A LITTLE FAQ ABOUT LOANS, LENDERS AND LOAN PRODUCTS

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Ok... school is in... LOL

The first thing I want to say is that for some folks, using their VA benefits is a good thing and for some folks, using their VA benefits is not only NOT fiscally prudent; it could even be financially irresponsible. Over the past 15 months, Lori and I have closed well over 75 transactions of our own and mentored and have been involved in another 60 transactions with protégés. Of that number, perhaps as many as 2/5^th were veterans, active duty or retired or simply discharged from their particular branch of service. Of that 2/5^th, less than a dozen or so used their VA benefits. The cost of money today is so inexpensive that there is little reason and almost NO advantage to a vet to use his or her VA benefit. There are numerous optional loan platforms that emulate the benefits of a VA loan without causing the buyer to toss away thousands of dollars in a VA funding fee.

Suffice for now to say that Lori & I have been in this industry nearly two decades. The VA loan platform is one that we are extremely proficient with and since I too am retired USAF, we tend to draw a huge number of vets to our web site who ultimately secure our services to procure their home, help with arranging home inspections, termite inspections and... oh yes... sorting out what type of loan makes the best sense for that particular eClient.

So, Let's Chat...

QUESTION: There are a million mortgage calculators online, and they all differ from one another. The simplest ones just ask for the amount of the loan, any down-payment, and number of years. However, there are some that have blanks that require specific information such as Tax Rate and Insurance. I have no idea what to plug in, for those items. Can you help me with this?

Correct; there are literally millions of mortgage calculators on the internet today. Quite frankly, over the years, Lori & I have played with hundreds of them, searching for what we feel are some of the best and least confusing. We have found that nearly all of the mortgage calculators, found on lender sites, are very confusing. Some, quite honestly, are actually weighted so that eConsumers conclude that the Lender who provided a particular mortgage calculator, appears to offer the best mortgage deal on the Internet or even the planet. In our opinion, this is unfortunate and very confusing and can tend to be a bit misleading.

As for how to divine what figures to use for Tax Rate and Insurance, let’s first discuss Tax Rate. Here’s a good rule of thumb we have arrived at after reading hundreds, perhaps thousands of Arizona Public Reports; if you use a figure of somewhere between $10.00 and $13.00 per $100 of property value (not purchase price), you will come really close to the actual tax rate. Property values, as we discuss in this article can be researched at http://www.maricopa.gov/Assessor/. Tax Rate calculations are extremely complex computations. If you would like to know more about how a municipality actually establishes the tax rate, call the county recorder in the county you wish to live and ask to speak to a clerk of the County Tax Assessor’s office. They are very happy to educate the consumers with the math… but… make sure that, if you have a full head of hair when you begin, you’re not going to be disappointed if some if it is missing after the tax rate calculation class concludes.

Insurance is a bit trickier, only because there are several variables that play into the actual insurance rate a buyer will be charged. Two of the most important variables are derived from the C.L.U.E. (Comprehensive Loss Underwriters Exchange). C.L.U.E. is a database that all insurance companies use to assess the risk factor for insuring a particular piece of real or personal property based on both the real or personal property and the individual wishing to be insured. The first assessment is conducted around the real or personal property. The next assessment is conducted around the credit score of the individual and the individual’s history of filing insurance claims. The C.L.U.E. retains a five year history for the majority of all insured individuals and their widgets. Learn more about C.L.U.E. at http://www.choicetrust.com/. Many factors play a vital roll in providing the information insurance companies require to tender a firm-fixed quote for a homeowner's insurance policy. Even in the early quotes, the figures are truly speculative numbers and could vary a few hundred dollars up or down in the final analysis, and the final analysis can only be determined once you have settled on a particular home in a particular geographic area and on a particular price and on a particular amount to finance.

Back to mortgage calculators; Lori & I actually favor mortgage calculators that have been put up on the web by college students. These are truly unbiased mortgage calculators that offer honest unbiased results. Some are very complex and some are very simple. In the following paragraphs we have provided links to three of our favorites, one of which we keep on our web site in a secure location, offered to eClients that have selected us as their Realtor Representatives. They were all developed by college students, one in Japan, the other in Pakistan.

QUESTION: Some calculators have fields for loan components called “points”. What the heck are these things, and do I need to worry about them?

POINTS – Perhaps lead the pack of some of the most confusing parts of the loan package. So what is this thing called “points”? Points are often confused with “origination fees”. The two serve completely different rolls in the loan process.

An “origination fee” is an amount of money, charged by a mortgage company, to the buyer as part of the lender’s cost of doing business. However… what most consumers do not know is that the “origination fee” is a totally negotiable charge, assuming the buyer has relatively good credit. It has been our experience that buyers with FICO scores in the high 600s or higher can usually shop, with great success, for lenders who will charge minimal or NO origination fee in their loan process. Our suggestion would be to stand your ground. Assuming that all of the other terms of the proposed loan are acceptable, make it clear to the loan officer, that if he/she does not alter their costs of the “origination fee” you will simply take your business elsewhere. If you are currently searching for a couple of lenders, check out Coldwell Banker Mortgage, Rosemarie Cox (602) 565-6948 and/or Pacific Funding Group, Mark Schmidt (800) 245-6722.

Points, often called Discount Points, are the amount of money a buyer will pay to control the interest rate on his mortgage. The “point” is calculated against the amount of money that will be financed, I.E. your mortgage amount. So, if you’re going to make a purchase of $350,000 with a 20% down payment, your mortgage amount will be $280,000. Therefore one point (1%) would be calculated to be $2,800. There are numerous formulas bandied about on the Internet about how these fees benefit or hinder a borrower’s loan. In short, if you spend one point of your loan amount, you can affect your interest rate by about 1/8^th of a percent.

This means, if the consumer is quoted an annual interest rate of say... 6.5% but wants to reduce that rate (I.E. buy it down) to 6.0% by paying money at the time of closing to do so, the consumer would have to part with about $11,000. For some buyers this is a good idea, particularly if they are going to stay in their home or not refinance the home for many years. But keep in mind too, that another barometer to making such a decision is how long it will take to recapture the $11,000. By reducing the annual interest rate by 1/2 a percent, the payment reduction on a $280,000 loan is about $90 per month. That means that it will take about 10.18 years to recapture the interest savings. Not a bad scenario, and often a $90 reduction in the monthly payment can mean adding a little more tile in the house, or the cost of some appliances or any number of additional accoutrements or creature features that the buyer may want to add to the loan.

Here are a few thumbnail guidelines to help you decide if the return on this type of investment is warranted.

It may not be wise to spend money on Discount Points if:

• you plan on selling your home in less than 3 to 4 years
• you plan on refinancing your home in less than 5 years
• you are applying for an ARM type mortgage
• you are applying for an Interest Only loan product

It may be wise to spend money on Discount Points if:

• you do not plan on selling your home in the next 5 years
• you do not plan on refinancing within the next 5 years
• your purchase is for investment and/or rental purposes

These are suggestions and not items to be thought of as “Set in stone”, but they are a good sound foundation for developing your loan strategy.

CLICK HERE for a very simple mortgage calculator, just plug in the numbers. Be sure to enter NO commas. The interest rate will accept a dot, for example 6.5 but do not include a % sign. This is by far one of the simplest mortgage calculators we have found and is GREAT for calculating VA loans because it does not automatically include MIP (Mortgage Insurance Premium). This calculator does not produce an amortization schedule but the next mortgage calculator does.

CLICK HERE to use a more sophisticated mortgage calculator. Again, only use numbers and no commas and too, the interest rate can be calculated using a decimal point in the rate, but again... DO NOT use the % sign. This calculator can produce an amortization that can be produced in HTML or Plain Text. In the " Monthly Principal Prepayment Amount " window, DO NOT enter any values and the same is true for the " Annual Principal Prepayment Amount (Enter B here for Bi-weekly Loans) " and " One-Time Prepayment Amount, to be paid before payment (month #) ".

CLICK HERE for an interesting mortgage calculator created by Hugh Chou. This is a mortgage calculator that compiles a maximum monthly payment that Hugh feels is appropriate for a home buyer. Keep in mind that Hugh built these calculators as a college project although now I believe he works in the financial industry.

There are many factors to consider when searching for a home loan, not only the total monthly payment, but also total loan costs. You asked about "Points". As we mentioned, this can be a confusing term. Often consumers believe that there MUST be points associated with ALL loans. As we explained above, that could not be further from the truth.

When considering a new construction home, remember, that in almost 100% of loans that are configured by a builder's lender, the builder's lender will add... at a minimum 1% to the loan cost (sometimes, incorrectly, referred to as a POINT). This fee is really an "Origination Fee". In our opinion, consumers with GREAT credit scores, also referred to as the "FICO" (Fair, Isaac and Company Inc) score, should not be subjected to these fees. Unfortunately, when builders offer incentive packages to the consumer, those incentive packages are tied directly to the requirement that the consumer utilize the builder's lender to secure financing for the purchase.

It would be sensible to consider not using the Builder’s Lender if the total incentive package hovers around the $5,000 mark. Some of our clients have had a GREAT deal of success using non-builder lenders, wherein our clients have given up as much as $5,000 in incentives from the builder and... even after doing so, have secured a much more favorable loan program and sometimes even lower monthly payments, with similar or lower closing costs, than they would have if they had used the builder's lender.

Another typical lender explanation for an Origination Point is: "An origination fee is the amount charged for services performed for handling the initial application and processing of the loan". Hog wash! While it is true that some loans should be burdened with such a fee, such as loans granted to buyers with less than perfect credit. The amount of effort and research that goes into locating an investor who is willing to purchase the loan from the lender can be intense. In our opinion, level of effort and perhaps even ‘arm twisting’ should be compensated. But if the consumer/borrower has a good to great FICO score, again in our opinion, there should be NO Origination Point... NONE... NADA... ZIP... ZILCH... got the picture? Why should a lender, granting a loan to a buyer with good to great credit, make profits on two transactions? The first transaction is between you and the lender. The next/second transaction for the lender is between the lender and his investor, the entity who will purchase the loan from the lender. Remember, if you keep your credit in good condition, you have a boat load of strength and negotiating power as you shop for your loan.

Another item to pay attention to are the ever swampy quagmire of Lender Fees... Ok... I know... so what does that all mean... ?... LOL Ok... Lender's fees are fees that offset the cost of producing the loan. Different companies may refer to them by different names, such as, processing fees, broker fees, tax service fees or underwriting fees; or you may have heard these fees referred to as Junk Fees. Most lenders are very sensible and fair about these fees. Obviously all businesses are in business to make a profit. Lender Fees are one of the vehicles that generate profits for lenders. Years ago I wrote an article for an On-Line Real Estate Forum, about Predatory Lending. CLICK HERE if you would like to read that article, but keep in mind that the figures in the article are very outdated, however the nefarious activities I write about are, unfortunately, still very much a part of the lending arena. I think that article will explain what you do not want to see in your lender.

I could write hours about the loan and lending process because the entire process is so interesting and is very involved. Here are a couple of more nuggets for you to ponder.

QUESTION: Is there a difference between APR and Interest rate?

You bet! The APR (Annual Percentage Rate) reflects the cost of your mortgage loan as a yearly rate. It also incorporates the cost to obtain the loan, such as discount fees and loan origination fee. The interest rate is the actual note rate.

When you finally get to the closing table, you will be presented with a TIL (Truth In Lending) statement. You will undoubtedly ask: "Why is the Annual Percentage Rate (APR) on the Truth-in-Lending Disclosure higher than the rate shown on my mortgage note?" Here is a simple explanation:

The rate reflected on the APR shows the cost of your mortgage loan as a yearly rate. This rate is generally higher than the rate stated on your mortgage note because, in addition to the interest rate, APR includes other costs such as origination fee, loan discount points, pre-paid interest, and mortgage insurance. The APR allows you to compare, in addition to the interest rate, the total cost of financing your loan, among various lenders.

CLICK HERE for an example of several loan scenarios in a spread sheet provided by one of our most reliable lenders to one of our past eClients. As you can see, the buyer was purchasing a home for $189,000 (that’s not going to happen again any time soon! LOL) and was pondering a VA loan VS. a conventional loan. This purchase was for an "as yet to be built" new construction home. If the buyer chose to NOT use the builder's lender, he would have given up $4,500 in incentives from the builder. This particular buyer had his own closing cost money and was able to put up to 5% down on the principal. All scenarios in the spread sheet are fixed rate loans, there are no ARMs (Adjustable Rate Mortgages), although to opt in for an ARM provided an even lower monthly payment for our buyer. The loan identified at the far right as an 80/20 is called a HELOC. This particular type of loan has been most attractive to our vets because it can be nearly 100% tax deductible and... as you can see... this type of loan produces a very low PITI (Principal Interest Tax and Insurance) payment. And... as you can see, if our buyer’s target ceiling were a $1,500 PITI monthly payment, he could actually increase his purchase well above $200,000 while still keeping his monthly payment well under $1,500. There is one catch to being able to take advantage of a HELOC, the buyer must have GREAT credit... the good news is... YOU DO!

Well... now that I have totally confused you...

Bye for now... and we'll be in touch in a couple of weeks. Lori and I trust that you are enjoying your FREE subscription to your CLUB membership.

Procuring Cause, What’s All The Fuss About?

Procuring Cause, What’s All The Fuss About?

By G-II Varrato II, ePRO 500, ABR, RECS, Mentor
Coldwell Banker Residential Brokerage


I recently had to help one of our Protégés navigate this very complex issue, the issue/concept of Procuring Cause.

Procuring Cause actions are, perhaps one of the most often registered complaints in real estate transactions, between Agents/Brokers. So what’s all the fuss about?

The Black Law Dictionary’s definition has been adopted by the National Association of Realtors® as the concept of Procuring Cause as it plays out in arbitration cases. The Black’s Law Dictionary definition has also been incorporated into the Realtors® Code of Ethics. You will find, in the NAR Arbitration Manual, reference to the Black’s Law Dictionary definition of Procuring Cause. The Black’s Law Dictionary definition is set in two sections or parts. The first part says of Procuring Cause: “A cause originating a series of events which without break in their continuity, results in accomplishment of a prime objective…”

In the world of real estate, at first blush, one might be predisposed to consider that this concept of, “…A cause originating a series of events which without break in their continuity, results in accomplishment of a prime objective …” shouldn’t be too difficult to establish. Not so, as you will see as we explore Procuring Cause.

The second part of the Black’s Law definition is where most of the confusion comes about. Black’s Law Dictionary goes on to say about Procuring Cause: "A Broker will be regarded as the ‘Procuring Cause’ of a sale, so as to be entitled to commission, if his efforts are the foundation on which the negotiations resulting in a sale are begun."

So how does this all play out in real life in the world of real estate? (NOTE for clarification; please understand that the terms Broker and Agent are interchangeable in this article.)

