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Oct. 11, 2006 - Procuring Cause ... Not Just for Agents

This morning I crossed paths with the concept of procuring cause, the tenet by which real estate professionals earn their commissions. While it seems to be an agent-vs-agent issue, it also can have ramifications for the consumer.

In short, procuring cause is the action (or actions) which leads a prospective buyer to write an offer on a given piece of property. Simply sending automated listings, as I do to two dozen clients and prospects on a daily basis, generally would not be recognized as sufficient action; showing a property to a prospective buyer can elevate a burgeoning real estate level to the level where procuring cause can be shown. Other such actions are recommending lenders, other professionals related to the offer and, naturally writing the offer.

This morning I met with someone who had driven past a horse property in Avondale. Since he was not working with a buyers' agent, he called the listing agent and discussed the property. He set an appointment with the listing agent and met with her over a weekend to view the property. She even went so far as to recommend a lender to this prospective buyer.

Rather than use his lender, he called USAA Mortgage and was prequalified with the caveat that he sell his house. This set in motion of chain of events (USAA calling my company's relo department, as we're a preferred vendor; my relo folks calling me as I'm a USAA Certified Relocation Specialist; me calling the client yesterday to set an appointment) that led to me meeting with them at 7:30 a.m. The rush was needed because the listing agent had told the buyers that she was expecting another offer and they needed to hurry if they wanted to submit an offer. And having to submit their offer quickly and given they had to make the offer contingent upon the sale of their house, they needed to get them home on the market pronto, ready or not.

Nothing about the above scenario was particularly complicated except this ... along the way, the buyer decided they would prefer independent representation in negotiating the purchase of this horse property. And it was here that the challenges began to mount.

Legally, any licensed agent could write an offer on the buyers' behalf.  But since the listing agent clearly could show procuring cause, there was no guarantee this agent writing the offer would be paid in the transaction unless the listing agent were willing to make some sort of accomodation in the interest of selling the property. This agent was not so inclined. That left three possible scenarios:

1) The buyer pay for their own representation out-of-pocket. In what adds to the body of evidence suggesting that the idea of buyers paying for their own representation out of pocket isn't as cut and dried as some would have you think, requiring this of the buyers likely would have left them without enough of a down payment to purchase the new property.

2) The buyers make their offer contingent upon their agent being paid. This would be a delicate maneuver for two reasons: first, agents are not permitted to negotiate commissions in the contracts they write. But if the buyers are the ones making the request, welcome to the Grey Zone. Second, even if the sellers were willing to pay the buyers' agent, this doesn't lessen their financial responsibility to the listing agent - the commission is set in the Exclusive Right to Sell form and cannot be altered outside that agreement by anyone other than seller and listing agent/broker.

3) The agent could write the offer and not receive any compensation; the sole compensation would come with the listing. Idealistic, perhaps. Realistic, probably not - not for reasons of greed but for logistical and legal reasons. Once the offer is written, the agent has assumed responsibility on behalf of his brokerage and now becomes liable for a number of different items in the transaction. Liability without compensation is professional suicide.

In the end, the client elected to use the services of another agent to write the offer and cross swords with the listing agent. Again, legally, anyone can write the offer - not anyone can get paid. But these buyers also now will be dealing with a listing agent being forced to present an offer from clients (and a possible commission) she fully expected to have herself. Could that make for a less than ideal scenario when their offer is presented?

You can be the judge.

So how can this be avoided? In some cases, the urge to call on a property can be overwhelming for a prospective buyer, even one who had no intention of moving when they left the house in the morning. However, in their own best interest, it might be best to stifle the urge to schedule immediate appointments and instead come home and plan ... if you do not already have a real estate agent, find one. Independent representation always is the better course of action (though I'm not as manic about it as some anti-dual agency advocates.)

Call a family member, ask who they have used. Talk to a friend. Or jump on the Internet and e-mail or call the first guy you see with a really cute beagle - who also, coincidentally, knows the contract more thoroughly than a large percentage of his peers (the man, not the dog.)

Picking up the phone may seem harmless enough but it truly does have far-ranging ramifications.

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes

Sep. 19, 2006 - Home for the Holidays

As the temperatures start to cool, so does the real estate market in Arizona. But history also shows this is the time of year where buyers can find some good deals on homes, thanks to human nature.

Most people's lives are set to a certain rhythm, often determined by the calendar. A year is not so much 365 consecutive days as a series of events - birthdays, anniversaries, holidays - with gaps in between. We see this much more as children, where planning for the next birthday starts the day after the last. But it's true of almost all people that certain periods lead to certain mindsets.

