jan-allen

DEI in Real Estate

Sat, 25 Jan 2025 02:09:47 GMT

The inside scOOP ON DEI IN REAL ESTATE!

D stands for Disclosures

Disclosures are mandatory when selling a home. Don’t want to be sued? Fill out your disclosures truthfully. In the DMV area, there are different rules regarding the types of disclosures Sellers are required to provide to Buyers. Virginia, for instance, is a “caveat emptor” (aka “buyer beware”). The only disclosures Sellers are required to make is if there are any material defects the Seller is aware of such as mold, roof defects, structural issues, foundation cracks are a few of the types of material defects the Sellers must disclose if they are aware of these issues. Maryland and Washington, DC however, have very strict property disclosure requirements. In Maryland however, the Sellers are allowed not to complete the detailed Property Disclosure, but must address the section that requests information about any known “material defects”. Are there known issues that might not be apparent from a preliminary inspection? Does the house flood in the winter because a creek in back of the house flows over its banks? What repairs have been done to the property? Do windows leak and cause mold? If it’s not raining, this would be hard for an inspector to see. Buyers should carefully read over disclosures to see what the sellers have said about the house. It’s perfectly okay to ask questions or get clarification too.

Unfortunately, once in a while after a closing occurs the Buyers may find what may be considered "material defects" and they seek compensation from the Sellers if it was not addressed in the Property Disclosure. The hurdle Buyers may have would be to prove the Sellers could have been aware of the issue. That can be difficult.

E stands for Early Occupancy. Don’t do it!

Let’s say that the buyer has an earlier close date on the home they are selling or they’ve just moved to our area from a different state. They have stuff and don’t want to put it in storage for a week or two so they ask, “Can we just store some of our stuff in your garage?” This is called “Pre-Settlement Occupancy” to which all parties must agree to in writing.

I always highly discourage this, because there’s potential liability two ways here. If something in the buyer’s stuff ignites and burns your house down, your insurance may not cover it AND they certainly aren’t closing on your house! If on the other hand, it rains excessively and water floods into your garage and ruins their furniture, you are on the hook for paying for their loss. Or worse still, they move in to the house before closing and one of them loses their job and now the lender won’t lend them money. Good luck getting them out. In one case, a couple moved in and started demolition of the kitchen only to find out that they weren’t buying the house they just destroyed. There are more stories and so now most all brokerages and their respective attorneys will tell you, “Just say, ‘NO!’”

There is also a Post-Settlement Occupancy situation, but I will talk about that in another blog.

I stands for Insurance

The bad news is that insurance rates have been going up for everyone. The cost and liability for this part was addressed in the Pre-Settlement Occupancy in the prior paragraph.

We’ve all seen the floods and fires that have wrecked havoc in many states and many insurance carriers are not only raising their rates, but pulling back on some prior benefits and/or actually leaving some states. I recently had a closing where the home inspection showed that the inspected roof was in excellent condition, but since it was 14 years old, 2 large insurance carriers refused to provide coverage for the property. The Buyers had to sign up with the same insurance carrier the Sellers were with in order to close on the property. This was also a large, well-known and highly rated insurance company just like the other two companies.

It’s certainly getting interesting out there.

Thank you for stopping by!

Do you know someone who would like to get my blog about the real estate market? If so, please forward them this email and they can subscribe HERE!

If you or anyone you know would like is thinking about either buying or selling in the DMV area - give me a call so that we can chat!

Jan Allen
(703) 476-2137

Broker/Realtor
Serving Virginia, Maryland & Washington, DC
Jan Allen Homes
of Samson Properties
Web: www.JanAllenHomes.com
Email: Jan@JanAllenHomes.com
VA # 0225097826, VA 022634531
MD # 620724, DC # BR98366121

Market Resilience in 2025

Tue, 21 Jan 2025 00:56:28 GMT

Market Resilience in 2025

The Holidays are over and it's a new year. A new Administration will be starting in a few days and there's all sorts of speculation about the upcoming year and how it will affect the real estate industry.

During the Holidays, listings classically slow down, because most people want to spend time enjoying the season in lieu of shopping for a home. Sellers often don't want people traipsing through their homes so only highly motivated Sellers and Buyers run to close by the end of the year. Now that it's January, a number of new listings have popped up on the market and buyers are motivated to start shopping again. I already went under contract on 4 properties. The Buyers are definitely there and they're happily shopping.

I will present the year-end stats of the market in the next blog after all of the reports are in, but it appears to me that we are in a market we haven't seen in a long time - a stable market . That means there would be more of a balance between the number of listings to Buyers. Of course, that could readily change due to upcoming political and economic decisions we have not seen yet. Interest rates are expected to remain stable.

One of the greatest challenges Buyers and Sellers have during each market change is to become quickly adaptable, both emotionally and psychologically ready to act on the realities of the changing markets.