First, it’s important to understand that the NAR distills the concept of Procuring Cause to the following: ". . . for purposes of arbitration, Procuring Cause can be readily understood as the uninterrupted series of causal events which resulted in the successful transaction." In short, who or what, caused the transaction to conclude successfully? The questions that an arbitration panel would engage are which Realtor® was the most responsible for the Buyer’s decision to make an offer on the property. Therefore, that particular Realtor® would be the Realtor® with Procuring Cause.

Oooppss… not so fast. Before we get too far along, we must discuss the concept of Alienation. Alienation is interchangeable with two other words, Estrangement and Abandonment. All play a part in the concept of Procuring Cause.

The NAR Arbitration Manual states to conditions that would sustain Alienation. They are:

". . . [A] purchaser, despite reasonable efforts by the Broker to maintain ongoing contact, may seek assistance from another Broker. The panel will want to consider why the purchaser was estranged from the first Broker. .
. . [T]here may be no question that there was an ongoing relationship between the Broker and the purchaser; the issue then becomes whether the Broker engaged in conduct which caused the purchaser to terminate the relationship (estrangement)."

So, what types of events could cause Alienation? Perhaps the Agent conducted himself/herself in an inappropriate manner. Did the Agent say something that was offensive to the Buyer? Did the first Agent fail to stay in contact with the Buyer after their initial visit? Were there conditions within the emerging relationship between the Buyer and the Agent that were untenable to the Buyer? Did any of these, or similar actions, activities or inactivities, cause the Buyer to seek the services of another Agent? The NAR Arbitration manual makes it very clear that estrangement can be the product of actions or words by the Realtor®.

If the arbitration panel found that the Buyer had, in fact, been estranged by the first Realtor®, the arbitration panel would determine that there was good cause for the Buyer to seek out the second Realtor®. In this instance, the first Realtor® would not be entitled to compensation because he/she would not be the Procuring Cause.

Abandonment is perhaps one of the hinge-pins of many Procuring Cause actions. For example, what if the first Realtor® showed the Buyer a home and the Buyer tells the Realtor® he is interested in the home but, before he makes an offer, the Buyer would like the Realtor® to produce a list of comparable sales for the Buyer to review. This is not an unusual request or query by the Buyer. But, what if the Buyer feels that the first Realtor® does not produce the information in a timely manner; causing the Buyer to make contact with a second Realtor® in search of the comparable information? Who do you think is the Procuring Cause, Realtor® No.1 or Realtor® No.2?

What if the second Realtor® complies with the Buyer’s wishes and subsequently writes the offer on the property? Such an action, or in this case in-action, on the part of the first Realtor® could be deemed, by an Arbitration Panel to be abandonment, thus disallowing the first Realtor® Procuring Cause and awarding the Procuring Cause action to the second Realtor®.

Here’s a real twist for you. The Buyer is shown a particular home by a Realtor®. The Buyer tells the Realtor® that he is interested in the home but cannot move forward yet because he is waiting for a raise from his employer but that the raise is about 6 months away. The Buyer tells the Realtor® not to call him and that he would be in touch with the Realtor® when he receives his raise. The Buyer’s raise comes early, about seven weeks from when the Buyer and the first Realtor® last spoke. The Buyer calls at that time but the first Realtor® had not called the Buyer because of the Buyer’s specific instructions. Has the Buyer been abandoned by the Realtor®? Probably not. The Realtor® followed the specific instructions of the Buyer. In today’s world of electronic communication, it is not difficult for an Agent to prove that he/she has maintained contact with a client electronically. Even if the Buyer has no means of electronic communication, it is good practice to send a note, card or some form of communication in an effort to continue the unbroken chain of events with the Buyer prospect. The first Realtor® could probably make an effective argument that he/she was the Procuring Cause and that there was no break in the chain of events, caused by the first Realtor®.

Arbitration panelists who listen to Procuring Cause claims are just as bewildered by the “exact” definition. However, many arbitration panelists tend to center their focus on the “uninterrupted chain of events”. Here are some thoughts from arbitration panelists from around the country: **Source Active Rain – http://www.activerain.com

Sharon Simms ABR, CIPS, CLHMS, CRS CyberStar – Re/Max Metro St. Petersburg FL

**“One of the aspects they consider is whether there was a continuous chain of events. Did Agent 1 abandon the client? Did Agent 2 interfere in the relationship with Agent 1?”

Jim Lee – Realty Executives Associates Knoxville TN

**“I think the continuous chain of events thing is what usually weighs heaviest with me. Estrangement is also a big factor; did the first Realtor do something terrible enough to alienate the Buyers. Also where did Realtor #2 come from and how did they get into the act after the first Realtor.”

Stephen McWilliam ABR, CRB, CRS, GRI – Florida State Realty Group, Inc. Ft Lauderdale, FL

**“I agree with most in the continuous chain of events and emails (etc) that support this fact. I also look for what the relationship is between the Buyer and Agent 2 (relative, friend, etc). Where was this Agent 2 when the Buyer was dealing with Agent 1. Also, is there some financial consideration being paid by Agent 2 back to the Buyer. If so, the Buyer's creditability goes right in the toilet.”

As you can see, Procuring Cause issues can be very complicated. It is incredibly important that the issue of Procuring Cause be explained to your Buyer prospect at the onset of any communication between you and him/her. In today’s world of electronic communication it is even more critical than ever before to keep excellent records of your communication log between Buyer prospects. Lori and I have closed many transactions over the Internet in the last decade. We use some of the most state-of-the-art tracking software available today. And while it would be unlikely that we would ever lose a Procuring Cause challenge, we try to head off any possibility of such an event by explaining Procuring Cause to our clients. And if you think it’s difficult for the real estate community to ferret out all of the nuances of Procuring Cause, it is much more confusing for many of our clients to understand. Given most consumers have no interest in ever being subpoenaed to an Arbitration Panel to defend their Agent, they would rather chew on nails than try to understand the exasperating world of Procuring Cause. From our perspective, it is much easier to keep an egg from getting scrambled than it is to try to unscramble an egg, and much more time efficient.

One might wonder, shouldn’t the Realtor® who did most of the work, showing the property, writing the offer, negotiating the offer, arranging the inspections, processing the closing and all of the other multitudes of tasks associated with a transaction, be entitled to the commission?

NO! The Realtor® entitled to the commission, I.E. Procuring Cause, is the Realtor® who did the KEY work that was the effective reason the Buyer chose to buy the property, I.E. make the offer on the property. (But… you must keep in mind that if an Arbitration Panel finds that the Buyer was estranged/abandoned by the Agent who did the KEY work, the panel would find for the second Broker as the Procuring Cause.)

Many times Realtors® feel that their agency relationship trumps Procuring Cause or that this is an integrated part or component of Procuring Cause. This could not be further from reality. The NAR manual holds that “…agency relationships are not synonymous with nor determinative of Procuring Cause. Representation and compensation are separate issues.”

Agency could be an issue if the Buyer has engaged an “Exclusive Buyer Broker Agreement” with a Realtor® and a subsequent Realtor® comes on the scene and, even after the Buyer tells the subsequent Realtor® of his/her “Exclusive Buyer Broker Agreement” with another Realtor®, chooses to continue to work with the Buyer, show the Buyer homes and subsequently writes an offer. This is a violation of the NAR Code of Ethics as the Code prohibits a Realtor® from interfering with an “Exclusive Agency Relationship” of another Realtor®.

One of the most annoying scenarios Lori and I encounter is a Buyer, flitting from Open House to Open House with a Realtor’s® business card in his/her hand. The Buyer enters the Open House and announces to the Realtor® holding the house open, “I’m working with a Realtor®. He/she told me to go out and look at homes and then give him/her a call when I found one.” At best this type of behavior on the part of the Business Card Realtor® demonstrates an “open” agency relationship. There is absolutely no Code of Ethics violation by the Realtor® who holds the house open, to try and sell the Buyer that property. NONE!

