Not really but I got your attention.

This post is a reprint of my friend Maya Paveza’s post about referrals in the real estate industry. I don’t often re-post other people’s material, but this was a case where a) I couldn’t write it better myself and b) her real world examples were excellent stories that point to the benefits of referrals. Maya Paveza (with Coldewell Banker Preferred Real Estate) is a great example of someone I would refer clients to in the Wilmington, Delaware and the Chester and Delaware County regions of Pennsylvania. It is reprinted here with her permission (she likes to share) and I thank her for allowing me to do so.

Yesterday I wrote about the value of RE.net connections in building a solid referral network of well qualified real estate professionals. This is important to remember, because all of the following examples are tales of people who didn’t avail themselves of real estate professionals they know when they had needs in areas that agent did not serve. Pay attention fair consumer, your time is valuable, my friends and I know understand that and respect it, and offer service you deserve – if you ask for help.

It is often a joke amongst the public that real estate agents are always asking for your business, most of us do because we truly love what we do and take pride in it, especially those who are most active in the social spaces. Sometimes we forget that we need to remind our friends and family of what we do and how we can help. When we usually remember it is after we have heard that Cousin Tiffany just bought a new house in Anytown, KS and didn’t ask us for help.

So I remind you – ask an agent for a referral and save yourself some pain.

“She Didn’t Know My Area”

Not so long ago a person I respect and admire told me she was planning to relocate her family quite a distance from their current home. I did have a difficult time finding an agent for her at the new location, but she ended up in what seems to be very good hands, but to sell her home I asked a good friend of mine if she serviced that area. My friend said indeed she did, so I put them in touch with each other. Fast forward a few months and I am hearing tales of the sale of her home – few showings, agent pushing for price reduction, she is resistant and wants to wait a while. I ask – did you use my friend I referred you to? “No, she didn’t know my area”.

When that occurred my friend should have let me know so I could have checked on that information and perhaps found an even better choice for her. She did not, and was very unhappy with her agent but stuck it out, her home sold and she moved but not without a lot of unnecessary bother and worry, and a lot of work she wouldn’t need to do with a qualified agent.

“I am doing all the work!”

Another friend of mine was involved in a job relocation. Their home sold very quickly, not because of the agent they used but because they were very smart with pricing and preparation. On the buy side of the relocation my friend seemed to be under-represented. I am always happy to field questions from my friends, and honored when people ask for my advice or guidance, that is the best moment for me. So helping my friend is fun, but what my friend was telling was that their agent wasn’t really doing anything.

My friend was the one suggesting they review public documents to verify information contained in the listing sheet for the house, my friend was doing far too much legwork. What astounded me was that at the commission the agent would end up making, they should have been polishing my friend’s shoes. I will say I treat every buyer and seller equally regardless of the purchase price or potential commission, it is how we all should practice, to me that $100,000 buyer deserves the same attention as a $1,000,000 buyer, and they both get equal treatment in my experience.

When it came time to put an offer on a property there were mistakes and omissions on the documents. As my friend told me those things I reminded them that they had a relationship with the Broker, not the agent, that if they were not happy they had a responsibility to ask for a new agent. A Broker can’t offer better service if they don’t know they have a problem.

But you know how all that could have been avoided? By asking a real estate agent for a referral rather than picking a name out of a hat or leaving it to the Broker. The additional benefit of asking for a referral – if you don’t like the agent you end up with (sometimes personalities just don’t mesh), your referring agent can be the bad-guy and handle the “reassignment” for you.

Referrals Save You Time

By asking a real estate agent you know for a referral, you are saving your own time, and time is money is it not? Being sure that an agent has the experience you require, as well as the desired level of expertise – you end up attaining your goal of finding a new home much faster. This is even more important when you are relocating to a new place, you really need to make sure that you pick the right agent who will serve your needs and take the time you need to discover your new city.

Referrals can work both ways though, if you had a wonderful agent and hear that someone is looking to buy or sell a house, speak out and tell them about your real estate agent. So many people end up working with agents that they meet by calling on a sign, with no prior knowledge of who that agent is, or what their experience level may be.

Don’t go it alone, look to the people you trust to help guide you to those that you can entrust the largest purchase of your life. No matter where you are in the world, ask a real estate professional you know anywhere, and they can help you find the right person to work with. Don’t know anyone? Then ask me. I bet one of my RE.net friends will be just perfect for you.

I love referrals, of all kinds.

One comment about referrals for buyers and sellers that I’d like to add. When receiving a referral from an agent, think about the source. Often, if you search online for real estate information, you will be given advice by agents you may not know much about from areas you’re not familiar with. Just take a look through Trulia Voices to see what I mean. Real estate agents are usually paid a referral fee for sending a buyer or seller to another agent and this does (unfortunately) lead to some agents fishing for referrals from everyone and anyone they can. I’d like to see this practice go the way of the dinosaur, but unfortunately, it never will.

Social media has made it very easy for agents across the country to get to know one another and build relationships that lead to referrals. Hopefully, the agent who gives you a referral will look through their personal social media contacts first when referring an agent, instead of just throwing it out into the ether and awaiting an agent to respond. If you ever need a referral from me, don’t hesitate to ask, I know many agents throughout the country personally and would love to connect you to them and help you get the service you deserve.

Alphabet soup

This article is re-posted with permission from the Goomzee Mobile Marketing Blog and written by good friend, Austin Smith. Certifications and designations and all of their abbreviations can be pretty confused, even for a Realtor® – hopefully this will help you guide through the alphabet soup and understand a bit more about your Realtor®. This list, while quite lengthy, isn’t a complete list, as designations and certifications change constantly and are updated and renamed at times. There are also localized certifications which do not appear here (such as the Texas Affordable Housing Specialist (TAHS) – which is one of my designations).