Interest rates are expected to remain relatively level in 2025. While we all moan about not having 2.50-3.50%, we realize that was a "one-off" situation due to the global pandemic which created economic havoc. At the turn of the 20th Century mortgages was a little over 5%. After 1930 and the Great Depression, rates were around 4.90%. Between 1946-1956 rates fluctuated between 4.35% and 5.09%. By the end of the 1960's, rates were at 7%. Per Freddie Mac, "the main industry source for mortgage rates — has been keeping records since 1971. Between April 1971 and January 2025, 30-year fixed-rate mortgages averaged 7.73%." (Jan 10, 2025 FHLMC Report). This, of course, includes the 1980's when the average interest rates went up to 12.9% as well as low as 2.50% in the past few years.

There are a variety of financing options in order to keep the monthly payments down such as: 5/1, 7/1 loans where the interest rate is a fixed, lower rate for the first 5 or 7 years. There's also 2/1 temporary buydowns that can offer lower payments. For instance, on a 2/1 Buydown if you currently qualify for 6.50% at the market rate, the 1st year would be 4.5% and the 2nd year would be 5.5% before it goes to 6.50% in the 3rd year. You can refinance out of it if you want when rates go down. Real estate has always been a good, long-term investment and there are viable financing options. Talk to your lenders about other financing options.

As to the actual listings on the market, there are still multiple offers, but only an average of 2-3 if a property is located in a highly desirable neighborhood and has all of the bells and whistles in upgrades, the listings are usually remaining on the market longer. The average increase over list that I've seen for the middle market is between $20-$30,000, BUT the Sellers have had to adjust the contract price if the appraisal doesn't support the higher value. This is also different from the other market where Buyers were willing to pay considerably higher over the contract price. Now, for the average property, the Buyers will walk.

There have been a number of price drops, because the original listing prices reflected the prior market and not the current one. Also, there are many homes that do not have considerable upgrades and so they are not responding to the Buyers' needs/desires of wanting a remodeled, move-in ready home. There are a number of issues involved, but those are just a few.

Buyers are requesting and receiving their inspection contingencies and the Sellers have been making repairs if indicated in order the close.

This is not a Buyers' market. It's more of a stable market. A Buyers market is when there are too many listings and not enough buyers. That's not the case here. There is still a slowdown on listings, but more are coming up every day. The Buyers are still there and willing to buy, but they are less willing to hand over their money without more value due to the interest rates.

There are a number of real estate agents who, like Sellers, may have not been in the Industry long enough to understand the marketing and evaluation nuances that are required in this market. They may have only experienced the intense Sellers' market with crazy prices, no contingencies and such. Adaptability and understanding the markets, nationally, locally and hyper-locally are key in 2025.

Thank you for stopping by!

Buckle Up!

Sun, 10 Nov 2024 01:08:15 GMT

2025 and What to Expect When You're Projecting!

Okay so, there's some knowns and some unknowns. It reminds me of the Johari Window. You know, the one. 4 quadrants of self-awareness: one quad known to yourself and others, the blind spot quad which is unknown to you, but known to others, the hidden quad which is known to yourself but not to others, and the Unknown - which is unknown to you and to others. But what does it look like when we're trying to get some awareness of the 2025 housing market...?

OPEN:
Here's what we know today. The Fed recently threw a little caution to the wind by saying inflation had been a little higher than they initially expected, but that they were still planning to gradually cut rates. The Fed rates do not directly correlate with the mortgage rates. Rates are hovering still in the high 6% range.

Economists, focused on real estate, are all over the map now in their projections. The Mortgage Bankers Association (MBA) projects that mortgage rates will start the year lower at 6.2% and fall to 5.9% by the end of the year. Fannie Mae predicts a similar drop, from 5.9% to 5.6%. Redfin, on the other hand, forecasts that mortgage rates will remain in the high-6% range throughout 2025, with the weekly average fluctuating around 6.8%. So even if you aren't an economist, have a guess. Maybe in the 5- 6% range depending on the type of loan you get along with your credit score, income and assets.

Prices have pulled back a bit from their highs. Suppressed in large part due to the higher rates. Projections for 2025 are that prices should increase. All things being somewhat the same. We still have too few homes for buyers who want to buy and buyers are still out there!

BLIND:
Now this is the quadrant where the President Elect's policies such as tariffs or mass deportations will impact housing, but we don't know how. Mass deportations may impact housing because according to estimates from the Center for Migration Studies (CMS), undocumented immigrants make up roughly 23% of construction laborers in the USA. Without that segment, there is an increased likelihood that labor costs will go up for new builds. As far as tariffs, roughly 15-30% of construction materials used in new home construction in the US is imported. The US imports a significant chunk of lumber, primarily from Canada - 25-30% is lumber acquired for the US residential housing market. So this will impact new construction, but won't have a significant impact on resale but it could have a big impact on remodeling costs.