How can the Business Card Realtor® assert that he/she is doing his/her job? Where is the “Representation?” What protection does the Buyer have from knowing what he/she should or should not say in the presence of the Listing Agent? Remember, the operative words for proving Procuring Cause cases are, “…the Realtor® who did, and can prove, that he/she did the KEY work that caused the Buyer to come to a conclusion to make an offer and buy the property.”

However, remember too, if the Arbitration Panel determines that the first Realtor® abandoned the Buyer, then the second Realtor® would be the Procuring Cause.

I often hear Realtors® ask why they are not “Automatically” the Procuring Cause if they are the Agents who showed the home to a passerby Buyer who stopped into their “Open House”?

The reason is because the NAR professional standards policy and bylaws PROHIBIT any Association from developing or implementing any rule that would predetermine the outcome of an arbitration hearing. Therefore to make a statement that, because a Realtor® holds a house open presets Procuring Cause would be a violation of the National Association of Realtors professional standards policy and bylaws. But again, remember, the Arbitration Panel would have the duty to establish which Realtor® did the KEY work that caused the Buyer to make an offer on and buy that property.

Remember too, that merely finding the property, I.E. sending MLS datasheets to the Buyer or simply showing a property to the Buyer is not, in and of itself, grounds to sustain a claim of Procuring Cause. The end result and decision of an Arbitration Panel will be based on the Panel’s perception of who did the most work that caused the Buyer to make the decision to make the offer and purchase the property. One of the most important ingredients to defending a Procuring Cause action is to have all of your documentation in good order. Don’t make claims that are not cooperated by solid documentation. Your defense will go down in flames if you rely on “he said/she said” testimony. This is another reason to keep, not only a communication log, but a GREAT communication log. Notes scribbled on little pieces of paper will be your death. It is our opinion that Agents should distribute the final communication log to their office files and of course keep the original one for your personal file.

Here is a word of caution to all! Do not present yourself as a threat to the cooperating Broker/Agent. This could be considered intimidation. If the Listing Agent feels that he/she has clearly provided evidence of an unbroken chain of events, has not abandoned the Buyer and has done all of the heavy lifting “KEY work”, but for some inexplicable reason Realtor® number two comes upon the scene and threatens the Listing Agent with taking the Buyer elsewhere, this could, and in all likelihood would, end up as a Procuring Cause case. The Listing Agent and Broker would allow the transaction to close and then could file a complaint with the Arbitration Panel, and, if they could prove their case, would in all probability be awarded 100% of the commission earned. So, be careful what you say and how you act. Be professional.

What I find confuses Buyers the most is this question; “Why can’t I buy my house from the Agent I want to buy from?” The answer is, You Can! Unfortunately, Representation is not about compensation. The two don’t mix and this is where the biggest confusion rests for the consumer. Unless a clear case of Alienation exists, if the Realtor® who did the KEY work is not the Realtor® with whom the Buyer writes the offer to purchase, and if the “Key Work” Realtor® files a Procuring Cause claim against the subsequent Realtor®, there is a very good chance that an Arbitration Panel will rule that the “Key Work” Realtor® is the Procuring Cause and thus entitled to the compensation/commission.

If you are ever faced with a Procuring Cause action, remember that NONE of your defenses or the defenses of the other party should be about what took place after the offer was written and/or successfully negotiated to an agreement to purchase. The proof of Procuring Cause is in the preamble of the transaction. By that I mean, just because an Agent is managing inspections, responses to Buyer Inspection Notice and Seller’s Response forms, writing additional addenda or any of the myriads of tasks that go along with our responsibility to process a transaction, means NOTHING in establishing Procuring Cause. It’s all about “Who did the KEY work” the “Heavy Lifting”; who caused or most logically caused the Buyer to make a conscious decision to make an offer on and purchase the property.

Regarding compensation, it makes no difference whether or not a property is listed in the MLS system. If the Listing Agent makes an offer to pay compensation to a cooperating Broker, then there is an offer to pay compensation. Oddly enough the NAR Arbitration Manual does not even require the offer of commission to be in writing. Of course, in Arizona, the Statute of Frauds could find its way into a court room, but… remember, arbitration is not a court room and therefore the Statue of Frauds will, in all likelihood, not be part of the Panel’s equation in determining Procuring Cause or compensation owed/earned.

Finally, I have a suggestion to all Realtors® reading this article. If a Buyer asks you to show him/her a property that he/she has been shown by another Realtor® and subsequently wants to make an offer on that property, try to work out a commission agreement between the first Realtor® and yourself.

Most of the time the first Realtor®, assuming there is a potential for a Procuring Cause claim, will be happy to work out some form of equitable compensation. If you are uncomfortable with approaching the first Realtor® yourself, ask your Broker to have that discussion with the first Realtor® for you.

Be aware that asking the Buyer to write a note and have the note/letter notarized and sent to the first Realtor® is not a guarantee that you, the second Realtor® would prevail in Procuring Cause arbitration. Even if the Buyer sites all the reasons he/she chose to ask you to write the offer. Your fate in such a case truly rests with the Arbitration Panel and in your ability to produce absolute and clear details of why you were the KEY reason the Buyer made the offer to purchase that property. Even after all that effort, there is always a chance that the Arbitration Panel could find for the second Realtor® and award him/her Procuring Cause. You would have done all the work to get the transaction to and through the closing table for absolutely NO paycheck.

In my last example, if you feel there is a good chance that you would not prevail in a Procuring Cause fight, then… don’t represent the Buyer. Going through the process of an Arbitration Procuring Cause hearing is mentally draining as well as extremely time consuming.

Lori & G-II are Mentors for the Coldwell Banker Residential Brokerage Metro Office.
You can reach Lori & G-II at Lori.and.G-II@RealEstateInPhoenix.net

FSBO (For Sale By Owner) Pointers

So, you’re going to sell your home in the For Sale By Owner arena. First… remember, whether you’re going enlist the services of a Semi-Assistance Real Estate Company such as “Buy Owner” or “Help U Sell” or “Seller 4 Less” or any number of alternate FLAT FEE companies, to get your home advertised in the local MLS computer or you’re going to handle all of the promotional efforts yourself, you may well be a For Sale By Owner (FSBO) Seller.

So… where do you go next? What’s the next step?

SECURITY AND SAFETY

The first and most important part of your project will be establishing a “Safety Net” around you, your family and your home. You don’t know anything about the folks who will barge into your home, announced or unannounced, invited or uninvited. You don’t know if the stranger who has called you to view your home is an honest buyer or a person with nefarious and ulterior motives. You don’t know if the stranger has arrived on site to case your home for a potential heist as part of a gang of individuals who target unwary FSBOs, or if the stranger is truly in search of a new house they too can call home. You only have you and your wits to try and glean the factual intents of your prospect.

Here are some tips that could be helpful… And remember… your best defense is a strong offense.

1. Every time you agree to allow someone to come into your home, let your family and/or friends or neighbors know what time you will have a stranger in your home.

2. Let your family and friends know when you intend to have your home open for showing to the public.

3. Let your local police department know that you will be offering your home open to the public for an Open House and give them the date and time.

