By Joel Persinger
It is an inescapable reality that the easiest questions to ask are often the most difficult to answer. The most common question of this type in real estate lending is, “What are interest rates today?” At first glance the question seems quite simple and most people who ask it expect a hard number which they can be assured will apply to them if they chose to get a loan. The problem is that providing an accurate answer off the cuff is impossible, to say the least.
Every borrower has a different financial picture from every other borrower, and the specific pieces of information required to fit a specific borrower to a specific loan are numerous and complex. By way of example, the process of determining what interest rate a particular borrower will be quoted for a home loan depends upon the type of loan, the amount borrowed, the borrower’s credit score, the ratio between the value of the property and the amount borrowed, the ratio between the borrower’s income and current debt, the type of property purchased, the borrower’s intended use of the property and so on.
As simple as we might like it to be, there is no such thing as a one size fits all interest rate for home loans. Just as a clothier must work hard to help a customer select a business suit which is of the correct style, color and fit to help that customer look his best, so must a lender work hard to fit a loan to the specifics of a borrower and that borrower’s needs. For example: a borrower purchasing a $450,000 house as a personal residence with a 20% down payment, using a 30-year fixed rate loan with a credit score of 780 is going to pay a completely different interest rate than a borrower purchasing the same house as a rental with 30% down using an interest only loan with a credit score of 680. Since each customer and each situation is different, each loan and corresponding interest rate will be different as well. This is why good loan officers when asked the “what are interest rates today?” question will often respond by asking for more specifics about the borrower’s situation.
The problem is further exacerbated by the rapid tide changes within the current lending market. The days in which my grandfather went to the local bank to talk with the bank manager to discuss a loan are gone. In those days the bank loaned only the money it had on deposit from its customers. My grandfather could get a loan in the blink of an eye simply because the bank manager knew him personally and knew that he was a good credit risk. It was a relationship. It should also be noted that, because the banks only loaned the money they had on deposit, interest rates were determined by that bank and were often the same for long periods. They were much easier to predict and count on.
Today, the mortgage market is like a giant, interconnected spider web reaching across the world. It involves not only the bank on the corner, but banks across the world as well as the stock and bond markets in every nation. As the saying goes “When one part of the world’s financial market sneezes, the rest of the world catches cold”. Markets ebb and flow depending upon the actions or inactions of people, companies and governments all across the globe. Consequently, the interest rate that is quoted at noon on Monday may be completely different than the rate which will be quoted just one hour later. Adding this level of volatility to the already complicated process of fitting a specific loan to a specific borrower can make quoting rates off the cuff like predicting how many times a specific gambler at a specific craps table will throw a seven on any specific day.
So, the next time you ask your mortgage loan professional about current interest rates, perhaps you’ll better understand why that question always seems to be answered by more questions. Without the specifics, any interest rate you’re quoted is useless.
Thursday, February 14, 2008
Wednesday, February 6, 2008
Does paying your agent less really save you money?
By Joel Persinger
Just about everybody loves a bargain. That’s why retail stores are packed with bargain hunters each year on the day after Christmas. But, some folks hunt for bargains in the wrong places and find that saving pennies often causes them to come up short when the dollars are counted. Such is the case when it comes to skimping on paying your real estate agent.
This past week one of my agents came to me with an often heard lament regarding a client who wanted to cut the amount of commission my agent would receive. My agent tried to explain the situation to the client. But, in the end the client would not budge and the agent moved on. Out of curiosity, I asked my agent why she didn’t take the job. She said, “I didn’t want to lie.”
In order to gather some perspective, it may help to understand how a real estate profession gets paid when he or she sells a home. In the case of the agent who represents a seller, the seller agrees to pay the agent a fee which is generally a percentage of the sales price. That fee is then split with the agent who represents the buyer. Most of the time, they split the fee in half with each of them receiving half of the fee. For example: a seller may agree to pay his agent 6 percent of the sales price with his agent sharing half of that fee with the agent who represents the buyer. Thus, in this example both the seller’s agent and the buyer’s agent receive 3 percent of the sales price as their fees. From time to time, the seller’s agent might find the buyer himself. In this case, the entire fee of 6 percent would be paid to the seller’s agent since he represented both the seller and the buyer in the transaction.
Since these percentages can represent a significant fee, some sellers insist upon paying their agents less. What they don’t realize is that such fee cuts do nothing to help them reach their goal of selling the property. In many cases, fee cuts accomplish the opposite by motivating agents to sell other properties instead.