The President Elect has spoken about wanting to lower interest rates and I can hear many buyers applaud that. It could be good but it could fan the embers of the inflation we just experienced. For sellers, that could bode well when you want to sell. Lower rates will drive higher prices. It's simply the supply demand balance. He has also signaled that he wants to reduce regulation and to get more houses built, this would be a great party favor.

HIDDEN:
Anyone thinking of making a move next year has some hopes and dreams. First time buyers want interest rates to be low and a decent supply of housing so they can get into their first home! People downsizing are looking for the price of their homes to be high and there to be an abundant supply of inventory to choose from when they buy. And, oh by the way, put low interest rates on the wish list for Santa! The fears may be the cause and effect of deregulated financial markets and just more of what we've had - low, low inventory and high interest rates. Whatever you personally crave or fear, it could happen. I mean, I believe anything now after COVID.

UNKNOWN:
We all know that there will be changes as there always is with a new presidential administration. What we don't know is the impact of its policies. Let's face it, policy wonks can work out beautiful policies that aim to do wonderful things. Pull out the crystal ball, make a wish, say a prayer. I'm hoping for a robust real estate market in 2025 that benefits all my buyers and sellers!!Regardless of where you are on the political spectrum, I’m hearing concern that some individuals and families are going to feel less financially secure in their jobs as the new Administration is planning to restructure the government’s workforce. President Elect Trump is seeking to make changes in the government labor force of which there are 278,0000 federal civilian workers in the DMV area, per government data . President Biden is looking to block this effort. Federal News

Vivek Ramaswam y , who's co-leading the Department of Government Efficiency Task force alongside Elon Musk, has called for federal workers to be in their offices five days a week. Same with local employers such as Amazon and The Post.

LOCAL MARKET UPDATES:
Here is what has happened up through October, 2024. Data lags 1 month behind. click on the links below:

ALEXANDRIA CITY, VA
Closed Sales
Pricing Trends
ARLINGTON, VA
Closed Sales
Pricing Trends
FAIRFAX COUNTY, VA
Closed Sales
Pricing Trends
LOUDOUN COUNTY. VA
Closed Sales
Pricing Trends
PRINCE WILLIAM, MD
Closed Sales
Pricing Trends
MONTGOMERY COUNTY, MD
Closed Sales
Pricing Trends
PRINCE GEORGE'S COUNTY, MD
Closed Sales
Pricing Trends
WASHINGTON, DC
Closed Sales
Pricing Trends

Thank you for stopping by!

But Wait…Are Mortgages coming down?

Fri, 08 Nov 2024 01:12:26 GMT

But wait. Are Mortgage Rates going down?

Yesterday, the Fed lowered the federal funds rate by a quarter of a point as was expected. Did they achieve the soft landing? With recent events, that’s still up for debate.

Everyone waiting for the mortgage interest rates to drop saw the market hit the snooze button. Today, we’re seeing a range of 6.25-6.75% for mortgage rates. Still about twice what the gold rush of the Pandemic Years brought. So what gives?

Let’s take a look at something that did happen. The US 10-year Treasuries went up after the election. Here’s why that matters. The US 10-year Treasury notes are a proxy for mortgage-backed securities. Historically, the 10-year Treasury tends to move in unison with mortgage interest rates as you can see in the graph below. Investors that tend to buy mortgage backed securities also buy 10-year Treasury notes. The 10-year Treasury is impacted by many factors including:

• Overall economic conditions
• Financial Markets as a whole
• Inflation
• Interest rate moves by the Fed

Certainly, those four should point to an easing of interest rates in the mortgage market, but that’s not what happened. The short and long of it is that there’s now some uncertainty about how the economy will respond to tariffs and tax cuts after the election and so investors are demanding higher rates to compensate for more risk.

The only certainty we have right now is that things will change with a new administration though none of us know how that will impact the housing market or the broader economy. Promises and threats on the campaign trail may never materialize. We do know that we’ve been experiencing home price cooling as a result of the extended bout of higher interest rates. Houses are taking longer to sell. Buyers aren’t rushing to purchase and have choices.

Here's a thought if you’re thinking of selling. This stall in rate reductions may be with us for a while and then it may accelerate rapidly in one direction or another based on the new administration’s policy decisions. You may have some choices. The gradual price reductions are likely not to accelerate without some major shifts in fundamentals so if you don’t have to sell, maybe wait. This is the slowest time of year for real estate. The risk is that by Spring when the market heats up again, you may not see the price jumps you expected.

On the other hand, policy decisions could juice the market as an accelerant and prices could jump while rates drop. Here’s the thing. There’s no telling how this will go, but if things continue to go as expected, market prices will continue trending down as a result of interest rates going up. The American people voted for massive change. We just don’t know yet how that will impact housing. If I can tell you one thing, when things are going to change in a major way, the acceleration rate will speed up over time so be prepared.