4. Establish a safety plan. Here is an example:
   
   1. Never let yourself get cornered in your home when showing your home to a visiting stranger.
   2. Never let any stranger into your home if you are home alone, particularly if the stranger is accompanied by one or more strangers.
   3. If you have small children, you may want to prearrange with a neighbor to babysit your children while you are showing the stranger your home.
   4. Never let the stranger leave his/her car running in front of your home or in your drive way.
   5. Stay out of small rooms like bathrooms, pantries or the garage while the stranger previews your home.
   6. Always keep your body between the stranger and an exit door.
   7. Always keep your cell phone or a cordless phone in your hand.
   8. Never lead the way, always follow the stranger.
   9. Establish and share a Secret Code Word or Phrase with your family or friends. Here is an example of how that might be used. For our example we’ll use Red Crock Pot as our Secret Code Word. Let’s assume that you feel uncomfortable with the stranger that is in your house. When you began the process of becoming a FSBO you told your family or friends that you will call and give them the Secret Code Word/Phrase if you feel you or your family or your home are in jeopardy. Here’s the way our scenario might play out.

   
   i. While touring your home with the stranger, say something like this, “Oh my goodness. I just remembered I have a pot luck that I’m part of tonight. I need to get a crock pot from my sister. Would you excuse my phone call… just for a moment?
   
   ii. Call your family member or friend and say something like this, “Hi Jane… do your remember that RED CROCK POT that you have under the cabinet? Would you mind bringing it over? (or… “would you mind if I borrow it tonight”)
   
   iii. Your sister knows this is the Secret Code Phrase, RED CROCK POT, and she might say, “Do you need it now?” Of course if you need her to come right now, you would say, “Yes, Please”
   
   iv. Or… if your answer is No… she might follow up the Q&A with, “Do you feel you’re in danger?”
   
   v. Your response will alert the person you have called about the nature of your showing and of your concern about that particular stranger in your home.
   
   vi. Play these scenarios out with your family and friends/neighbors. Preparing your family for visits from strangers does not have to be a traumatic experience. Simply use a little common sense, keep alert and you should be fine.

9. Put all of your valuables out of sight. If you have weapons, be sure to have them locked or out of sight and/or reach by anyone but you.
10. Put your medications in a safe and locked area. Over the counter or prescription drugs can be a temptation to even the most earnest buyer prospect.
11. If the stranger calls to arrange a viewing of your home, ask the stranger to fax or eMail you a copy of his/her Loan Approval Letter and the name and phone number to his lender. It might even be wise to not allow anyone into your home who cannot produce this simple information and document. The better Realtors® in the industry do not take anyone into a home unless the Realtor® has confirmed the buyer’s ability to secure financing. Do you think you should do the same?
12. These are only a few suggestions… but they should get you started on the right foot. Remember… it does you no good to be a FSBO seller if you also are the biggest and brightest target on the shooting range.
    

MARKETING YOUR HOME

This is perhaps the second most challenging aspect of the real estate industry. Market places change in a pretty predictable pattern, although not in too predictable of a time line. The real estate industry is cyclical. By that we mean that the ebb and flow of the buyer vs. seller tug-of-war swings back and forth like the pendulum of a Cuckoo Clock. At one point in time there may be more buyers than there are properties to buy and at another time there may be more properties for sale than there are buyers to buy them. The real estate market also has its calm seas where there are a good mix of buyers and sellers at any one given time.

The Arizona real estate market has cooled quite a bit since about July/August 2005. For about 30 months preceding the July/August 2005 slowdown, homes sold in mere weeks; then in only days and then from about July/August 2004 through July/August homes sold within minutes of being posted to the MLS system. Anybody who had a beating pulse could call themselves “Real Estate Marketing Professionals”. It took no talent, no skill, no luck and no real estate experience at all to find a buyer for a home. Any monkey on a chain could do that. That is no longer the case.

Today’s real estate market is facing many forces that are working against sellers. In the $250,000 to $600,000 price range builders, who… in our opinion… are one of the major reasons we have seen such a dramatic shift in market trends, are offering incredible buyer incentives. For example, Richmond American Homes in Surprise has offered discounts off the list price of their SPEC homes of up to $80,000 and offered to pay as much as an ADDITIONAL $11,000 of the buyer’s closing costs. Continental Homes/DR Horton in Goodyear has offered discounts ranging from $35,000 and more and also has included an ADDITIONAL incentive of $10,000 toward the buyer’s closing costs on their SPEC home inventory. Centex Homes in Goodyear has offered $30,000 and more in the way of builder discount incentives to buyers who want to have a home built. All of the builders in the Marley Park subdivision, just to the north and west of Luke Air Force base are offering unheard of discounts; Randall Martin Homes is offering $30,000 to $40,000 off of certain SPEC homes and Element Homes is offering anwyere from $80,000 to $100,000 discounts and more off of their SPEC Homes This kind of competition is difficult to compete with, thus requires a very intense marketing strategy.

The Investor Buyers who purchased their properties between December 2003 and July/August 2006 are beginning to dump these properties back on the market. This is having a profound impact on the market place inventory. To demonstrate this; in July/August 2006 the total inventory of homes, priced between $100,000 and $10,000,000, listed in the Arizona Regional Multiple Listing (ARMLS) system hovered right around 7,000 to 7,500 residential resale properties. In just over 300 days, that number has grown to just over 45,000 residential resale properties. Each day between 600 and 800 more homes are introduced into the ARMLS system. That does not even take into account those homes that are launched into the FSBO market without MLS exposure.

The Buyer pool has all but evaporated. The hundreds of buyers who stood in endless lines at new construction sites in hopes of having their names drawn from a hat for one of the few lots released each week have disappeared. Where did they all go? Could they simply have been priced right out of home ownership? The rest of the buyers who tried to make purchases of residential resale homes, competing against other buyers or investor purchasers are also gone. Could they too have met with the same fate as the prospective new home buyer? The buyers who use to drive around looking for open houses to attend are also missing. Open houses are not producing the traffic they did years or even months ago. The National Association of Realtors’ statistics sites that over 70% of all buyers are heading to the Internet before they ever venture out of their homes, in search of their next or first home. Of that 70%, it is estimated that over 95% of them will enlist the services of a Real Estate Professional Buyer’s Agent to help them through the process. They are all too aware that they are not prepared to examine or interpret the reams of paper containing disclosures and other documentation that will be part of their transaction.

So, where do today’s buyers for today’s inventory come from? What’s a FSBO to do? Here are a few tip:

5. First and foremost… don’t toss out the old stand by staple of a good attractive For Sale Sign in your yard.
6. For the diehard buyers who are still driving the streets, looking for a new home, be sure to have flyers of your property in your Information Box that is hung on your For Sale Sign. But… you may not want to publish your asking price. There are two reasons for adopting this strategy. The first centers on security and the second on negotiating strategy.
   
   1. SECURITY: It is not necessarily the most practical policy to publish your family’s monetary worth.
   2. NEGOTIATING STRATEGY: Keep them guessing. Keeping your price close to your chest, as if it were your “Hold Card” in a poker game, is a good idea. If you give them no reason to pick up the phone to call you for more information then… they won’t! Another tried and true posturing method for negotiating is to never be the first person to speak and always be quite after you have asked for the sale. Remember… the first person to open their mouth, is usually the one whose negotiating position is compromised.
      
