Dual Agency and the Perils of “Double Ending”

Posted on August 31, 2010 by George Crowe

Dual agency is created when the same brokerage represents both sides in a transaction. Even if each side has its own agent, it’s technically dual agency if they both work for the same company. Single-agent dual agency, or “double ending” as it’s commonly known, happens when it’s actually the same agent representing both the buyer and seller in the sale of a property. It’s a pretty common practice, but is it a good idea?

There are plenty of agents who are happy to represent both sides in a transaction since they earn twice the commission, but there are a number of us who refuse to “double end”, and for very good reasons. Real estate transactions are complicated, and can involve quite a bit of negotiation. No matter how ethical and competent you are it’s impossible to negotiate effectively with yourself. An agent’s job is to act as an advocate not a mediator, and there’s no way one person can simultaneously be an advocate for two sides with opposing interests.

So why would a buyer want to get involved in such a situation? Some home buyers think they can gain an advantage by working with the listing agent to purchase a property. They assume they’ll get a better deal and have an advantage over competing buyers. What they often don’t realize is that they could be putting themselves at risk, as their agent has a fiduciary duty to the seller as well, and that’s pretty much the very definition of a conflict of interest.

We advise clients it’s in their best interest to have their own representation in a transaction. That means, for example, that if I’m holding an open house at my listing and I meet a potential buyer who’s interested in the home, I’ll refer her to another agent. Yes, I’m passing on an opportunity to make twice the commission on the sale, but I know that both my client (the seller) and the buyer need to have proper representation, and that can’t happen if I’m acting as agent for both sides. I take my fiduciary duty to a client very seriously, as any agent should, and the only way to perform that duty properly is to be looking out for that client’s interests above all else.

To be honest, it’s odd that the practice of single-agent dual agency is still legal, as it presents potential for all sorts of conflicts of interest and opens the agent up to potential liability. Attorneys will tell you that judges don’t look kindly on “double ending” agents when things go bad and they end up in their courtrooms. Perhaps at some point things will change and the practice will finally be banned, but until then we’ll steer clear anyway and we hope you do too.

Finding Your Dream Home Is Just The Beginning

Posted on August 6, 2010 by Ginger Wilcox

Guess what? If you’re looking for your dream home, you might end up finding it yourself. Odd for a REALTOR® to say, right? When I meet with home buyers, I always tell them that I may not find them their dream house. It is quite possible they may find it online or because their friend knows someone who is selling a house before I even know they are ready to buy. I have talked to a number of home buyers recently who felt the agent didn’t do their job because the buyer found the house, not the agent.

Buying a home is very different than it was ten years ago. Consumers are armed with a tremendous amount of data easily found online. Your real estate agent’s job isn’t just to help you find your home, their job is to help you buy your home. Finding the perfect dream home is really only a small part of a very complicated transaction. Zillow, Trulia, Realtor.com or even our very own blogbythebay.com– there are literally thousands of places for home buyers to find homes. A consumer can literally be inundated with data. A good agent can help you sort through all of that data.

For some home buyers, finding that perfect dream home is much more complicated than others. I had one client who wanted space for a tennis court in an area without a lot of land. Finding their perfect property took a tremendous amount of effort and time, and required extensive research and diligence on my part. There are many homes that aren’t on the multiple listing service or on one of the 1001 home listing websites that a good agent will know about. We sell a lot of off market homes to buyers that they could never have found online, but other times clients call us and say, “Hey, we found the perfect home. We would like to buy it.”  This is often when the difficult part of our job begins.

So how do you find an agent who can not only help you find your house, but also help you buy it– aka close escrow?  There are a number of things you should look for:

  • A skilled negotiator:  The entire contract process involves a series of negotiations, even after the contract is ratified and you are in escrow. Your neighbor’s cousin who is an agent may be sweet, but can they save you money, time and aggravation by negotiating successfully for you?  This doesn’t mean you hire someone who negotiates just to hear themselves negotiate which can lead to a failed purchase- a contract falling out of escrow.  Negotiating successfully involves a series of give and take to reach the desired end result- a home purchase within the budget and time requirements.
  • An educated real estate professional:  Have they taken classes beyond the pitifully small amount required to get a real estate license?  I took all of my licensing courses online.  Quite honestly, the process was a joke.  When I finished my licensing, my real education began.  I mentored with an experienced agent and took extensive course work to make sure I had the skills needed to do my job.  Make sure your agent gets ongoing education- this business isn’t standing still.  Ask them how they stay up to date on current rules and trends.
  • A business professional: She should treat you, service providers, and other agents with professionalism and respect.  A good agent will not bad mouth her competition, nor her other clients, even if it is deserved.
  • An organizer: Your agent is essentially your project manager to get your transaction closed.  Nobody wants a sloppy project manager.  A missed deadline in a contract could mean the loss of not only the transaction, but possibly an earnest money deposit for you.  An average earnest money deposit in Marin County is about $30,000.  I wouldn’t call that chump change.
  • Trustworthy: Are they looking out for your best interests?  We talk our clients out of buying homes we think are a bad investment all the time.  Make sure your agent will do the same.
  • Mobile: If your agent can’t assist you while out in the field, they can’t work for you the majority of the time.  Successful agents are not in their offices.  Find someone who is mobile and can assist you on the go.
  • Tech Savvy: If your agent is mobile, they are probably not a technological neanderthal.  This is a good test.  Your agent doesn’t have to be a tech guru but they need to be up to date on the latest tech tools to not only help you find your house, but manage the transaction process along the way.
  • Local: We see many failed transactions with out of area agents.  The majority of out of area agents don’t know the intricacies of the individual county, city and even subdivision rules that can impact a home purchase and later on, a home’s resale value.  Hire a local agent who knows not only the rules and regs, but also has a pulse on the local real estate market and knows the local agents who will be influencing the transaction process.
  • Good with the numbers: Buying a home can very emotional, but it is also a major financial purchase.  Your agent should be providing you comparable sales and comprehensive real estate market stats, charts & reports to help guide your decision making process, and should be giving you informed advice about the value of the home.

