Sunday, April 22, 2007

Myth #4 – You can get the advertised rates from any lender

This is a myth. First, rates can change on a daily basis depending on what is happening in the economy: job forecasts, Treasury Bill auctions, or an increase in the inventory of major appliances. Second, the rate a lender quotes is for the best credit risk, and that may not be you. See Myth # 3 for more on this.

Third, if you are dealing with a lender on the Internet, or a lender that does heavy advertising, there is little investment in satisfying you. With all the leads they have coming in from their marketing they can disappoint many people and stay in business. They can quote one rate to get you in the door, and change it at the last minute when it’s too late for you to go anywhere else. I have seen this happen to many people I know. I try to warn them to work with an individual who they have been referred to and that can be trusted. But some folks just go for the low rate and end up with the bait and switch.

I have used the same mortgage broker for six or more years now. When he gives me a rate, it is based on my credit score and it’s competitive with any lender out there. He has all of my documentation, properties owned, assets, liabilities and more. All he has to do is update the file from the last submission, AND, the big plus for me, he handles the application process. I do not have to fill out any forms; he fills them out for me. I review them, make changes if needed, and sign them.

The last time I thought about going to another lender it took me three hours to complete the application and copy the documents that the lender requested. Between purchases and refinances I do 2-3 loans per year and spending three hours on a pile of forms is not my idea of fun. This mortgage broker is like a member of my real estate team, just like my roofer, plumber or architect.

When it comes to advertised rates, you have to get a rate based on your credit score and lock in the rate if you think they may rise before you are ready to close the sale. If you want to know if you have a good lender, there are questions to ask, but start with a referral from someone you trust.

Monday, April 16, 2007

Myth 3 - A low credit score means no mortgage

This is the third of five myths that were the basis of an article in Parade magazine. Wow, another accurate myth, for now. With the current crisis in the sub-prime marketplace things could change quickly. In the past people with a weak credit score could get a loan that practically assured they would get in trouble a few years down the road.

What is a low credit score anyway? The score that everyone is talking about is the FICO score, which stands for Fair Isaac and Company. They created an algorithm that is designed to determine the likelihood of an individual to pay their debts on time, or go into default. The score considers things like credit cards, the length of time accounts have been open, auto loans and payment history to come up with the score. You can find out more at

The highest score is 850, and anyone with a score of 760 – 850 would qualify for the best rate a lender would offer. The following chart comes right from the website:

The higher your FICO score, the lower your payments!

See for yourself. Interest rates accurate as of April 16, 2007:

Based on a 30 year fixed rate mortgage of $300,000

FICO score

APR [?]

Monthly payment *



















You can see that a low FICO score would cost a borrower an additional $775 per month for the same size mortgage as someone with the top score. That difference is $9300 per year and $279,000 over the length of the loan. That is an extra quarter million dollars wasted because someone did not pay their bills on time.

What many lenders did was to provide loans to people with a low credit score programs that had low teaser rates, or rates that would adjust over time to the point where the borrower could no longer afford to make the payments. Then the loan would do into default. Well, Wall Street had provided the funding for these loans through the sub prime lenders. When faced with the threat of wave of foreclosures, Wall Street pulled the plug on the lending and caused the bankruptcy of several of these lenders who catered to borrowers with low credit scores.

So, while loans may still be available to those with low credit scores, they will not be the teaser rates, interest only, sucker punch you later loans. The loans will be more traditional that may be too expensive for those with weak credit and low FICO scores. So while a low score will not necessarily mean no mortgage, it may mean mortgages that are out of reach. If you, or someone you know wants to improve their credit I recommend my # 1 selling Wealth on Any Income: 12 Steps to Freedom available at Amazon.


Sunday, April 15, 2007

Myth 2 - Your agent wants to get the highest price for you.

This is the second of five myths that were the basis of an article in Parade magazine. Well, at least this is an accurate myth, if it is a myth at all. Let’s first look at the typical sales commission and split. First, the commission is not fixed; it could be 3, 4, 5 or 6%. Second, one agent does not get the whole commission. Depending on the agent and the brokerage office they work for, it could be a 50/50 split, and that’s on the half each agent and office gets from the commission. Usually there are two agents and brokerage offices involved in the sale and purchase.

So, on a $500,000 sale at a 5% commission the total commission paid would be $25,000 and the share one agent gets would be about $6250 (25% of the total) LESS their taxes, board dues, transaction fees and other business expenses. If the agent got another $10,000 in the sale price, it would only mean another $125 in commission. Now the agent could be thinking, “Could I get another $10,000 for the seller, or could I loose this buyer completely and maybe another one won’t show up?”

It’s not worth the extra $125 to the agent if the potential is chasing away a solid buyer and having no deal at all. Because I have relationships with hundreds of real estate agents around the country I have heard the sad story many times where the seller wants to hold out for more money and the buyer walks. Everyone looses in that situation. The seller has no buyer, the buyer didn’t get that home and the agent has no commission after all the time and money they spent marketing that home.

When, and if, the next buyer comes along, the sales price could be, and often is lower. Why? Because the next buyer wants to know why the first buyer walked. Maybe there is something wrong that’s not being disclosed. Maybe the home was overpriced to start with and that’s why the first buyer walked. Maybe the market has changed. Now the property has been on the market longer, and that’s not a good sign. Bottom line; this is often an accurate myth. The agent wants to close the sale more than the agent wants a few extra dollars commission against no commission at all.


Sunday, April 8, 2007

Five BS Real Estate Myths - # 1-You need a Realtor to buy or sell your home

I have not posted anything for over a week, but the dry spell is over. I just read in Parade magazine an article entitled 5 Biggest Real Estate Myths that is full of male cow excrement. Sometimes I am really amazed at the audacity of a reporter to write on a subject where they know little, and interview people who know even less, but have an ax to grind. And since Parade is an insert in major newspapers around the country, I wanted to reach as many people as possible, and the blog seemed like a good approach. Please feel free to circulate this if you agree with me.

I will list all of the myths from the article and then go through each of them and let you know the reality.

  1. Only a licensed real estate broker should sell your home.
  2. Your broker wants to get the highest price for your home.
  3. A low credit scored means you won’t qualify for a mortgage.
  4. The advertised rates are what you’ll get from a lender.
  5. Your home must be turned into a showplace before it’s listed.

1. Only a licensed real estate broker should sell your home. There are so many flaws with this one it’s hard to know where to start. First, let’s get the terms correct, you will most likely work with an AGENT, not a BROKER. An agent does not have a broker’s license and cannot run a real estate office. You can work with a broker, but most real estate sales people you would meet are agents, not brokers.

This is NOT a myth, but reality. The person quoted in the article is a CEO of a company that supposedly helps sellers sell homes by themselves. The reason stated in the article on why people are afraid to do this is because they do it so infrequently. It goes on to say they have access to all the demographic data they need. Yes, they do, but so what! If you had access to all the data to pull an infected tooth, does that mean you should do it? Data and information does not provide experience or skill. Just think of the expression about an attorney that represents himself; he has a fool for a client.

As I continue down this one point, I realize this could get to be so lengthy, that you could be reading for hours. What I realize I will have to do is cover these points in separate blog posts. And to finish off this first point, I’ll provide some quotes from an email I received from Mollie Wasserman, the author of Ripping the Roof Off Real Estate. The points Mollie makes are valid:

1. The end of the Multiple Listing Service (MLS) is on the horizon. This service contains all of the data regarding houses for sale, sold and specific data, all of which is, or will soon be, available to anyone with an Internet connection.

2. Because someone has data, does not mean they have the expertise to interpret the data.

3. The value a “real professional Realtor” (not someone who got their license in the glory days and only made three sales in their career) brings to the table is the skill to interpret data and NEGOTIATE on behalf of their client, whether it’s a buyer or seller.

4. There are now a group of Realtors who have been trained to be consultants. They do not have to rely on making a sale to get paid. They can be paid for the expertise that the buyer or seller needs; negotiating, determining the financial qualifications, or managing the escrow so that the sale actually closes.

Even if I was not the publisher I would highly recommend Ripping the Roof Off Real Estate: How a Multi-Billion-Dollar Industry Came to Have an Identity Crisis by Mollie W. Wasserman

Here are the comments from an email I received from Mollie that was directed to other real estate agents on an author forum:

The MLS, as we know it, is terminal. Whether you believe that our MLS's sold us out or it's just the natural consequence of the free flow of information in the Internet age, the MLS, as THE place for property information is ending. To try to make it be like it used to be is like putting the toothpaste back in the tube. As much as we dislike the thought, I believe that buyers and sellers, armed with information that they got WITHOUT going through an agent, will find each other more and more. Many sellers who have time will do their own marketing activities and buyers will do more of their own hunting.

Now, a warning, I am going to go into partial sales mode now: this is why, especially during down periods like right now, that it is vital that we learn how to do real estate consulting. Because consulting is where our future is. The Internet is a wonderful thing and as we are seeing, can provide and distribute information like no human ever could. But what it can NEVER do is interpret what that information means - only a real estate professional with years of experience can do that. We know that most people lose money when they try to buy or sell on their own but where they lose it is not in the marketing and searching but from contract to close.

A seller finds their own buyer easy enough but doesn't have the foggiest idea of how to negotiate the contract, and even more importantly, how to troubleshoot the transaction to close. They get a pre-approval from a buyer and don't know if the lender is reputable or a scum-bag that will hold up their closing. They don't understand commitment dates and get hammered on inspection issues. Ditto the above for buyers.

Worse, because we have stubbornly stuck to the commission-only-sales model, there is no framework for hiring a real estate professional to provide this important contract to close counsel. Most people hire attorneys and attorneys cannot do what we do because they don't know what we know. They don't know property values so it's hard for them to negotiate a good contract, they don't know the good lenders from bad and they certainly will not babysit a transaction, making sure the dates are adhered to and everything goes as it should.

Again, it is not about finding a property to buy, or finding buyers for a house you have to sell, it is everything else that has a quality Realtor earn their commission. And to find a quality Realtor in the southern part of the San Fernando Valley, go to