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Archive for the ‘Realtors’ Category

The hunt continues!  A couple of weeks ago we discussed the various types of Realtors one is likely to come across.  Now it is time for the loan officers to be exposed.  Once again, this post is littered with stereotypes and generalizations, but we all know we have run across these folks at some point in our lending careers so don’t get all politically correct on me.  It would be wise for consumers to figure out which one they are dealing with.

The Gangster:  Maybe you haven’t heard, gangs and street thugs have figured out that mortgage fraud is a lot more profitable than dealing drugs and damn sure less dangerous.  Seriously, if your loan officer has a tattoo on his neck or a dollar sign tattooed on the palm of his hand, you may want to keep shopping for a mortgage loan. 

The Call Center Monkey:  These loan officers usually work for big mortgage banks or internet lenders.  They usually go by names of Mortgage Specialist or Loan Coordinator.   If you are lucky, they have been on the job longer than two months and may even be located in the US.  If you called a 1-800# for a big bank, the odds are you are dealing with the Call Center Monkey.  Good Call Center Monkeys strive to learn the ropes so they can leave the hell of their Dilbert-esque call center and start making real money in the outside world as a self-sufficient mortgage broker.  Depending on the company, some may turn into the JT Marlin though, so be careful!

JT Marlin:  An evil relative of the less intimidating Call Center Monkey, the JT Marlin works at a boiler room mortgage hack shop.  These loan officers love repeating lines from movies such as Boiler Room and Glen Gary Glenross.   (Warning:  dirty language).  Success is measured in fees collected.  Be careful, because they are always closing.   I captured some rare footage of the JT Marlin broker at work.  Almost always will be under 30 and can usually be seen driving a leased Hummer H2.

The Newbie:  Everyone starts off as a newbie.  Newbie loan officers are very similar to newbie Realtors.  In fact, they usually have the same birth mother.  I think the temperature of the womb determines who winds up as a Realtor and who winds up as a loan officer.  In the finance world, newbies are dangerous.  Nothing like being young and dumb.  Every monkey1.jpgmonkey1.jpgmonkey1.jpgmonkey1.jpgestablished loan officer remembers their dumbest newbie mistake.   Mortgage lending is a game of experience, so consumers would do best to focus on your loan officer’s experience rather than that low rate quote.  Sooner or later the newbie morphs into other species of loan officers.  What they become is based on where they started off.

Jack of All Trades: Nothing like juggling several different careers.  Most part-time loan officers got in the game during the refi boom.  Be forwarned, Part Timers are Part Timers because they aren’t good enough to be full time.  You wouldn’t use a part time lawyer.  Or better yet, let’s use a part time surgeon.  Dumb right?  So why do consumers use part time loan officers for the largest financial transaction of their lives?  Part Timers also have a knack of being able to hook you up with a ton of ancillary products that they also sell on the side.  Need life insurance?  I got ya!  Need homeowners insurance?  I got ya.  Need a notary?  No problem.   I can even list your home for sale.  I also have my Realtor license.  Note:  As I was writing this post, a FedEx delivery man dropped off a package and mentioned he was a loan officer on the side.  God help us all.

The Super Producers:  There are loan officers who close in excess of $100 million in loans per year and can make seven figures (yes, you read that right).  Every loan officer aspires to be that guy or gal.  Like Super Producer Realtors, Super Producer Loan officers have figured out how to make the world revolve around them.  Car of choice is ususally a Range Rover of if they are really bold, a Porsche.  Super Producers are either really good or really bad loan officers.  Like Super Producer Realtors, you are bound to run into an army of assistants.   Super Producers are all about volume.  Phone calls may only last about 2 minutes with them.  You are a fortunate client if they remember your name.

The In House Guy:  This loan officer usually works inside a real estate office as part of an affiliated business arrangement.  They usually are into S&M because there is no way any normal loan officer would ever want to be stuck in a office full catty Realtors all day on purpose.  Hint to consumers: They weren’t referred to you by the Realtor because they are good or have low rates…  it might be that year end cruise to Aruba for in house referrals that is really motivating the referral.

The Graphic Artist:  Trained by Ameriquest, these Loan Officers are experts at Adobe Acrobat and Photoshop.  Need tax returns?  No problem.  Your employer forgot to include that $50k bonus on your w-2?  Wink, wink.  We can fix that.  These loan officers are masters at making those deals that every other loan officer told you was impossible possible.   The FBI will come a knocking.

