Understanding Real Estate Commissions- The Long and the Short of it

I get asked this a lot- "who pays your commission?"

The short answer:  The seller.

The long answer? Keep reading...

Most transactions in our market are either short sales (where the lender eats the commission) or REOs (where the bank pays the commission). BUT if you are in the unique position to be selling a home that has some equity YOU are the one who will be paying the commission to both the listing and selling agents.

Here are some common concerns when it comes to commission:

How is commission determined?

The commission is agreed upon when you (the seller) and your listing agent sign a listing agreement prior to the property going on the market. Also in the listing agreement is your authorization for the listing agent to advertise what the buyers agents commission will be.

If I am unhappy with the offer I received on my home can I renegotiate your commission?

Well.... yes and no. What is published in MLS as the "cooperating broker compensation" (technical term for what the buyer's agent gets) is binding even if it is an error- UNLESS you have a very understanding and cooperative buyer's agent on the other side of the deal who is willing to take something other than what is advertised.

What you have already agreed to pay your listing agent can be renegotiated after you receive offers on the property, but honestly it is really bad form. It is the same as agreeing to pay your mechanic for fixing your car then when you pick it up after he does the work you try to get him to cut you a deal. If your home is on the market a while and you are concerned about selling it for much less than what you had planned, the time to approach your agent with your concerns is before they bring you offers. Since commission is agreed upon between the listing firm and the seller, the buyer and their offer are not a party to it so the two should be treated separately. A good time to bring up a commission reduction may be when you discuss a price reduction, and the terms can be changed in a Modification of Terms Agreement. Most of us agents are very sensitive to your concerns and very cooperative and will work with you the best we can within the guidelines set forth for us by our broker, but with that said we do have to make a living.

Can I offer the buyer's agent an increased commission to entice showings?

Yes!! The typical commission split is 50/50, meaning 3% to each agent. That is not set in stone though, so if you want to be more competitive you can offer a 4/3 split or a 3/2.5 split- it is completely up to you and your agent and can be laid out in your listing agreement.

I still don't understand! What am I paying for? How much is it again?

You should never be afraid to ask questions- ESPECIALLY when you are about to sign on the dotted line! As a general rule I go over the listing agreement with my sellers in grave detail so I know I did my best in helping them understand. If your agent does not do this, please ask questions before you sign. A good agent will not have a problem with this and will answer your questions until you are fully satisfied. In addition, when you invite an agent over to your house to discuss listing it for sale, they should bring with them an estimated closing statement that will have real dollar amounts on it estimating your costs in selling your home. This will change as offers come in and taxes and interest are prorated, etc, but for every price reduction and every offer received your agent should be giving you one of these. This document WILL have the commission clearly itemized on it. Please look at it so you are not surprised at closing time!

For more information on this or any other commission/real estate related topics, please do not hesitate to contact me.

There Are NO Guarantees When You Buy A Short Sale!

The learning curve is getting pretty steep when it comes to short sales lately. There are still surprises cropping up that are teaching us all a valuable lesson- there are no guarantees when you buy a short sale.

Recently some clients of mine who were buying as an investment received an accepted offer on a short sale. The home had two loans (first with Bank of America the second with Chase) but only the second was being paid off short. Our approval came relatively quickly, but once it came we were all shocked to find out that we only had 7 days to close escrow! Being a cash deal this is entirely possible but since it was right before Christmas it was going to be tight. Disclosures were signed and our home inspection was scheduled for day 3 of 7. Just before the home inspector was supposed to go out to the property the listing agent called and informed me the house had sold at the trustee sale that morning.

What does that mean?

It means my buyers don't get the house because someone else owns it now.

Bank of America, even though they had ASSURED all parties involved there was no sale date set, and had fully cooperated with the short sale proceeded with foreclosure just two days prior to the new buyers taking possession of the property. All of us were in complete shock. Not only did we not see it coming, but Bank of America was being completely paid off in the sale transaction and would be made whole through the sale. They undoubtedly lost tens of thousands of dollars in foreclosing instead.

So what is the lesson here?

In this scenario based on the information available none of the parties involved could have known the house was going to trustee sale. There was nothing noted on the tax records or on Foreclosure Radar and the listing agent was given false information. However- that is not always the case. When you are buying a short sale it is vital that your agent and the listing agent and the owner of the property are diligent in working with the bank and staying abreast of the public records to be sure the information being conveyed by the bank is in fact accurate.

The secondary lesson to this is essentially to not get your hopes up. There are a couple disclosures you sign as a buyer that let you know that there are no guarantees when buying a short sale, and situations such as this are the exact reason why you sign such disclosures. Don't get me wrong, it certainly does not make it any easier, but if you know and understand from the very beginning that this outcome is a possibility it makes it a much easier pill to swallow.