Thank you for stopping by!

Just Thank the Attorneys...

Fri, 04 Oct 2024 18:21:49 GMT

Here’s the final episode, though not the final word. What’s in it for home buyers?

To Recap: A nationwide lawsuit, otherwise known as the NAR Settlement, levied against real estate agents was settled with a decision to remove any offer to compensate the buyer’s agent from the MLS and require buyers to sign a compensation agreement that states that if the seller doesn’t offer to pay their agent then they will pay. Historically, both seller and buyer agent’s brokerage compensation fees were part of the sale price of the home. This new revelation struck a note of fear in many first-time home buyers and for good reason.

Homebuyers have felt the cash crunch for years as home prices increased exponentially and interest rates soared. Home buyers traditionally need to consider the out-of-pocket costs required to purchase a home: down payment, costs for inspections, appraisal fees, lender and title fees. This is especially for first-time home buyers where they have been saving a chunk of change in order to purchase a home. With the NAR settlement, all home buyers are potentially being asked to cough up additional funding to compensate their own agent's brokerage as well so that homeownership feels as if it’s slipping away. It’s not all dark and ominous. What we’re seeing is that many sellers are continuing to pay that compensation with a reasonable offer.

This new contract between the buyer and their agent for compensation isn’t really new. The fact is that the Buyer Agency Agreement has been around for years but didn’t have a very high participation rate unless it was required by the individual state or brokerages required it’s use. At present, the Realtor Associations require buyers to sign this form before viewing a property.

So as a buyer what should you know? What’s important?

A buyer who wants to pay a reasonable price and be guided in the homebuying process has a greater chance of success when they are represented by a qualified, professional real estate agent. After the NAR Settlement, the decision by the sellers to pay compensation to the buyer’s agent was pushed from pre-listing to the offer stage. Agents also will educate their clients and help them make smart decisions.

The deck is not stacked against the buyers and in fact, the buyer has some choices too.

The buyer, through their agent, can ask for the seller to pay their agent’s fee and the agent will try to negotiate that with a reasonable offer price.
If the seller authorizes the brokerage compensation to be included in the sales price as it has been done historically these fees may also be included in the buyers' financing.
The buyer can pay this fee separately at the time of settlement if the seller chooses not to pay
Buyers can also choose to walk away from the Offer/Counter Offer and find another seller who will include the Buyers’ Brokerage compensation in the contracted sales price as was historically done.

It can be a big ask for buyers to commit to an agent that they don’t know. In this case, buyers may choose to sign the Buyers Compensation Agreement for a short time: such as for 3 days or a month to see some houses, test driving the value the agent brings to the table. Unlike with attorneys who bill by the hour, compensation only occurs when the buyer closes on the property.

As this change percolates through the system, most sellers are compensating the buyer’s brokerage for these basic reasons:

So, they don’t lose a ready, willing, and able buyer that either doesn’t have or doesn’t want to pay the money out of pocket to compensate their agent;
Because no matter how much marketing a listing agent is doing, it’s the buyer’s agents who are bringing the buyers to the seller’s door.

At the end of the day, the NAR lawsuit gave the Plaintiffs' attorneys a huge payday and the changes put some additional burdens on buyers and sellers, but real estate hasn’t stopped. Right now, everyone is slowly and cautiously working through the changes together.

In fact, it’s been helpful to educate everyone about how real estate works and being informed makes everyone better consumers. It’s also done a lot to cull the agent herd as well. Great agents will educate their clients, negotiate for them and help them through the process. The ones who just like to show pretty houses and can’t explain the NAR settlement and how to work through the new process and potential impacts won’t be getting paid and they won’t be doing an adequate job representing their clients either.

The big news of the lawsuit, the polarization of the upcoming election, higher interest rates, lack of inventory and the end of the year normal slowness paused buyers and sellers. The good news is that the Fed is trying to get the housing market working again by reducing the interest rates. If you have any questions about what this means for you, please reach out to us. We have always believed in transparency in our business so, as far as we are concerned, requiring agents to be more transparent in all aspects of these changes is actually good!

If you missed the first 2 blogs regarding the NAR Settlement and possible impacts on both buyers and sellers, please click on the links below.

Part I - SEA Change in Real Estate

Part II - Show Me the Money!

Show Me The Money

Thu, 03 Oct 2024 18:09:04 GMT

The news on the street says you no longer have an obligation to pay a buyer’s agent. I know that a few sellers of mine called me up and were initially excited about this news, but is this ruling a good thing for sellers?

Let’s discuss the real impacts of this ruling on the real estate market and what you need to know.

Until now, when a final sales price was reached, the contract price included both the listing agent’s and the buyer agent’s compensation which has always been negotiable and paid out of the buyer’s funds.