The Refi Monkey: Believe it or not, there are loan officers who have no clue how to handle a purchase transaction.  These loan officers got in the business during the refi boom and there was plenty of money to be made just churning loans and selling low interest rates to refi customers.  Of course, as rates started going up, the refi monkeys quickly found out that you can’t live off refis forever.  Now they are running around driving Realtors crazy dropping off rate sheets and donuts.  Can often be heard saying things like “Why can’t we just push the closing back a few days?”

The Fisherman:  This loan officer doesn’t have very many clients.  Of course, you only need one or two closings per month if you make $20k in fees off every deal.  Like his name says, he is in constant search of the whale of a client.  I haven’t figured out if he just targets borrowers who are short on brain cells or if he is just that good of  a salesman.  Fisherman are easily spotted because they never work more than 15 hours per week. 

Sub-Prime Sam: Nearly extinct after the sub-prime implosion, this loan officer only focused on subprime loans because “people will always have bad credit” and he was “tired of dealing with A paper rate shoppers.”   Sub-prime Sam wasn’t aware that there is such a thing as a full documentation loan and just because the borrower lost their last paystub doesn’t mean it automatically needs to go stated.

The Professional:  Like Professional Realtors, the professional loan officer is a rare breed.  They actually care about their client’s financial well being.  They have made a career in residential finance.  Most of their clients are through referrals gained from years of hard work and results.  Clients can expect to be treated with respect and educated on all aspects of their largest financial transaction.  Professionals usually put together the best overall package of rate, fees, and service for their clients.  The rate is always delivered as promised.  The fees never change.  The loan closes on time.   They also may actually attend their closings in person! 

I am sure there are other classifications of LOs, so I would love to hear about them.  Fire away!

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The Realtor Species

Over the years, I have been monitoring and documenting the types of Realtors I have come across in this business.  While I am sure there are some other undocumented species of Realtor, these are the ones I see most frequently in metro Chicago.  If you are aware of any others, please let me know as I am interested in learning more about them.

Old Betty: This species of Realtor can usually be found in suburban environments but is occasionally spotted in large inner cities with wealthy older buyers. Old Betty’s are immediately recognized by their Cadillac El Dorado, big hair, and blue eye shadow.   Business cards usually have a washed out glamour shot from the 80’s. Old Betty’s are usually heard saying things like “I have been in this business for 35 years and I have never heard of…”

The Super Producer: A rare species of Realtor and often rumored to close in excess of $40 million per year. Super Producers are rarely seen in person except in advertisements in luxury home magazines. Approaching the Super Producer takes care as they often send out an army of assistants to protect them from assault and they can be very uptight.  Many species of Realtors are often seen imitating the Super Producer.  Super Producers can be fierce in the wild and scientist have concluded that the world does in fact revolve around them.  The Super Producer’s call is “I don’t have time for this!”  Transportation of choice is usually an S Class Mercedes or Range Rover.

The Trixie: Usually found in big city environments, Trixies are always young attractive females. What they lack in innate intelligence is often overcome by sheer beauty. Trixies can often be found at open houses on Sundays and usually join the armies of Top Producers. Trixies are always dressed in mini skirts, designer labels, and carry hard to find and extremely expensive leather purses. However, scientist have not figured out how they support themselves as they are rarely seen at closings and most often at gyms such as the East Bank Club. It is suspected that Trixies are able to secrete a pheromone that causes young male mortgage loan officers to throw money at them.  Trixies usually reside in Lincoln Park with other Trixie roommates.  Preferred transportation is BMW 3 series or Jetta.  Trixies can often be overhead saying “Oh my God!” in their cell phones at Starbucks.

The Metro Male:  Seen all over big cities, the Metro Male is one of the few species of mammals where the male is prettier than the female.  The Metro Male is often camouflaged in Gucci or Prada.  They are also often hairless.  Major drama often follows this Realtor who can often be heard saying words like “Fabulous” or “Gorgeous”.  Transportation of choice is a convertible or any car that screams “Luxurious”.  The metro male can be found in very high concentrations in inner city Chicago neighborhoods like Lakeview and Roscoe Village.

The Part Timer: An odd creature and highly adaptable, the part-timer can be seen in nearly every real estate geography. Part-timers are characterized by their ability to sell anything such as Amway, Herbalife, life insurance, and Tahiti Noni Juice or other multi-level marketing products. Scientist have not been able to figure out how this creature has evolved but suspect they operate similar to 17 year cicadas and come out only during real estate booms. Part timers are easily identifiable by their cars which usually have magnetized decals such as “I Sell Homes! Call 1-800-Sel Quik.”  Part timers can often be heard saying things like “Umm, I don’t know…”  Scientist believe part timers come from other industries and can usually be captured by holding seminars proclaiming that it is easy to make $10,000 per month working part-time from your own home.

The Newbie: Barely a hatchling, this Realtor is new to the world.  All Realtors start off as Newbies and sooner or later evolve into the other classifications.  Newbies can often be found guarding the real estate office on weekend in a ritual known as desk duty or they may take over duties of the Super Producer to host an open house.  Real estate is a cruel world and most newbies die after one year of no closings after giving their life blood to their broker/owners.

The Advertiser: One of the most mysterious Realtors, the Advertiser can be seen all over town on bus benches and shopping carts.  However, there is no record of one being seen at a closing.  Scientist suspect the Advertiser evolved from the Part Timer, but since one has not been captured in the wild, it only remains a theory.

The Cross Dresser:  This species is a hybrid of the Old Betty, Part Timer, and Newbie.  They have been around for a long time, rarely fully focused on real estate, and still doesn’t know squat about the business.  Scientist are still trying to acertain how they are able to stay in business since they rarely ever have closings, but they always know everyone in the business and have worked at every brokerage in town.  Scientist believe this Realtor is purposely kept alive by the industry for desk and license renewal fees.  Other Realtors can often be heard whispering among themselves for the Cross Dresser to “just give it up already…”  Others have to be careful around the Cross Dresser as it is easy to get sucked into an hour long conversation on Paris Hilton or the Iraq war.

The Professional: A highly sought after Realtor, professionals are hard to find.  It is estimate that less than 10% of Realtors are true professionals. Professionals tend to work extremely hard for their clients and take their jobs and industry very seriously.  Scientist are still trying to deduce the mathematical formula that allows the the professional Realtor to get their home sellers the highest price for a home and their buyers the lowest price.  As it stands right now, it is one of natures unsolved mysteries.  Professional Realtors also secret a phermone called repeat referrals which causes their clients to tell their friends and co-workers about the wonderful service provided by the Professional Realtor.

The Discounter:  A newly evolved species, the Discounter often piggybacks off the work of the Professional.  With overly simplex digestion system, discounters attempt to survive by working for peanuts.  Discounters also employ a creative bait & switch tactic that convinces their clients they are getting something for nothing.  This hunting method is one of the most advanced in the real estate world, but clients often catch on after a number of tries and the discounter usually suffers a slow death when actual work has to be performed.  Ironically, it is the Professional who often picks up the scraps of the Discounter.   Like the Part Timer, Discounters tend to flourish during real estate booms.

The Transformer:  A close cousin of the Part Timer, the Transformer has an uncanny ability to transform from Realtor to Attorney to Loan Officer.  While they are usually a jack of all trades, they are also a master of nothing.  Transformers choose which ever is paying the bills that month.

Stay tuned, mortgage brokers are next…

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85bears-1.jpgBuying a home is a complicated financial transaction.  Unlike any other purchase you make, there are a host of other parties that will be involved each with their own responsibilities and agendas. It is important that each one of the parties listed are experienced and professional because any mistakes by one individual can cause the whole transaction to come to a halt. Here is a list of the people you need to know and what their general responsibilities are in the transaction.

Real Estate Agents: It is the real estate agents job to facilitate the transaction between the buyer and the seller. The agents sell the property.  Their role varies from marketing a particular property for a seller to finding homes for buyers.  Generally, there are usually two real estate agents involved in a purchase transaction.  It is important you know which one you are dealing with.

  • Listing Agents: These are the agents that are hired by the seller to sell their home. It is this agent’s job to market the home to other agents and interested properties. Their goal is to get the highest price for the seller. 
  • Selling Agent (Buyer’s Agent): This agent represents the buyer in the transaction. It is this agent’s job to find a buyer a home. This agent will help the buyer negotiate an acceptable price from the seller, structure the offer, and guide their buyers through the transaction.

Loan Officer/Mortgage Broker/Banker:  The loan officer is the person that brings the music to the dance. Unless you are rich, you will need to get a mortgage when purchasing a home.  Your loan officer’s job is to educate you on the various mortgages available to you and counsel you on the appropriate financing for your purchase.  They ensure that on the day of closing, you will have financing available to purchase the home.

Seller’s Attorney:  This attorney represents the seller in all legal matters in the transaction.  The seller’s attorney reviews contracts and makes sure that the terms are favorable to the seller.