Ever wonder what all those abbreviations mean behind a real estate professional’s signature?  We did too, which is why for the past year we have collected all designations and their definitions/criteria that have come across our radar.  We call this list “Alphabet Soup.”

The list below may be useful to you; if you find any designations we’re missing, please add a comment to [the original] post with as much info as you can and we’ll keep on top of updating the content.  If you are re-posting this list, please give credit where credit is due and link back to this page.

Commission Designations

ABR – Accredited Buyer Representative

Unlike CEBA designation, this acronym means that the agent may elect to work as either the listing agent or the buyer’s agent.  Online self-paced course, $300 fee, must pass exam, must be National Association of Realtors® (NAR) member and The Real Estate Buyer’s Agent Council member.

ABRM – Accredited Buyer’s Representative Manager

Geared towards real estate firm brokers, owners, and managers that have or wish to incorporate buyer representation into their daily practice.  Successful designees will have taken and passed both the ABR® and ABRMSM.

ACRE – Accredited Consultant in Real Estate

Offered by private company of same name, agents must download materials which train them to approach transactions as a consultant rather than a salesman.  $500 fee, additional fee required to be listed on ACRE’s website as ACRE certified.

ALHS – Accredited Luxury Home Specialist

Offered by RealtyU, touches on trends in luxury market, needs/desires of luxury home buyer, marketing to find luxury home sellers, staging and showing a luxury home, and negotiating a luxury home contract.  Online course materials, online exam.

ASR – Accredited Seller Representative

Offered through RealtyU, course designed to improve agent’s professionalism and refine the agent’s service to sellers.  Agents choose between online or in-class, $300 fee, must pass the exam, NAR member, member of Seller Agency Council.

CBR – Certified Buyer Representative

Covers negotiating and marketing techniques in an effort to train agents in elite customer service.  Less than 1% of NAR members have this designation.  Other designations that fall under the CBR category – C-CREC, CEBA, CRP, CBA, CRS, ABR, and GRI…and a great website with percentages of agents holding these designations is available here.

CBS – Certified Buyer Specialist

Touches on how to sell “For Sale By Owners” (FSBOs).  Also, how to attract buyers, how to develop online relationships, how to use a lead-management system, how to integrate your website with your business model, Search Engine Optimization (SEO) best practices.  $198 for year-long membership.

CEBA – Certified Exclusive Buyer’s Agent

Offered by NAR, must be standing member of NAEBA.  Rare and fairly rigorous designation.  Most CEBA holders work exclusively with buyers.

CRS – Certified Residential Specialist

Designed to educate agents to better represent residential clients.  Agents must take four- to six-credit courses, $150 a credit, membership in NAR, membership in local Board of Realtors® (BOR), membership in the Council of Residential Specialists.

CSP – Certified Short-Sale Professional

Offered by RealtyU, focuses on teaching the agent to be able to define a short sale and anticipate possible reasons for success/failure of a short sale.  Also touches on the lender side of transaction, teaches agents how to work best with lenders and how to understand their requests.  Course requires $299 fee, online coursework and exam.

CSP – Certified New Home Sale Professional

Offered by NAHB, must complete course and exam.  $495 course fee, $50 membership renewal fee.  Must complete 2 hours of continuing education every 3 years.

Master CSP – Master Certified New Home Sale Professional

Offered by NAHB, must complete 3 required core courses, must complete 2 elective courses, must have minimum of 3 years in new-home sales and marketing experience.

RSPS – Resort & Second-Home Property Specialist

Resort & Second-Home Markets Certification. Offered through NAR, agents must complete core course for RSPS certification, as well as any 1 of a number of other designation curriculum including: e-PRO, CRS, ABR/ABRM, GREEN, CIPS, and others.  2-day online course.

SHS – Senior Housing Specialist

Topics include aging process (how aging effects psychology, elderly view of death), eligibility as far as contracts, live-in aids, and lease addenda are concerned.  Agents also learn better counseling and communication skills.  Three-day in-class course and exam.

SRES – Senior Real Estate Specialist

Offered by NAR, for agents who work with buyers/sellers over the age of 55+.  Provides insight on how a senior citizen’s 401K, IRAs, Medicare, and Social Security affect real estate transaction.  Two day class, offered live/online (or a combo) $400 fee, must pass exam, must be NAR member, pay $99 annual dues to SRES council.

SRS – Seller Representative Specialist

Offered by the Sellers Representative Council.  Applicants must complete a two day, four course program with exam.  Must be member of SRC: $99.  Topics touched on include: generational marketing, sphere prospecting, cold prospecting methods, do-not-call concerns, FSBO, how to handle online inquiries, and how to list “expireds.”

GHS – Generational Housing Specialist

Offered by RealtyU, trains agents to accommodate buyers influenced by generation-specific factors. Touches on how taxation, asset planning, financing options, and retirement issues affect each generation’s purchasing habits.  Also touches on difference between generations, for example Millennials, Generation X, Baby Boomers, and G.I. Generation.  Certificate available for five years after completion, online course and exam.

Achievement Designations

AHS – Accredited Home Staging Specialist

Offered by RealtyU & NAR, focuses on home staging advantages/disadvantages, design psychology, components of competition, how to select the proper outside contractor, overall staging methods.  $199 fee gets you online/at home/ on site materials/training, online exam.

ALC – Accredited Land Consultant

Must complete a total of six courses as well as have a minimum of three years experience in the industry.  Must also submit proof of land transactions totaling $5,000,000; or proof of a minimum of 25 separate land transactions, of which no more than 80% are residential lot sales, along with $350 fee.  ‘Fast Track’ option is available to agents holding CCIM, CRE, and SIOR designations.