Will Sellers sell their homes quicker and for higher than their list price?
Can this encourage or discourage buyers from entering the marketplace?
Are unrepresented buyers a risk to sellers?
Are comps accurate without buyer compensation info included?
What’s the impact to pricing?

REVIEW OF THE NAR CHANGES:

The changes that came about as the result of the NAR settlement, meant that a seller no longer was obligated to negotiate a buyer’s agent compensation from the outset. Prior to Aug 17, 2024, a listing agreement had both buyer agent and seller agent’s compensation baked in. That’s changed and now, at the time of signing a listing agreement, the seller may decide not to offer a buyer’s agent compensation.

By delaying the seller’s decision to pay a buyer’s agent before an offer comes in, the buyer market has bifurcated and demand has changed because the law effectively enables the seller to pay nothing to a buyer’s agent. As the changes take effect, the impacts are just now being felt. So let’s dissect each type of buyer in a bit more detail because they all have their place.

BUYER REPRESENTED BY BUYER'S AGENT:

Scenario: A buyer will utilize an agent to represent them. They will have had to sign a representation agreement that states that if the seller is not going to pay the buyer’s agent, then the buyer agrees to pay their agent’s brokerage directly.

Note: This mimics the way that real estate was operating before the changes EXCEPT now, the buyer is required to sign the Buyer Representation agreement before showing a property.

Impact: In this situation, the buyer is being represented by their own agent whose sole purpose is to protect, inform, and advise the buyer during the complete process. If the seller chooses not to pay a buyer’s agent compensation, the buyer may not be able to afford to purchase the home because a lot of times the out-of-pocket cash may be limited. Remember that in the old scenario - the buyer in essence was funding the compensation through the contract price and the amount, less down payment, was rolled into their loan.

DUAL AGENCY:

Scenario: A buyer approaches the listing agent at an open house (very common) and says, “hey, can you represent me and write an offer?” The listing agent gets all the buyer’s financial data for the offer and knows how much they are willing to pay for the house after also knowing why the seller is selling and what they will ultimately take. This scenario usually works best with very experienced buyers and sellers.

Note: The listing agent and all parties agree, in writing, to dual agency. This means the listing agent may be incentivized by possibly receiving two compensations. Agent has a brokerage agency relationship with both the buyer and seller and owes his/her full fiduciary responsibility to both parties. Fiduciary duties are legal obligations that require an individual to act in the best interests of another party and not their own interests. This includes: loyalty, confidentiality, good faith, disclosure, duty of care, obedience and accounting equally.

The agent cannot advise either party about an Offer or Counter-Offer and can only referee during conflicts. The agent provides the appropriate forms for real estate, but not providing any advice to either party in filling them out, advice regarding inspections, etc.

Impact: When buyers and sellers are not advised on a transaction, there’s a risk of a lawsuit.

UNREPRESENTED BUYER

Scenario: A new buyer thinking, “How hard can this be? I look at Zillow…” approaches the listing agent and says that they want to put in an offer and “No,” they don’t have an agent nor do they want one. The listing agent hands over many pages of the requisite State required forms for the offer and then once in contract, supplemental documents and disclosures.

Note:: The buyer has questions about what certain items mean, but by law, the listing agent IS NOT ALLOWED to advise the unrepresented buyer. You have to remember, that in this scenario, the listing agent’s fiduciary responsibility is ONLY to the Seller. The buyer, not really knowing what he/she is doing, provides a failed attempt at an offer to the listing agent who may determine that there’s no good way to counter it because of problems with conflicting information, missing information, etc. In that case, the listing agent may want to work with the Seller and write an offer that the Seller would accept and provide it back to the Buyer. In other words, the listing agent is only considering the seller’s needs, wants, and desires and now also may have buyer’s confidential information that the seller can use to his/her benefit only. The buyer accepts, counters, or walks away.

Impact: Potential lawsuit. If the parties get into contract, the buyer has no one to guide him in this transaction. The Seller and the Listing Agent provide the documentation but are not allowed to provide advice leaving the buyer without the good counsel to make sound decisions that are necessary and important with regards to purchasing a home that could easily cost half a million dollars to multi-millions of dollars. This is reminiscent of how buyer’s agency came along - Easton v. Strassburger.

Last week's overview of NAR Settlement

Other Impacts of not paying a buyer’s agent compensation

Scenario: The offer comes in and there’s an offer price and a request for the seller to compensate the buyer’s agent.

Note: The Seller has some choices:

Accept the request as stated in the offer. The offer will show how much they are asking the seller to pay which is usually a percentage.
Counter the request to a lower amount or counter stating that NO COMPENSATION will be paid.

