The Real Estate Sage at The Real Estate Investment Institute - REII

Wordless Wednesday Getting Ready For Thursday

Packing breif case.

  

Clearing my head

Getting Ready For Meeting REBarcamp is Thursday in Austin.

It's time to get ready. Thime to pack in my briefcase:

Business cards.

Note book.

Pens.

Business cards.

Small video camera.

Camera batteries.

Cell phone.

Cell phone batteries.

Business cards.

HP-12c.

Half a dozen Pcanllyticalconstrictus CD's. Or what ever you give away with your name on it.

Business cards.

A couple of "One House"

Lawyer In A Book"CD's Nope we're in Texas!

Laptop. (Check wallpaper!)

Extension cord and plug splitter.

Blank CD's. 

I don't intend to speak but better pick a subject incase: "Not Your Fathers Real estate! Grandpa's!" Hide notes on the palm of my left hand.

Know what you need! I'm looking for a project either a subdivision site or apartments, new or restoration.

Remember the two most important questions in real estate! When talking to REALTORS always ask: 

"What's your best opportunity?" it get's REALTORS talking!

Then the most profitable question in real estate "What's your biggest problem?

Take notes!

Collect business cards.

When shaking hands never let go until you've got their name!

Confirm Hotel.

Fill the gas tank. Have the oil changed.

Business cards.

Date! I don't want to go alone! Brenda!

Hey, good lookin, what ya cookin Thursday?

How's about cookin something up with me and 300 others?

Hey sweet baby, don't you think maybe,

We can find us a brand new recipe?

I've got a hot rod Ford, we'll leave it home take the Toyota instead. And I know a spot just over 290

There's soda pop and the ideas are free.

So if you wanta have fun, come along and learn something with me.

It's free and I'm ready, so we can go steady,

Hey, good lookin, what ya cookin Thursday?

How's about cookin something up with me and 300 others?

(Sorry Mr. Williams. At least I didn't try singing!)

Just two more items:

Business cards.

Open mind!

See you Thursday! I'll be the big gray haired guy who walks like a lame Quzimoto.

　

　

　

 

Real Estate Signs In The Age Of Agency is it time for listing agents to rethink the traditional real estate sign?

If you've made the choice to be a listing agent as opposed to a buyer's agent or duel agent it is time to rethink your signs! Real estate signs sell allot more than the home where they are posted. Real estate signs generate calls from real estate buyers! Real Estate Signs In The Age Of Agency either waste allot of leads or violate your agency, even buyers that may want your listing will not be able to buy it from you if you do not practice duel agency.

With the exception of a few nosey neighbors, the people that call from your listing signs are at some stage of buying a house. Traditionally when a buyer calls the listing agent, the agent is prepared to not only talk about his listing, but also similar homes in the area. True listing agents as opposed to duel agents can't ethically even close on the prospects wanting his listing. It's catch 22!

Real Estate Signs In The Age Of Agency perhaps in addition to the traditional sign rider for the listing agent it's time to add a second one for a trusted buyer's agent!

(More to come...)

Go'in To Meeting, I know it sounds like a line from "Angle and The Badman." To me Go'in To Meeting/s was and is a way of life.

Go'in To Meeting is something we chose to do. Profiting by Go'in To Meeting is an additional choice! If your purpose is just to be seen, like so many on Sunday mornings just Go'in To Meeting is sufficient. But, if you want to profit from Go'in To Meeting weather it's socially, educationally, business wise, or religiously you need work at it. You're going to have to break out of your comfort zone!

Real estate is a people business! Real estate is best learned from people, that is after you've read my books. Understanding real estate is best achieved by interacting with fellow real estate people. Profiting from Go'in To Meeting requires interaction! Interaction with people we don't interact with on a daily basses. Interacting with virtual strangers.

Are you willing to do what's necessary to learn, to enjoy, and to profit from every meeting, every social event, every class?

Are you willing or are you a cow?

Cow? Yes, most people Go'in To Meeting like cows go to milkin'! For the benefit of those who've never seen cows go to milkin', let me explain. Cows are milked two or three times a day everyday. Cows are always milked in the same order. At milkin' time the cows line up outside the milking parlor in the very same order every time! The lead cow goes to the door first then each cow takes up their place, nose to tail with the one ahead of them. They stand their brown nosing their leader and being brown nosed by their follower.

At most meetings with people who work together they act like cows! Grouping with the same people they see and work with everyday, sitting with friends and associates, often standing or sitting in the same order as their desk back at their office, just like cows! Cows get milked, but they get nothing else out of the experience! People get seen, they put in there time (often only because it's required CE's) but they get little else!

These same people claim piety, they claim expertise, simply because they're Go'in To Meeting, putting in the time, listening only to the presentation, exchanging ideas with the same people they had coffee with yesterday and will again tomorrow. Taking faux comfort in avoiding new ideas! The truth is they wasted their time!

There is unbelievable potential in every potlatch of real estate people, regardless of the program!

You will get no business, no insight, no inspiration from your current friends and associates at the meeting that you hadn't already got or won't get tomorrow! If you desire to learn, if you desire to network, if you desire to profit by Go'in To Meeting then you have to get out of the milking line and meet people!

There is tremendous opportunity at just such a potlatch in Austin, Texas March 11, 2010! Brenda and I will be Go'in To Meeting! Did I mention? It's free!