AREP – Accredited Real Estate Professional

Designed to teach agents how to get started in new career.  Provides day-by-day 30 day intro to basic marketing and sales techniques.  Will equip applicants with knowledge so they can make a plan for their career, farm and prospect on their own, manage daily tasks, know the ins and outs of the Do-Not-Call law, and have a yearly financial plan.

ARM – Accredited Residential Manager

Offered through IREM. Must complete ethics exam, ARM exam, and preliminary requirements (choice between one of three courses and Fast Track option available).

ASP – Accredited Staging Professional

Offered by International Association of Home Staging Professionals.  Two or three day course.  Topics covered include how to educate customers as to value of home staging and processes involved in staging a home.  Course fees total $295.  Three day course expansion: how to set up and market your home staging business, how to prepare bids, how to price out a staged listing, and how to conduct a staging consultation.  Three day investment is $1,795.

ASPM – Master, Accredited Staging Professional

More in depth course touches on preparing bids, consultations, and communication skills as well as advanced staging techniques.  On 5th day of course, students receive $100 to buy staging items, must effectively stage in real time to pass.  Fees total $3,450.

CCIM – Certified Commercial Investment Member

Recognizes experts in commercial real estate brokerage, leasing, valuation and investment analysis.  Complete 4 core courses, plus 8 hours of ethics and negotiations training.  Agent must submit one of the following three: 1 or more qualifying activities totaling $40 million and exhibiting CCIM skill sets, along with a 3-5 page narrative; 10 qualifying activities totaling $10 million and exhibiting CCIM skill sets; or 30 qualifying electives without regard to total volume.  ‘Fast Track’ available to agents holding CPM, CMB, CRE, MAI/SRPA, RPA or SIOR designations.

C-CREC – Consumer-Certified Real Estate Consultant

Offered by the National Association of Real Estate Consultants.  Applicants must complete 14-hour course with exam, turn in two Consumer Needs Assessment Forms, turn in three-year business plan showing how two or more fee-for-service components will be integrated.  Must be member of NAREC.  NAREC membership fees: $99/annually.  Course fees: $299/one-time.

CLHMS – Certified Luxury Home Marketing Specialist

Offered by the Institute of Luxury Home Marketing, must complete two-day class, verify that you are in top 10% of your market.  Must be member of ILHM, membership renewals fee $195.

CMP – Certified New Home Marketing Professional

Offered by NAHB, must complete 4 core courses, 50 elective credits, and have at least 3 years experience in real estate industry.  Fees: $80 app fee, $395 course fee, $90 renewal fee.  Must complete 6 hours of continuing education every three years.

CNE – Certified Negotiation Expert

Offered by Negotiation Expertise, LLC.  Touches on persuasion techniques, buying/negotiating psychology, and how to build trust.  Certification achieved by attending seminars offered by Negotiation Expertise, LLC.

CNS – Certified Neighborhood Specialist

Offered by RealtyU.  Teaches agents to use demographics of a given neighborhood to tailor their marketing in order to be more effective.  Teaches how to use neighborhood factors and information to make a listing more attractive.  Topics touched on include: history, zoning, utilities, hazards, housing types, schools, crime, and other homeownership factors.  Fees totaling $244.

CPM – Certified Property Manager

Offered through IREM, agents must complete 7 core courses, or have college degree in real estate or property management.  Must write and receive passing score on a management plan.  Must pass ethics exam, as well as CPM Certification Exam (CPMEXM).

CRB – Certified Real Estate Brokerage Manager

Offered by the Council of Real Estate Brokerage Managers.  Preferred that applicants have at least 1 year of management experience, complete 12 credits within four years of applying, and have current membership with NAR.  Trains applicants in creating effective business plans, financial management/planning, marketing management, how to manage team diversity, also how to successfully manage office-wide technology.

CRE – Counselor of Real Estate

Membership to The Counselors of Real Estate is offered on invitation-only basis.  Agent must have at least 10 years in the biz, some counselor experience, and must have been recognized for excellence.  Membership in NAR, $2,500 initial fee, $1,500 annually thereafter.  Only 1,100 ‘practitioners’ worldwide carry the CRE designation.

CREP – Commercial Real Estate Professionals Society

Applicants must complete 13 credit hours, discuss the commercial sale transaction and documentation, investment evaluation, financing analysis, site election, closing procedures, essential contract elements, land development, capitalization rates, commercial leases, and appraisals.

CRP – Certified Relocation Professional

Offered by Employee Relocation Council (Worldwide ERC).  Applicants must exhibit a minimum of two years dealing with relocation issues.  Self-study exam, no courses required.  Applicant must have membership with Worldwide ERC.

CRTS – Certified Relocation and Transition Specialist

Offered by International Association of Home Staging Professionals, initial course is training for those beginning in the senior move industry. The program advances to a master level CRTM after 3 years of experience and additional CE courses.

CSS – Certified Staging Specialist

Not much info available on this designation.  Offered by International Association of Home Staging Professionals, Barbara Jennings.

E-PRO – Internet Certified REALTOR®

Offered by NAR, online course about using e-mail, navigating the internet, incorporating digital devices into the workplace.  The only NAR approved internet certification program.  $359 fee, must pass exam, must be a Realtor, member of NAR.

EREP – e-Business Real Estate Professional

Provides agents with an overview of how technology can be implemented in the industry.  Topics covered include: hardware, software, mobile technology, networking, e-Commerce, and the importance of using high tech tools in the future to reach home buyers.

GMS – Global Mobility Specialist

Offered by Worldwide ERC.  Must take three in-class courses, exam after each.  Courses analyze current and evolving policy trends as they relate to global mobility.