Impact: In this situation, the buyer is being represented by their own agent whose sole purpose is to protect, inform, and advise the buyer during the complete process. If the seller chooses not to pay a buyer’s agent compensation, the buyer may not be able to afford to purchase the home because a lot of times the out of pocket cash may be limited. Remember that in the old scenario - the buyer in essence was paying the commission through the contract price and the amount, less down payment, was rolled into their loan.

Some of the more common Impacts:

Reduced buyer pool. Buyers may be discouraged by not being able to afford to pay their agent out of pocket, which could reduce the number of potential buyers for the home. This could be especially impactful for first-time homebuyers who are often already struggling to secure sufficient funds to purchase and pay for their closing costs.
Skewed pricing and valuations. Some sold prices will include the buyer’s agent compensation where the seller paid and some prices won’t. This matters when agents are using comps to price your home and appraisers are valuing the property.
Lower home prices. Due to the reduced number of buyers, the lower demand may dictate lower net profit for sellers. (Classic Supply and Demand)
Competitive disadvantage. All sellers are competing with the same pool of buyers so if one seller is offering buyer’s agent compensation, then that seller has the upper hand with buyer

Stories are starting to come out about how this is playing out. My Transaction Coordinator was privy to a listing where two offers came in, both asking for the seller to pay the Buyer’s agent’s compensation. The seller countered with NO OFFER OF COMPENSATION. Both offers walked!

REMEMBER….real estate is a constantly changing Industry. Even highly experienced buyers are not able to stay on top of the evolving laws, rules, regulations and market changes in order to be well informed. That doesn’t even include that there are a myriad of issues that easily arise in most transactions that require considerable time and effort to evaluate and resolve satisfactorily without potential penalties (such as a buyer or seller breaching the contract in any way which would put buyer and/or seller at risk).

Hopefully, this has given you some food for thought. Historically, the buyer’s funds have paid for both agents’ compensation in the contract price. As with all change, not all changes are good without assessing areas of risk.

Seller Beware

Next up is what buyers need to know...
************************************************
Some Good News on Interest Rates!!!!
The Fed just lowered the interest rate by half a point and have indicated that they will do an additional two more rate reductions by year end..

See Change in Real Estate

Wed, 02 Oct 2024 18:20:41 GMT

There has definitely been a sea of change that has occurred which is now reflected in plain sight, but <sigh> there’s more to come. This blog will be one of a series that you should understand. This first one will be just the overview of changes, followed by a blog on seller impacts, buyer impacts, and what we’re already seeing happen and more.

So what changed?

Up until August 17, 2024 (just a few weeks ago), the price of a property for sale through the MLS included an offer of compensation to the buyer’s agent. The compensation rates were part of the listing agreement – a negotiated compensation where usually half was paid to the buyer’s agent. The amount offered to a buyer’s agent was listed in the MLS. As part of the settlement, NAR agreed to the following which became effective August 17th of this year.

Agents are required to sign a written Buyer Representation Agreement with their Buyer Clients, before taking them on a home tour, where it specifies that the buyer is responsible to pay their agent unless the Seller agrees to compensate their buyer’s agent.
Seller paid Buyer Agent compensation shall no longer be published so it is unknown how much or if any Buyer Agent compensation would be paid at all, potentially leaving the compensation issue the responsibility of the actual Buyers.
Agents must advise their clients that compensation was, is, and always has been negotiable.

What forced the changes?

The “clear cooperation” rule was at the heart of the lawsuit Burnett et al v. The National Association of Realtors et al which found that NAR and real estate brokerages had violated antitrust law by conspiring to fix prices and restrain trade.

“allegations that [NAR] have anticompetitive rules that require home sellers to pay commission to the home buyer’s broker.” https://www.mow.uscourts.gov/ca-cases/19-cv-332

The plaintiffs alleged that the NAR clear cooperation rule forced sellers to list their homes on the MLS. They further argued that it forced home sellers to pay higher compensations than they otherwise would giving NAR and its members an unfair advantage in the real estate market, driving up compensation rates. It was also alleged that buyer’s agents would steer buyers away from properties not offering a high compensation which was a form of price fixing.

“Both plaintiffs allege that Clear Cooperation was created to stymie competition and has been used to maintain a monopoly on the listing service market, while NAR contends the policy is meant to maintain a more transparent property market with protections against misinformation and fraud.” https://www.rismedia.com/2024/07/23/

The key here, and at issue, is that NAR (National Association of Realtors) had what was called a “clear cooperation” rule. The rule required listing brokers to submit their listings to their local multiple listing service (MLS). The publication of the listing with an offer to pay a buyer's brokerage was a unilateral offer of compensation to other participants giving all NAR members an equal opportunity to sell a listed home, regardless of whether they are with the listing broker or not.

