Thursday, August 29, 2013

Real Estate Broker Fired, Client Thought It Was HGTV

Local real estate broker Trish Benedetti says her former clients unfairly fired her after learning they were not starring in an HGTV episode of House Hunters.

"Ashley and Mitchell told me their budget was a home in the $850,000 range," Benedetti said. "Ashley had to have a big, updated kitchen, and Mitchell needed space for all four of his cars."

Ashley and Mitchell Fournier, Benedetti's clients, said they found Benedetti online. "Her website at High Point Realty clearly stated she would find us 'the home of our dreams', Ms. Fournier said, "and I'd always dreamed of a three-bedroom home on a huge lot with a big kitchen and Wolff range, granite counters, cherry hardwood floors and all that."

"A house with a four-car garage isn't all that hard to find," Mr. Fournier added. When asked if he owned four cars, he said not yet, but that he'd been thinking about it.

Benedetti said she held the customary meeting she generally conducts with new clients, making sure they understood such basics as earnest money, title and escrow and trust deeds. "They seemed pretty knowledgeable," Benedetti said. "I began searching Multiple Listing for homes right away."

Benedetti said she suspected problems when, after a week had passed, she received a copy of the Fourniers' pre-approval letter from their lender. "They could barely afford a $250,000 starter home," Benedetti said.

Ms. Fournier said she was pleased at the first few homes Benedetti showed but that she became suspicious when the broker began sending listings with none of the criteria she and her husband wanted. "I was, like, 'What is this, we never asked for anything like these', and she was all, 'well, you know, I got your lender's letter and this is what you should be looking at'."

"They definitely weren't the homes of our dreams," Mr. Fournier said.

Benedetti said she made several telephone calls and sent a dozen emails to the Fourniers over the next ten days or so, sending them listings and offering to make appointments. She finally received a text message from Mr. Fournier, saying it was time to make a choice of homes.

Ms. Fournier described what happened at their meeting. "She (Benedetti) was supposed to go, 'Well, do you like the Southern plantation-style home in Belmont that has a new kitchen but needs the appliances replaced, or the updated Craftsman that only has a three-car garage but it's a 4,000-foot home, or the Tudor one out in the country that you loved but was $50,000 over your $850,000 budget'. She didn't do any of that."

Benedetti confirmed the meeting. "They told me what they wanted, and I finally said, 'What do you think this is, HGTV'?" They just kind of looked at each other and left. Ten minutes later, I get a text message telling me I'm fired."

Her feelings were hurt, Benedetti said, but she realized she was a professional and shouldn't take the incident personally. "I sent their contact information to a friend over at Remax," she said. "You never know, huh?"

Tuesday, August 27, 2013

Could Changes in Real Estate Broker Pay Affect the Market?

I was being bad a while back and internet-trolled a well-known real estate trade magazine article on brokers discounting commissions. It was kind of fun. But the question, as the last snarl was gasped, what would changing the traditional broker commission-compensation model mean for consumers--if anything?

Suitey is a next-gen real estate brokerage startup in New York who has already raised a half million dollars and rising. Its founders, one-time Yale Rowing teammates, say they founded their company after hearing from friends who didn't like working with real estate brokers. It's agents are called "neighborhood experts" (how original) and are paid a salary, with a bonus paid per deal as opposed to dollar amount. Part of the sales commission intended for the buyer's broker is passed through to the buyer.

If this sounds like Redfin's business model, it's because it is. Redfin maintains perhaps the industry's most robust website and likewise pays its agents a salary. Their salary increases are determined by customer reviews. Findwell, in Seattle, rebates 1% of the buyer-side commission to clients and, like Redfin, charges sellers a 1.5% listing fee.

Meanwhile, a Southern California brokerage, "unbundles" its services for both buyer and seller. With services unbundled, a client will only pay for those services she needs. Clients also have a choice to pay a traditional commission. brokers consult with clients for thirty minutes, free, and then lay out a game plan, not unlike good traditional brokers. The difference is that the client selects services needed and pays accordingly.

