Serious Real Estate

The Things You Hear at a Party

Risa and I went to a wedding shower Saturday night for a couple who are clients and friends.  Well, actually, the entire room was full of clients and friends, as this is what happens when one client becomes a friend, and then friends refer friends, and so on.

But that's not the point of this post.

While chatting away with Chad and Matt, our newest friends and clients, this interesting story comes out about an agent they had worked with two years prior to working with Risa.  The conversation starts off with a compliment to Risa about how she listens to what it is they want, and helps them satisfy those needs and wants.

I sort of thought that was how it was supposed to work all the time, but in reality, I know better.

What did the other agent do differently?

"He dragged us all over they city, but we wanted to see properties in a very specific area."

Really?  Why would that be?

"He kept taking us to his own listings, whether they fit our criteria or not."

I'm not against dual agency if it's done correctly with full disclosure and clients are willing participants, but when you hear stories like this and see crazy things like this on HGTV, you have to wonder what some agents are thinking sometimes.

Diamond Rings and Lexus SUVs

There are two videos from Crains Chicago Business about "Agents Who Sell the Swankiest Properties".

We've met one of these agents, and there is no doubt she sells a lot of real estate in Chicago.  But what we don't get is why the video producers had to focus on things like the diamond ring one of the agents was wearing, and why driving around in the other's Lexus SUV was so important.

I wonder why it's so important when consumers of real estate marketing services probably don't think so.  In fact, I'd bet that consumers would actually be turned off by it.

I'll Be on RealEstateRadioUSA.com Talking About Video Later This Afternoon

Risa wrote a bit about how we manage to get quite a bit of media attention from doing things a bit differently than just about everyone else on the block.

Well, I'll be on Real Estate Radio USA again today around 4:40 PM CDT talking about our new Lincoln Square real estate video and how consumers react to it.

I'll post the link to the show after they get the show archived and online.

Chicago Real Estate Photos

One of the many things we do better than other agents is utilize photography well.

No matter what price bracket your home is in, we do everything we can to stage your property properly for sale.  Moving furniture, clearing clutter from counter tops, re-purposing a room, and even buying flowers for your dining room table - it's all just part of a day's work, and it makes a huge difference in how your property is perceived by potential buyers.

But first things first.  All the staging work we do is completed just before our professional photographer arrives to shoot photos of your property.

Take a look at the difference in quality you'll find with our real estate photos vs. much of what you see on-line when you're searching for homes.

An easy way to see all our photos is to subscribe to our Chicago Real Estate Photos RSS feed.

If Rates are Low, Should Everyone Refinance their ARMs?

I’d like to thank Dave for inviting me over here to Serious Real Estate to talk a little bit about mortgages. I’m a mortgage banker who normally hangs around my blog, Illinois Mortgage Rates and News.

Refinancing is suddenly hot again. Rates are dropping and this could be a chance for a lot of people to redo their mortgage and save some money. But the question is, does refinancing make sense for everyone who is paying a higher interest rate? No way. Even if it does make sense, the mortgage guidelines have changed, and some of the people who would benefit the most aren’t going to be able to qualify. Refinancing will help a lot of home owners, but whether it helps you or not depends on a lot of things, not just how low of an interest rate you can get. Let me explain.

One of the big issues now is the huge number of adjustable rate mortgages that will come due and reset this year. I’ve seen estimates as high as one trillion dollars – that’s one with twelve zeros behind it! That is serious money, and I’ve read a lot of commentary about how damaging this could be to our economy this year. But if you are one of those people with an ARM, should you be worried that your interest rates are going to go pop up and make your payment unaffordable? Probably not. In a lot of ways ARMs have gotten a bad rap. To see how an ARM reset would affect you, you need to understand how an ARM works.

The most popular versions are what is called hybrid ARMs. That means they were fixed for a certain time span, usually 3, 5 or 7 years, and converted into a one year ARM after the fixed period ended. So how does your ARM reset? The ARM changes are based on two things that are set up at the beginning: the index, and the margin. The first part, the index, refers to the financial indicator the rate is based on. Different indexes are used, but they all move up and down based on the strength of the economy. The second part of an ARM loan is the margin. This is set at the closing, and it always stays the same. So the first step to see what your new rate will be is to add the margin to the index. The current 1 year treasury index, a common index in ARM loans, is now around 3.25%. Adding in the margin, typically 2.75%, you get a fully indexed rate of 6.0%. This is an increase, sure, but not a back breaking one. And this index is moving down. It doesn’t reflect the recent Fed cuts in short term rates. So if you are adjusting in the coming months, the new rate will be even lower.

But this doesn’t necessarily give you your final rate. There’s one more step. Most ARMS have caps built in to them. Your rate typically can’t increase more than 2% per year, and no more than 6% over the lifetime of the loan. (That’s not the case with all ARMs, so take a look at your mortgage note to make sure.) So if you bought your home back in 2003 with a 5 year ARM, and maybe you bought when rates were near the bottom with the starting rate at 3.75%, if your cap is 2% at the first adjustment, your new rate can’t be higher than 5.75%.