7. If you have hired a Semi-Assistance Real Estate Company, be sure they put your home in the MLS in the correct MLS Area and Grid; a Type-O during data entry could cost you thousands of dollars. Ask for a copy of the MLS datasheet so you can review it and request any necessary changes.
8. Make certain that your home has maximum exposure on the Internet. The majority of today’s buyers are not produced from print ads, open houses or radio and TV ads, they are the product of Internet exposure.
9. If you are going it alone, take advantage of the public FSBO web sites offered by all the major Internet search engines such as Google.com, Yahoo.com, AOL.com, MSN.com, Excite.com, AZCentral.com, RedZee.com, AltaVista.com and any number of other Internet ad space you can find. Check out ForSaleByOwner.com. This is one of the most popular FSBO tools on the market today.
10. If you have hired a Semi-Assistance Real Estate Company insist that your home be published on Realtor.com but not simply published on Realtor.com but published with not less than 6 photos and with a Virtual Tour and… most importantly, published on Realtor.com’s Enhanced Listing Pages. Realtor.com statistics show that the first homes passed over by visitors to their site are those homes without any photos. Next on the Hit List are homes without multiple photos and next to be introduced to the DELETE KEY are homes without Virtual Tours. Properties that are displayed in the Realtor.com Enhanced Property Listing Pages are the FIRST homes to pop up in the Realtor.com search list. It does you absolutely no good to get your home published to Realtor.com if you’re at the bottom of the list.
11. If you have hired a Semi-Assistance Real Estate Company, insist that your home is published on the real estate company’s corporate web site.
12. If you have hired a Semi-Assistance Real Estate Company, insist that you be informed of any prospects who might call their office or the real estate agent so you can follow up on the call.
13. Here’s a bit of pricing strategy. Many agents might suggest that you offer a bonus to the Buyer’s Agent if the Agent can get their Buyer to purchase your home. We find this logic a bit flawed. Remember… the Buyer hired the Buyer’s Agent to represent his/her best interest. Do you think it would be just a bit… self-serving… if the Buyer’s Agent began to bear down on the person he owes his allegiance and fiduciary to, to try to force the buyer to buy your home? Not to mention… do you have… even… just a little problem with the moral ethics or caliber of an Agent who might even entertain such a suggestion? Why not offer a cash incentive to the Buyer? Why not offer the Buyer some money toward his/her closing costs? All the builders are doing it! Obviously… you’re a little fish in a big pond and can, by no stretch of the imagination, offer tens of thousands of dollars in cash assistance, but… I gotta tell ya… $3,000 to $5,000 could go a long way when the buyer is ready to cast his/her swing vote between your home or a competing home.
    

Bottom line… Internet Marketing and Buyer Incentives will take you a long way in helping you find a buyer for your home.

WRITING THE CONTRACT AND WHAT IF THE BUYER BREACHES YOUR AGREEMENT?

You will need to have a Contract handy. It’s a good idea to have a few of them on hand. It is also a good idea to have a few pages of Addendum forms and Counter Offer forms. You can pick these up from your Title Company or you might be able to buy a few copies from your local Board of Realtors®. You will also need to pick up a form called Seller’s Property Disclosure Statement (SPDS for short). You will also need a few other forms: Loan Status Report (LSR), Loan Status Update (LSU), Cure Period and a Home Owner’s Association Disclosure Addendum and, depending on your price point a HUD Form called HUD-92564-CN, “For Your Protection: Get a Home Inspection and… again depending on the age of your home a Lead Based Paint Disclosure form.

Today’s real estate Contracts are pretty complex. The Arizona Association of Realtors re-wrote the Contract and released it for use in May of 2005. The old Contract was only 9 pages long. Even though today’s base Contract is 9 pages long, the boiler plate of the Contract is prefaced by a disclosure page entitled Disclosure Attachment as the very first page of the document set. Within the body of the Contract, the FINANCING portion of the Contract REQUIRES that the Buyer produce a Loan Status Report (LSR) with the offer, making the actual root Contract 11 pages long. If the home is located within an HOA community the Contract requires a Home Owner Association Addendum and Disclosure now making the Contract 12 pages long. Add to this the state statutory requirement of Seller’s Disclosure of Material Facts about their home by use of the 7 page AAR Seller’s Property Disclosure Statement (SPDS) and the 9 page Contract quickly grows to a staggering 19 pages. Page 5 of the Contract REQUIRES the seller to provide to the buyer a copy of the Arizona Department of Health Services approved private Pool Safety Notice. This is, at a minimum 2 pages and could be 3 pages, depending on where you acquire the document. Your Contract has now grown to 22 pages in total!

Any number of conditions or instances or additional required documents could increase the number of pages your Contract could grow to. Simply be aware of your state statutory required disclosures to the Buyer and follow the instructions in the Contract and your transaction should move along just fine.

The Contract does not allow an immediate cancellation of a Contract if one or the other party breaches their Contractual obligations. The Contract provides the party who failed to comply with his/her Contractual obligations an opportunity to correct the breach issue. When a party has failed to complete some portion of their Contractual promise, the non-breaching party MUST issue a Cure Notice. The Cure Notice allows the breaching party to revisit that task or obligation and give him/her 3 days to make the correction. If the correction can be accomplished and documented then there is no breach and the Contract continues in full force and affect. On the other hand, and depending on how the Cure Notice is worded, if the breaching party cannot make the required repairs to the failed Contractual obligation, the Contract could die. However… keep in mind… it is nearly impossible to retain the Buyer’s earnest money as damages to the Seller if the Buyer uses his/her inability to secure a loan as the escape portal from the Contract. Such posturing, by the Buyer is perfectly legal and available to the Buyer in the boiler plate language of the Contract.

FINANCING
CAN THE PROSPECT EVEN AFFORD MY HOME AND MORE IMPORTANTLY, IS HE/SHE APPROVED?

The Contract provides the Seller with a tremendous amount of clout in this area. First, the Contract makes the production of an LSR a Contractual obligation of the Buyer. That is, the Buyer must present that document to the Seller at the time he/she makes an offer on the property. Without an LSR the Seller has no information at all as to the Buyer’s ability to “make it to the finish line” I.E. close on the property and on time.

Even more exciting is the Seller’s control over the Buyer to force the Buyer to manage and be responsible for the Buyer’s lender’s competency or incompetence during the escrow period. In the boiler plate language of the Contract, the Buyer is instructed to instruct his/her lender that the Buyer’s Lender is to deliver the Buyer’s closing documents to the Title/Escrow Company not less than 3 days prior to the actual date of scheduled closing. If the Buyer’s lender fails to do so, the Buyer is placed directly in the line of fire and the Seller can, and should, serve a “3 Day Notice To Cure” this failure to perform upon the Buyer.

Just as important as the Buyer’s ability to close on the property is the Buyer’s Lender’s ability to perform. All too often, when the real estate market slows, the quality of lenders and loan officers also becomes a big problem. It is not unusual to encounter a Buyer who has engaged the services of a loan officer who has very little loan experience. When this happens, closings can be delayed or even worse, not occur at all. This is another reason the Arizona Association of Realtors developed the AAR LSR (Loan Status Report) form. This form requires that the Buyer’s Lender include not only his/her phone and fax numbers, but also their eMail address, snail mail address and most importantly, their Mortgage Broker Number. This information allows the Seller to research the Lender on the Arizona State Banking Commissioner’s web site. Here you can learn how long the Lender has been in business or if he/she has any pending complaints being processed by the Banking Commission or if his/her license has ever been suspended, revoked and/or any number of additional helpful bits of information that could give you an indication about the quality of the lender.

If you have a banking relationship with a favorite lender or loan officer that you trust, it is not uncommon for Sellers to insist that a prospective Buyer, even though the Buyer has produced an LSR from the Buyer’s Lender, qualify for their loan with a lender that the Seller has confidence in. This posturing is not a requirement upon the Buyer that the Buyer must use your lender… that would be a violation of the Real Estate Settlement and Procedures Act; this is simply one more tool you can use to assure yourself that the Buyer will be able to make it to the closing table on time and at no additional cost to you.

DABBLING IN THE REAL ESTATE BUSINESS

Here are some check lists that you might find use for:

1. Contract Process Flow Chart
2. List of systems and components in your home that MUST be maintained and repaired by the Seller
3. Information about termites and what roll they might play in the successful closing of your transaction
4. Questions to screen Buyers with
5. Questions to screen Buyer’s Lender’s with
6. Critical Date Check List that includes almost all of the types of conditions that would trigger a Cure Notice.
   

If you would like any of these helpful check lists for your For Sale By Owner efforts, please feel free to send an eMail to us at Lori.and.G-II@RealEstateInPhoenix.net. We’ll see that you receive a link to them right away.

FOOT NOTE:

On March 19, 2006, Linda Water Nelson of the Memphis Business Journal/MSNBC wrote:

National Association of Realtors statistics show that of those unrepresented Sellers who are successful in the sale of their property, 40% say they wouldn't do it again," she says. That's because do-it-yourselfers are unaware about the time commitment for showings, open houses and other events, or the cost of advertising.

Don't become a NAR (National Association of Realtors) Statistic

FSBO Methods Used to Market Home:

Yard Sign . . . 61%
Friends/neighbors . . . 46%
Newspaper ad . . . 37%
Open House . . . 29%
Internet . . . 17%

Most Difficult Tasks for FSBO Sellers:

Getting the right price . . . 14%
Understanding paperwork . . . 17%
Preparing/fixing up home for sale . . . 16%
Attracting potential buyers . . . 9%
Having enough time to devote to all aspects of the sale . . . 8%

Of course… it is never our intent to let you get dragged under a bus, so if at any time you feel like you have taken on an alligator with Lockjaw or a Lion by the tail, we would be happy to interview with you for the job of getting your home sold. To reach us, you can either eMail us at Lori.and.G-II@HomesInPhoenix.net or CLICK HERE to complete our CONFIDENTIAL Seller Information Form. YOUR PRIVACY is always our most sacred trust. Remember… any monkey on a chain can bring a Buyer to the front door; it takes a seasoned professional to bring qualified buyers to the door and to manage the transaction to and through the closing process!

If you think it’s expensive to hire a professional…

Wait till you pay for an amateur!

Bye for now… Lori & “G-II” ... til our next posting... Happy Easter to all!

What Could Possibly Go Wrong If You Are Buying a New Construction Home?

So what could possibly go wrong if your going to buy a brand new home, built by one of over 200 Arizona Builders, registered as General Contractors and Licensed with the Department of Real Estate? Read on my friend… read on!

Lori & I have been given exclusive permission, by the Buyers, to tell these inconceivable accounts of New Construction Terror. You have the opportunity to communicate with them, if you wish, to validate any portion of these mind-blowing stories.

An Emotional Safety Net or What do you mean… I have to simply live with it?

Story Number One:

Our clients asked us to represent them in the purchase of a new home, being built in the west valley. We accompanied the buyer to the builder’s site. During a tour of the site where the subdivision would be built, our buyers fell in love with a particular lot. The site sales person took us back to his office so we could examine the plot plan and projected placement of street lights, street sewers, and utility boxes for phone, cable and electricity.

Our buyer had a need for an RV gate on the property so it was “materially important” to them that the property was free of any utility boxes on the property and particularly no impediments to the ingress / egress of the RV gate. We spent about a hour with the site sales person, examining the site plans, checking with the city and with the builder’s construction team that there were truly no utility boxes that were going to show up on this property.

About 3 months into the permit process, the buyers and we were notified by the builder that the FINAL Commissioner’s Public Report approval had been delayed. We were given no reason for the delay, only that the fire access ingress and egress routs had been redrawn.

About 4 months later, and without any word from the builder that changes to the site plan had been collaborated between the city and the builder, we and the buyer learned that three utility boxes had been plumbed right smack-dab in line with the RV gate. Obviously our buyer was extremely angry, not only because of the existence of the utility boxes, but more importantly because they had not been advised of the site plan alteration.

The builder and the site sales person were well aware that the unimpeded access to the RV gate was the main reason our buyer had selected this particular lot. The builder’s contract stipulated that no changes to any part of the construction site or plans would take place without written notice and mutual agreement between the buyer and the builder. That notification never took place.

When the buyer approached the builder’s site sales person to express the buyer’s wish to be granted a lot site change, at the same price the original contract was written for, the site sales person retorted with, “The utility boxes are not that bad… you might have to make a few adjustments as you maneuver to and through the gate, but you should be able to do it…”

Then the builder’s site sales person said to Mrs. Buyer, “…if you don’t like the look of the utility boxes, I’ll buy you a bush to plant in front of them… and besides… do you even own an RV?..”

You can imagine the explosive anger that brewed within Mr. Buyer when his wife relayed the builder’s site sales person’s comments and demeanor to Mrs. Buyer. Mr. Buyer then spoke with the builder’s site person about the problem with the construction site. The builder’s site sales person, insisted to the buyers that there was nothing that could be done and that they were simply going to have to live with the unexpected appendages, protruding from their lot that interfered with ingress/egress to their RV gate.

The buyers thought that they had just been handed a blow that they could not recover from.

When the buyers came to us and relayed their stories, we went to work to help them recover from the emotional damage and to resolve their differences with the builder.

At the onset the builder’s site sales person was less than cooperative. We quickly departed from having any additional dialogue with the builder’s site person and began communicating exclusively with the appropriate people within the builders management group.

Lori & I attached the builder through his own contract, used every ounce of legal knowledge at our disposal and eventually got the builder to agree to allow the buyers to move to a different lot, in a different community at the same price they had gone to contract for, keeping the nearly $50,000 of appreciated value of the property. The builder also agreed to credit the buyers back a $6,000 lot premium as compensation for the contractual breach of “Non Disclosure of A Material Fact”.

The builder promised that the buyers would be able to select their new lot within a week or two. We waited nearly 6 weeks, giving the builder plenty of time to make good on his promises. During the 6 week span, the builder’s lender sent a notice to the buyer, advising the buyer that the buyer had opted to cancel the buyer’s loan application with the builder. That was totally untrue and incorrect. Then… right on the heals of that notification was another notice from the builder that the buyer’s earnest money had been returned due to the buyer’s wish to cancel the contract. This too was incorrect and in fact… never occurred.

Once again… the buyer’s were furious. The buyers contacted Lori & me with the news and… once again… we went to work, diving into the interstices of the builder’s incompetent management fabric. We were successful… once again to knit the damaged quilt of buyer and builder fabric of interaction back together.

About two or three weeks later we received a call from Mr. Buyer. He told us that he was finished with the builder and wanted to be done with the builder, wanted out of the contract and wanted his $5,000 earnest money returned to him.

I drafted a letter of contract termination for the buyer to deliver to the builder. The builder’s attorney’s worked the letter over and over and over but knew that they were going to have their heads handed to them if they tried to take this transaction to court.

About 5 days after the contact termination letter was delivered to the builder, we received a Notice of Cancellation, signed by the builder, in advance of any signatures by the buyer.

We had won the battle for our clients! They were free of the builder’s hold on them and their earnest money.


Story Number Two:

How to win the battle and the war in 4 minutes
or
Predatory Lending / What do you mean I have an 11% APR on my mortgage?

Ok… so the buyer in Story Number One simply did not have enough fun with builder number one… he had to take another run at this New Construction stuff one more time.

This time he had wandered into the builder’s model complex without his Realtor® by his side. That was the beginning of his nightmare.