The Advent of Buyer’s Agency

Despite recent reports suggesting that buyers’ agency went back a hundred years, the correct number is approximately only 30+ years. Prior to the early 1990s, the seller’s agent was responsible for ONE CLIENT – the seller. There was no one looking out for the interests of the buyer. In real estate, the fundamental principle guiding sales was caveat emptor or let the buyer beware. This left buyers without representation and vulnerable to exploitation!

" A 1983 FTC study found that 71% of buyers mistakenly believed that the agent showing them homes represented their best interests.”
https://www.justice.gov/archives/atr/rew-public-comment-national-association-exclusive-buyer-agents-early-thomas-10252005-rew-0401

The start of buyer agency began with the 1984 court case of Easton v. Strassburger where a jury found that the seller and seller’s agent had been negligent by withholding information and material defects from the buyer.

"It held that a seller's broker has a duty to inspect a house and disclose to the buyer what a reasonable inspection would have revealed." https://www.lawpipe.com/California/Easton_v_Strassburger.html#:~:text=It%20held%20that%20a%20seller's,the%20broker%20would%20have%20discovered .

What’s the bottom line?

Prior to August 17, 2024, anyone with internet access could look up a home on Zillow and see the last sale price which almost always included compensation paid to both the seller’s agent and the buyer’s agent. The buyer bought the home for the sale price and ultimately the Buyer PAID both brokerages' compensations whether they paid cash or financed. The difference between then and now is that then: the seller netted an amount after the compensations and other closing costs were paid and now, they have the option of only paying their own agent plus closing costs. All comps and appraisals were factored into the sales price with the compensation already included in the value. Now, when reviewing comps of closed sales, and anyone looking at a sales price has no idea if there was compensation paid to a buyer’s agent or if the buyer had to pay the compensation separately.

If a published compensation was an incentive for an agent to show a house in the past, a buyer knowing they have to pay their own agent now may mean they can no longer afford to buy it without reducing their offer price or not offering at all. Fewer buyers may mean lower offer prices. It’s not clear yet that it’s going to benefit the seller in all cases, but what is clear is that first time home buyers may be the ones with the next lawsuits.

A Tale of Two Neighborhoods

Tue, 01 Oct 2024 18:38:54 GMT

It was the best of times when they were neighbors. They dined together --socialized together -- and took their morning walks along the trails together. They were friends because they shared so much in common. They were older and wiser, but in the end to their stories diverged greatly. Though these neighbors were in their 90's, their stories might be a cautionary tale for anyone. Living to 90 or 100 isn't a guarantee.

This is based on a true story. Robert and Pat lived across from Bea in a beautiful suburb where they raised their families side by side. Their longtime friendship began years ago and only ended this year when each passed peacefully away. Robert Jr. and his siblings mourned the passing of their parents and then got around to the emotional task of tying up their parents' finances. As is often the case, the adult children were not privy to their parents' financial situation. They discovered their parents had a reverse mortgage which is not necessarily a big deal. When the signers on a reverse mortgage die, the children can buy the home themselves by paying the loan balance which can be less than market value or they can sell the house and net the difference between the sold price and the loan amount (plus closing costs).

Robert Jr and his siblings enlisted the help of an agent to sell the parents' house, but the kicker came with more financial digging. As they were going through a stack of paperwork, they found some literature and a thank you letter from a Trust Attorney that Robert and Pat had visited. The cost had been circled in pen. Robert Jr called the Attorney only to find out that his parents didn’t follow through. Robert and Pat had only a Will. They did NOT have a Trust. It may have been the cost that kept them from paying the Trust Attorney. This meant that the home and other assets may be subject to PROBATE! They discovered that with the amount of the reverse mortgage that was owed that any proceeds from the sale of the home would go to the courts and attorneys….NOT TO THEM. After some research and calculations, they finally realized that the house would just be given back to the bank. IF there had been a Trust in place, there would have been an inheritance from the sale of the house in this particular case.

Bea's oldest son, on the other hand, had encouraged his mother to get a Trust because he was in real estate and he saw the Robert and Pat story play out with and without reverse mortgages - it was the probate that burned up any potential profit. When Bea passed, it was tough emotionally and it took a while before they could even think about selling her house. But when it came time, the siblings were able to list the house.

THE MORAL OF THE STORY?

A conversation…. An offer to help…and alternate solutions are possible to prevent giving the inheritance to an Attorney or to the State.

In fact, a slight variation of this story happened to a friend on mine. Her Mom had a Trust, but she did not want to pay for an Attorney to put a piece of undeveloped land in Nevada in it. As a result, when her Mother died, it cost my friend much more money, because she had to pay an Attorney in order to put that property in the name of the existing Trust. At least her Mother had a Trust, but this additional cost need not have occurred.

Trusts, even when you have them, must be updated periodically. I’ve heard Attorneys say that you should have both your Trusts and Wills reviewed every 5 years, because your needs may change and/or tax laws may have changed which may impact negatively from when their documents were originally created.