Get more information and register here: RSVP today, visit http://rebarcamp.com/austin

It's a good place to be seen. Even the cows will benefit. It's a great place to learn!

 

An Ideal Start To Buying A First Home. We all at some point experience longings for a home of our own. Like puberty the timing will vary from individual to individual, but it's the same hormonal urge rushing us towards adulthood! The same need, a nest of our own! There are variations of course, but by and large the majority seek a home of their own.

Last week Jeff Belonger wrote: As a first time homebuyer, not knowing anything about buying a home, where do I start? Realtor or Loan Officer?? Asking who to start your journey towards a first home with. There is An Ideal Start To Buying A First Home. It is not with either REALTOR or Loan Originator. Depending on your status you start with your spouse, or that proverbial group of three, Me, Myself, and I. In a quite place, with a pad and pen, listing your desires, listing your needs, listing your resources/assets, listing your income/s, and listing your expenses, painfully listing realistically listing your expenses!

An Ideal Start To Buying A First Home, would then be to gather the documents you have to verify that income, two years tax returns, two months bank statements, two paycheck stubs (covering at least 4 weeks or more), two years 1099's which are not always attached to your tax returns. Gather or print-out all your latest bills.

An Ideal Start To Buying A First Home will have you seeking a "Good REALTOR!" Finding a "Good REALTOR" is a separate subject suffice it to say a referral from a knowledgeable source is your best resource. From me, many may find that to be surprising, but a "Good REALTOR" is worth their weight in gold! Start with a "Good REALTOR" if you can, but always meet with a lender before looking at houses. A "Good REALTOR" will not show you houses before you've qualified with a trusted lender!

A "Good REALTOR" will then suggest you meet with a trusted Loan Originator for a pre-qualification/pre-approval depending on the program you'll be using! An Ideal Start To Buying A First Home will have that REALTOR going with you to the lender or having the lender meet with you in the REALTOR's office. A "Good REALTOR" will sit in on the entire application! A "Good REALTOR" will assure that you're communicating the same information to the lender you did to them. A "Good REALTOR" will ask questions of both you and the lender to make sure the lender is communicating with them!

An Ideal Start To Buying A First Home will have a good lender encouraging your REALTOR to sit in on the initial interview. A good lender working as a team with a "Good REALTOR" can place almost all realistic would be home buyers in a home of their own!

Two things happen when you meet with the lender and REALTOR together, better understanding and you're more likely to close on the property successfully! If you're not willing to have your REALTOR know your finances and qualifications or if your REALTOR doesn't want to sit in or know your finances RUN! If the lender doesn't want the REALTOR with you, RUN! You're about to make the biggest and longest commitment of your life you need a good team, you need their overlapping professional advice and fiduciary!

An Ideal Start To Buying A First Home will lead to a life time of great memories!

There is nothing to add!

Jason said it all.

RE Barcamp, March 11th, Austin!

Aggressive Seller Representation, sales agreements for listing agents! In the age of agency listing agents rarely write a sales agreement. Listing agents may not even have a sales agreement form in their laptop and if the do they may not know how to fill it out. They may be great at executing counter offers, but writing original offers are simply not their job.

It's a shame because sales agreements used properly by knowledgeable listing agents are a great aggressive tool for listing agents.

Lets look at several areas where the listing agent should originate a sales agreement:

Short Sales: The best chance at getting a short sale approve by the seller's bank is for that bank to see the offer is a winner for them. If the seller believes the offer needs countered for any reason, it's not always wise to counter in the traditional manner. A new sales agreement on terms acceptable to the seller presents a much cleaner view to the bank. A traditional counter puts the agreed upon price at the end of the agreement or on an attached addendum! Every time the seller's bank picks up that agreement there on the first page is that lower price. Cover letters, estimated HUD-1's, and addendums may all have the correct price, but it may be over looked. Not to mention all the added paper! I don't think the seller's bank is going to be impressed that the seller was trying to protect them. An even worse case is when the counter is directly in the seller's interest. You don't want to hide anything, but countering at the end of the agreement or on an addendum is like waving a red cape at a bull! (Some may ask what would the seller want? Possession comes to mind, short sales having unpredictable closing dates, you're lucky to estimate the year properly let alone the month. Possession is very important to the seller!) Very, Aggressive Seller Representation!

Another reason to start with a clean form is when the countered points are so numerous as to make the original offer ambagious! Simplyfing it is Aggressive Seller Representation.

There is no difference between sellers pre-approving a fresh offer than signing a counter offer! Both will have to be agreed upon and signed by the buyer to be valid. Very Aggressive Seller Representation!

There is also a time for the seller to execute a sales agreement at the time the property is listed! As my readers know I sold allot of small investment properties. When a property is rented If very successfully approached tenant with a pre-approved sales agreement from the seller! (The seller knew their credit and income, at least if they'd been one of my students.) I did this allot more with commercial rentals. On one two unit store I prepared two offers one to each tenant, I presented them together with a contingency that the first one signed as written would be accepted! I sold the building for cash 18 hours after listing it! Aggressive Seller Representation indeed!

I used a seller initiate offer at listing once when there was a neighborhood feud. I got the seller to sign an offer to his hated next door neighbor, I convened the neighbor he could by the house for only 10% above the list price and control his new neighbor! They were not nice people, but unfortunately I knew both of them, even worse back then the broker did the closing with everyone in the same room at the same time! Again, Aggressive Seller Representation.