Your agent may not be the person who finds you the dream home, but a great agent will help make the complicated home buying process successful, no matter who found the property.

Neighborhood to Watch: San Francisco Blvd/Memorial Park

Posted on July 23, 2010 by Stephen Pringle

One of the great things about Marin is the diverse array of cool neighborhoods to choose from when you’re deciding where to buy a home. We love so many of them for a variety of reasons and we’re constantly working to document them all in the Marin Neighborhoods section of the website, but we’ll also highlight areas that we think buyers should be sure to consider in our Neighborhoods to Watch series here on the blog.

One area we think can be a great choice for many buyers is the one surrounding San Francisco Blvd. and Memorial Park in San Anselmo. It’s got a lot of features we think make for a great Marin neighborhood:

  • Being able to walk to get coffee, the grocery store or a good breakfast spot.
  • Being close to the one of the best parks for kids in Marin where you can play baseball or play on the coolest play structures around.
  • Having your own community garden where the kids can pick their own vegetables or collect eggs from the chickens.
  • Close to open space where you can hike or run the dog.
  • Having a cool, funky neighborhood bar where you can grab an inexpensive cocktail without having to get in the car.

The area has all of these benefits while also being close enough so that you can ride your bike to downtown San Anselmo or Fairfax, and having a good selection of relatively affordable starter homes by Marin standards to boot. It’s definitely worth a look if you’re a home buyer considering San Anselmo.

Is It Wrong To Walk Away From an Underwater Mortgage?

Posted on July 10, 2010 by George Crowe

There was an interesting article in the New York Times this week based on a study showing that a higher percentage of mortgages over $1 million is delinquent than that of smaller loans. Some of the conclusions reached may be debatable, but it got me thinking about strategic default, which our friend Wikipedia defines as “the decision by a borrower to stop making payments on a debt despite having the financial ability to make the payments”. The NYT article asserts those in higher income brackets are more likely to see strategic default as a wise business decision, while Joe Sixpack continues to make the payments on his underwater mortgage. Is that really the case? And if so, who is right?

Google “strategic default” and you’ll get almost 11,000 results, including a recent 60 Minutes segment on the topic. It’s definitely a controversial subject–some say choosing to walk away from a home when you can afford to make the payments is unethical, while others think it’s strictly business and the banks have it coming since they got us in this mess to begin with. I see both sides of the argument, though after reading a lot about the subject this week I’m leaning towards thinking maybe there’s nothing wrong with a homeowner making the same kind of business decision a bank or corporation wouldn’t hesitate to make faced with a similar situation. Back in January Roger Lowenstein argued the case for strategic default in The New York Times Magazine, and he made some pretty good points:

“Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.”

If you buy into the argument that it was the irresponsible and greedy behavior of the banks that brought about the housing bubble and corresponding bust, then maybe it’s fair that they’re left holding the bag. It’s a tough question with no easy answer. What do you think?

California’s Screwy First-Time Home Buyer Tax Credit Running Out…But When?

Posted on June 24, 2010 by George Crowe

The funds allocated for California’s first-time home buyer tax credit were not used up in the first few weeks of the program as some had forecast back in April, but should all be spoken for soon. When exactly will the $100 million be gone? That’s a good question. According to the Franchise Tax Board website the state had received more than 17,000 applications, representing more than $91 million of the fund, as of June 22nd. They say they’ll stop accepting applications once they get 28,000, and that even those will be subject to the availability of remaining credits.

This means frustrating uncertainty for buyers who are in escrow now, since you can’t apply for the credit until your transaction has actually closed and you won’t know for a while if you’re going to get it or not. The FTB says they’ll announce the cutoff date on their webpage at least one full day before they stop accepting first-time buyer applications, but to put it diplomatically the whole system does not seem very well designed, as evidenced by a couple of choice quotes from the tax credit webpage:

“We expect it to take 3-6 months to notify taxpayers after an application or reservation is received.”