New Short Sale Law in California (and what it means for you)

Back in July a new law was signed into effect by Governor Jerry Brown aimed at helping California homeowners selling their homes through a short sale.

Previously, lenders who held second mortgages that were used for "cash out" purposes could seek deficiency judgements against borrowers for the balance that was forgiven through short sale. First mortgage holders however were not able to do so. The prospect of the future collection of the debt for many homeowners was a terrible proposition which is what brought about this change. Banks who hold second (or junior) liens on properties of no more than four units are no longer able to seek a deficiency judgement against the borrower no matter the original purpose of the loan if the borrower voluntarily sells the property.

What does this mean for you? If you have a second mortgage on your house and you do a short sale, the owner of the second mortgage cannot collect the balance of the debt from you no matter how large the amount was that was forgiven or why you took out the loan in the first place. This could mean a faster recovery of your credit and even the prevention of filing for bankruptcy.

Furthermore, banks can no longer require sellers to make a cash contribution or sign a promissory note at closing if the short sale lender and the buyer cannot come to an agreement on the sales price of the property.

What does this mean for you? After going through all the work to find a buyer for your house and completing a short sale your lender cannot make your short sale approval conditional upon you either signing a promissory note for a specified dollar amount OR mandate that you contribute cash out of your pocket at closing.

If you would like to read more about SB458 please email me and I can send you more detailed information.

The Big Deal About Home Warranties

If you are anything like me- you never opt for the "extended protection" for your purchases, because you know that it is usually a waste of money. It always happens that when I have something that breaks I am just out of my warranty period even if I have begrudgingly bought the extended one.

I feel differently about home warranties though.

Tradition usually dictates who pays for the home warranty, which start around $350 for the first year. In the Modesto area the seller typically pays for the warranty but often times on bank owned properties and short sales the seller will not contribute for one. It is your option as the buyer though to purchase one yourself. "An extra $350+ on my closing costs?" you say, but it could end up saving you lots of money.

Here is an example:

Yesterday I received a frantic phone call from a buyer who just closed escrow on her house last Friday. After moving in over the weekend, they realized Tuesday afternoon there was water backed up in the showers, sinks and toilets. There was wet toilet paper all over her front lawn (yuck). Undoubtedly a sewer blockage somewhere.

I was able to make a quick phone call to Old Republic Home Warranty, and within a couple hours there was a plumber at her house working on clearing the blockage- all for a $60 trade call fee- which is far cheaper (and less stressful) than paying for the entire service out of pocket after having just gone through the expense of closing on your first house and moving.

This is just a small example, but I have had clients use their home warranty for heater and air conditioner repairs, new dishwashers and even new pool equipment. They really do pay for themselves even if you have to pay for the warranty yourself. Just remember- spending a little money now can save you thousands later.

FHA Loan Limits May be Going Down. So What?

You may have been hearing lately that FHA loan limits in certain counties will be decreasing starting October 1. Currently in Stanislaus County the largest FHA loan a borrower can get on a residential 1-4 unit property is $423,750. Given our decline in values that amount of money can get you a pretty darn nice house. If the limits are allowed to go down, however Stanislaus County's limit will decrease to $276,000 which is nearly a $150,000 decrease.

You may be wondering how this is relevant. It is in fact entirely relevant to everyone, so keep reading. 

Not only does FHA lend money to first time buyers, they make the loans accessible to people who do not have a ten to twenty percent down payment or do not otherwise qualify for conventional financing.

You are not one of those buyers? OK, fine. But what if you are selling a house though at the higher end of the limit? Obviously you want your house available to as many buyers as possible. The conclusion is simple: 

Lower FHA limits = fewer buyers who can purchase your home

Or, let's say you are on the cusp of the limit. Your house on paper is worth $295,000. You might have to reduce your price to fit into the guidelines to entice buyers, which is certainly not going to do any favors for values in your neighborhood or your wallet.

It is essential as we emerge from this massive real estate mess we have gotten ourselves in we do not stifle the growth we so desperately need. There are still a lot of foreclosures- even though many have not hit the open market yet. Government moratoriums on foreclosures are only putting a finger in the crack in the dam, so to speak. The homes are out there- and they cannot stay hidden in the shadows forever. Limiting the purchasing power of buyers is not the key to reestablishing a stable real estate market and economy.

I urge you to click HERE and fill out a short form that will send a message to our elected representatives to vote to extend our current, higher FHA loan limits. It only takes a minute and it could save you thousands.

I Am Trying To Buy Your House, So Why Are You Making Me Jump Through Hoops?

