Friday, October 9, 2015

Sometimes You Get What You Pay For

Before I go into my topic, I'd like to first say that I am not afraid of a little competition. What gets my knickers in a twist is misleading information, especially the kind that casts me and my colleagues in the bad-guy role. Just like the idiot who blows through the yield sign and then yells at you for being in his way, it's a matter of education.

From time to time, the real estate industry sees the flat-fee business model emerge and eventually dissolve. Just as it sounds, these companies will offer sellers and buyers real estate services at a flat fee instead of the typical percentage deal. I've worked for a few companies, and they've all considered and rejected the model every time, for good reasons, I think.

I've heard proponents of this business model call it "disruptive," and I would have to agree, but not in the way they mean it. If you know me, you know that I support reflection and change, even when it may rock the boat. I think this model is disruptive in that it ends up short-changing clients while claiming to give them a superior alternative. While not every company will have exactly the same setup, let me offer you some contrasts.

  • PERCENTAGE VS. FLAT FEE. Contrary to what is sometimes presented to customers, there are no set percentages for real estate services, not anywhere in the country. All compensation is negotiable, and should be linked to the services and value offered. While the same client care is required, it costs an agent much more to sell a $1,500,000 house than it does a $150,000 house. Different houses require different approaches, and if an agent isn't tailoring his marketing program and selling strategy to each house, the client is not getting the best service possible.
  • FULL SERVICE VS. LIMITED SERVICE. Some flat-fee agents will agree to list a seller's home in the multiple listing service only, and then force the seller to do all of the follow-up and negotiation. This is actually a violation of the explicit or implicit obligations an agent has to a client, as per the Colorado Real Estate Commission. There is no working relationship in this state that allows an agent to duck out of these responsibilities - if he participates in a transaction, he must execute a certain list of duties or risk losing his license.

    In addition, customers should consider the real possibility that a flat-fee agent may not have the time to devote to each client as would a full-service agent. If an agent is only going to earn a certain amount on a transaction, he is going to have to make up the numbers in quantity, likely sacrificing quality.

  • REALTOR® VS. REAL ESTATE AGENT. These two are not the same thing. REALTORS® are required to take additional education that real estate agents are not, including being members of the local, state and national boards. As a result, REALTORS® have access to many more resources, including comprehensive market data, qualified professionals, and legal advice. Companies that do flat-fee only often do not require their agents to join any of these groups in an effort to keep costs down.
  • CLEAN VS. MESSY CONTRACTS. I've heard flat-fee agents suggest that commission negotiation can occur within the Contract to Buy and Sell, should the flat fee fall short of the amount of work the agent has done and earned for his client. This is not appropriate, and highly discouraged by the Colorado Real Estate Commission since the agent is not a principal to the contract (it's between seller and buyer). It can be acceptable if the buyer demands more compensation for their agent as a term of the deal, but this can put clients at a disadvantage, especially when there are multiple offers to compete against. All of the REALTORS® I work with will sooner accept the cut in pay rather than jeopardize their client's chances.
  • LOCAL EXPERTISE VS. SPREADING TO THIN. One goal espoused by a manager of one of these companies was "to serve as many people over a large geographic area as possible from one office." While this may be convenient for agents, it does not reflect the necessary skill set required to do justice for a client. I have often referred people to other agents down in Denver or Littleton because I know that their local expertise will serve the client better. Agents cannot be experts in every geographic area, and shouldn't try.
  •  VALUING VS. UNDERVALUING SKILLS. As a REALTOR®, I spend a ton of time collecting data, evaluating prices and trends, previewing homes, keeping up to date on tax, contract and lending changes, and learning about all aspects of real estate transactions and homes themselves. With the availability of data on real estate websites, it may seem easy enough to find and buy or sell a home, but deals can be far more complicated to close. Without the expertise that comes with buying and selling for years, transactions can go south quickly and cost clients a lot of money.

And I'll be honest; I can't afford to do this job for the rates I've seen these companies offer. Did you know that the national median income for a real estate agent is less than $40,000 a year? Take some sizable chunks out of that for individual health insurance policies, plus all of the licensing, education and organization dues and I'm far from a millionaire. I believe that the skills and knowledge I have to offer and the fact that I am available to my clients for about 16 hours a day is worth a reasonable compensation.

I suspect that, while this model works okay in a seller's market where houses are flying off the market and buyers are conceding everything to get their offer accepted, it won't be so popular in a different market where more is going to be expected of agents and flat service just won't cut it. Companies like Expedia and Uber succeed because they improve the customer experience, not because they save them a couple of bucks. Excellent customer service is still what succeeds.

I would love to help you with your real estate journey. 
Please contact me at 303-917-7143 or

Friday, October 2, 2015

Be Prepared for Longer Closing Timelines

On October 3, 2015, the Consumer Finance Protection Bureau (CFPD) will be implementing the new TILA-RESPA Integrated Disclosure (or TRID, for short). It replaces the Truth-In-Lending Disclosure and Good Faith Estimate for most mortgage loans. The CFPB was created by the Consumer Protection Act of 2010 (also known as Dodd-Frank, named after the congressmen who got it passed) in an attempt to prevent the recurrence of the financial crisis of 2008.

The new disclosure is purported to be easier for consumers to read and understand, as well as provide more information and stricter requirements of the process. It tightens up waiting periods and tolerances for certain quoted fees and requires the creditor to supply a list of providers for which the consumer may shop services.

You can view the sample forms HERE. For the most part, I think they do make the information more easily digestible, although depending on how your specific state does things there will be some discrepancies. For instance, in Colorado, where clients receive a discount on title insurance at the time of purchasing both a homeowner and lender policy, arriving at the right totals in the right boxes may be a bit confusing.

Another thing consumers should be aware of is potentially longer timeline to close the transaction. The addition of a three-day waiting period between borrowers receiving the closing disclosure and closing the deal is now mandatory and cannot be waived by the borrowers. Any changes made at that point to the annual percentage rate, the loan product, or the prepayment penalty will start the three-day clock over again.

While professionals in the real estate and mortgage industry should be ready for compliance, I would recommend adding a week or so to your expectations when it comes to getting those final documents. It's usually easier to move a closing up if everyone is ready, than to try to push it back.

I would love to help you with your real estate journey. 
Please contact me at 303-917-7143 or