Note: Pre-approve offers need to be completely executed, with names and dates, time allowed for acceptance before being signed by the seller.

Then there is the most controversial reason for the seller to write a new offer: Many offer forms have suffer from morbid obesity, many having 20 or more pages that disclaim any and all statutory and implied liability by the buyer's broker. Some of these really do hurt the seller, there is no protection in them for the listing agent and some are nearly impossible to read. Some forms just aren't acceptable!

Aggressive Seller Representation needs to be clearded with your broker, like every thing else.

Professional Best Friends, paid companions! Are you traveling through the most trying time of a would be home owners life not as a fiduciary, not as knowledgeable advisor, but as a paid companion, a Professional Best Friends! Acting like an experienced best friend, a yes-man instead of advisor?

For forty years I've been harping about ours being a people business! Regardless of everything else we do, buyers agent, listing agent, Loan Originator, or Stager we are in the people business! No matter how great your real estate skills success requires considerable people skills. Indeed in good times many have succeeded with little or no real estate skills, succeeded on people skills alone!

More than ever today's market takes a real estate professional with considerable real estate skills in addition to people skills. We will always need to hold the client's hand as we go through the processes of real estate, but it's our duty as real estate professionals to behave as such! Not Professional Best Friends!

Flagrant emotionalism has no place among the professionals in real estate, there is enough emotion expressed by the clients. Real estate professionals are suppose to be a guide, responsible for the protection of the client and a trusted advisor! Not Professional Best Friends!

Everyone has friends both true and erstwild or family to give them bad advice, they don't need a yes-man! They don't need another amateur advisor reacting to situations because they don't understand them, find them funny or offensive!

A real estate professional's job is not to impose your own standards, but to protect the client from himself! Your standards as opposed to the client's may well make you guilty of civile rights violations. Not showing properties because they offend you is steering, not providing loan programs you have available because you don't believe in them violates equal lending. Refusing to write or present offers violates both local and state laws.

Making friends with your clients is great, after the closing! Clients need professionals, not paid companions! Not Professional Best Friends!

Bedlam Prevails President Barack Obama today appeared in Las Vegas announcing a one point five billion dollar, that's $1,500,000,000 of our Great Grand Children's tax dollars program to buy Harry Reid's way to reelection!

Now I would like to have seen the Las Vegas area saved! But, what are they going to do with all this money? The houses are already foreclose upon!

I remember reading about a Democrat proposal to tear down huge portions of major cities, could it finally be happening? Could we return North Las Vegas to pristine desert?

It's just a simple question, what are they planning to do? Bale out the banks? Maybe pay down the mortgages on the remaining homes? Perhaps we could import the poor for a twenty first century land rush! Maybe a rush program to import illegal aliens, if we rush we could register them to vote in time to save Harry.

Politics a side how are all those tax dollars going to help once the homes are lost, the jobs gone, and the people have moved on?

You might want to look at: http://apnews.myway.com/article/20100219/D9DV7SS00.html

 

Get Motivated. Warning! Get Motivated. Warning! Get Motivated. Warning! Get Motivated! Warning!

" Danger! Danger! Danger! Will Robinson!"

Get Motivated Seminars are coming after you in El Paso they're coming after you in Waco. They'll be picking pockets in Ft Lauderdale. They'll shake down Savannah! They'll defraud the folks from Beaumont!

Almost two months ago . from 4710 Eisenhower Blvd. Suite B-5
Tampa, FL 33634 started advertising their Get Motivated Seminars in Houston Brenda and I ordered tickets for one of the two live presentations, they also had two closed circuit presentations. They had some really big name speakers we wanted to see. Brenda scheduled the time off I cleared my calendar. Up early we get within sight of the building and encounter a traffic jam! An hour and a half later we get to the head of the line. The police are turning everyone away! It seem Get Motivated Seminars, Inc. Over sells there programs and then has the police drive off the ticket holders!

I had warnings! The tickets and books we ordered and paid for never arrived! I called about the tickets the Friday before the Monday morning program. It was no surprise to them although they claimed they sent them, it must be SOP! Ask for the tickets at the will-call desk I was told. Of course the will call desk if it existed was way beyond those cops, their guns, and barricades!

I called and ask for an explanation, I was told I was simply late. I'd arrived almost two hours early.

I ask for my money back! I was told that it would be ten days until they would consider refunds. I ask for a supervisor, I was told it would be a day or two until a supervisor would call. That was 11 days ago! As I post this still no tickets, no book, no money and no supervisor!

I got the same run around yesterday! No supervisors! Then they switched the story my money had been returned! Not according to my bank!

I Goggled Get Motivated Seminars, I could have saved allot of hassle! It seems this is their standard pratice! See: http://www.complaintsboard.com/complaints/get-motivated-seminars-c156138.html

Reading further I was very surprised those speakers I wanted to hear were pimping a get rich quick scram!

This is from the complaint board linked above:

　

"They are selling a $3950 dollar, 2 day course in day trading, for an unbelievable price of $99 with the idea that you will get rich from their award winning software. What they don't tell you is that after the course, you will not be able to use the complete software without taking an advanced course for as much as a $1000 more and then after that course, taking another PHD course for as much as $10, 000 or more. The illusion is that you can get rich for $99 but the reality is that they will keep after you until you use up all the money on your credit cards plus whatever else you can borrow."