One of those periods is the fall holiday season. No matter whether you celebrate Christmas, Chanukah, Kwanzaa (or in an old friend's case, the winter solstice), there is a certain image of hearth and home, of being in your own home with friends and family to celebrate the season. (And I also picture a healthy supply of egg nog nearby, but that's just me.)

But this picture is somewhat different for someone selling their home. Perhaps they've already moved out of their house and are making two payments. Maybe they're still in their home and are facing the possibility of having strangers traipse through their house during the holidays. Or possibly they're worried that the offer they have been waiting for finally has arrived, but with a closing date in early or mid-December.

Add these factors to the motivation many sellers already are feeling and the conditions are excellent for buyers looking to purchase. And when you factor in the recent drop in interest rates (one of my mortgage folks said today there are programs with rates in the 6.0s) combined with realistic pricing already taking place and it is, to coin a phrase, Christmas come early.

If you've been debating whether to purchase a home, this may be a good time to start the search. If you've been searching for sometime but sitting on the sidelines, this might be a good time to get serious. In the Republic this weekend, an article pointed out that home sales have declined but prices in many areas have remained flat (Surprise for example) or even increased (as they have in Peoria.)

Automated listings updates based on your criteria are one of the many services Tobey and I provide to our clients, and have been found to save considerable time when searching for your next home.

Of course, if you're not quite ready to make the move for any reason, there's no need to rush. We'll still be here whenever you're ready. But if you've been on the fence and are looking for a reason to make the jump, the coming of the holidays might just be that catalyst.

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes

Sep. 3, 2006 - Rent to Own Homes

Tired of paying rent without building equity? Trying to purchase a home but daunted by the down payment involved? Rent-to-own, also known as lease option buying, might be the best route for you!

With a lease option, the owner generally collects a larger-than-normal initial deposit. This deposit is held by the owner and will be applied to the tenants' eventual down payment. Also, the monthly rent payments may be above the current market rates, but in most cases that additional rent also is applied toward the eventual down payment.

At the end of the option period, usually a year, the tenant then has the opportunity to use the accumulated money as a portion of their down payment and closing costs and purchase the home at a pre-determined price.

There are some risks with a lease option: 1) if the tenant decides not to buy the house, the owner keeps the additional deposit and rents collected. 2) the eventual purchase price usually is higher than current market prices because the owner is locking in a certain rate of appreciation. 3) unless specified in the rental contract, the tenant also could lose their additional deposit and rents if they're unable to qualify for a loan at the end of the option period.

Still, rent-to-own remains a viable option for many homebuyers who may not have the accumulated savings to cover a down payment and closing costs.

For more information on rent-to-own buying, e-mail me using my contact form or call me at 602-502-9693.

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes

Sep. 3, 2006 - Zero Down Home Purchase

It's been my experience that many homebuyers aren't stymied by the possible monthly payments as much as by the down payment and closing costs associated with owning a home.  Nearly everyone pays at least something to live where they do - even if they're still at home with their parents - but not everyone has the thousands of dollars needed to move into their first or next home.

Fortunately, several lenders offer zero-down financing programs. With zero-down financing, the full price of the home is financed, leaving the buyer to pay only for closing costs and prepaid items such as termite inspections, professional home inspection and the appraisal.

In addition to loan costs, closing costs also include escrow fees - title insurance, fees charged by the title company, etc. But it's not uncommon in the current Phoenix market for sellers to agree to provide buyers with closing-cost assistance.

Some sellers will accept an offer with the closing cost assistance built in to the offer price while other sellers expect the buyer to raise their offer price before paying for closing costs - in other words, the buyer is financing his closing costs as part of the loan (as long as the property appraises for the higher amount.)

For more information about zero-down financing, please e-mail me through my contact form or call me at 602-502-9693.

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes

Aug. 22, 2006 - A little math

I was rummaging through the Rain City Guide blog in Seattle and ran across this post, which actually was a comment added by a buyer. The snip set me to thinking ...

"No buyer really understands why an agent would help them negotiate a lower price on a house, when that means the agent gets paid less in the end ..."

I've seen/heard similar comments before so I thought it might be worth a little math lesson.

Let's assume an agent is receiving 3% of the sales price as their commission. That means that for every $10,000 difference in price, my firm would receive an extra $300. Of course, that's what the firm receive. I'm on a split with my broker and also have to pay Century 21 franchising fees, etc. When all is said and done, that extra $300 really is more like $200.

So this assumption is I'm not interested in getting a lower price for my buyers because I might make an extra couple of hundred dollars. Even though if I do a good job for them, which I do, I'll hopefully receive referrals worth far more than a couple of hundred dollars. Yep, that makes sense.

Of course, if someone really thinks that of me, I think I'd rather they move on to the next agent anyway.

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes