Equifax investigation (Treasury’s Mnuchin says he wants answers on Equifax breach; reuters.com February 6, 2018) . In the same report, Reuters cited the CFPB’s spokesperson saying that the CFPB was working with other government agencies on the Equifax data breach.

The veracity of Reuters’ unnamed sources in the report is not clear. However, there may be something to the fact that cybersecurity falls under the domain of the FBI and Homeland Security. Additionally, there are many other agencies investigating the Equifax data breach, as Housing Wire reported on Monday (CFPB reportedly pulling back from Equifax data breach investigation: Reuters reports that bureau is not aggressively pursuing investigation; housingwire.com; February 5, 2018). The FTC appeared to be the lead agency investigating the matter when the data breach became public news. Additionally, the House and Senate Financial Committees, as well as all fifty states attorney generals are investigating.

Mortgage Choice Act goes under the radar…

News created drama, such as the Reuters’ CFPB story, allows real consumer issues to fly under the radar. Consumers should take note that the once dead Mortgage Choice Act has come back to life. Much like a scene out of Tin Men, the revived legislation is being promoted by the likes of the National Association of Realtors® under the guise of being good for the consumer.

According to the CBO (cbo.gov/publication/53497):

“Under current law, a ‘qualified mortgage’ has certain characteristics that make it more affordable…To meet the qualified-mortgage definition, certain costs that are incidental to the loan and that are paid by the borrower…cannot exceed 3 percent of the total loan amount. Lenders offering “high-cost mortgages” (home mortgages with interest rates and fees that exceed certain thresholds) must make certain additional disclosures to borrowers and must comply with restrictions on the terms of such loans.” The Mortgage Choice Act “…would exclude insurance premiums held in escrow and, under certain circumstances, fees paid to companies affiliated with the creditor from the costs that would be considered in determining whether a loan is a qualified mortgage or a high-cost mortgage.”

The NAR is urging support for this legislation, as well as issuing an open letter to Congress. The NAR’s rationale is that the Mortgage Choice Act:

“… will enhance competition in the mortgage and title insurance markets, and ensure that consumers will be able to choose the lenders and title providers best suited for their home buying needs.”

This sounds virtuous, but in reality it’s a play to allow broker affiliated lenders and title insurers to charge consumers more without additional disclosures. NAR says that lenders and title insurers would still be subject to RESPA (which prohibits steering and kickbacks). But charging consumers excessive fees and affiliated businesses giving kickbacks are not mutually exclusive. Meaning that a lender charges can be excessive independent of the lender providing a kickback to the broker. (the CFPB has recently fined brokers and lenders for kickbacks).

Is NAR interested in building consumer trust?

The NAR has for years tried to influence public opinion of Realtors® and the industry. The NAR Code of Ethics has been used as a focal point to increase positive sentiment towards Realtors®. However, NAR’s desire to implement a Code of Excellence may have been a beginning shift towards building public trust.

The Code of Excellence, like the Code of Ethics, is a desire to increase competence and proficiency. But research has demonstrated that showing off accolades and awards doesn’t instill value, nor does it increase sales (Valsesia, Nunes, & Ordanini: What Wins Awards Is Not Always What I Buy: How Creative Control Affects Authenticity and Thus Recognition (But Not Liking). Journal of Consumer Research. Apr2016, Vol. 42 Issue 6, p897-914).

Value, along with quality and price, has much higher regard than ethics in a consumer’s mind. This was demonstrated by Carrigan & Attalla’s ground breaking consumer research (The myth of the ethical consumer – do ethics matter in purchase behaviour? The Journal of Consumer Marketing. 2001.. 18(7),560-577.)

If the NAR is truly interested in building consumer trust, the NAR leadership should get on the correct side of this issue and provide value to consumers instead of giving lip service.

By Dan Krell
Copyright © 2018.

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December 29, 2017October 20, 2020

Consumers are devolving real estate

Consumers directing real estate industry (infographic from househuntnetwork.com)

The National Association of Realtors annual Profile of Home Buyers and Sellers (nar.realtor) reveals insight into consumer real estate trends. It provides an understanding into home buyers’ and sellers’ experiences and what they want. One aspect of focus from the Profile is how consumers choose their real estate agent. The survey consistently indicates that a referral from a friend, neighbor or relative plays a big part in their choice. But how do buyers and sellers view real estate brands?

There are reams of research about the relationship between brands and consumers. However, recent data regarding millennials suggest that brand loyalty may be changing. Jeff Fromm’s article for Forbes (Why Label Transparency Matters When It Comes To Millennial Brand Loyalty; forbes.com; December 13, 2017) points out what consumers are looking for and what they deem important. Fromm states

“If the brand doesn’t provide the information they need, millennials will look elsewhere… when millennials make purchase decisions, they’re considering more than the traditional drivers of taste, price and convenience. They value authenticity, and make decisions based on the way they perceive brands to impact their quality of life, society as a whole, and how that brand may be contributing positively to the world.”

Real estate brokers and agents should pay close attention to the new consumer research.

This evolution of brand loyalty and how consumers perceive brands may explain the growth of independent brokers. A 2015 Special Report by Inman Select (inman.com) The Shift Toward Independent Brokerages indicates that the number of real estate agents affiliating with independent brokerages (not affiliated with corporate or franchise real estate companies) grew significantly over the last decade. The percentage of agents affiliating with independent brokers jumped from about 45 percent in 2006 to about 55 percent in 2015. About 80 percent of real estate brokerages are independent. And the trend is expected to continue.

According to the Special Report, the major advantage cited for affiliating with a brand name brokerage is brand awareness. However, there may be a limit to the influence of a real estate brand. Unlike retail brands, real estate brands do not have total control over the consistency and quality of the services provided. That is left to the individual agent. Independents, on the other hand, cite the ability to quickly adjust to consumers’ needs and being focused on the local real estate market as an advantage.

Yes, the real estate industry appears to be devolving. Another example of the devolution is a decreasing reliance on the MLS for home listings. It’s not to say that home sellers are not listing their homes with agents, because an increasing number of sellers are looking to agents for their expertise. However, brokers and agents are maintaining control over their inventories through alternative means of selling homes, such as pocket listings. An increasing number of brokers are also restricting their listings from internet syndication to increase the quality of information provided to consumers. Although it may sound counter-intuitive to not widely broadcast a home for sale on the MLS or internet, however, a lack of transparency remains a problem for some real estate aggregator portals.

Are real estate brokers and agents listening? The business of real estate is changing and devolving. Control over the industry has slowly been transferred to real estate consumers. Real estate consumers are savvy and intelligent. They know if a broker/agent is really focused on revenue streams, gimmicks and salesy techniques. Real estate consumers want agents and brokers who are authentic, transparent, and provide a quality service.

Original located at https://dankrell.com/blog/2017/12/29/consumers-devolving-real-estate/

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December 15, 2017October 9, 2018

Mortgage lender shell game

Realtors and other real estate professionals eagerly look forward to the annual Profile of Home Buyers and Sellers. The Profile, published by the National Association of Realtors, provides insight into the preferences and decisions of home buyers and sellers. After thirty-five years of publication, the Profile has become somewhat of an important contribution to housing trends and economics. But did you know that the mortgage lender and the mortgage industry has a survey of their own?

The National Mortgage Database (NMDB) is a multiyear project conducted by the Federal Housing Finance Agency (fhfa.gov) and the Consumer Financial Protection Bureau (consumerfinance.gov). The NMDB project incorporates two consumer surveys, the National Survey of Mortgage Originations and the American Survey of Mortgage Borrowers. The NMDB is meant to provide statutory guidance and lending policy direction. The database has yielded interesting data about how and why borrowers choose their mortgage lender, as well as their experiences and interactions during the mortgage process.

The NMDB has produced a colossal amount of data across many aspects of the consumer-mortgage lender relationship. The preliminary analysis indicated that consumers don’t really shop for a lender. Many home buyers use the mortgage lender recommended by their agents and others. Most notable is that about half of the home buyers surveyed only considered one mortgage lender. Not a surprise is that the small percentage of home buyers who apply to more than one lender are typically motivated by better terms (such as interest rate).

The mortgage lender is an important aspect of the home buying process. Unfortunately, the NMDB suggests that home buyers are not doing their homework, and possibly choosing their mortgage lenders for the wrong reasons. The mortgage process is an intricate dance between the buyer, the loan officer/processor and the underwriter. The mortgage lender can either provide a smooth and “stress free” closing, or a bumpy process that can cause anxiety and delays.

When you’re buying a home, “time is of the essence” (it states that on the first paragraph of your contract). Choosing the wrong lender can cause delays and potentially cost you money. Issues can occur with any mortgage lender at any time during the mortgage process. Problems can sometimes stem from the inexperience of the loan officer/processor, who does a poor job communicating what is needed from you. More often, issues arise during the underwriting process because of a slow turnaround time.

Believe it or not, many mortgage lenders have their loan officers, processors, and underwriters separated in different offices. Sometimes the different offices are located in different cities, which can add time to the process. Sometimes. lenders have their processing and underwriting all in the same office, which helps facilitate communication and a loan approval.

As a home buyer, RESPA gives you the right to choose your mortgage lender. The process of choosing the best lender for you should not be much different than choosing your Realtor. Ask your agent and others whom you respect for referrals. Do your homework and consider at least three of the referrals, if not more.

In addition to comparing interest rates, compare the lender fees. Lender fees can vary and can add unnecessary cost to your closing. Since you will be communicating with the loan officer and processor a great deal through the home buying process, talk to them to get a feel for how they interact with you. Besides to asking about their company, ask the loan officer about their background and experience. Find out how their underwriter operates and ask about the underwriting turnaround time. And make sure the lender is licensed. You can check a lender’s licensing by checking with the consumer portal of the Nationwide Multistate Licensing System (also known also known as the Nationwide Mortgage Licensing System or the NMLS).

Original located at https://dankrell.com/blog/2017/12/15/mortgage-lender-shell-game/

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October 15, 2017October 20, 2020

Real estate contract know-how

When I started selling homes almost sixteen years ago, a typical real estate contract (with addenda) may have been about twenty pages. My mentor used to pine about the two-page contracts he used when he started in real estate. I used to think he was exaggerating, but I found that he was actually telling the truth. It is true that real estate contracts have evolved and become quite lengthy through the years. Today, our local Realtor contract with addenda can exceed sixty pages! As much as it may sound like a chore, you should take the time to read and understand the real estate contract you are asked to sign.

In today’s world of convenience and digital everything, electronically signing your real estate contract may seem like a time saver. Real estate apps make it all too easy for your agent to email you a boiler plate contract and ask you to click the mouse to sign it. But do you really know what you’re signing? More importantly, does your real estate agent know what they are asking you to sign?

A typical Realtor contract is a legally binding contract once it is ratified and delivered to all parties. That means there are potential consequences for not doing what you agreed to do. Don’t solely rely on your agent for an explanation of the contract, they may not fully understand it or its nuances. As pedestrian as it sounds, read through the contract before you sign it. Reading the contract will inform you of the terms and conditions to which you’re agreeing, which include your obligations and contingency timelines. Reading the contract will also alert you to any errors and you need clarified.

The terms and conditions of your real estate contract are more than just the sale price and closing date. Both the home buyer and seller have obligations in our local Realtor contract. A few of the many obligations included in the terms are: settlement, obtaining financing, delivering a “clean” title, and providing access to the property.

Are there contingencies? Typical real estate contract contingencies include financing, appraisal, and various inspections. However, other contingencies may be included too, such as the buyer’s home sale, the seller finding a home, third party approval, or even reviewing the county or city master plan. The contingencies you choose may vary depending on your situation. Contingencies are time limited. The contract describes how each contingency is met as well as timelines for completion and description of giving notice and responses.

Although the Realtor contract has become increasingly lengthy, it has become more standardized (at least in my area). In the past, local agents needed to know or find out the contract and addenda requirements for multiple counties and cities, much of the time falling short. Today, the Realtor contracts and addenda we use in Maryland are mostly consistent with each other, making it easier to put together and understand.

Make sure you are comfortable with the real estate contract you are signing. You should ask your agent to take the time to sit with you and review the contract before you sign it. If you’re a first-time home buyer or seller, getting the one-on-one review will allow you to ask questions about your obligations and the process. Even if you have bought or sold a home in the past, reviewing the contract with your agent will make you realize how times have changed. Since the contract is a devise, always consult with an attorney for legal advice.

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