The other thing to keep in mind is how long you plan on staying in your home. If this is your forever home and you want to stay there for the long term, it makes sense to refinance and lock in to the current low rates. If you are going to be there for at least a few more years, refinancing will still make sense, especially if you refinance with low or no closing costs. But if you don’t plan on staying in your home for more than a year or two, you’re better off doing nothing. The worst case scenario isn’t all that bad.

If you have an ARM with a sub prime mortgage your situation might be worse. The margin on Sub Prime loans can be 6%, which means your payment could shoot higher causing real problems. If you have an Option ARM and you’ve been paying just the minimum payment, you owe more now than when you started, and you are on track for some real trouble. In these cases refinancing makes a lot of sense, but with the changes in mortgage guidelines you may find it hard to qualify. But that’s a topic for another post.

Buyer Agency and Trust is a Two Way Street

I think real estate agents get a bad wrap in the media.  Some of it is well deserved, much of it is not.

Generally speaking, real estate agents are very hard working people who do their best to look out for their clients' best interests.  If they don't, they won't be in business very long in this market.  Additionally, it's not unusuall for good agents to drop everything they're doing when a call comes in from a prospective client who wants to see a property NOW.

Often times it's not easy to be at the beck and call of the home buying public every moment of every day.

Don't get me wrong - I'm not complaining.  Risa and I do it because we enjoy making people happy and we're on a bit of a mission to change the way people think about us in our chosen field.

However, if you are considering buying real estate and you already have an agent you are happy with, you should be very careful to use that agent throughout the entire buying process.  If your agent is out of town on vacation, or just isn't available at that moment's notice when you JUST HAVE to see a particular home, contacting another agent to fill in really is a terrible thing to do to both the agent you've been using and the agent you've called to be a temporary and disposable stop-gap.

That agent that you were happy with (maybe it's your brother, your cousin, your mom or dad, your best friend) is not going to be too pleased with you when you decide you like the home you couldn't wait to go see, and now you want to put an offer in on the property. 

Why?

In the world of real estate, agents work on the basis of what is called Procuring Cause. 

If you call an agent out of the blue, and that agent makes an appointment for you to see that MUST SEE NOW property, accompanies you to a showing for that MUST SEE NOW property, and those actions lead to the closing of a transaction on that MUST SEE NOW property, that out-of-the-blue agent may be deemed the Procuring Cause of the transaction, and may then be entitled to the buyer's agent commission for that transaction, even if you went back to your old agent that you just couldn't wait for.

If you have an agent you know, like and trust, do yourself and that agent a favor and sign an Exclusive Buyer Representation agreement so that you don't find yourself in this situation.

Also, if you're going to call that out-of-the-blue agent, and you already have a strong relationship with another agent, be honest and tell that out-of-the-blue agent that you are already working with someone exclusively.

Being honest will save everyone the hassle of having to go before the local REALTOR arbitration board and argue over who should get paid a commission on your transaction.

   

Can You Refinance Your Mortgage?

If I haven't mentioned it before, I'll put it down in words right now.

I'm not a mortgage professional.  I do think I know a bit more - well actually a lot more - than the average Joe out there about the subject, because I deal with mortgage brokers, borrowers, and banks every day.  But even with that being said, I usually defer to a professional to confirm my thoughts on the subject.

With rates low and probably going a bit lower over the near term, you see a lot of talk about people having a window of opportunity to refinance their mortgage and save some money.  Sometimes, I even read that this window is an opportunity for those in ARMs to refi into a long term, fixed rate loan.

The questions for today are these:

If you are in an ARM, and rates are going down, shouldn't the ARM reset to the lower rates?  I'm not saying that ARM holders shouldn't refi into a long term, fixed rate loan.  But if you think or know that you will not be staying in your home for the long term, why spend the money to refi?

If you don't have 20% equity in your home (at current, lower valuation levels), how are you going to refi into that 30 year fixed rate loan?  If you did 100% financing or even 90% on your current loans, like an 80-10, I don't see how you're going to have the opportunity to refinance without bringing a bunch of cash to the closing.

Maybe Pete Thompson can fill in the gaps on my thinking here.

How to Interpret Real Estate News Articles

I subscribe to a bunch of Crain's Chicago Business email alerts.  Sometimes, I probably get 3 or 4 emails a day from them for all sorts of subjects ranging from "Things to Do This Weekend" to the Crain's Chicago Real Estate Daily News.

I just got one of those real estate news emails, and the lead story is "Index of Chicago-area home prices falls in November".

Because I have a huge appetite for news and reading in general, I've developed this refined sense for reading with an analytical mindset.  Part of that skill comes from reading blogs where people comment on news stories, and part of it comes from talking to friends who read those same articles.

Anyway, back to the article. 

One thing I've found, after talking to some writers I know, is that a news story often has to be boiled down to the simplest of ideas or concepts.  This is often not a function of the intended audience's intellect or ability to draw good conclusions about a story.  It's a function of real estate, so to speak.  There is only so much room on a page after accounting for advertisements and standard layout features.  When a news item needs a writeup, the editor might say, "Hey, Joe - I need 500 words about this real estate price study by noon."  There is only so much you can do with 500 words.