Buyer’s Attorney:  This attorney represent the buyer in all legal matters in the transaction.  The buyer’s attorney reviews contracts and makes sure that the terms are favorable to the buyer.

Title Company:  The title company coordinates the closing between the buyer and the seller.  They also provide title insurance coverage which ensures that the home being purchased has no other claims of ownership or liens against the property.

Inspector:  Hired by the buyer, the inspector’s job is to point out all of the warts on a particular home. If there are any issues with the property, they will need to be fixed by the seller or the new home owner should be made aware of potential future repairs.  You would be a first class fool to buy a home without an inspector.

Appraiser:  Hired by the lender, it is the appraisers job to place a value on the home.  The lender wants to ensure that the home you are buying is in fact worth what you are paying since it is the home that is securing the money they are lending to you.

Underwriter:  Underwriters work for the mortgage lender.   Consumers never deal directly with the underwriter.  However, you are likely to hear the term “underwriting” or “the underwriter” thrown around a lot, especially by the loan officer, so I felt they warranted inclusion.  The underwriter’s job is to approve or deny your mortgage.  The bottomline is that when it comes to mortgages, underwriters have God status.   Loan officers CANNOT approve mortgages because it would be a conflict of interest.  The underwriter essentially double checks all of the work of the loan officer to make sure the mortgage fits the lenders guidelines and the loan isn’t fraudulent.  Truth be told, it is rare that the mortgage of a good loan officer gets denied because most good loan officers know ahead of time if the loan will get approved.  However, we don’t have the authority to actually make the approval decision.

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Realtor Compensation

Over the past couple of years with the run up in housing prices and with the internet part of our daily lives, many people have been focusing on Realtor compensation. Often times when I am working with client’s who have not yet chosen a Realtor, they often ask me how Realtors are compensated.

First, let me state for the record, I do believe most Realtors are worth every penny. The point of this article isn’t to bash Realtors but to educate you on how the system works. Buying a home is a large and complex transaction. In my mind, a good Realtor is like a top notch general contractor as their primary role is to coordinate the entire transaction. The best Realtors nowadays do more than just “show homes” and drive their clients around town. A Realtor with negotiating skills can save you thousands of dollars on your purchase for buyers and for sellers they can make you thousands of dollars by getting you the best price possible. As I have always stated, you should choose your Realtor like you would any other professional by getting referrals, references, and scrutinizing their overall qualifications.

On most transactions there are two Realtors involved – the listing agent and the buyer’s agent. The listing agent is the Realtor who has contracted with the owner of the house to sell the property. The buyer’s agent represents the person wishing to buy the property. Typically, the listing agent charges anywhere from 5-7% of the sale price of the home. I know it seems like a lot of money when a typical place in Chicago sells for around $300k. If we assume a 6% listing agreement, that equates to $18,000 in commissions. That is a lot of money for a hard days work.

Unfortunately, when many people who are unfamiliar with residential real estate start scrutinizing Realtor compensation, this is where their analysis stops. The reality is that the $18,000 does not go very far and gets split several different ways.

The first way the $18,000 gets split is with the buyer’s agent. In order to entice other agents to show the home to their clients, listing agents offer to split the 6% with the buyer’s agent. So each agent walks with $9,000 for their effort. However, the money gets split even further. Most agents are employed by a real estate agency and the commission gets split with their employers. So depending on the agent’s contract they could give up 30-50% of the commission to their employers. Let assume 50%. So both agents have only earned $4500 in taxable income after splitting it with their employers. Doesn’t seem that much anymore does it?

Of course, we still haven’t discussed that Realtors also pay for their expenses out of this commission as well. The MLS fees, signs, newspaper advertisements, gas, open houses, etc all come out of this fee. Also, keep in mind that Realtors aren’t paid until you actual close on your home purchase. It is not uncommon to work with clients for months before seeing a payday. Of course, a lot of time is also spent too working on deals that never close resulting in nothing but a thank you and a smile.

Nevertheless, good Realtors are worth it which is why the vast majority of homes are still bought and sold with Realtors. Most Realtors will probably discuss their compensation with you during their initial interview. You also shouldn’t be afraid to ask.

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Buying a home is a complicated financial transaction. Unlike any other purchase you make, there are a host of other parties that will be involved each with their own responsibilities and agendas. It is important that each one of the parties listed are experienced and professional because any mistakes by one individual can cause the whole transaction to come to a halt. Here is a list of the people you need to know and what their general responsibilities are in the transaction.