My agent was negotiating with a client who insisted upon paying her less if, in the process of marketing the home, the agent found the buyer herself and represented both the seller and the buyer in the transaction. The seller was willing to pay 6 percent as long as the buyer was represented by another agent and the fee was split between the two agents. But, if my agent, who was going to represent the seller, also found the buyer, the client was only willing to pay 4 percent. The seller told my agent that another agent whom the seller was also interviewing was happy with this arrangement. My agent tried to explain that what seemed like a deal was really nothing but smoke and mirrors. But, the client could not see the truth.
The seller was hunting for a bargain that she was never going to get and the other agent was not going to tell her. Given the simple fact that there are thousands of real estate agents actively attempting to sell property, the odds are against the seller’s agent actually finding the buyer. The seller’s agent is one person and there are thousands of buyer’s agents out there. Situations in which the agent represents both seller and buyer are very rare. Therefore, the discount the seller was trying to get was meaningless. Even if the odd chance for my agent to sell one of her client’s properties came along, she would naturally work harder to sell one of the properties that paid a full commission. Consequently, it is almost a guarantee that my agent’s seller will never pay only 4 percents since her agent will never work to find a buyer for her house. It was just a way to make the seller feel like she was going to get something so that the other agent could get the deal. Perhaps now you understand why my agent said, “I didn’t want to lie.”
The bottom line is this. Some bargains are not bargains at all. When it comes to real estate professionals, the old adage is often true, “you get what you pay for.”
Just about everybody loves a bargain. That’s why retail stores are packed with bargain hunters each year on the day after Christmas. But, some folks hunt for bargains in the wrong places and find that saving pennies often causes them to come up short when the dollars are counted. Such is the case when it comes to skimping on paying your real estate agent.
This past week one of my agents came to me with an often heard lament regarding a client who wanted to cut the amount of commission my agent would receive. My agent tried to explain the situation to the client. But, in the end the client would not budge and the agent moved on. Out of curiosity, I asked my agent why she didn’t take the job. She said, “I didn’t want to lie.”
In order to gather some perspective, it may help to understand how a real estate profession gets paid when he or she sells a home. In the case of the agent who represents a seller, the seller agrees to pay the agent a fee which is generally a percentage of the sales price. That fee is then split with the agent who represents the buyer. Most of the time, they split the fee in half with each of them receiving half of the fee. For example: a seller may agree to pay his agent 6 percent of the sales price with his agent sharing half of that fee with the agent who represents the buyer. Thus, in this example both the seller’s agent and the buyer’s agent receive 3 percent of the sales price as their fees. From time to time, the seller’s agent might find the buyer himself. In this case, the entire fee of 6 percent would be paid to the seller’s agent since he represented both the seller and the buyer in the transaction.
Since these percentages can represent a significant fee, some sellers insist upon paying their agents less. What they don’t realize is that such fee cuts do nothing to help them reach their goal of selling the property. In many cases, fee cuts accomplish the opposite by motivating agents to sell other properties instead.
My agent was negotiating with a client who insisted upon paying her less if, in the process of marketing the home, the agent found the buyer herself and represented both the seller and the buyer in the transaction. The seller was willing to pay 6 percent as long as the buyer was represented by another agent and the fee was split between the two agents. But, if my agent, who was going to represent the seller, also found the buyer, the client was only willing to pay 4 percent. The seller told my agent that another agent whom the seller was also interviewing was happy with this arrangement. My agent tried to explain that what seemed like a deal was really nothing but smoke and mirrors. But, the client could not see the truth.
The seller was hunting for a bargain that she was never going to get and the other agent was not going to tell her. Given the simple fact that there are thousands of real estate agents actively attempting to sell property, the odds are against the seller’s agent actually finding the buyer. The seller’s agent is one person and there are thousands of buyer’s agents out there. Situations in which the agent represents both seller and buyer are very rare. Therefore, the discount the seller was trying to get was meaningless. Even if the odd chance for my agent to sell one of her client’s properties came along, she would naturally work harder to sell one of the properties that paid a full commission. Consequently, it is almost a guarantee that my agent’s seller will never pay only 4 percents since her agent will never work to find a buyer for her house. It was just a way to make the seller feel like she was going to get something so that the other agent could get the deal. Perhaps now you understand why my agent said, “I didn’t want to lie.”
The bottom line is this. Some bargains are not bargains at all. When it comes to real estate professionals, the old adage is often true, “you get what you pay for.”
Monday, February 4, 2008
The dirty little secrets of real estate
By Joel Persinger
YourRealEstateDude.com
Just about every industry has its dirty little secrets that only the insiders know and that are almost never revealed to those outside and certainly never explained to the customer. Real estate is no different.