What does all this mean? Heck if I know. I do believe the current commission model will last for a while, with the new compensation offerings making stronger inroads as the years go by. Transparency and choice is just a better deal for consumers.

It's unclear how the overall market would be affected. If a non-commission payment modus operandi takes hold, lenders may get into the act and offer to pay all or part of their customers' broker fees. They're already doing it, in effect, but by formally crediting their borrowers for real estate broker expertise, they could assume some control in the process.

I kind of like the idea of real estate brokers getting paid for all their work, not just on closed transactions. Doing so helps get rid of the inherent conflict of interest pointed out by the Freakonomics guys.

Thursday, August 22, 2013

Should You Use IKEA for Your Kitchen Remodel?

In it's current Cost vs. Value report, Remodeling Magazine reports major kitchen remodels rank near the top of home improvement projects whose cost results in a value return at resale time. It comes in at nearly 69%, which is pretty good. But kitchen remodels present two problems for homeowners. Cost is the first, since they can be expensive. Second is having to deal with contractors.

What about using IKEA?

Having remodeled several kitchesn over the years, having been a real estate broker and having been a contractor, I can fairly state that kitchen remodel projects nearly always run over the budgeted amount, usually by a lot, and finish up far later than intended. That's usually because of what's euphemistically called "communication issues" between owner and contractor.
We didn't agree to do that! Or did we?

With construction of a new custom home, an architect-engineer will draw plans. Plans don't just show how the building looks. They contain all specifications and materials to be used. Where an owner sees "new window," for example, the architect sees the brand, the U-value, the frame, the flashing and everything else, right down to the size of the screws and washers. There's very little ambiguity in the cost.

Not so with a remodel, which rarely have detailed plans and specifications leading into a formal Scope of Work both sides understand. Owners pretty much find a contractor they trust and go for it. Problems can result, such as the new 30-inch range the owner selected not fitting into the hole that housed the old range, and expensive finished carpentry is required to make it look acceptable.

Custom Cherry Cabinets
What about using IKEA?

One of the raps on IKEA alludes to quality: If its products are so inexpensive, then the quality isn't top flight. To a degree, that may be true, if subjective. IKEA kitchen cabinets are not as high-quality as the solid-wood cabinets people get in a traditional remodel.
IKEA Millennial Kitchen

But I have to say, IKEA cabinets can look pretty good and the quality is fine. And with a total cost more than fifty percent less than a traditional remodel, it's kitchens are worth a serious look.

IKEA's kitchen cabinet doors are solid wood. The insides--the cabinet boxes--have a melamine-like veneer covering the MDF (medium-density fibreboard) box. Many purists prefer solid wood over MDF, although the data doesn't prove this preference.

The clincher is that IKEA offers a twenty-five-year limited warranty on its cabinets. For many--including me on our most recent remodel--that takes care of the quality issue.

IKEA also has free, in-store kitchen design consultants to help you with the company's fun-to-use online design program. If you don't feel comfortable designing yourself, or if you just don't have time, in-home help is available for a modest fee. The designer comes to your home and you walk one another through the whole remodel, cabinet-by cabinet, fixture by fixture. The advantage, here, is that the designer can solve problems of new stuff fitting in old spaces--a big issue in older homes. And you get both two- and three-dimensional drawings with written specifications when the design is finished.

Don't want to assemble the cabinets yourself? IKEA has an outside contractor for that as well--reasonably priced and extremely efficient, in our experience.

IKEA has been using Whirlpool kitchen appliances. They aren't top-of-the-line, but they're well-rated in Consumer Reports. And you can get just about any kind of counter tops from laminate to butcher block to granite through IKEA's preferred vendors.

Since most of the product cost of IKEA cabinets is in the boxes, you can change the entire look of your kitchen when you get tired of it. With boxes all being the same size, it's easy--and inexpensive--to switch from, say, Euro Contemporary to Pottery Barn white.

