Toby was sitting here this morning working on some prospecting and a visit to Yahoo! Sent him into a little rant, and I thought I’d share what got him all worked up.
CNNMoney’s Stephen Gandel did a recent article “Closing Cost
Scams” that highlighted the issues of closing cost “scams” that a street in Minnesota – and presumably the rest of the United States – became victims.
The article goes out of its way to be negative of the real estate industry – and in parts with good reason – and its association with title companies and lenders. The idea is that real estate agents are sending their buyers to lenders and title companies that are not interested in getting the best deal for clients – but rather the best deal for them as an entity.
The example is a buyer that, despite doing the research on lenders and mortgages, went with his real estate agent’s recommendation on lender and title agency. That isn’t a problem; Toby recommends lenders and title agency companies in every transaction. The difference is that this deal netted the brokerage about $3,500 in money that wasn’t disclosed on the HUD-1 (a listing of all money that changes hands during the real estate closing) or probably wasn’t disclosed in a way that the buyer would have realized the
difference. For example, the title agency would give the money to “x” company – which happens to be part of the real estate brokerage. According to this story’s very small sample (only a dozen people) the average person could have saved almost 25 percent had they shopped around.
Saving money is always good, but to put the entire deal in terms of cash isn’t fair as well. There is some truth to the “you get what you pay for” and paying a little more for something that you know is done right is worth it at times.
The indictment of the industry continues and it gets more mud-slinging and one-sided. One of the “victims” says “We thought we had paid our mortgage broker up front” and didn’t even know that the bank rewarded his mortgage broker. But it was on the HUD-1. He signed the document and agreed to the terms of the document – and it is stated how much he is being paid. I know that Toby was amazed at the amount of money that can change hands in this part of the closing deal the first time he closed on a home. But, it was explained to the purchasers and they were comfortable with the cost based on the home they were receiving and the terms they had.
Then the article goes on to attack title insurance, which is an entire blog post in itself. It is like having flood insurance in a 100-year floodplain. You could get by without it, but if that big flood comes is it worth investing about $1,000 to protect your property? That’s a risk and it is up to the buyer on the amount of risk she is willing to absorb.
But then the article begins to attack real estate agents and Stephen quickly showed how little he knows about the industry.
Myth #1: Alternative Brokerages Don’t Get Shown
Sure, Mrs. Toby wants clients to purchase a home with a 4% buyer’s agency and a $1000 bonus to the buyer’s agent. But if the client doesn’t want that, then it is really quickly crossed off the list. All good agents will tell you that they don’t sell houses, houses sell houses. If that client wants “house X” then they’ll buy it. If Toby won’t show it because
it pays a discounted rate, then he’s jeopardizing the entire commission. And to not show these homes would open Toby up to anti-trust violations and he’s worked too hard to earn his license to mess it up over “x” percent.
Myth #2: real estate pros have relatively little incentive to treat customers fairly
Look at the basic outline of a “good agent” and within 4-5 years referrals account for about 80 percent of their business. That seems to be a very good reason to treat the clients fairly. It is easy to think that “this deal is done” now let’s move on to the next sucker. Stephen comment is that buyers usually don’t sell and sellers move away, is basically completely untrue. It is what I call the “restaurant rule” where good customers “might” say you did well, but you’ll never hear that you did a bad job – they’ll just
tell all their friends. So if an agent is counting on 80 percent of their business from referrals and one bad experience costs him at least “10” of these contacts, that’s a huge business hit.
But, then I’m just a dog. But it seems so one-sided to me.
This post is cross-posted on Toby’s Active Rain blog. I really hate it when he steals my thunder.
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