We expect this out of the Florida and Utah real estate guru programmers, but not from the caliber of speaker Get Motivated Seminars was presenting!

Get Motivated. Warning! Get Motivated! Warning!

" Danger! Danger! Danger! Will Robinson!" Get Motivated Seminars is after your wallet and time!

 

 

It's not about the money, but if I'm going to donate $20 I want it to go to Haiti! It's all about Get Motivated stealing my time and your time! It's about big name whoring!

 

Bribes, Kick-Backs, Betrayal, Fraud, Are you accepting them? Are you paying them? Have you been betrayed? Have you betrayed your client? Are you a victim of fraud? Have you committed fraud/s?

Is historic precedent a viable defense?

Is common practice acceptable?

Is being legal sufficient?

Is disclosure sufficient?

Is morality relevant?

Is transactionalism a defense?

Is a disclaimer/s sufficient?

Is perception a problem?

Bribes, Kick-Backs, Betrayal, Fraud

     It's been done this way forever!

Is common practice acceptable?

     Every one does it, it must be ok!

          I don't know any other way!

Is being legal sufficient?

     It is legal in our state!

          We've got a new law that fixes the problem!

Is disclosure sufficient?

     We told them we might be doing it!

 Is morality relevant?

     It's moral to make as much as I can!

Is transactionalism a defense?

     I don't represent anyone!

Is a disclaimer/s sufficient?

     I told them I'm not responsible for any thing!

Is perception a problem?

     I don't care what they think!

          It's not my job!

Bribes, Kick-Backs, Betrayal, Fraud

We're talking of course about the "Buyer's Agents" being paid by the seller. More to the point, "Buyer's Agents" being paid more than the local norm by the seller. Even worse the buyers often don't know about these Bribes, Kick-Backs before making an offer!

Most real estate pro's will point out that this is the way it's always been done witch is almost true. What these salesmen are doing when rationalizing their behavior is forgetting that for over 20 years now we've had "Agency" in most states. When all of us worked for the sellers as either agent or sub-agent there was no fraud, we all were paid by our fiduciary, the seller. Of course there was the little problem of the buyer legally lacking representation and the selling agent's conflict of interest! This came to a head in 1984/5/6 with "agency," a bastardization of logic. "Agency" has the buyer supposedly being represented by his own agent, but in most cases being paid by the seller.

The seller paying the buyer's agent is the problem! Sellers and their listing agents control the commission and the listing agent in most cases controls the split between offices. They can and some times offer bonuses both above and below the table. When the commission offered the buyer's agent is standard in any given market there is no problem with Bribes, Kick-Backs, Betrayal, Fraud? Alas setting such a standard is illegal and some agents are worth a lot more than others! Yet such price fixing would eliminate the problem of Bribes, Kick-Backs, Betrayal, Fraud?

Agency at the very lest creates the illusion of representation. The illusion of the buyer's agent working for the buyer! But, is such an illusion believable when the seller and his agent pay and control the buyer's agent's compensation? While there are many good agents that do maintain their fiduciary to the buyer, unfortunately there are many that don't! There are even more that suffer from the illusion this travesty of logic presents.

Is it hard to believe if there are two similar homes with the only differences being situs, price, and commission to the buyer's agent that the agent is at least tempted to only show the more profitable one?

Bribes, Kick-Backs, Betrayal, Fraud?

We're all tainted, painted by a broad brush!

For insight on a very specific variation of the problem read Debby Maxwell's article: Steering? You Tell Me. I Say, BUYER BEWARE

Is there a solution? Possibly!

One, eliminate dual agency in all geographic areas where there are sufficient brokerages to provide services to both the buyer's and sellers. Possibly go so far as to provide two separate licensing systems one for listers and one for buyer's agents, like the English do with their lawyers, solicitors and barristers.

Two, Force lending reform that recognizes the buyer's agent fee as part of the purchase price. (This is why we don't now have true buyer's brokerages for home buyers.)

Three, The simplest and most immediate solution would be for Buyer's Agents to use a contract that states their fee as a fixed dollar amount, with that being the total compensation the agent will receive from all sources. If the selling agent shares in the listing fee then this amount to be credited to the buyer's agent's fee any overage would be remitted to the buyer and shortage would be due the buyer's agent at closing.

Four, The best way of course would simply be to totally split the listing and agency contracts. This of course would require lender cooperation.

 

Is historic precedent a viable defense?

The Hardest Thing About Learning is recognizing the problem! The hardest thing to teach is recognizing the problem! The hardest part of life is recognizing the problems amongst the extraneous nuisances and their various nuances! The Hardest Thing About Learning is recognizing the problem!

I was lucky I've had a lot of great people in my life. People that participate in life and never hesitate to give back, to give a helping hand. People that truly believed that it's better to teach a man to fish so he can feed himself than to feed him and make him dependent!

I did my first teaching in the 4-H program, as a member of their Junior-Leader Club. I taught horsemanship and photography to kids and not a few adults, things I'd been taught by some kind, knowledgeable, and very patient people. The Hardest Thing About Learning is recognizing the problem! I was taught to recognized and define the problem! If indeed there really was a problem!