The end result is that you can boil down Crain's real estate price story into this easy-to-eat-and-digest bit:

Chicago area prices fell 3.9% in November when compared to last year, but Chicago is doing far better than many other big cities.  Lower interest rates may help perk up demand, but it's harder to get a loan.

But when I read the story, it doesn't go down so easy.  Here are some questions I asked myself as I read:

Prices are down across the entire Chicago area?  That doesn't mesh with what I've seen in some neighborhoods in Chicago.

They're talking about a housing Index.  Is that the same thing as the economist's "Basket of Goods"?  If the price of one good goes down 10% and another goes up 5%, the index will still say that prices are down 5%.  But if I own the item that went up 5%, I guess it really doesn't matter as much to me that the other item went down.

I recently sold a property that cost $460,000 two years ago, and the exact same property just went for $480,000.  According to my math, that's about a 2% per year gain.  Does this mean I'm a great REALTOR?  Or does this mean that this news story does not really give readers enough information to make an educated analysis about their specific situation or with regard to their specific property?

By the way, the answer to those last two questions is "Yes".

There is no doubt the market is much more challenging than it was in the past, but the complete story is always more complex and nuanced.

If you want to know what your property is worth, research the prices that comparable properties have recently sold for in your neighborhood.  Don't just give in to the gloomy media narrative without doing your homework first.

HGTV Dual Agency Oddity

Risa and I were watching one of those HGTV real estate shows recently where an agent was working with clients to sell their house.  She loves those shows.  Me?  I could live without them, but I watch them because we have so many friends and clients who watch them, too.

Anyway, the sellers were getting antsy, as their house was not getting showings and they had not received any offers. Reaching the limits of their patience, the sellers decide they will let their listing contract expire at the end of its term, which was one week away.

Magically, as the sellers anxiety builds to a climax, the agent informs them he thinks he has a buyer for the home, and he is expecting to receive a contract from them. 

Fine.  It all seems OK so far. 

But it gets better.

We've had a few instances where we've found a buyer just as the seller was getting ready to fold in their tent.  We're still on board with the narrative.  Then, things start to get a little weird.

Before the listing agent receives the offer from the buyers, he has a discussion with the sellers about what price they will accept - their "drop dead" or "walk away" price.  Risa and I both turn and look at each other, thinking this situation is heading down the wrong path.  We'd never approach a negotiation in this way, and any agent who did would be doing their clients a disservice.  The walk away price is $570,000.

But it gets even better.

After the sellers disclose their bottom line number, the agent informs them that he found the buyers and will be working in a dual agency role.  THIS IS A HUGE RED FLAG, FOLKS!  It's not so much that the agent is working in a dual agency capacity.  Every now and then, it happens.  But the agent only disclosed that he would be working in a dual agency capacity AFTER he had the "What's your bottom line?" discussion.  Recall what we wrote about unrepresented buyers and an agent's legal and ethical duty to disclose their agency relationships.

But it gets even better.

With the knowledge that the agent is working both sides of the transaction, and the agent knows what their bottom line is before receiving the buyer's offer, the sellers get a little skeptical, as they should in this situation.  But they forge ahead anyway.  They want to sell their house.  The sellers then ask the million dollar question.  "How often does this happen where you represent both the buyer and the seller in a transaction?"

"Oh, I'd say about 25% of the time," the agent replies.  "So it's not that unusual."

I nearly fell off the couch.  Not that unusual?  In our last 100 deals, I think Risa and I have been dual agents twice.  And even when we worked in a dual agency situation, we never had conversations and negotiations like the one depicted on the show.

There is the proper and ethical way to work as a dual agent, and then there is this guy.

What number do you think the offer came in at?

A Quick Followup on Unrepresented Real Estate Buyers

I was looking for some supporting documentation for my earlier post about how real estate agents often don't disclose their agency relationships to unrepresented buyers.  I found a great document on just this topic from the Illinois Association of REALTORS.  The document explains Illinois real estate law regarding this topic fairly succinctly:

The final key provision of Section 15-35, and one that may be commonly overlooked, is the requirement to disclose in writing to a customer when you are not acting as his or her agent. This disclosure is to be made at a time appropriate to warn the customer against the disclosure of confidential information but no later than prior to the preparation of an offer to purchase. Several examples may help illustrate who is a customer. A person selling his or her own home would be a customer when a licensee represents the interested buyer. An unrepresented buyer at an open house or otherwise viewing property would be a customer when there is a licensee acting as a designated agent for the seller but not the buyer. A prospective seller at a listing presentation before there is a listing agreement would be a customer to the licensee. If both seller and buyer are represented by licensees, there should be no reason to make this disclosure. Remember, the policy behind this disclosure is to advise unrepresented individuals that there is no agency relationship so that they do not inadvertently disclose confidential information to a licensee.