Just the other day, a friend of mine told me about a lady who had been referred to him by one of his other clients. Apparently, she contacted him to talk about selling her home and was quite concerned about the declining market we are currently experiencing. During the conversation, she quizzed him regarding the level of marketing he would use to sell her home. Apparently, she had spoken to another real estate agent prior to talking with him. As the story goes, she was thinking about hiring the first agent because he had promised to place her home on hundreds of websites and to do much more advertising than any other agent might. To prove his worth, this first agent had claimed to have a track record of selling homes faster than any other agent due to his fabulous advertising strategy.
The dirty little secret is that the first agent’s promises amounted to nothing more than smoke and mirrors. He really hadn’t promised to do anything that most other agents don’t do. Any time a real estate agent places a property for sale in the Multiple Listings Service, hundreds, if not thousands of websites all around the country pick it up and place it on their pages. Claiming the unique ability to place a client’s home on “Hundreds of websites” is disingenuous to say the least.
While it is true that some websites offer additional services by subscription, such as the ability to post additional photos, the simple fact is that the property will appear on the site in most cases anyway, just because it has been posted in the Multiple Listings Service. Therefore, in most cases, the additional marketing that is promised is a fallacy and provides no additional benefit to the client whatsoever.
To illustrate this, let’s take a look at the first agent’s claim that he can sell homes faster because of his advanced marketing strategy. When I asked my friend what his response was to this claim, he said he explained the advertising fakery to the client and helped her understand that price is really what will get a home sold. If a seller prices a property low enough, it will sell quickly. At that, the client told him that she was somewhat disappointed in the first agent because he wanted to list the property for sale at about $50,000 below the latest comparable sale price. It appears that the first agent’s record of selling homes quickly is due to his ability to convince his clients to sell their homes for less, rather than results obtained through his terrific marketing.
Basically, the advertising was a hook. The agent was pulling clients in with promises of advertising while pricing the homes low to get them to sell fast. He told his clients that the homes sold because he did more marketing. But, in truth they sold fast because he priced them well. My grandfather would have called such a person a “snake oil salesman.” So, here’s the truth without the snake oil. If you want to sell your home in this market, you will need to price it low. Hopefully, now that you know that you can avoid the flimflam man and hire an agent who will tell you the truth.
YourRealEstateDude.com
Just about every industry has its dirty little secrets that only the insiders know and that are almost never revealed to those outside and certainly never explained to the customer. Real estate is no different.
Just the other day, a friend of mine told me about a lady who had been referred to him by one of his other clients. Apparently, she contacted him to talk about selling her home and was quite concerned about the declining market we are currently experiencing. During the conversation, she quizzed him regarding the level of marketing he would use to sell her home. Apparently, she had spoken to another real estate agent prior to talking with him. As the story goes, she was thinking about hiring the first agent because he had promised to place her home on hundreds of websites and to do much more advertising than any other agent might. To prove his worth, this first agent had claimed to have a track record of selling homes faster than any other agent due to his fabulous advertising strategy.
The dirty little secret is that the first agent’s promises amounted to nothing more than smoke and mirrors. He really hadn’t promised to do anything that most other agents don’t do. Any time a real estate agent places a property for sale in the Multiple Listings Service, hundreds, if not thousands of websites all around the country pick it up and place it on their pages. Claiming the unique ability to place a client’s home on “Hundreds of websites” is disingenuous to say the least.
While it is true that some websites offer additional services by subscription, such as the ability to post additional photos, the simple fact is that the property will appear on the site in most cases anyway, just because it has been posted in the Multiple Listings Service. Therefore, in most cases, the additional marketing that is promised is a fallacy and provides no additional benefit to the client whatsoever.
To illustrate this, let’s take a look at the first agent’s claim that he can sell homes faster because of his advanced marketing strategy. When I asked my friend what his response was to this claim, he said he explained the advertising fakery to the client and helped her understand that price is really what will get a home sold. If a seller prices a property low enough, it will sell quickly. At that, the client told him that she was somewhat disappointed in the first agent because he wanted to list the property for sale at about $50,000 below the latest comparable sale price. It appears that the first agent’s record of selling homes quickly is due to his ability to convince his clients to sell their homes for less, rather than results obtained through his terrific marketing.
Basically, the advertising was a hook. The agent was pulling clients in with promises of advertising while pricing the homes low to get them to sell fast. He told his clients that the homes sold because he did more marketing. But, in truth they sold fast because he priced them well. My grandfather would have called such a person a “snake oil salesman.” So, here’s the truth without the snake oil. If you want to sell your home in this market, you will need to price it low. Hopefully, now that you know that you can avoid the flimflam man and hire an agent who will tell you the truth.