For a huge big-box store, IKEA's customer service is outstanding. No one ever tries to upsell you on anything, and their staff treats all problems very seriously. We had some issues with the counter top supplier--not even IKEA's stuff--and our IKEA consultant was right there to solve the issues. Returns are a piece of cake.

I promise I'm not a shill for IKEA. Not everything it has is great, and I'm sure others have had problems that we did not experience. But for kitchens, both new homeowners and older ones need to give IKEA a long, hard look. The communication and cost-overrun issues just fall by the wayside.

By the way, their cabinets are 20% off twice a year, so be sure to buy during sale periods.

Friday, August 16, 2013

Help! My Neighbor Wants Me to Join the HOA Board!

Dear Captain,

We recently moved into a neighborhood with a Homeowners Association. For some reason, half the directors resigned en masse. My neighbor won't say exactly what the infighting is all about, but he's encouraging me to seek a vacant spot on the board. Should I? Why would anyone want this kind of aggravation?


HOA Rookie

Dear Rookie,

Something you hear again and again
Is that HOA boards are all Grumpy Old Men.
They come in all kinds from picky to battler.
All of them look like Waldorf and Statler.
It's really not so, but perception rules.
To owners, the board members all look like fools.

But are they, really?

They look after common area ground,

This never happens
Where dead plants and garbage and dog poop abound.
They manage the clubhouse and fix irrigation.
And put in long hours without compensation.
And, don't forget, some owners are weird.
Their house painted teal, their annuals sheared.
Their porch is for tires, their yard is for cars.
It can all be made right with good C C&R's.

Can you put common interest ahead of your own?
That's what's required. You won't be alone.
Board members fighting is more myth than fact--
Safe for your gastrointestinal tract.
Homeowners seldom say thanks to the board.
You'll hear very little 'til their ox is gored
But you'll look with pride on the common demesne,
The trees neatly trimmed, the grass all pea green.
A secret you learned, you think with a smirk,
The property manager did all the work!

Monday, August 12, 2013

More More More on Home Inspections, Rookies!

Dear Captain,

We just got a screaming good deal on a new house, but now it's time for the home inspection. Is this just a routine thing? What if the inspector finds something that needs to be fixed and we can't afford it? How do you know if the needed repairs are something the seller is supposed to take care of? Also, our real estate broker said something about FHA inspectors and homes getting rejections based on home inspections. What's this all about? Can you help?


My Rookie Friends,

Buying a home can be quite enjoying
But when something goes wrong, it gets quite annoying,
Especially when you pay for a home inspection
And everything goes in the wrong damn direction.
Is there mold? Are there leaks? Does the furnace not work?
When you turn on the light, does it zap, twist and jerk?
Who is that cretin who sold you the house?
Boil him and sue him, that miserable louse!

But all is not lost when you find something wrong.
It may be something they knew all along,
Sellers are nice, by and large, just like you,
They don't go out looking for people to screw.
Years ago something broke and they thought "What the heck!
I just got laid off and I can't write a check,"
Maybe their builder ran lickety split
When the inspector told him to go get a permit.

These kinds of things happen. So what's to be done,
Especially when underwriting's begun?
Closing is coming! You've cancelled your lease!
The tension is mounting! Can you just find some peace?
Probably yes, with this one little task:
Decide what you want, and then: Just ask.

Ask them to fix the leak in the sink,
Remove the dead critter that's starting to stink.

Window sills etched with water and stains:
Could they be archaeological remains
Of failed seals from a long time ago,
Or a window left open? You just never know.

Ask about stuff that doesn't look right,
Ask them to fix it. You know, they just might.
And if they refuse for whatever reason,
Don't give up on a chance for cohesion.
After all, the seller can lower the price
To pay for repairs, enough to suffice.

FHA loans have no flexibility.
All their repairs must be done unequivocally
Before escrow closes. So no issues there,
Sellers must fix each FHA repair
Which, truth be told, all deal with life safety.
Straightforward stuff, not Wayne Manor stately. (OMG, did I really do that one?)

Repairs and fixes don't have to be formal.
Making adjustments should be fairly normal
For buyer and seller, since both have a stake
In writing it down with fair give and take.