GREEN – NAR GREEN Designation

Only GREEN designation recognized by NAR, requires 3-day.  Must complete core, twelve-hour course and 1 of 3 six-hour electives.  Course touches on advantages of having an eco-friendly property, how to market to a green consumer, green living (both in-office and –home), regulatory issues, zoning, and building codes as they relate to sustainability.

GRI – Graduate of REALTOR® Institute

Approved by NAR, offered through State Association of Realtors®, 90-95 hours of coursework pertaining to law, practice, finance, and taxes of the state in which they are licensed.  Must be member of NAR, member of State Association of Realtors®, and member of local Board of Realtors®.

HSR – Home Staging Resource

Offered by Home Staging Resource, Inc.  Self paced, online, 21-day intensive training on all aspects of interior decorating.  Touches on how to market you home staging business, how to stage and benefits of staging.

IMC – Internet Marketing Certified

Offered by Prospecting For Life.  Touches on how to sell FSBOs.  Also, how to attract buyers, how to develop online relationships, how to use a lead-management system, how to integrate your website with your business model, SEO best practices.  Membership fees totaling $198.

MIRM – Member, Institute of Residential Marketing

Offered by NAHB, applicants must complete 4 core courses, 50 elective credits, have a minimum of three years in real estate industry, and write a marketing case study on a new community (must be peer-received and –approved).  Must continue to complete 8 credits every 3 years.  Fees: $150 app fees, $395 for course fees, $150 membership renewal fee.

MRE – Master of Real Estate

Most prestigious real estate designation.  Must be NAR member, must have one of following designations: CRB, CIPS, CCIM, CRE, GRI, CRS, SIOR and ALC.  Must complete online NAR ethics course, 90 credit hours of continuing education, $100 app fee, and all must be completed within 5 years of first class.  Topics touched on include: sales team management, career planning (retirement planning), effective negotiating, fair housing, foreclosures, growth management, and methamphetamine in real estate.

MSP – Master Sales Professional

Offered through Master Sales Association, less than 1% of agents nationwide have received this designation.  Applicants must complete three days of in-class courses and adhere to the Master Sales Society’s code of ethics.

PME – Property Marketing Expert

Offered by Prospecting For Life.  Touches on how to sell FSBOs.  Also, how to attract buyers, how to develop online relationships, how to use a lead-management system, how to integrate your website with your business model, SEO best practices.  Membership fees totaling $198.

RCE – REALTOR® Association Certified Executive

Offered by NAR, demonstrates commitment to association management.  Only professional designation for association executives.  Candidates earn the designation by accumulating points through an experience and education based application form and a comprehensive written exam.

RECS – Real Estate Cyberspace Specialist

Signifies membership of the Real Estate CyberSpace Society.  No fee for designation, however monthly dues required for the RECS Society.

REPA – Real Estate Professional Assistant

Offered by NAR.  This certification is geared to provide an intensive introduction to the real estate business and to the specific ways support staff can become valuable assets to their employers.

REW – Real Estate Webographer

Self-paced online course, only $199.  Applicants learn how to establish an effective web presence, develop online business strategies, how to generate and manage leads, and how to implement mobile virtual tours.  Topics also covered: online forms, virtual assistants, and blogs.

RPA – Real Property Administrator

Must complete 6 mandatory courses, plus ethics course, plus one elective course, must abide by organization ethics.  All RPA classes are $750 each, ethics course is $325.  If you have never taken a BOMI course, there is a one-time $150 enrollment fee.  Must verify at least three years of property management, 40,000 feet or larger, and exhibiting RPA skill sets.

RREP – Referred Real Estate Professional

May only be taken by members of Referral Center, LLC.  Course designed for non-active agents who wish to stay active only by referral.

SIOR – Society of Industrial & Office REALTORS®

Designates top producers in industrial and office brokerages.  Must have a minimum of five years in the industry, with referrals as to your ethics, sincerity, and integrity.  Must maintain minimum income and transaction standards as dictated by local chapters.  Several membership categories: Advisory Services Specialist, Executive Specialist, Industrial Specialist, Industrial and Office Specialist, and Sales Management Specialist.

International Designations

CIPS – Certified International Property Specialist

Offered by NAR, trains agents in international markets.  Focuses on certain aspects of the transnational transactions including currency and exchange rate issues, regional market conditions, tax issues and more.  Applicants must take 5 courses, each focused on a specific continent/region.

IRES – International Real Estate Specialist

Designed to train agents in a second-home environment.  Topics touched on: how to start in a global market, how to obtain contacts, financing, leads, how to market globally, how to promote outside of your Multiple Listing Service (MLS).

TRC – Transnational Referral Certification

Offered through NAR, trains agents to make and receive compensated referrals using ICREA’s transnational referral system, including courtesy guidelines and best practices.  Self-paced course, 6 hour estimated completion time.

photo courtesy of Max Braun

San Antonio, we have a problem.

No one likes to talk about legal action when it comes to real estate. Let’s face it, no Realtor® wants to be involved in lawsuits or complaints against them and no consumer wants to have their home tied up in litigation or any serious legal problems. The fact is, it does happen. While we all work to make sure it doesn’t, legal matters do come up in the world of San Antonio real estate (and everywhere else for that matter).

There are many different ways to resolve legal conflict in real estate and thanks to the recent Hills of Rivermist slope failure, there is a need to speak about real estate conflict resolution. The word “arbitration” has come up in reference to the purchase agreements signed between Hills of Rivermist residents and Centex Homes, and although often confused with “mediation,” they are two different things altogether.