For many buyers getting a pre-approval for a loan is a stressful, daunting process. You are essentially handing your life (on paper) over to a complete stranger who is going to comb through it with grave attention to detail and scrutinize it in every way possible. It makes you uncomfortable, undoubtedly. You are finally done- letter in hand and a smile on your face. Now you've found your dream house- but wait! Your agent breaks the news to you: "This house is owned by (insert name of "big bank" here) and they require you to submit a SECOND pre-approval from ONE OF THEIR LOAN AGENTS  before they will review your offer". Suddenly the anxiety rises up in your throat again- you think to yourself "Again? I have to go through this AGAIN? How could this be?"

The fact is that this practice has become commonplace in the Modesto area with the volume of foreclosures we have been seeing. So, that begs the question, why do they do that? 

The answer is a simple one: Money. They have already lost boatloads of money on the house you are trying to buy. They are trying to recoup some of that loss by hopefully converting you to a borrower in addition to selling you the house. They can recoup the loss through the long-term servicing of your loan. (i.e. you pay them interest for the next 30 years).

One very important thing to remember though- if they accept your offer after you jumped through their hoops, they CANNOT make you use a specific lender. You have the right to choose. 

Is it annoying? Yes. Is it a pain in the rear? Certainly. Is it of any benefit to you? Sort of. It is a good way to get a second opinion so you are confident you are getting the best pricing and terms available. Also, it could mean getting into your dream house!

For more information on the loan approval process or a referral to a loan agent, please contact me via telephone at 209.614.3303.

Just Because Your Father/Uncle/Friend/Brother-In-Law is Handy, Does Not Mean He Should Do Your Home Inspection (Part 3 of 3)

Congratulations! Your offer was accepted! At this point the first question I get from buyers is "now what?". Well aside from your lender starting your loan process, we need to arrange for your inspections. If you have been reading parts 1 and 2 of this series you have probably already decided what inspections you are going to get. Now you have the task of deciding who you will hire to do them.

Typically your agent, who likely has built a relationship with various inspectors over their career, will steer you in the right direction of who to hire. If you trust your agent you can safely assume they will refer the right service providers to you. If you are thinking of using someone else, here are some things to consider:

1. Just because your father/uncle/friend/brother-in-law is "handy" does not mean you should have them do your home inspection.

Unless they are licensed and make a living in their given field, I DO NOT reccommend doing this for two reasons: first, they are not qualified. Just because they have nicely remodeled their own home themselves or bought/sold properties before does not mean they are qualified to evaluate the condition of the property for you. Second, if they miss something BIG you have no recourse. Home inspectors generally have errors and ommissions coverage in the event of a future dispute over items found in the inspection so you as the buyer have some recourse if there is a mistake made. I understand it is a cost saving measure, but it is not worth it.

2. Hiring the right professional carries more weight when asking for repairs/concessions:

If you use an inspection or a bid from a vendor as a reason to ask the seller to pay for repairs or take money off the sales price, the seller will ask to see the reports and/or bids. A bid or report from a qualified professional (that does not have the same last name as the buyer) will be taken much more seriously by the seller because they know it is truly an unbiased opinion from an independent third party.

3. Choose the right professional for specialized inspections:

If you are having something specific looked at, such as a water heater, air conditioner or pool equipment, have the right vendor look at it. As experienced as some handymen are you should not get a bid from one to do heater and air conditioner repairs for example. If the roof needs repairs, have a qualified roofer look at it. It may cost you a little more up front, but the knowledge and expertise you will get from them in the long run will be worth it.

These considerations are especially important in a market such as ours here in Modesto where many homes are vacant and we have no contact with the previous occupant to help assess the home. Buyers are virtually going in blind, so having the most qualified people evaluate the home for you are your best bet.

Modesto's Real Estate Deal of the Week!

This week's deal is in Modesto on Ortega Avenue near Coffee and Briggsmore and Memorial Hospital. The area is close to schools and transportation routes making for a very convenient location. The home is a three bedroom, 2 bathroom and 1350 square feet on a large lot- priced at an incredible $89,900.

Why is it a good deal? This home is not only a good deal for owner occupants, it is a good deal for investors. The same model home has sold recently in the neighborhood for upwards of $120,000 so with a little sprucing up the home could be an incredible rental. As a first time buyer it is a great opportunity to enter into the housing market in a home that you can customize to your specifications over time and build equity. Since there are similar homes in the area that have sold for much more than this home buying at the low end of the neighborhood spectrum will help you build equity more quickly in this stagnant market we are in.

If you have questions about this, or any other property please contact me here, or you can visit my website and start your own customized property search.