Fortunately, through some extremely competent negotiations we were successful in getting the builder to allow Mr. Buyers wife represent the purchase. You see… Mrs. Buyer is a Realtor with Coldwell Banker and one of Lori & G-IIs protégés. After we successfully gain that bit of capitulation from the builder, Mrs. Buyer asked Lori if she and I would represent them in the transaction. Mrs. Buyer knew we had a proven track record when it came to protecting their interests. Mr. & Mrs. Buyer gave up the commission that would have been paid to Mrs. Buyer as a licensed real estate agent because she knew, that even though she was a licensed agent, she was not ready to take on any problems that might come up with the builder or any one on the builder’s team.

Lori & I agreed to represent the buyers but insisted that we credit some of the commission back to Mr. & Mrs. Buyer because of their loyalty to us and because they had that much trust in our ability to watch their backs in this next transaction.

On March 14th 2006 we met with the buyers at the builder’s office for the drafting of the contract. The site person was visibly annoyed that the buyers had successfully gain competent buyer representation. The buyers had settled on the purchase of a builder spec (inventory home). The builder was offering an $80,000 discount from the finished home price of $380,000. Plus the builder was offering 3% of the purchase price ($11,400) toward buyer closing costs if the buyer would use the builder’s lender. The house was set to be completed by March 29th 2006, only 15 days from the date of the contract.

The buyers agreed to use the builder’s lender so they could take advantage of the 3% toward their closing costs. The $80,000 discount was not tied to the use of the builder’s lender.

During the contract writing, the builder’s site sales person wanted to introduce into the document set a specific document that prohibited the buyer form using alternate financing if the closing date was within 30 days from the contract date. Lori insisted that this addendum would not be part of the document set. The builder’s site sales person was adamant that the document be included. Lori threatened that the buyers would leave the building and purchase in another community if the builder’s site sales person was going to insist that this document be part of the doc set. The Site person folded and the financing document was eliminated from the document set.

To set the stage it is necessary to let you know that the buyers have FICO scores that are near perfect. Nearly the best one can achieve in the credit world.

The contact documents were completed, Lori reviewed all of the necessary documents to confirm that all was contractually in order. Lori also reviewed the Commissioner’s Report, a document that must be presented to EVERY buyer before he/she signs a commitment to purchase a new home from a builder. All was in order.

On March 27th 2006 the buyers called us to let us know that they had received their loan documents for review over the weekend. They were alarmed to see that the terms of their financing had been railroaded. The loan documents, for the buyer’s 80% / 20% loan, delivered by the builder’s lender disclosed a first mortgage interest rate of 7.5% and a second mortgage rate of 11%. The buyers were very confused.

Once again, Lori & I were called to the rescue. We examined the documents and were completely exasperated with the obvious “Credit Rape” of two very well qualified buyers. There was absolutely no way that buyers of this caliber should be set up with loan fees that were so outrageous.

Before making a call to the loan officer’s office, I had Mrs. Buyer call Coldwell Banker Mortgage and USAA Mortgage to obtain competitive loan quotes. USAA delivered a loan quote of 6.875% for a 100% loan product. Coldwell Banker Mortgage delivered a loan quote of 6.375% for a 100% loan product. Both loan quotes were clearly better than the disaster that the builder’s lender was trying to sell.

I placed a call to the loan officer in an attempt to uncover what could have possessed her to write such an incredibly off the wall loan platform. The loan officer was very annoyed that Lori and I were involved with this part of the process. She challenged our intervention and refused to have any further conversation with me on the phone.

I gathered up Mrs. Buyer in to my car and off we drove, right down to the builder’s lender; walked into her office and asked to speak with her, in person. She kept us waiting for nearly an hour. I’m certain she expected that we would get tired of waiting for her and would leave the building. Nothing like that even crossed my mind. This loan officer was on a mission to commit an incredibly moral impropriety and I was hell-bent on keeping that from taking place. Finally, the loan officer got tired of trying to out wait us and she came into the lobby. She agreed to meet with us in a small conference room.

I presented the two quotes from the two competing lenders; each had been prepared on an industry standard Good Faith Estimate HUD form. The loan officer was visibly unnerved by having to deal with me and even more frustrated that I had forced the showdown.

She postured herself with a condescending tone to her voice and resistant body language. I told the loan officer that she would have to let me know within the next hour or two, (it was now about 2:00pm) if she was going to either meet or beat either of the two competing loan quotes. This is the conversation that followed:

Loan Officer: “Well… I don’t know if I can get you a response by then…. I have to call Denver”.

Me: “Who in Denver do you have to call… let’s get them on the phone now to resolve your quote”

Loan Officer: “I don’t know who I’m calling”

Me: “You mean you don’t know who you need to talk to about your quote for these rates”

Loan Officer: “I mean that I have to call my loan processor”

Me: “Let’s get him or her on the phone”

Loan Officer: “I don’t know her name”

Me: “Ok… there must be someone there in authority, give me a name. I have people in Denver who can be at your corporate office in less than 30 minutes”

Loan Officer: “I’m not going to make that call”

Me: “My buyer and I have to know within the next hour to hour and a half that you are or are not going to match or beat one or both of these competing loan products”

Loan Officer: “Since you didn’t come in with an appointment I don’t think I will be able to help you within that time line”

Me: “Ok… how about the builder’s general sales manager? Let’s talk to him”

Loan Officer: “I don’t know who that is and I don’t think he will see you”

Me: “Ok, so you don’t know who the builder’s general sales manager is, but your pretty sure that he will not see me? Ok… I guess I’ll have to work with that”

With the conclusion of that short and utterly useless conversation, I thanked the loan officer for her time and took the buyer with me back out to the lobby. I asked the receptionist to locate either the builder’s general sales manager, designated real estate broker or the loan officer’s supervisor.

Within a minute or so, a gentleman greeted us. He was the loan officer’s boss. The head cheese. The Big KaHuna. The Top Dog. He greeted me and the buyer and invited us into his office. He had the buyer’s file on his desk.

KaHuna: “What seems to be the problem?”

Me: “I don’t think we have a problem. I think there has been a misunderstanding”

KaHuna: “How can I help?”

Me: “My client has received two completive loan quotes that blow the builder’s lender current loan quote out the door. I think you can do much better than your quote and prepays even match or beat the two competing quotes that are in front of you”

As he begins to look over the buyer’s file, KaHuna: “Why do you have a loan like this. This makes no sense!”

Four (4) minutes later, our buyer had an 80% / 20% loan, with an Interest Only Front half with a 3 year rate lock at 3.88% and a Back Half loan of 8.5% fully amortized for 30 years with a 20 year balloon and a monthly payment that was $1,000 a month LESS then the loan originally quoted by the builder’s loan officer.

KaHuna promised that he would have the loan documents redrafted and that our buyers would close no later than March 31st 2006.

Today at 3:00pm, March 31st 2006 our buyers picked up the keys to their new home. They couldn’t be happier and they are even more convinced that there is no instance that any one, shopping for a New Construction Home, should ever try to enter that arena on their own.

Are either of these builders, the builders you wanted to engage on your own and without FREE Buyer Representation, paid for by the builder?

For obvious ethical reasons, we cannot disclose the names of these two builders, but… we are pretty sure, if you ask them, the Mueller’s will be happy to share that information with you. They are not tied to the same Realtor constraints that Lori and I are.

Our buyers are Joshua and April Mueller. You can reach April at april1013_98@yahoo.com and Josh at jwmueller99@yahoo.com to verify these stories or ask further question about the value of Buyer Representation in New Construction.

CLICK HERE TO READ, “WHY SHOULD I HAVE MY NEW CONSTRUCTION HOME INSPECTED”

Have a GREAT day and happy house hunting... but... we hope you decide to take advantage of your Arizona Statutory Rights to Buyer Representation... It's a Jungle Out There... and... don't forget... here in the Wild, Wild West, we still carry guns