Real Estate Law

As this is a real estate law discussion, I must note that I am not a lawyer. Although I deal with legally binding documents and know and understand them, I am not here to give legal advice and advise all my clients (and all consumers) to read through their contracts carefully and seek a qualified real estate attorney if they are uncomfortable with anything they find in their contracts before signing them. Now that we’ve cleared that up, let’s continue.

Arbitration

I predict that arbitration will be on of the hottest words in San Antonio real estate this year. With The Hills of Rivermist residents battling it out with Centex Homes, arbitration has become a hot button issue here in San Antonio. According to reports, there was a mandatory arbitration clause in the homeowner’s purchase agreements that may just keep residents from suing Centex Homes.

So what is arbitration? A form of alternate dispute resolution, both parties agree to submit their case to a third party and act upon their decisions (binding arbitration). Non-binding arbitration does exist, but it is more similar to mediation (see below for more on that). The decision, when passed on is legally binding for both parties.

Home builders like mandatory binding arbitration to resolve disputes because it can be quicker and more efficient than a lawsuit. When it comes to home building, having your money and time tied up in the courts could be more costly than just face value of the legal action. Some opponents say it can also favor the home builder as the builder is a constant supply of work for the arbitration company.

Mediation

Mediation is similar to arbitration in that it involves a third party as a means of alternate dispute resolution. We use mediation quite often to resolve buyer and seller conflicts in San Antonio (and Texas overall). In Paragraph 16 of the “One To Four Family Residential Contract (Resale)” promulgated by the Texas Real Estate Commission, mediation is covered:

Paragraph 16. Mediation: It is the policy of the State of Texas to encourage resolution of disputes through alternative dispute resolution procedures such as mediation. Any dispute between Seller and Buyer related to this contract which is not resolved through informal discussion _will _will not be submitted to a mutually acceptable mediation service or provider. The parties to the mediation shall bear the mediation costs equally. This paragraph does not preclude a party from seeking equitable relief from a court of competent jurisdiction.

Using mediation to resolve these disputes allows for buyers and sellers to work with a mediator to find a middle ground to their dispute, but is non-binding. Neither party must obey the decisions of the mediator (who works with the parties as opposed to arbitration where the arbiter makes their decision independently of the parties) and there is still potential for legal action if the parties can not come to terms.

I encourage mediation as a first step to resolve any legal conflict arising from home buying and selling as it can be less costly, more timely, and resolve the issues without legal action. If the issues are not resolved, a real estate attorney should be contacted and options discussed from there.

photo courtesy of nolene

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What’s Taking So Long? Underwriting.

If you’ve ever bought a house, you’re probably familiar with hearing “your loan’s in underwriting” and then playing the waiting game until it “comes out of underwriting.” It’s one of the steps in the process of getting a loan and often one of the most frustrating. But what exactly is underwriting?

Underwriting is viewed as a mystical place where loans go somewhere between the time of pre-approval and final issuance of the loan documents. Underwriters are kept in secret and you’d be surprised to know that most real estate agents have never met an underwriter face to face (or if they did, didn’t know it). Loan underwriting is truly a world shrouded in mystery and for good reason – if we all knew our underwriters, it would be very easy for agents to poke and prod an underwriter to get things done. Underwriters would be under a daily assault of phone calls from agents trying to find out where they were in the process and in effect, would be rendered unable to do much more than answer the telephone. This is why lenders keep them locked away in dark caves in highly classified locations.*

Merriam-Webster Online Dictionary defines underwriting as follows:

underwriting – transitive verb
4 a : to agree to purchase (as security issue) usually on a fixed date at a fixed price with a view to public distribution b : to guarantee financial support of (underwrite a project)

To put it simply, the underwriter looks at all the supporting documents and says “yes, I think this is a safe loan to make, let’s do it.” Of course they can say the opposite too. This is how some people get pre-approved, yet wind up getting turned down for a loan. The underwriter is pretty much all powerful when it comes to you getting your loan. Because of their ultimate power, you and your real estate agent need to pay special attention during the underwriting process.

Yesterday, I wrote a somewhat tongue-in-cheek piece on AgentGenius about the power of underwriting, but many Realtors®, although they may have chuckled, also nodded their head in agreement.

It all boils down to this: if the underwriter asks for something, you as a home buyer, better do it. They will ask for ridiculous things at times. Doesn’t matter. They’ll ask for copies of things you’ve sent them four times already. Doesn’t matter. They’ll ask you to move a comma in a sentence in a document you sent. Doesn’t matter. They’ll ask for more information on something you’ve already documented to death. Doesn’t matter. Underwriting is about the lender covering all their bases – all that documentation you send in stays in a file and if something ever goes wrong (you default on your loan), the investor will want the lender to justify their underwriting of the loan.

Underwriting can be a nightmare for a home buyer (and a home seller as well – the longer underwriting takes, the more nervous they become), but by being pro-active and jumping through the hoops, you can get your loan in and out much faster and save some of the headaches caused by underwriting. Typically, your agent will also know what the underwriter needs to complete their job, so they may bug you about it too – the key? Get it done. Right away. Don’t put it off and don’t frustrate yourself with trying to find the answer to “why are they asking for this?,” they have their reasons and it doesn’t really matter what they are (although we can discuss them to death, the underwriter will still want them).

Of special note: it pays to have a local lender for your loan, because they often have better, more direct contact with their underwriting departments and can often help a file through the process by being able to have direct access to the underwriter should a problem arise. With some of the larger banks, their loan processing centers might be halfway across the country and you lose that personal one-on-one interaction between your loan officer and underwriter that can help get things done.

* I have no actual proof that lenders keep underwriters locked in caves or that underwriting is actually an ancient mystic art involving a combination of wizardry and voodoo.