How Do I Decide What Inspections to Get? Part 2 of a 3 Part Series

When I started in real estate in Modesto eight years ago there was no such thing as short sales and bank owned properties. There were only regular people selling their homes. Buyers got inspections, found things wrong, then insisted the sellers repair the items and the buyers were happy because their inspection expenses were offset by the repairs they received. Nowadays however with so many short sales and bank owned properties inspections have taken on a new purpose. They are, for the most part, for informational purposes only because distressed sellers will not make any repairs to a property 99% of the time. Most of the time you are looking at a vacant property with no information from the previous occupant leaving many questions unanswered. This is where a home inspector comes in handy- he can help you address some of the mystery involved.

Home inspections aren't cheap though- and when you start adding on pest, roof, chimney and pool inspections you can hit $1000 in expenses before you know it.

So which inspections should I get, if any? Well I am supposed to reiterate to you over and over again the importance of home inspections- and they are important, but they are not for everyone. Here are some examples and tips on maximizing your inspection expenses.

1. Prioritize your inspections: Decide with your agent what inspections are most important and do those first. I would suggest starting with a home inspection. Often times if there are pest related issues or roof issues the home inspector will note that he sees a potential problem and suggest you have those items looked at. You can then do those inspections on an as-needed basis. Also, if the home is newer construction it is less likely there are going to be significant deferred maintenance issues from prolonged neglect or bad repair jobs.

2. Be realistic: Are you planning an immediate top to bottom rehab of the home? If so, a home inspection will probably be a waste of your money. Homes that are in major disrepair either from neglect, vandalism or long term vacancy and obviously have major issues a home inspection is going to tell you the obvious. A better use of your money would be with a pest inspection, which would reveal structural infestation that you cannot see (see Part 1).

3. Go a la carte: If there are certain items that are of specific concern, have them looked at individually to save money. Let's say the home is in visually good physical condition overall, but the air conditioner looks questionable. Rather than pay a home inspector $350-$400 to come look at the entire property, have an HVAC contractor come and just look at the HVAC. It will likely cost you a quarter (or less) of what an entire home inspection will cost and you will get a far more qualified evaluation of the system. The same goes for plumbing or electrical issues. If something looks obviously wrong having a plumber or electrician take a look will get you a far more qualified opinion (often cheaper too).

4. When to absolutely not skimp: If you are a person who cannot (or will not) complete simple DIY projects, are on an extremely tight budget, or have little to no knowledge about the simplest home repairs, get all the inspections you can. Not everyone is this way, but we all know this person, right? The one who can't change their own light bulbs or air conditioning filter- let alone own their own set of screwdrivers? If this is you, do all the inspections you can- and it is vital you hire the right kind of people to do the inspections for you. That topic will be covered in part 3 of this series.

5. Two inspections to never skip: This will apply to only a small portion of buyers in the Modesto area. If you are buying a home with a well and/or septic system- NEVER skip those inspections. Septic system repairs (and replacement) can be extremely costly and since they cannot be looked at visually it is vital you have them inspected by a septic contractor during escrow. On a traditional sale the seller typically pays for this but on a short sale the bank may not pay for it. It is about $450 but they empty the septic tank, test it and test the leach lines. Having the well tested will ensure your well is operating properly (so you have running water).

The last, most important piece of this puzzle is your Realtor. It is important that you work with someone who has the experience and knowledge to help guide you and advise you through these issues. Many of us have years of experience not only as homeowners, but as agents overseeing major repairs to properties. I personally have seem damage and repairs of all kinds and enjoy being able to pass that knowledge and experience on to my clients. Stay tuned for part 3 of this series that will address how to choose the right inspectors for the job.

Modesto's Real Estate Deal of the Week!

This week's deal of the week in Modesto is located on Durant Street near College and Rumble behind Davis High School. Durant is a quiet street with well kept ranch style homes that were built in the 1960's. It is walking distance to schools and parks, and in close proximity to shopping and the freeway.

This home is 4 bedrooms 2.5 bathrooms and 1800 square feet. There is a separate living room and family room, hardwood floors, ceiling fans, dual pane windows, a 2 car garage, and best of all- a sparkling pool! This property is bank owned and the bank has painted the interior and put new carpet in several of the rooms. The asking price is $174,900. Additionally the seller is offering 3.5% of the sales price for the buyer to use towards closing costs.

Why is this a good deal? I feel that this home is an excellent buy not only because of the location, but because of the size and amenities of the home for the price. This home has plenty of space for a growing family, and the neighborhood has a long established track record of being a great place to raise a family. It is move-in ready and it is a home that can grow and change with you and fit your needs for a long period of time.

If you have questions regarding this or any other home for sale, please contact me HERE