Real Estate Agents: It is the real estate agents job to facilitate the transaction action between the buyer and the seller. The agents sell the property. Their role varies from marketing a particular property for a seller to finding homes for buyers. Generally, there are usually two real estate agents involved in a purchase transaction. It is important you know which one you are dealing with.

1. Listing Agents: These are the agents that are hired by the seller to sell their home. It is this agent’s job to market the home to other agents and interested properties. Their goal is to get the highest price for the seller.

2. Selling Agent (Buyer’s Agent): This agent represents the buyer in the transaction. It is this agent’s job to find a buyer a home. This agent will help the buyer negotiate an acceptable price from the seller, structure the offer, and guide their buyers through the transaction.

Loan Officer/Mortgage Broker/Banker: The loan officer is the person that brings the music to the dance. Unless you are rich, you will need to get a mortgage when purchasing a home. Your loan officer’s job is to educate you on the various mortgages available to you and counsel you on the appropriate financing for your purchase. They ensure that on the day of closing, you will have financing available to purchase the home.

Seller’s Attorney: This attorney represents the seller in all legal matters in the transaction. The seller’s attorney reviews contracts and makes sure that the terms are favorable to the seller.

Buyer’s Attorney: This attorney represent the buyer in all legal matters in the transaction. The buyer’s attorney reviews contracts and makes sure that the terms are favorable to the buyer.

Title Company: The title company coordinates the closing between the buyer and the seller. They also provide title insurance coverage which ensures that the home being purchased has no other claims of ownership or liens against the property.

Inspector: Hired by the buyer, the inspector’s job is to point out all of the warts on a particular home. If there are any issues with the property, they will need to be fixed by the seller or the new home owner should be made aware of potential future repairs.

Appraiser: Hired by the lender, it is the appraisers job to place a value on the home. The lender wants to ensure that the home you are buying is in fact worth what you are paying since it is the home that is securing the money they are lending.

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It seems like everyone and their grandma wants to open a mortgage company nowadays. Anyone that has looked at most major residential developments or gone into a large real estate office probably is aware that the company’s have “in house lenders.” They can not only show you houses, but can finance it as well. Or the developer tells you I will give you $1000 towards closing costs, but only if you use my in house lender.

So what gives? What you are experiencing is known in the business as Affiliated Business Arrangements or ABA’s for short. Basically, the realtor office or the developer create separate legal entity or joint venture with a large bank that allows them to also profit from your mortgage on the home. ABA’s work because many consumers are lazy. The convenience factor of having everything at one place is appealing. Also, the marketing is slick. Developers routinely will use freebies to convince you to use their in house mortgage company. Of course, this convenience and “freebies” come at a cost.

The first thing you should know is that under the Real Estate Settlement Procedures Act (RESPA) it is highly illegal for banks and brokerages to pay for business referrals. In addition, developers or realtors cannot force you to use their in house services. In other words, I cannot pay or give anything of value to a realtor for a client referral, nor can the developer try to charge you more for the house because you will not use the developer’s mortgage company. The ABA’s use legal technicality to avoid breaking the law, but the spirit is violated in every sense. Additionally, the government enforcer of this law, The Department of Housing and Urban Development (HUD), doesn’t do a very good job of making the law unambiguous. For instance, HUD says that a builder cannot charge you more for the home, but may provide “incentives” if you use the preferred lender. The incentives are usually things like free hardwood floors, granite countertops, appliance packages, etc. Some of these incentives can add tens of thousands of dollars to the price of a home. However, the builder can’t say, “The house is $250k if you use our lender, but it is $275k if you don’t.” But when they won’t agree to pay for the upgrades, this is essentially what they are doing. A nice little way to skirt the spirit of the law.

Typically, the mortgage deals offered by these arrangements are worse than you could do on your own with an independent banker or broker. But you are so focused on the free upgrades or closing costs credits, you don’t really run the numbers. You are called a captured audience.

For instance, I had a deal come across my desk where a major builder was offering $5000 towards closing costs if they used the in house lender. I get a look at the details of the offer; the rate was nearly .5% higher than I would have quoted at one of my worst wholesale lenders, not to mention they were charging a 1% origination fee on a $400,000 loan. The bottom line was I was able to significantly beat the rate, plus because of they were willing to pay a 1% origination fee, I could easily give them a $5000 credit towards their closing costs. Again, at first glance these deals sound good, but you really have to break them down to find out the truth. Remember, offering mortgages, title insurance, home warranties is just another way for these companies to make a little extra off of you.

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