As an adult the first things I taught were interpreting credit reports and mortgage loan qualification, for my first real estate broker. I taught at both their local office and at their state wide real estate institute, the only one in Michigan at the time. At about the same time I took several totally useless classes from the Local Board of REALTORS, when I complained and made suggestions, I not only found myself on the Education Committee, but chairman of the sub-committee for seminars a job I would hold for 10 years! It was from that position that I was drafted by a local collage to take over the last 10 weeks of two 13 weeks courses for an instructor who had a heart attack. I enjoyed those classes and when on to teach 10 semesters of Real Estate 101 and Real Estate Math 101! The only thing I ask the school was to not allow pre-licencing students. Pre-licencing is memorizing not problem solving, not living. It's now 35 years later and I've still never taught pre-licencing. In Real Estate or Math I teach problem solving, The Hardest Thing About Learning is recognizing the problem!

The Hardest Thing About Learning real estate or real estate math is not the law or the math! Life is an open book test! You can look up facts and math-tables. The Hardest Thing About Learning is seeing and defining the problem! Life never ask you "how much is (5 X 9) + the square root of 64" math teachers will ask such things life never will! Even worse, life will put the information needed to solve all the worlds problem in front of you when all you want to know is how big is a house and what is the cost per sq. ft.! The Hardest Thing About Learning is recognizing the problem and what is the relevant information!

Oh, 53.

It's easy to teach 2 + 2 or 7 X 3, grade school teachers can do it. So what? For over 30 years we've had calculators that can do it faster and more accurately, today most cell phones can too! Yet, today math skills are useless because people don't know the problems, don't know how to sift the relevant information from life. A few months ago I called a listing broker about the square footage of her listing, she told me "no one knew" because it wasn't on the local assessor's web site. I ask if she knew the dimensions of the building? This broker sincerely told me the seller said "the house was 26 X 40, but no one could prove it because it wasn't on the assessor's site either." I thanked her kindly and hung up. "Here is your sign!"

Oh, 1,040

If we are to serve our clients or even just our transactions we must learn to recognize the problem! Each problem, separately! Each problem relevant to our client or the transaction, separately! We must determine the relevant facts amongst the cornucopia of life. The Hardest Thing About Learning is keeping our eye on the goal and leaving the extraneous nuisances and all their irrelevant nuances wait till you've solved the client's troubles!

Successful REALTOR Or Failed Social Reformer, you can't be both! Social reformers more often than not lack the ability to see the obvious! Those that succeed are so few as to be irreverent to this discussion. Personally, I've ben jousting with windmills all my life, but I'm selective and pragmatic about it! The problem is the perception of wrongs.

Wrongs so often depend upon a particular point of view. Morality is always practiced subjectively! What would be immoral if done to you is often considered morale when done by you! Few have trouble taking from socialism/communism yet no one wants to give according to their ability. The difference is personal perspectives, some people feel entitled to others money others feel entitled to keep what's theirs!

Such is the sorry reaction to a gift from GMAC. GMAC announced a new requirement for them to accept short sales. The details are irrelevant here because there is a great discussion at: SHORT SALE MARKET EVOLUTION - GMAC SOLUTION TO FALSE BUYERS

The social reformers are having fits, it's not right, not fair, it's interference, they scream! They are right, it's not right, not fair, it's interference! But, so is GMAC! It is after all GMAC's money they would take for their needs.

Regardless of the fairness, this is a gift from GMAC to would be short selling home owners and their buyers! It's a blessing to REALTORS! We now know one more requirement to successfully closing a short sale on a property financed by GMAC.

Successful REALTOR Or Failed Social Reformer, the choice is your's you can use this information to succeed or you can fail in your attempts to reform them.

You can joust all you want, but this is not a noble fight worth winning. Out law GMAC's demands and they can simply turn down your kind offers to take their money! Your steed awaits.

Don't claim to be defending anyone's honor! The only thing these reformers are pprotectingg is their own right to a portion of a forfeited earnest deposit.

Rules right or wrong are liberating. Known rules offer opportunity! Using the rules leads to success, your client's success, and your success!

This is nothing new. In October of 2007 I published: Rules Restricting Or Liberating?

It's your choice you can be a Successful REALTOR Or Failed Social Reformer! Help your clients or fight the system.

I'm a big supporter of 2, 3, and 4 unit properties for first time home buyers! Brenda and I bought our first duplex in February of 1971 just before we were married. Three of our first four properties were duplexes. More than half my sales the first two years in real estate were 2 to 4 units.

My first development consulting project was to help a builder get financing for a subdivision of 4 plexis. The builder couldn't get a construction loan. My solution was to get the project approved FHA and VA, then presenting a marketing plan for selling to young veterans. We built in closing cost and using VA a vet could close with no money out of pocket. Non-vet's need 3% down. The bank financed the construction and we sold out shortly after the frist units were finished.

Jeff's article is must reading!

A Consumers Guide To Mortgage Brokers And The Evil Yield Spread Premium in 2010.

Kick backs, hidden cost, back points, HUD (Housing and Urban Development) calls it "Yield Spread Premium" (YSP), money paid by the a lender to mortgage brokers outside of closing. Money paid by the lender to the broker for you, because you chose a higher mortgage interest rate. Mortgage brokers are suppose to show this on line 801 of their "Good Faith Estimate" and escrow will show it on the estimated and final closing statements (HUD- I) when closing a loan for a mortgage broker. You'll never see these "YSP" on a loan from a bank, mortgage banker, Savings and loan, thrift, or credit union! Congress and HUD are again expressing concerns overYSPmisclaiming undo enrichment of mortgage brokers and their agents. The news media often mentions "kick backs" to mortgage brokers, and yet this practice continues! Why?

To understandwe need to understand mortgage pricing. The traditional bank offered one mortgage interest rate that fluctuated occasionally, after WW II loans often included an "Origination" fee (normally 1 point, 1% of the loan amount) more recently we have seen many additional bank and third party fees. Until about 1973 mortgage banks and mortgage brokers as we know them dealt mostly in "government" loans (FHA and VA, western brokers also offered private money loans what we later called "hard Money" loans.) the rates were set by the FHA and VA respectively if these rates were below the current market (FHA and VA don't have any money of their own to loan.) the lenders added "discount points" to increase the "Yield" sufficiently to make money available. When FHA and VA stopped setting artificially low rates we soon saw wide spread use of these "discount points" to buy-down interest rates on all types of mortgage loans. At some point lenders realized that they could also let consumers have a credit for higher rates to offset other cost including origination fees, this became what we now know as YSP! YSP's don't raise broker's fees they offset them!

After 1974 when mortgage brokers began their dominance of the mortgage origination market (estimates had mortgage brokers originating 75 to 90% of all mortgage loans) still your bank normally had one rate and it included one origination point, mortgage bankers normally have "the rate" and one "buy down" rate.

Strangely, mortgage brokers have many rates in 1/8% increments of rate, spanning 2 or more % interest. This is strange because the money offered by the mortgage brokers comes from banks and mortgage bankers, the same banks that offer only the afore mentioned, two, higher cost, rates to their retail clients.

About half the rates available to mortgage brokers were the traditional "Buy-down" rates costing up to 2 points and sometimes more, than the so called "par rate" (no discount cost to the broker) the other half were "buy-up" rates paying the broker up to 4 points. The payments, kick backs, hidden cost, back points, etc... were finally named "yield spread premium" by HUD about a decade and a half ago. It's not uncommon for a mortgage broker to have available a 6 point spread (4 points YSP to 2 discount points) available on any given loan program. That 6 points on a $300,000 loan means up to $18,000 difference in closing cost, money needed to close the loan, regardless of all the other closing cost.

Yet, all that extra cost only means about 2% difference in the interest rate. Most consumers don't have the luxury of choice, they seldom have an extra $18,000.00.

Unless they need the lower rate, higher cost loan, to qualify for the loan the lowest rates seldom make sense, some thing another HUD acronym distorts. (APR or "Annual Percentage Rate, spreads the up front loan cost over the life of the loan, witch always favors the high cost lower rate loans, but neglects the fact that loans are rarely keep to maturity.)

A quick glance at the rates and discount points might make you think that you'd always save money after 3 years ( 6 discount points divided by 2% interest reduction) but that's not true. The idiosyncrasies of loan amortization mean that the break-even point is normally closer to 5 years, not counting the time value of money (Those expensive up-front points.) Today it's still rare that a mortgage loan actually exists for much more than five years.

Yet HUD and congress keep trying to buy your votesby mis-clamming YSP is evil and there are abuses by mortgage brokers of this "hidden" cost.

Selected witnesses offer tales of over charges and hidden cost that are bone chilling. Claims of over charging abound. The problem they say is only mortgage brokers charge this hidden fee. What they don't explain is that for just a little bit more money they can get the same loan with out the YSP from a banker! What they forget is consumers don't pay the

YSP! YSP by definition is a payment from the lender/bank to the broker, it's the bank sharing in the premium they'll profit from because the loan you chose is 1/8 to 2% above the "par" rate.

Bankers don't receive YSP because it's just a small part of their profit on every loan! Taking the YSP off the loan disclosures doesn't save money, it only saves confusion! Is it worth more up-front money out of your pocket for the same loan to avoid the confusion? As much as 6% of the loan amount? Especially when the confusion was created by the banks and Congress to favor the banks? Adding to the confusion the latest regulations (Effictive 1-1-10) keep lenders from giving preliminary estimates in a form you can understand or compare with the "Good Faith Estimate" or "HUD-1"

Again there are calls for reform. "Reform" is always an interesting term, it implies you're better than the unreformed. The argument is that only mortgage brokers charge YSP, but is it a charge? Indeed the latest reforms are better for the banks!

Why don't banks and mortgage bankers have to disclose their profits?But, we don't require any other business to report their profits to anyone except their stockholders and the IRS. It is only when the loan originates with a mortgage broker that the part of the profit is called YSP.

Couldn't consumers go directly to lenders to save money? It sounds good but it doesn't work that way! Loans from mortgage brokers are almost always less expensive, because of competition! Thanks to mortgage brokers the mortgage origination business is possibly the most competitive business in the country! Secondly, success! Mortgage brokers are able to close loans for more consumers, because they have more than one source for a loan. When the consumer doesn't qualify for a bank's program he's turned down, that's the end of the application. The turned down consumer will never know that several other lenders would take his loan, mortgage brokers get more loans approved.

Evil mortgage brokers have all those fees! Yes there are a lot of cost in closing a mortgage loan. Direct lenders advertising low closing cost are simply using some of their profits to absorb those costs, mortgage brokers do this all the time using the YSP to off set the consumers cost. Normally the direct lender can avoid showing you the real cost, where the broker will have to show all the cost and issue a credit!, he'll also show the YSP adding to the consumer's confusion. When a consumer sees a long list of costs he may never notice the total at the bottom of the page may be less than the direct lenders short list. All other terms being equal, the only way to compare loans is to check the amount out of pocket and the monthly payment.

If Congress and HUD are investigating the evils of YSP, won't we be better off? A few years ago the same people investigated "predatory lending" a couple of large direct lenders had preyed on a southern state. To cure the problem we now have new law "Section 32." The new law did nothing to help the people suffering form the "predatory" lenders. What the new law did was to drive more morally cognizant lenders out of the business of helping troubled borrowers! If the lender now makes one of these high risk loans they must have the client sign a new form in escrow 3 days before closing that says if you don't make your payments you could lose your house! I've only been in lending since 1969 but I've never seen a mortgage or deed of trust, that didn't very clearly say if you don't make the payments you could lose the house. The only thing the new law accomplished was to reduce competition in this already expensive field driving up prices, and cause a few people to lose their home or worst because their loan was delayed.

The new "Good Faith Estimate" does even more to confuse the consumer! YSP looks more like a charge than ever and there is allot more room for lenders to distort reality!

There's a relatively new high-bread mortgage banker the Corespondent lending division of some mortgage brokerages that combines almost all the advantages of a broker while acting as a mortgage banker. These high-breeds also offer great rates. The bottom line is that you have to check all sources, because the only real protection the consumer has is the personal integrity of his Loan Originator!

　

 

Three Little Understood Terms. Real estate has a languish all it's own, derived from the common jargon, but specific to real estate and contract law. Real estate, lending professionals and attorneys have a duty to use them properly, but often misuse them through ignorance or deliberate abuse.

Fiduciary: a duty to act in the best interest of your principal/client. It sounds simple, but many that claim or are required to act as Fiduciaries often use lengthy contracts disclaiming all fiduciary responsibilities. Still others ignore fiduciary duties. Then there are those who embellish their position, believing it requires them to be all things to their clients. This latter group often mistakenly believes a client can only have one fiduciary, them! Then we have the mortgage pro's that often have no idea and no clear cut guidance to whom they owe their fiduciary.

(Some states have ended the confusion with so called "transactional brokers." This is a lower level of service, but surprisingly is often a much more honest one! I believe only California mandates mortgage fiduciary, and only for those licensed by the DRE.)

"Attorney At Law", These professionals are licensed members of the Bar. Attorneys at law are like REALTORS assumed to have their clients fiduciary, but like REQLTORS you need to read your contract with them, they may be a fiduciary or they may not, or they may disclaim all responsibly. Depending on the state you're involved with REALTORS may often act like attorneys. Check very carefully and select advisedly, most/all states have strict limitations on non-attorneys giving legal advice, some are just less restive!

Just being licensed doesn't assure expertise in either field.

Our third term today is: "Attorney In Fact" This is the most misunderstood! Real estate people often act like their fiduciary duties make them the client's "attorney in fact" even though they never use the term, they mistakenly switch from advising a client to acting in-place of the client! "Attorney In Fact" is only established by executing, according to local law, a document called "power of a attorney" which can be either special (limited) or general (they can do anything in your name that you can do!). "Power of attorney" is the highest form of fiduciary! To be some ones "attorney in fact" requires no license of any kind only an executed "Power of attorney!"

If you are going to make decisions for your clients you're acting as an "attorney in fact" you'd best have the "Power of attorney!"

Turning down an offer is a decision!

Saying "NO!" even to a verbal inquiry is a decision requiring the "power of attorney"! Advising a client to say "NO" is a fiduciary function.

("A verbal inquiry is not an offer!)

Playing Woodyatake Is Never Professional!

"Woodyatake, $147,500.00? Woodya? Woodya? Woodya? I said would you take $147,500.00?"

"NO! I'm asking $177,500.00 not a dollar less!"

Or: "Woodyatake, $747,500.00? Woodya? Woodya? Woodya?"

NO! I'm asking $777,500.00 not a dollar less!"

Or: "Woodyatake, $1,747,500.00? Woodya? Woodya? Woodya? I said would you take $1,747,500.00?"

"NO!  I'm asking $1,777,500.00 not a dollar less!"

The would be buyer's agent is foolish and the listing agent is almost as wrong.

The would be buyer's agent is foolish and the listing agent is almost as wrong.

In a current parallel to my example see: Call Me Anytime, Mr. Buyers Agent...Agency Does Not Have To Be Adversarial

Yet, this is one of the most common exchanges in real estate, to understand just how down right foolish this is we need to remember an old joke and the movie it inspired.

The old codger approaches the young beauty and ask: "Woodya sleep with me for a $1,000,000.00?" She thinks quickly and says "Yes!" He then says "Woodyatake $20.00?" To which she indigently replies "What do you think I am?" He looks her in the eye and slowly says "We've already determined that!"

There is only one correct answer to the question "Woodyatake?" and that is "Are you offering...?" Had the young Lady ask if the codger was making an offer, she'd have reviled nothing about her virtue or lack there of. But, we'd have established that the codger was also a lech.

It's the same in real estate if you say yes to "Woodyatake" with out an offer the offer will come in lower, if you say "No" you may never get to see an offer that you could have accepted or negotiate to an acceptable compromise.

If a listing agent had answered a buyer's agent asking "Woodyatake?" with "Are you offering...?" Both clients would have been well served.

Many agents believe that the sale price is always the most important term on a sales agreement, well it's not always true. If you get suckered into playing the "Woodyatakes" you do your client a major disservice, and I don't care which side you're representing.