Special thanks to my friends @mayaREguru, @linsey, @toddwaller, and @staceyharmon for the inspiration of this post during a conversation on Twitter.

photo courtesy of wonderferret

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Your home equity and fluctuations in the market.

As you may remember from yesterday, we were discussing home equity and how it works. Today we will take on appreciation and depreciation and its effects on home equity. Let’s start with some definitions, shall we? Appreciation is defined by Merriam-Webster Online as “increase in value.” Depreciation is defined by Merriam-Webster Online as “to lower the price or estimated value of.”

We’ll be working off of the same example as we did yesterday to keep things simple. Please remember, that these numbers were used to keep things simple; mortgages, the real estate market, home equity, appreciation, and depreciation would not necessarily be as simple as this in real life situations. If you need help with more complex home equity calculations, feel free to contact me or a local San Antonio lender. As a refresher, here’s the terms of our example:

Let’s set up an example so we can toy with the numbers. You’ve just bought a house (today, December 5, 2009) for $100,000. Your loan required a 20% down payment ($20,000), so you only borrowed 80% of the value of the home ($80,000). It’s a 30 year mortgage with a 5% fixed interest rate.

As before, red color on the graph represents the “amount you have paid on your home loan” and the green color represents the “amount you still owe on your home loan.”

Your home equity is growing.

Appreciation occurs when your home’s fair market value is greater than what you paid for the home. Appreciation can occur for many reasons; natural fluctuations in the real estate market, upgrades, repairs, additions, neighborhood conditions and improvements…a whole host of things can affect your home’s fair market value. Now, let’s take a look at appreciation as it relates to our example.

The new blue color on our graph represents your home’s appreciation in value. Let’s assume that the day after you bought your home, San Antonio announced a major development in your neighborhood that makes your home more valuable. Your home has appreciated. In the graph above, your home has appreciated by 10%. Since you bought the home for $100,000, this would make the home worth $110,000 now. You still owe the bank the $80,000 you borrowed and you used $20,000 for your down payment. Your home equity was $20,000, but because of the recent appreciation, your home equity is now $30,000 (appreciation plus current home equity). If you sold your house today (for the new fair market value of $110,000), you would pay off the balance of your loan ($80,000) and retain $30,000 (don’t forget there are costs associated with selling your home such as closing costs and Realtor® commissions).

Uh oh, your home equity is shrinking.

Depreciation is a loss in value of your home and affects home equity negatively. Much like appreciation in your home’s value, depreciation can be caused by many factors; natural fluctuations in the real estate market, wear and tear on the home, and obsolescence are the three best examples of depreciation of a property.

Returning to our graph (above) you can see that the new orange color represents your home’s depreciation. Still using the same example, let’s assume that the City Council of San Antonio just approved a small toxic waste dump in your area. Obviously, no one wants this to occur near their home and the consequences would be a devaluation of your home – depreciation. In the graph above, your home’s value has dropped by 10% or $10,000. Since you paid $100,000 for the home, 10% depreciation would leave your home at a fair market value of $90,000. We still have the outstanding $80,000 loan balance, so our effective home equity would be $10,000 (price paid for the home minus the loan balance minus any depreciation equals your home equity). This is exactly what we hope won’t happen to our homes – it’s always better to appreciate (and increase the equity in our home) than to depreciate (and decrease the equity in our home), but as we’ve seen recently – it can happen.

I hope you enjoyed this look at home equity in terms of appreciation and depreciation. If you have follow up questions, feel free to comment below or contact me.

What is home equity?

In covering some recent topics, such as yesterday’s post about the new proposals for changes to FHA loan guidelines, I’ve been talking a lot with people about home equity and thought I’d take a few moments to explain and show how equity works in relationship to your home.

The chart to the left will be used to illustrate the effects of different factors on your home equity (sorry it’s not a very cool looking chart, I never was much of a graphic designer). As you can see the red color on the graph represents the “amount you have paid on your home loan” and the green color represents the “amount you still owe on your home loan.” The red color is your home equity and the green coloris your debt (in this case, your mortgage).

Let’s set up an example so we can toy with the numbers. You’ve just bought a house (today, December 5, 2009) for $100,000. Your loan required a 20% down payment ($20,000), so you only borrowed 80% of the value of the home ($80,000). It’s a 30 year mortgage with a 5% fixed interest rate.

In our first example (see the graph above), we’ll keep things simple and ignore appreciation and depreciation. Let’s just pretend that you home will never increase or decrease in value over the 30 year span of your loan. It’s worth $100,000 today and will be worth $100,000 in 2039. The day you bought the house, you paid $20,000 as a down payment. On your first day, this is the value of your home equity. If you sold the house today for $100,000 (its value), you would owe your lender $80,000 for the loan and would keep $20,000 for yourself. Of course, you would never sell the home on your first day as that $20,000 in equity would also have to be used to be for closing costs and Realtor® commissions. Plus, you just moved in and you like your new place.

Since you borrowed $80,000 from your lender at 5% interest for 30 years, your monthly payments (not including property taxes and hazard insurance) would be $429.46 (you can figure this out using an amortization schedule, which I will explain in a future post). So every month you pay your mortgage and all is well in your life.

The way home loans are structured, your first few payment are mostly interest (your first payment is $333.33 in interest and only $96.12 in principal). As the years pass, this balance begins to tip towards more principal and less interest (your final payment in 2039 is only $1.78 in interest). In order to reach 50% equity ($50,000) on this home (as illustrated in the graph above), you would need to wait until September 2026. This means that if you sold your house in September 2026, you would pay back the bank their loan and receive $50,000 (remember we’re assuming no appreciation or depreciation in your home’s value). Once again your closing costs and Realtor® commissions would come out of that $50,000.

As you can see, it takes a long time to build up home equity just through normal monthly mortgage payments because of the way principal vs. interest is paid out of your monthly payment. Of course, this example didn’t have much in the way of real life application as we didn’t account for appreciation and/or depreciation. Tomorrow we will take a look at the two and see how they can affect our home equity.

Want to learn more about real estate contracts?

I’ve been writing a series over at ActiveRain to explain some of the finer points of real estate contracts in San Antonio, Texas. Based off of my series right here, Realtor® Speak 101, the idea of Realtor® Speak 102 is to bring more insight and education on what’s going on when you buy and/or sell your home. I think that the internet has really helped bring a spotlight onto all that we do as agents and I welcome it. The better educated the clients on the transaction, the more we can accomplish together.

You can read the series via the following links (I will update them as I write new posts in the series):

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What goes into buying a home?

This post could be a mile long (and probably will be) as there are so many details that go into the steps to buying a home. I wanted to write this as a basic look, so there will be many more details in the process, but I thought a good overview was in order.

Contact – First thing to do is contact me. I’ll have a lot of questions for you – what you’re looking for, where you want to live, have you been pre-approved, and whether or not you’re ready to commit to working with me (and I’m ready to commit the same to you).

This last one is important, but often misunderstood. In order for me to work for you, we must commit to each other and begin an agent-client relationship. We do this by entering into a contract called the “Residential Buyer Representation Agreement.” This agreement covers my duties to you, your duties to me, and defines the legal framework of our relationship. In my opinion, it’s one of the most important documents you’ll sign (up until you close on your new home). In Texas, without that agreement in writing, I technically represent the seller when we look at houses and not you. Why go look at houses with someone who legally doesn’t work for you, but rather for the seller? It’s a no brainer in my book.

Search – Now that we’re working together, we need to get down to business and find you that perfect home. I’ll perform searches of our MLS based on the criteria you gave me (and we will refine it over time – adding and subtracting criteria to get the best results) and send you homes that match what you’re looking for. This is the fun part. You’ll start to think about the details of homes and what is really important to you. Much of this step is done through email and phone calls until we’ve identified a handful of properties you’d like to investigate further. At that point, we begin setting up a schedule to view the homes and we’re off on our house hunt.

Showings – This is what most people remember the most about the process of buying a home. Going out and looking at the homes we’ve identified as potential matches. I recommend comfortable shoes, an open mind, and a camera. I’ll give you the MLS printout for each property so you can take notes as we go along and I do recommend you take them. After you’ve seen a few houses, the details tend to blur together so those notes will help take you back to the home later when you’re trying to remember if you liked it or not. As we find homes you like, you’ll start to get a picture in your mind of the top few choices…we may need to go out once, we may need to go out several times, but somewhere out there is your new home and we’re going to find it.

The Offer – When we find the home you’re ready to buy, it’s time to make an offer on the home. We’ll take a look at what’s been selling in the neighborhood to get a good picture of the fair market value of the home and discuss a price. Making an offer is more than just price though. When do we want to close? Do we want them to leave the pool table behind? Who pays for the survey? What title company will we close at? Do we need them to fix anything before we agree to purchase the home (and before we get an inspection)? Do we need help with closing costs? Each detail needs to be weighed into the overall offer. Asking for the home at half the listing price with $50,000 in closing costs, is probably not going to get us the house. We need to look at your needs as well as what will look best to the seller (my job is to get you the best possible terms in the contract, but we need to be mindful that the seller and their agent will be doing the exact same thing). We not only want the best terms for you, but we want to make it a good solid offer so that we can get it accepted.

During this time, we will also more than likely have some additional paperwork to sign off on. Some will be Addenda to the contract – Third Party Financing, Seller’s Disclosure, Lead-Based Paint Addendum – there is a form for just about everything you can imagine. I usually also have some office specific forms for you to sign – information about Oak Wilt in Texas, home inspections, and residential service contracts (commonly known as home warranties) are just a few.

Negotiation – Unless the seller’s accept your offer as is, the next step is the back and forth of negotiations. If the seller makes a counter-offer, we will discuss the pros and cons of their offer and decide what to do next. We can accept or go back to the drawing board and counter their counter-offer. The idea is to get everyone to come to an acceptable agreement, but of course, since I work for you and not the seller, my goal is to keep the offer as close to the original as possible. This part can be frustrating for buyers (and sellers too) because some people get stuck on one thing in an offer at this point and won’t let go. My job is to make it as easy on you as possible and we will be in constant contact back and forth until we come to an agreement. I’m looking forward to a day of this as I write this post. When all parties are in agreement, we’ll get all the signatures and turn it in to the title company. We have a contract.

Option period – Now that we have a contract, it’s time to get working. When the house was on the market, it was considered an “active” listing. The home now moves to “active option” (as long as we provided for that in the contract – which I always suggest we do). I see a lot of questions about “AO” and what it means, so please check out “Realtor® Speak 101: Abbreviations” for more info on the abbreviations Realtors® use in the MLS to define what the status of a property is. During the option period, the buyer has the right to terminate the agreement for any reason. Because of this, we do our inspections during this time. After the inspector does their work, we decide if we’re going to ask for any repairs or not. If we do ask for repairs, we will need to negotiate the terms with the sellers once again and come to an agreement.

