Focus Professionals, Inc Real Estate Blog

There is a brokerage in RI that has repeatedly requested a minimum 5% deposit when submitting an offer to them. While it is understandable that the brokerage desires to cover their commission as much as possible, and perhaps, stretching way over backwards to come to this, they might want to show their sellers that the buyer is “serious” — yet, I must argue that by definition, this is a discriminatory practice, which excludes a great many buyers from submitting offers on this brokerage’s listings.

PLEASE BE AWARE THAT THIS PRACTICE IS UNETHICAL, AND COULD BE CONSTRUED AS ILLEGAL IN CERTAIN CIRCUMSTANCES

Here are some of the reasons I say it is a discriminatory practice, and should be viewed not only as unethical, but as a breach of the Fair Housing Laws.

1) For a buyer who is seeking better than 95% financing, this practice would require that they submit a 5% deposit for the offer to be presented. This limits their financing options, and makes requirements of the buyer that are unreasonable. By not presenting this sort of offer to the seller, the buyer seeking more than 95% financing is by default discriminated against. Also, the seller is not being shown all offers, so the fiduciary responsibility of the agent is broken. See our remarks on Real Estate Agent Fiduciary Responsibilities

2) Many first time buyers do not have enough cash on hand to pay this deposit, and also cover closing costs and other expenses that they must cover, including things like moving expenses, insurance, inspections, appraisals, etc. They are qualified to buy, and can get a mortgage for the amount needed, but cannot cover all these out of pocket expenses and still pay the 5%. Thus, this sort of buyer is also discriminated against by this practice of requiring 5% to be paid to submit an offer. And again, the seller is then not being presented with all valid offers. Thus, discrimination exists against many first time buyers with this practice, and again, fiduciary responsibility is not being met to the seller.

3) By limiting the number of valid offers presented to the seller by prescreening them without consideration for the ability to purchase, but only with consideration given to the amount of the deposit, many offers that are from bank-qualified buyers, which may even be of higher amounts than other offers, the listing agency is not living up to their responsibility to present all valid offers to the seller. If it is stated that the offer is not considered valid due to the lower % deposit, that is nonsense, meaningless, and blatant discrimination against otherwise qualified buyers. This practice only helps the listing brokerage, as it assures their commissions are paid rapidly to the agents, since they have most of the commission, if not all of it, in the bank before the closing. Self serving practices are not ethical when they discriminate against certain groups of buyers.

These are just three reasons why this practice is discriminatory, and also why it is unethical in supporting the role of fiduciary to the seller. I can come up with many more reasons.

I am aware that many condo associations have restrictions in terms of deposit amounts, or in terms of mortgages, but these are associations which often also have votes on who can purchase a member property. This is very different than unassociated single family homes.

My point is this: it is an unethical and discriminatory practice to require any percentage deposit as a minimum in order to present an offer to a seller.

If you have been “required” to submit a 5% deposit in order to purchase a property, and want respresentation to assist you in purchasing a property, call us today 401-293-0631 or contact us here

Jim Crawford blogged about inflation, and I have to add that much of the increases in commodity prices we are seeing are reflective of a weak dollar… for example, gasoline prices in Europe have not increased anywhere near as much as have those price in the USA — and note that in the UK gasoline has already been selling at over $7 per gallon for a long time now, due to taxes on fuel, which w have very low such taxes here.

We will see much more inflation than we already have because the dollar is over valued, and so prices will increase. Also, because of how leveraged we all are, this will remain an issue for years to come. Americans have simply been spending more than we make for far too long. And it is now time to pay the piper. That is part of the mortgage meltdown issue, and it is part of the inflation issue.

What we really need is not a lowered interest rate, or a higher interest rate, but a system that rewards savings, that discourages borrowing, that taxes appropriately where needed, such as on gasoline… where we all drive huge gas guzzlers yet comment on how we despise our dependance on foreign oil.

And no one ever remarks on the fact that there are much better uses for oil than for burning… a great variety of plastics used in health care, and in high tech applications, for example, will be impossible once we have used up all the oil for burning purposes.

So it is time for America to realize that we are no longer the world powerhouse in economic terms, and that this delusion of prominence will only become increasingly delusional as China and India, and the rest of the developing world catch up with the western countries.

How about that?

AJ Nisen wrote a blog entry about who was to blame for the mortgage crisis, and I had to comment… I thought the point was worth repeating, so I am placing the comment here as well.

I find it remarkable that we think we can actually assign blame for this… the investment banks saw everyone making money in real estate, and the people whose money they managed wanted to get a piece of the action, so teh investment banks sought and found vehicles for investing in mortgages… all fair so far, if not a bit of greed, but then that is what capitalism is all about, no?

The mortgage brokers did simply sell available products to borrowers who wanted them, and why not? Excepting the LO’s who allowed fraud to go on, there is nothing illegal or immoral about this either… the products were available, and borrowers wanted them, so they were sold… why not? Nothing inllegal or immoral here.

The banks provided products that were easier because they had a huge influx of cash from the investors who left the stock market in favor of bonds etc. and the banks had easy money, so to speak. So they used it. New products, which were a bit flimsy, but never the less legal, came out because the market wanted them… nothing wrong with that, is there?

Realtors tried hard to get the best deals for their sellers, and for their buyers. It was a sellers market for a couple of years there, and prices were going up. Buyers would often make offers above the asking price. Appraisers, who had to compensate for a rapidly appreciating market, did the best they could, again excepting any fraudulent appraisals or crooked appraisers, of which there are a few… but in general, it was hard to track prices when houses were appreciating as fast as they did. Nothing wrong here either.