A "No!" answer makes negotiating almost as impossible as no offer!

 

Calisanity and Forinaside.*

Calisanity: The highest degree of insanity. Manifest it self in self-centered self-important celebrity. Like mad-cow it comes from intimate contact with over adoring sheep.

Forinaside: The ultimate self criticisms by an entire state.

Proof: http://www.latimes.com/news/local/la-me-rain-barrels1-2010feb01,0,1154413.story

The People's Republic is proposing to charge new home owners $13/ gallon of excess rain water running off their lots!

This bill could stop building and major remolding of homes and commercial properties in California.

Cap and Trade could stop the resale of properties nationally.

* It only takes a few politicians to taint every one. 

Stone Tablets In The Second Decade Of The Twenty First Century. Have you ever wondered why we teach Religion to our very young?

Can things that happened two thousand year or so ago have meaning in the second decade of the twenty first century. Can things I learned starting more than fifty years ago and ideas I first published about twenty five years ago have meaning today?

I don't remember when I started Sunday School, it had to be sometime before four 1952 or ‘3. I do remember among all those wonderful stories there was always a Moral. Along came Mosses and the Ten Commandments. The only thing I could relate to was Honor thy father and mother.

We learned so much that seemed so irrelevant.

There was all that begatting, and the prohibitions, the thou shall nots. The only thing we knew was that it was something old people did. We never believed we'd ever be that old. It would be another decade before we'd discovered that girls didn't have cooties!

We couldn't relate to this stuff!

We didn't even know we had a begatter. Why not teach kids something more practical? Like when on the farm, if nature calls don't drain your begatter anywhere near the electric fence!

As we aged and various temptations arose,

we found that we'd long ago unknowingly decided how we'd behave.

Some where along the line I discovered I been blessed, I grew up surrounded by truly great people, my Parents, my Grandparents, my Great Grandparents, and their friends. They'd all left their imprint on me.

It wasn't until about twenty two years ago as I was approaching forty that I even analyses why I was who I was. At the time I managed several Loan Originators making some really bad decisions. I couldn't relate to these people. Worse, I didn't know why.

After much sole searching, I came to some answers. I realized why Sunday Schools, Parents, Grandparents, Great Grandparents, and Friends teach the young so much they can't relate to at the time! My decisions in life were formed well before, the questions were ask. All those Great people had influence me. I was making decisions on how I'd behave before I faced temptation! In the Marines we learned our "General Orders" a Marines "General Orders" establish how he behaves when there's no one around to give specific orders.

It was an embarrassing epiphany!

We make our hard decisions based on the rules we'd we accepted for our self long before facing temptation.

There is no harder decision for real estate people than doing what's right when the money is on the table. Good people who've never faced or considered such decisions can make mistakes.

 

 

These were the same good people I had hired, they simply lacked the guidance. They need "General Orders" or Commandments. They needed to decide how they would behave before facing temptation.

The next day I first published what have become known as Bill's Rules.

　

I. Thou shall protect thy license above all.

　

II. Thou shall protect thy client above all, but thy license.

　

III. Thou shall protect thy referral source above all, but thy client and thy license.

　

IV. Thou shall protect thy commission above all, but thy referral source, thy client, and thy license.

 

If I had been writing for real estate agents My Rules would be:

 

I. Thou shall protect thy license above all.

II. Thou shall protect thy client above all, but thy license.

III. Thou shall, know and practice thy Code of Ethics.

IV. Thou shall , know every bit of public information about you're the subject property.

V. Thou shall protect thy commission above all, but thy code of ethics, thy client, and thy license

 

 

Commissions v Fiduciary Is It Time To Scrap Commissions? Can you maintain your fiduciary duties when your compensation, your very survival is dependent on a commission paid only at closing?

Should your integrity cause your insolvence? Can you maintain your fiduciary and not get paid? Is the very idea of a commissioned fiduciary an oxymoron?

Should your sage advice require altruistic self-sacrifice?

A trusted, knowledgeable, broker and friend recently wrote disparagingly about a knowledgeable client who excised his option to opt out of a short sale. The very option he as a true fiduciary included to protect his client in such a drawn out situation!

Residential salesmen today face what commercial and investment brokers have always faced, drawn out, long term transactions. Compared to just two years ago today's agents face work and time per transaction and considerably more fall out!

When compensation is totally dependent on a commission at closing can any advice to close be relied on? It matters only slightly whether we're talking about buyers or sellers how can your advice to close be trusted?

We've adopted "agency" which like "listing" implies and on going relationship if should a given offer fail, but we all know damage is done! We know that to move on means more work for the same fee.

"Agency" still has the "agent" dependent on the "seller" for his commission! How can your fiduciary trust you when your compensation dependant on the seller and seller's pay varying rates? Sellers even pay bribes! In addition to higher than normal commissions may builders will pay buyer's "agents" bonuses, often in incredible amounts! How can anyone be trusted to maintain their fiduciary when faced with such legal bribes?

Commissions v Fiduciary Is It Time To Scrap Commissions? No I got it wrong! It should read: Commissions v Fiduciary It Is Time To Scrap Commissions!

It Is Time To Scrap Commissions! It is time to make the last step towards true professionalism, Professional compensations! Not to be mistaken as most do with the amount of the compensation! But, getting paid for the time you work!

More latter.