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TRANSACTION FEES

Agents get paid through a commission, usually a percentage of the sales price, which is usually paid by the seller through their sales proceeds when the escrow closes. Seller’s and buyer’s agents each get a share of the commission. Besides that there are the “normal” closing costs borne by buyer and seller (which can vary based on local custom and contract negotiations). But then on top of that, sometimes, the seller’s or buyer’s agent will also ask their client to pay a “transaction” or “administration” fee. This fee is often used to pay for a transaction coordinator to help the agent process the various paperwork for the transaction, keep track of contingency dates, etc. It may also be used so that the transaction is paperless, so instead of a thick stack of papers at closing you get a CD with all your documents, or even online access. These are wonderful services that do benefit the client, and I’m all for those services (we provide them here, we just don’t charge our clients extra for them).

There has been some controversy in the real estate industry about the agent receiving a commission and then charging a transaction fee ON TOP of that for services that they are normally expected to provide. The California Association of Realtors Legal Department has weighed in on the topic. They feel that it would probably be prudent to avoid charging these fees, unless the agent feels it is necessary due to the unique nature of the transaction. In that case the fee must be fully disclosed and agreed to ahead of time (not just on some obscure line amongst the mountain of paperwork and fees at the closing table). They also recommend that it isn’t supposed to pay for things that agents normally do in the course of a regular transaction. I realize how many forms goes back and forth in a transaction, and I realize that at the closing table there are a LOT of numbers on that closing statement, but you have every right to politely ask for an explanation of every fee that you are being asked to pay.

Are We In Another Bubble – Part 3

To see Parts I & II of this series, go to www.FB.com/SharpRealtyPage. My third point is that lending rules have changed. When the last bubble formed, when a buyer wanted to buy a more expensive home than they could qualify for, lenders just changed the rules and came up with a new loan to make it work (interest-only, adjustable rate, negative amortization loans were the main culprits) or encouraged the borrower to lie about their income to qualify for the loan. This is how prices got so out of hand last time beyond what buyers could afford. As I mentioned in point #2, most buyers are no longer so willing to go along with these tricks. They want to be able to afford the payment out of their paycheck, regardless of what happens to the value. But even more important is that the lenders have changed the rules so these tricks don’t work so well anymore. Some lenders can still make those crazy loans, but the buyers actually have to qualify to make the regular, 30 year, fixed-rate, principal-reducing payment at no more than a reasonable percentage of their monthly income, and it needs to be their true, verifiable income. The government has even passed some laws that for loans that the government is going to insure, which is most or many of them nowadays, the lender has to prove that the buyer can actually make the payment, something called the “suitability rule.” That’s right, it wasn’t until AFTER the real estate bubble burst that lenders were required to make sure borrowers could actually pay them back. So even if a buyer WANTS to buy a home for more than what they can afford, very few lenders will make that loan now.
When the bubble formed last time, people were buying homes they couldn’t afford, and the lenders helped them do it because everyone expected the party to continue. This time, lending rules and buyer expectations have changed. So that is why I don’t think our current real estate prices reflect a bubble that is likely to pop. Now if prices go up another 20-30% and household income does not follow, then I may start getting concerned!
If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). #1 in Brentwood listings sold since 2000. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

Are We In Another Bubble? Part Two

Last week I gave you Part I of a series of articles discussing the three reasons why I don’t think we are in another real estate bubble that is about to burst. If you missed the first article about the changing investor profile, you can find it on my FaceBook page at www.FB.com/SharpRealtyPage and look for the post from Jan 3 of this year.
The second point is affordability. When homes are $200-300K, the average family that makes the median income can afford the payment and still have ample room left for food, utilities, saving, giving, etc. (at least, they could in theory!). But now that prices have moved into the $300-400K+ range again, it’s putting a squeeze on the family budget. The payment is also starting to get to be more than they are paying in rent, in many cases. The ratio of rents to mortgage payments is a time-tested measure of how affordable homes are to buy. The higher the mortgage payment gets, the more that some buyers will just opt to rent instead.
When the last bubble formed, and just before it burst, buyers were willing to do whatever it took to buy a home. They would even take on a mortgage payment that was 50 or even 60% of their gross monthly pay. They were under the impression that homes “always” go up in value, so they were willing to take this risk. They thought that if the payment ever got tough to make, they could just sell and make $50-100K or more. But now they, like the investors, have a more skeptical view of what prices will do in the future. The memory of the crash is still fresh in their minds so they are more cautious than before, and that’s a good thing! So if prices continue to rise at 20-30% per year, but income doesn’t rise by the same amount, I think buyers may pull back this time and not participate in another irrational bubble forming. And the job numbers that just came out were pretty bad, which means the average household income may not be raising by much anytime soon.
Check back here next week for my final point for why I don’t think we are in a bubble. If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). #1 in Brentwood listings sold since 2000. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

Are We In Another Bubble?

After the real estate “bubble” popped a few years ago, prices around here dropped nearly 60% off the peak. They stopped falling about 2009 and then went flat for several years. But in 2013, homeowners around here enjoyed some incredibly high rates of appreciation in their homes, around 20-30% for the year. This raises the question of whether we are in another bubble? At this point in time, I do not think we are in another bubble that is about to burst, and I can give you three reasons why not.
First, investors are changing their goals. During the last bubble, investor buyers made up anywhere from 30-40% of all transactions. Their goal was to get in and ride the wave of appreciation up then sell and make a quick buck, what we call “home flippers.” The flippers were very active in 2013 just as they were during the last bubble. However, I’m now seeing a BIG shift in the type of investors going forward into 2014 as they become more “buy and hold” investors. They plan to put tenants in these properties and hold the properties long-term. They are not looking for the quick “flip.” This means they are keeping an eye on their monthly cash flow. They want the rent on the property to at least cover the mortgage and other monthly expenses, which means there is a built-in resistance point around $350K. When the market bottomed out three years ago, investors jumped in and they did drive prices up, but only to a point. During the last bubble, as prices increased, it actually brought MORE investor buyers to the market. This was a positive feedback loop as they looked to “cash in” on the trend. This time, it’s the exact opposite where they are focused on the lower-priced properties and they will stop at a certain price. This new hesitancy on the part of the investors is a healthy check on home prices.
Tune in next week for reason #2 why I don’t think we are in a bubble. If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). #1 in Brentwood listings sold since 2000. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

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