What does the word Realtor mean to you? What would you consider your duties as a Realtor? I always find some sort of issue when reading mortgage related questions by Realtors on Trulia. First question would be, why do Realtors even answer these questions? Is it to get their name out there? Self-promotion? Do Realtors know anything about the “Safe Act”?
The Safe Act will go into effect on October 1st, 2010, stating that you have to be licensed as a Mortgage Licensed Originator (MLO). The overall policy of the act is that in order to take a full mortgage application, you need to be both licensed federally and within that state. But some states are taking it further, regarding the information given out to borrowers when answering specific questions. People, it’s a very fine line and could blow up in one’s face.
Here is a question from Trulia Answers:
“Why does the seller of a house care how much money is being put down when buying a house?”
One Realtor’s answer: “the one with the higher down payment is likely deemed stronger – more “skin” in the game, less appraisal risk, and in some cases – though not yours – it can mean the difference between FHA and conventional financing, which is a big swing card.”
In my opinion, there is some truth to the answer above. But I underlined what I thought would be misleading, which was her statement of “less appraisal risk.” Even steering sellers away from FHA loans is not always a good idea and for many reasons. As a realtor, do you do this just because of a previous bad experience with a FHA loan, but that you truly don't understand them, that you just assume?
Why can this statement be misleading? We all should know that a lender uses the lower of the two, either the appraised value or the sales price. If I am putting 20% down, but the appraisal comes in 10% less, then in reality I am only putting 10% down per any lenders view point and per use of lending guidelines. So what happens now? The seller and buyer can negotiate. The only choices that I can think of is that
- The buyer pays the difference to the seller at closing.
- The seller reduces the sales price by 10%.
- That both agree to split the difference.
- Or that the deal falls apart.
Regardless of what choice is made, this does change the whole scope of the mortgage and the agreement of sale. Instead of a 80% ltv, it is now a 90% ltv. Not only did the seller like the buyer with 20% down which made them take this offer over the person that offered 15% down, but the buyer might not be approved at a 90% ltv. There are many reasons for this to happen as a denial.
Here are a few more examples that I wanted to share with you, in my opinion, showing how a realtors answer to mortgage questions could be very misleading or misinform the buyer or the seller.
- The Mortgage hype that sellers concessions on conventional loans could be the better play than on FHA loans
- As a seller, do you listen to your listing agents advice about potential buyer’s financing offers with FHA loans?
- Wait until next year, home prices could be 3% less
I know realtors out there that still like to pre-qualify their buyers before a loan officer even speaks to them. I don’t even think that is very wise. But outside of that, there are many questions that should just be answered by a loan officer, and not by a Realtor.
This has nothing to do with intelligence, because one could still lack common sense in some cases. But please, if you get a chance, read the other three posts that I linked to, because this should show you some very good scenarios that I am talking about. And if you read the comments, many like-minded Realtors seem to agree with this kind of thinking.
My question to you as a Realtor is, shouldn’t you be more focused about the buyer;s needs or making sure that seller gets the best deal? Sure, this could include some mortgage related questions and issues, but rely on a professional loan officer that could help you and your client understand this much better. There is just to much information to think about out there and just because your opinion might sound good, if you didn’t work out all the scenarios with cold hard numbers, then it could cost that person thousands of dollars done the road.
Keep in mind, I am not talking about the communication between you and the loan officer. I don't have a problem with a realtor that asks the buyers a basic question if they know that the buyer is a Veteran or is buying in a USDA area. Such questions would be, did your loan officer go over these other mortgage programs with you? If not, send them to a good loan officer to get educated on such programs. But in my opinion, giving mortgage advice or advice revolving around financing or predicting home values in the future, could be costly to all involved. Especially when you don’t look at if from different angles, showing the pros and cons of your statement. I know so many that just want to help and such. But this is a very slippery slope and I just think we all need to think before we speak.
UPDATE : As of 6:14 pm on 9/10/10 - Jeff Belonger's cliff notes - After hearing more input from both sides, I wanted to share this with you, which might not have been clear in my original post above.
I don't have a problem with a realtor being very knowledgeable about mortgage programs, how mortgages work, having insight, and a few other things. Example : I myself educate you on how 203-k loans work, for both your buyer or your seller. I give you details that would help the buyer, so you understand.. or so you know how to market that listing, knowing that it needs work, that you can share this with the seller... who would then feel comfortable if they received an offer with 203-k financing. I want the realtor to be educated on this. (more) What I don't want it the realtor taking it to the next step... qualifying the buyer on this program or any other mortgage program. Advising a client that they should put 20% down, because if you have it, you should to it to avoid mortgage insurance.. SORRY... but that is just wrong. A realtor is now stepping the boundaries and should not be offering this advice. There are many questions that I should be asking to determine what is best for that buyer.... and showing them why it's both good and bad to put 20% down. Yes, it can be bad, even if you are avoiding mortgage insurance. Why? One needs to go over goals.. a lower credit score could even make a conventional loan with 20% down more expensive than a FHA loan with 5% down.. and you still save 15% on the down payment. Sorry, but these are things that most realtors won't look at. Sure, we can turn this around and say that many loan officers won't do the same. We could spend a whole day just on that argument alone, that there are bad loan officers out there. I get it..but does that mean a realtor then takes full control? No, it shouldn't... that is when you just have to align yourself with the best of the best, such as Barb Van Stensel mention in the team concept.
How about this? I had a buyer that found me online, because they found me to be knowledgeable. They already had a realtor. After asking them many questions, including credit, I send them a pre-qual letter for a USDA loan. They called 3 hours later and said that their realtor said that USDA loans weren't good, that they were better off with a FHA loan. This is part of my point and why realtors need to stay out of the decision part of it. How does this realtor know this? Ah, after talking to her, she just heard bad things and never had a client do a USDA loan. hhhhmmm
Here is one problem that realtors bring up. Trust : not trusting the loan officer or their ability. Bad experiences and bad closings. Yes, there are bad loan officers just as there are bad realtors. Okay, so you the realtor take make the decision to do all of the pre-qualifying and answering or mortgage questions yourself? And you are better because why? From information that you learned around the water cooler? Or from info that you read online? Okay, let's talk about what you read online. Just because it's online doesn't mean that it's always correct. Read this : Mortgage Myths - Misleading FHA information regarding monthly mortgage insurance. How about the fact that you have bought a few houses yourself. This makes you qualified to answer mortgage questions? Let's be practical about this, with common sense. Back to trust.. I understand this... I have written about this...
My opinion on this now, after listening to many arguments? Realtors like full control subconsciously, because it looks good to their client. Almost like a one-stop shop. Many hats worn, to where a person can get all the answers from one place... and that they can control that buyer better and maybe the buyer will feel more comfortable, because they are getting all the information from their realtor, which sounds good... it sounds sincere.. and it's genuine. To me, this can represent false hope to the buyer. Please read my comment to Lyn Sims - Jeff Belonger's response -
PS... if you did finish reading this whole psycho babble post of mine, I am now going to do a part 2 by Sunday. It will be titled : How can both the loan officer & realtor come together as one complete team - Tips for realtors & how to become knowledgeable, with powerful mortgage related information, but not step over to the dark side. - Stay tune...
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