Questions? Ask The Captain!

Saturday, August 10, 2013

The Rhyme and Reason of Home Buying!!

An email from a "Rookie's Guide" reader:

"Dear Galaxy Starship Captain,

We are first-time buyers who just moved here from New Zealand and have no idea how to begin the home-buying process in (name of city edited out). How shall we begin?


Our reply:

Dear Firsties,

Before setting out, go visit a lender.
I know that can sound like a real dead ender
'Cause lenders use terms like "RESPA" and "TILA ."
But they'll sit you down and act glad to see ya.
"Where do you work?" they'll say with a smile
As they start writing up a mysterious file
With your past and present, your children, your spouse. 
"All this?" you'll think, "to just buy a house?"

It probably seems an intractable nuisance.
But really, both sides should exercise prudence--
Both you and the lender engage in this dance
Of embracing the process of mortgage finance.
You need to learn what you can afford.
And yeah, the paperwork makes anyone bored,
But hey, Firsties--

That whole razzle-dazzle will get you a castle!
The razzamatazz is worth all that jazz.
If I left something out, just shoot me an E-,
Whatever you ask is between you and me. :-)

Wednesday, August 7, 2013

A Question

Today, Garrison Keillor turned 71.David Duchovny turned 53. The question:

What, if anything, do these birthdays have to do with real estate?

Monday, August 5, 2013

Sales, Prices and Interest Rates Are Up, and So Are Closing Costs

A previous post defined closing costs and explained what went into them. Now comes a survey from  showing a significant overall increase in total closing costs from a year ago. The main reasons for the increase seems to be higher lender origination fees as well as fees for outside services, such as appraisals.

The survey, which shows a state-by-state average, didn't include costs such as title insurance and search, escrow fees, property taxes and other government fees, since these are variable by state. These are fairly large charges.

What this means is that borrowers will have to have more cash to close a loan. And while it's tempting to think, "Meh, so what, nothing I can do," don't give up too quickly. Now more than ever, it pays a buyer to shop around for a loan and to look at several offers with Good Face Estimates attached.


Friday, August 2, 2013

What Is Private Mortgage Insurance (PMI) and How Does It Work?

Buyers who obtain conventional mortgage loans with less than a 20 percent down payment are required to buy private mortgage insurance, usually just called PMI. A conventional loan is one not insured by the Federal Housing Administration (FHA) or the Veterans Administration (VA). The monthly PMI premium is included in the borrower's monthly payment.

Many people think the private mortgage insurance policy pays off the loan in the event of default. It does not. If the borrower defaults, the policy pays an amount equal to what 20 percent down would have been, less the borrower's actual down payment. On a $300,000 home, for example, 20 percent would be $60,000. However, the buyer only put down 3.5%, or $10,500. PMI would therefore insure $49,500.

PMI matters in a couple of ways. First, as borrowers pay down the loan, their equity gets closer and closer to 20%. An increase in the market value of the home also may add to equity. Lenders, by and large (there are always exceptions), will drop the PMI requirement when the home hits 22% equity, based on the original appraisal. A borrower can also request the requirement be dropped when equity reaches 20%.  A caveat here: Many lenders require riskier borrowers to continue paying PMI well after the 20% level is reached.

A second thing to be aware of is that the PMI insurer is a stakeholder in a short sale. While more brokers and short-sale negotiators are aware of this fact now than in past years, some still are not. Neither are many homeowners. But the insurer must be contacted along with the other lenders and has to be part of the short sale agreement and can really hold things up.

Both the FHA and VA require payment of mortgage insurance as well, but in their cases, the insurer is an arm of the federal government and therefore not "private." The same rules pretty much apply, though.

Is PMI a good thing? Yes, because it's a private market solution to managing risk on loans, making more money available to potential borrowers.

Potential buyers may also hear the term, "lender-paid mortgage insurance." Under this scenario, the lender pays the insurer and charges the borrower a higher interest rate.

Question or comment? Let me know!