Monday, January 21, 2008
There Is No Substitute For Good Advice
By Joel Persinger
King Solomon once wrote that “plans fail for lack of council, but with many advisors they succeed”. In the constantly changing environment of today’s economy and real estate market, a truer statement could not be found. Just when it seems that some new tax law, relief bill, lending product or government action has solved all the problems that the real estate market is facing, some expert sifts through the details and finds that the fix doesn’t apply to everyone. Often times the "everyone" it doesn’t apply to includes you and me. Hence the reason for getting lots of advice.
The problem I have run into recently is that some folks unwittingly seek advice from people who are not qualified to give it. This is one of the issues that King Solomon was trying to deal with when he suggested the use of “many” advisors. In the past, my wife and I have gotten excellent financial advice from people whose kids (we couldn’t help noticing) were disasters looking for places to happen. While we were grateful for the terrific financial advice, there was not the chance of an ant on a New York City sidewalk during rush hour that we would ever have asked those same people for advice about raising our children.
Keeping this in mind, it should be noted that real estate agents have a limited ability to give quality advice when it comes to… well… real estate. For example: in most cases, real estate agents are not attorneys, tax professionals, CPAs or builders. Therefore, although they may be great sources for advice about the process of selling or buying a home, the vast majority of real estate professionals are not the best people to ask about legal, tax or construction issues. In fact, it has been my experience, particularly where legal and tax issues are concerned, that most real estate agents know just about enough to be dangerous and not one bit more. Frankly, I can’t say that I’m much different. Even though I started in real estate in 1990, am the CEO of my firm, manage several agents and pride myself on keeping up with what’s happening in the real estate industry, I am by no means qualified to give legal or tax advice.
In a market in which many folks are facing the loss of their homes through foreclosures or having to sell their homes in other than ideal circumstances, it is of vital importance that they know where to get the advice they need. When it comes to determining the risks of legal action, estimating potential damage to credit ratings or preparing for the possible tax consequences of losing a home, your real estate agent, no matter how much you may like and trust that person, is most likely not qualified to offer advice. So, as your real estate dude, the best advice I can give you about getting advice is this: first, make sure the person from whom you are soliciting advice is qualified to give it, and second, make sure you have selected an advisor who will tell you the truth, not just tell you what you want to hear. If you follow these simple rules, the advice you receive is more likely to be the advice that you need.
King Solomon once wrote that “plans fail for lack of council, but with many advisors they succeed”. In the constantly changing environment of today’s economy and real estate market, a truer statement could not be found. Just when it seems that some new tax law, relief bill, lending product or government action has solved all the problems that the real estate market is facing, some expert sifts through the details and finds that the fix doesn’t apply to everyone. Often times the "everyone" it doesn’t apply to includes you and me. Hence the reason for getting lots of advice.
The problem I have run into recently is that some folks unwittingly seek advice from people who are not qualified to give it. This is one of the issues that King Solomon was trying to deal with when he suggested the use of “many” advisors. In the past, my wife and I have gotten excellent financial advice from people whose kids (we couldn’t help noticing) were disasters looking for places to happen. While we were grateful for the terrific financial advice, there was not the chance of an ant on a New York City sidewalk during rush hour that we would ever have asked those same people for advice about raising our children.
Keeping this in mind, it should be noted that real estate agents have a limited ability to give quality advice when it comes to… well… real estate. For example: in most cases, real estate agents are not attorneys, tax professionals, CPAs or builders. Therefore, although they may be great sources for advice about the process of selling or buying a home, the vast majority of real estate professionals are not the best people to ask about legal, tax or construction issues. In fact, it has been my experience, particularly where legal and tax issues are concerned, that most real estate agents know just about enough to be dangerous and not one bit more. Frankly, I can’t say that I’m much different. Even though I started in real estate in 1990, am the CEO of my firm, manage several agents and pride myself on keeping up with what’s happening in the real estate industry, I am by no means qualified to give legal or tax advice.
In a market in which many folks are facing the loss of their homes through foreclosures or having to sell their homes in other than ideal circumstances, it is of vital importance that they know where to get the advice they need. When it comes to determining the risks of legal action, estimating potential damage to credit ratings or preparing for the possible tax consequences of losing a home, your real estate agent, no matter how much you may like and trust that person, is most likely not qualified to offer advice. So, as your real estate dude, the best advice I can give you about getting advice is this: first, make sure the person from whom you are soliciting advice is qualified to give it, and second, make sure you have selected an advisor who will tell you the truth, not just tell you what you want to hear. If you follow these simple rules, the advice you receive is more likely to be the advice that you need.
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