“It can take several minutes or possibly up to an hour to connect and transmit the fax.  If you receive a busy signal, try again later.”

And my favorite: “We have not processed any applications yet as our computer system is still being developed.”

So basically, at some point you’ll find out if you actually will get the credit…or not.  It could take six months before you know, and good luck trying to fax in your application.

Marin County Homebuyers Find Lots of Choice

Posted on June 16, 2010 by Ginger Wilcox

So what has been happening in the Marin Real Estate Market? Lots of homes for sale! This chart of home inventory shows the upswing in homes listed for sale in Marin over the last few months. We saw a major decline in homes being listed in the late fall and early spring with the bottom in March. Part of this decline was seasonal, but also reflected seller concerns about the market.

A similar story is happening with Marin condos for sale. The number of Marin condos listed actually jumped past July of last year. Many sellers raced to put their homes on the market to take advantage of buyer tax credits.

These numbers represent homes for sale across Marin County. Market statistics can vary dramatically in the individual cities.  Interested in learning more about Marin County price trends, supply and demand and leading indicators to help you make educated real estate decisions? Get our weekly Marin Real Estate Market Report.

Fannie Mae Loan Quality Initiative To Repull Your Credit Before Closing

Posted on June 8, 2010 by Ginger Wilcox

Fannie Mae’s new loan quality initiative will make it harder for Marin home buyers and refinancing homeowners to close on a mortgage.

Beginning June 1, 2010, with all new applications, Fannie Mae wants lenders to verify that borrowers have not taken on new debt during the underwriting phase of the mortgage. If new debts are found, the mortgage is subject to a re-underwrite and a possible turndown.

Fannie Mae hopes to reduce the number of loans that go bad because of new, non-disclosed debt. Lenders have the freedom to verify in whatever manner they wish, but in most cases, the verification process will amount to a credit re-pull made just prior to closing.

The underwriters will be looking for 3 things in particular — even after your loan is approved.

  1. Your updated credit report will show your current credit card bills and minimum monthly payments.  Those numbers will replace your original numbers made at the time of application.  If the debts exceed a certain threshold, your loan will be denied.
  2. Underwriters will be looking at your updated credit score. If your FICO has dropped below minimum lending standards, your loan will be denied or you may be subject to a new loan-level pricing adjustment. Loan level pricing adjustments are mandatory loan fees based on your credit score.
  3. Underwriters will be looking at your credit report’s Credit Inquiry section. The goal is to see if you’ve been applying for credit elsewhere. Underwriters can use this information at their discretion.

Fannie Mae is trying to improve its loan pools with the Loan Quality Initiative. Unfortunately, it’ll mean more loan denials for mortgage applicants.

If is important for homebuyers to take extra care of your credit between the time of application and the time of closing. Don’t buy new cars, don’t buy new appliances, and — most definitely — don’t open new credit cards.  Be extra safe with your credit because a mortgage application that’s supposedly cleared-to-close can be revoked at the eleventh hour.

When in doubt, talk to your loan officer about what may or may not trigger the Loan Quality Initiative.

Consumer Confidence Hints At Higher Home Prices, Higher Mortgage Rates

Posted on by Ginger Wilcox

Consumer Confidence Index May 2008-May 2010The Consumer Confidence Index is rising, a potentially double-edged sword for residents of Marin County and for Americans in general.

According to The Conference Board, economic confidence is as high as it’s been since August 2007 — 4 months before the start of the recession.  Americans are optimistic again.

Confidence matters to the economy because as confidence increases, in theory, consumer spending follows.  Consumer spending accounts for 70 percent of the U.S. economy, which is why Wall Street is responsive to confidence data.

When consumer confidence is rising, households start to make big-ticket purchases they may have otherwise put off indefinitely.  Maybe it’s a replacing old appliances; or, trading in an old automobiles; or, splurging on a vacation.

Rising confidence can also spur real estate sales. When confidence is rising, a growing family that chose to “make do” in their 3-bedroom, 1.5-bathroom starter home may opt to move-up to a 4-bedroom, 3-bath instead at a slightly higher monthly carrying cost.  And there are families in every city in every state making those same decisions.

As a result, the housing market gets a boost — especially in the mid-to-upper price ranges. Values rise on higher demand for homes. The downside is that growing confidence tends to push conforming and FHA mortgage rates up.  This is because an expanding economy draws investment dollars away from bonds and into stocks — including mortgage bonds.

The reduced demand for mortgage-backed bonds leads bond prices to fall and mortgage rates to rise.  Sometimes by a little, sometimes by lot.

The consumer confidence may have less of an impact on Marin County home prices as our market was behind the rest of the country to fall.