Now, did many people use loan products that were risky? Yes… they assumed that the ARM that changed up in 2 years or 3 years would easily be refinanced to avoid the rate hike. Unfortunately, prices stopped spiraling upwards, and refinancing became impossible since the property had not appreciated, and in many cases, simply flat lined or depreciated.

Risk was there, and the buyers should have been aware of that. I am sure most LO’s informed their borrowers of the risk. If not, then they were incompetent and should be retrained, or fined. If so, and the buyer still wanted the product, 100% financing in an ARM, then why not get it for them? It was legal, albeit fraught with risk, but hey, that is what specualting is all about. And that is what many buyers were doing.

So who is to blame? Everyone. But I would say it was more a matter of free for all financing and house price predicting… and people lost.

In point of fact, there are many folks who got to buy houses who should not have been able to, with 100% mortgages, or more than that, without any back up money. So the products were risky and not very well thought out. Risks seemed acceptable, and regualtions were lacking. I do not see any intention in all of this. The circumstances were such that this was inevitable. And so here we are.

Now we have to deal with it.

Now is perhaps the best time to buy real estate in the last 6 to 8 years, given the current low level of prices, the low level of demand, and the low level of interest rates. Interest rates are below average, as can be seen at our mortgage interest rate monitoring page on our main site. Mortgages are becoming easier to get again, and with smaller down payments, again, available. (find out about your mortgage qualifications here) Demand is low, as can be seen with the high inventory of houses for sale and considering the long days on market for the properties available. And prices have declined more than 15% since two years ago.

These factors, combined, make this one of the best buyer markets in recent years. Interest rates will begin to rise again, and so will housing prices. Inventory will decline as foreclosed properties are either sold or returned to the previous owner, or the process of foreclosure has been delayed by law or a renewed ability of the owner to pay, and as people less pressed to sell remove their properties from the market. So in terms of history, there wont be a better time to buy than now for some years to come.

We cannot guarantee that prices wont decline somewhat further, or that interest rates will rise starting tomorrow, but we do see this as a great time to buy. If you have any questions regarding buying a home in Rhode Island or Southeastern MA, please give us a shout, either via email or telephone 401-293-0631

Nannette Saunders wrote:
And as part of the stimulus, which has already passed the House, homeowners would be able to seek the protection of the Federal Housing Administration for vastly more expensive homes than before. One provision of the bill would raise the limit on FHA mortgages from $362,790 to as much as $729,750 in expensive housing markets, allowing tens of thousands of mortgage holders to refinance int federally insured (read that as taxpayer-backed) loans. It would raise the cap on loans the quasi-governmental financial institutions Freddie Mac and Fannie Mae can purchase from $417,000 to $729,750.

I’ll call this part of the stimulus package a taxpayer bailout of people who made some extremely bad choices fraught with tremendous risk. What do we learn? I think this is poor policy that sets a dangerous precedent for the future.

— the image is hers, by the way (copy and paste)

I have to comment on this…

It strikes me that the current debacle is being remedied for the lenders sake, and not for the home owners sake… so the tax dollars are being directed to the lenders… the home owners are still losing their houses…

So if we are to let the home owners fail, should we not also let the lenders fail?

There are some plans to postpone foreclosures, and to freeze interest rates for home owners, and these plans will not cost the tax payer significantly… unfortunately, only the Democrats are offering up this type of plan…

So, I agree that if home owners made bad choices, and were properly informed, they should pay the penalty… but what then of real estate agents who kept pushing the buyers into homes that were just above what the buyer thought they could afford, and what of the lenders who encouraged these loans by not requiring down payments, or by creating products that were incredibly risky (ARMs in a rampantly over-optimistic market?

There is a tendency for agents to try to move the buyer to more expensive properties, and there was a tendency for lenders to create products that were untested and where the risks were unknown…

So who is at fault?

Everyone involved.

That said (I enjoy repeating myself, I think) there is some confusion here: the change in the allowable Freddie and Fannie loan purchases does not affect current home owners who are not seeking to refinance. It is not a bailout per se, since the loans will have already been made and this will only apply to new loans, or to loans being sold by lenders in the secondary market… this “bailout” is for the lenders, not for the home owners.

Also, given the price of houses today, increasing the limit on Freddie and Fannie is more an effort to account for the increase in the average cost of homes, rather than a bail out for home owners.

So, who is getting bailed out? Lenders or home owners? What relationship does the increase in Fannie and Freddie limits have with current market circumstances? We need to get a clear perception of what is going on. Buyers definitely over extended themselves, especially investors, but also many homeowners were prodded by agents into homes that should have been just out of reach for them, but were never the less they were able to finance them. So, it would appear that all three parties, lenders, agents, and buyers, are creditable with this crisis, and all should feel the pain… but alas, it would appear that home owners will take the brunt of it, lenders next, and agents will skate away with little harm, excepting a down market and inventories at very high levels…

All should take the appropriate responsibility, and redress the cause the within their respective industries, whether that is by government intervention, or through self policing… but most likely, the latter will never happen, especially in real estate.

The answers? Realtors should not push buyers into homes at the very limit of what they can initially afford. Lenders should preclude high risk loan products for owner occupied property loans, and should provide detailed information to the borrower, and of course, buyers should know what they can afford, and understand the risks, so that they avoid uniformed purchases that may adversely impact them in the near future. As for investors, they should know what they are doing, and pay the penalties for risks that failed.

What are your thoughts? You can post them at our RI Real Estate blog on Active Rain