Pending status – This is typically the period where most buyers and sellers feel like nothing is going on. It feels like you’re waiting for ever, but there is a lot of work going on behind the scenes. Lenders are preparing to make the loan, the title company is making sure no one else has a claim on the house, property insurance quotes are being looked at, appraisers are coming out to the home to make sure the price reflects the value of the home. During this time, you’ll receive a lot of paperwork and phone calls asking for more information or documents to support the loan. We need to stay on top of all of these details. If something arrives in the mail, call me and we can go over it. Don’t let anything sit unopened on your kitchen table – some of the documents you receive may need a response and we need to act right away in order to make sure everything runs smoothly.

Closing – The day is finally here! The house is about to become your home. We’ll need to do a final walk through of the house to make sure it’s in the condition we expected it to be. If the movers dropped the Steinway Baby Grand down the steps while packing up and left huge holes in the wall, we’ll need to address those with the seller and their agent. Once we’re satisfied, we head to the title company. The enormous stack of papers on the table is waiting for you. You’ll sign your name a lot today. The escrow officer at the title company will explain each document and ask you to sign or initial where appropriate. Do not be afraid to stop them and ask questions. You are signing a lot of legal documents, so it’s best you understand them fully. When you’re done, you’ve officially bought yourself a new home. However, here in Texas (and other states I’ve lived) you may not be handed the keys. Possession of the home typically takes place upon closing and funding. This means the bank has to wire the money to the appropriate places to get everyone their funds. At times, this can take another day or two. We try our best to get the bank to move quickly, but in my own experiences I have walked out of a title company with less money, a sore hand from signing, and no keys. As soon as the funding occurs the title company will contact us and we can get your keys and enter your new home. Congratulations!

photo courtesy of cloneofsnake

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What’s the answer? I’m so confused.

Update: The amendment allowing for the extension and expansion did eventually pass and was signed into law by the President. You can read up on the new rules and changes in “First Time Home Buyer Tax Credit – The New Extension And Expansion.” The tax credit can still not be used as a down payment, unless you are using it as an additional down payment on top of your 3.5% (for FHA loans).

In my continuing series of answers about the First Time Home Buyer Tax Credit, there’s yet another update. Last week, the Department Of Housing And Urban Development (HUD), re-released Mortgagee Letter 9-15 in an effort to allow consumers to “monetize” their First Time Home Buyer Tax Credit and use it at the closing table.

You may have heard rumors circulating that the idea of this new change was to allow consumers to borrow against their tax credit and use the money as a down payment. Well, the rumors aren’t true… sort of. A little history may show us what’s going on. On May 12th, HUD Secretary Donovan made a speech at NAR Midyear and more or less announced the new program that HUD was opening up. In this announcement, he spoke of Mortgagee Letter 9-15 (Mortgagee Letters are the directives issued by HUD to lenders telling them what they can and can’t do), and upon first inspection of this directive, the idea of it was to allow buyers to temporarily borrow the money they would be receiving from the IRS and use it as a down payment for their new home. By May 13th, this letter was gone from the HUD site and damage control began. It appears that the final version of the letter was not yet ready and it created quite a stir in the Realtor® community. In an effort to combat the “early” announcement, many of us Realtors® were a firestorm of blogging and phone calls to help our clients and readers understand what was going on (government at work). On May 29th, the new version of the letter was released.

On first inspection of Mortgagee Letter 9-15 (.doc) everything looked alright and I waited to make any announcement about the letter, as I didn’t want another confusing fiasco on my hands. While reading the letter a little closer however, I discovered the true key to its contents:

Pursuant to 12 U.S.C. 1709(b)(9), the homebuyer’s downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity). Accordingly, the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs.

That last sentence (in bold) is the kicker to the entire Mortgagee Letter 9-15. It states that although you can use the loan against your First Time Home Buyer Tax Credit as a down payment, it can not be used for the FHA required minimum 3.5% down payment. In effect, you still have to put up a down payment, but you can use the First Time Home Buyer Tax Credit loan to increase your down payment or to pay your closing costs. While this can prove helpful to some, I don’t think it’s exactly what everyone was hoping for in terms of helping get buyers motivated to clear out the inventory of homes on the market that have helped bring the economy down.

I do think this can be useful to some. Have a seller who’s not willing to contribute closing costs? The bridge loan could help. Want to put more down than you have? This could help (on a $100,000 home, this could equate to an additional 8% down, increasing your total down payment to 11.5%). You can not walk away from closing with any of this money however, so you won’t be able to use it to get the money faster (I had seen some questions on this). It is a loan, so there will be interest and fees (not to exceed 2.5% according to HUD) attached to it. Your best bet is to sit down with your lender and talk about the advantages and disadvantages of using the First Time Home Buyer Tax Credit like this. You may still be better filing an amended return and receiving the check from the IRS for you to use as you please (including building savings, pay off other debt, make repairs or updates to your new home, or reducing the principal on your new home).

As with any Mortgagee Letter from HUD, this is only a directive of what lenders can and can not do. Until your local lender has a system in place to put this into practice, it’s only as good as the paper it’s printed on. It’ll be interesting to see how many lenders do actually make the jump and put a system in place to use this new monetization of the tax credit as it is truly up to them whether they find value in it or not. There have been several Mortgagee Letters in the past that never really went anywhere, because the lenders never implemented them, because they found no real value in them.

I hope this has helped clear up some of the confusion. If you’re looking for a great lender is San Antonio to sit with and talk about the potential of this bridge loan and ask some general mortgage questions, contact me and I will gladly provide you the name and number of several lenders in town. By sitting down with a lender today, you can prevent a lot of headaches tomorrow.

Interesting note: While looking through blogs to find some “related articles” (below), I was still finding a lot of misinformation or incomplete information. This is one of those things that will probably continue to be a swirl of controversy and uncertainty, but I am dedicated to staying on top of the issue in order to bring you the most complete and up to date information available.

photo courtesy of Martin Kingsley