So, what are your options? You can go to a Trust Attorney. I certainly understand that hiring an Attorney to help you with your Estate Planning documents is a higher cost than creating DYI documents….BUT…..the Attorney can give you legal advice. Everyone’s situation and/or personal concerns are different so the advice is what I consider the most valuable part of the equation. I personally have always hired the experts on the important things in life and DYI on the non-important items. Even with an Attorney there are some options. Sometimes your employer may offer a paid legal plan where you pay money out of your paycheck and then have access to an Attorney at a much lower cost than if you were to go directly to an Estate Planning Attorney.

There are online legal companies that have standardized forms for the different states if you prefer to handle this yourself. However, please note that those online resources are NOT LAW FIRMS. They can NOT legally review your Will or Trust for legal accuracy. They can NOT provide legal advice for filling out the documents. They can NOT apply the law to your specific situation and/or concerns. No matter your financial condition, it is still better to have a Trust AND a Will than nothing.

Lastly, it’s NOT just 90-year-old people who need to be protected. Protect your assets!

To WRAP or NOT to Wrap in Real Estate?

Mon, 30 Sep 2024 18:45:52 GMT

I’m hearing talk in the Industry about some Agents wanting to bring back Wrap-Around Mortgages to the market. This approach is one method some agents pursue in order to creatively help Sellers and Buyers find a way around these high interest rates. Having been in both the Mortgage Finance and Real Estate Industry for over 40 years, I’ve seen a lot of things. This is one of them and I’ve been expecting to see this topic come up again. I personally do not advocate this approach and I'd like to show you the risks. So....PROCEED WITH CAUTION. Don't get bamboozled!

So, what is a Wrap?

A “Wrap” is actually called either a “Wrap-Around Mortgage” or an “AITD” which literally means “All Inclusive Trust Deed.” Ok……… In other words, this is a type of secondary mortgage financing where the Buyer will make monthly payments directly to the seller, often at a higher interest rate. You may start to see this topic come up because we may be heading into a bonafide recession.

For example, Seller's current mortgage is at 3.5%, but the Seller charges 6% to a Buyer so that the Buyer can have a lower interest rate and lower monthly payment than the 7.50% current market rate. This is the basic concept. In today’s market, a Seller wants a lower payment on their new house AND they may want to pull out equity from their existing home to use as a larger downpayment on the new home.

The Wrap-Around (AITD) is a brand new, recorded Deed of Trust which includes the balance due on the existing Mortgage Note AND the equity the Seller may have pulled out of the existing home for their own purchase. This is essentially comparable to “Seller Financing”, but with a twist. The Seller holds the Note and the Buyer pays the Seller directly. The Seller pays the original, existing mortgage plus the 2 ^nd Wrap-Around Mortgage Note for the equity the Seller used, ostensibly towards the purchase of a new property.

Is a Wrap-Around Mortgage legal?

YES. However, they are not commonly used due to several factors which we shall discuss below.

Is a Wrap-Around Mortgage an Assumable Loan?

NO. An assumable mortgage is where the Buyer literally qualifies for, and assumes the existing mortgage loan. The Buyer then assumes the legal responsibility for paying the first-lien Note.

Who is liable in a Wrap-around Mortgage?

With a wrap transaction, there are two separate and independent sets of payment obligations. As a result, the Seller remains fully responsible for payment of this debt.

So what are the benefits and the risks?

BENEFITS:

BUYER

If, for instance, the Buyer’s DTI (debt to income) is insufficient to secure a traditional mortgage loan at today’s rates, they might qualify for a Wrap.
Buyer can purchase a higher priced house with a lower monthly payment.
NO closing fees usually on a Wrap-Around Mortgage.

SELLER

Sellers can earn a monthly profit that they can then use towards payment on their next mortgage where they may have a higher interest rate and thereby lower their new monthly mortgage payment.
It opens up a larger potential Buyer pool in order to sell the home at a more desirable price.
Property Title remains in the Seller’s name

RISKS:

Default - Buyer Failure to Make PaymentsThis is a major concern, because if the Buyer is unable to pay the Wrap mortgage, the Seller remains liable to pay the existing 1 ^st mortgage. If the Seller is unable to pay that mortgage the property may be foreclosed upon. Buyer will be forced out of the property.
Default - Seller Failure to Make PaymentsIf the Buyer makes the direct payments to the Seller, but the Seller does NOT use that money to pay the original mortgage, the property can still go into foreclosure against the Seller, because the Title remains in the Seller’s name. This would then also ultimately impact the Seller's credit score. The Buyer would also be forced out of the property.
Due on Sale RiskMortgages contain “due-on-sale” clauses which gives the lender the right to ask for the entire loan balance and demand repayment once the loan has been sold or transferred. A Wrap-Around is highly vulnerable to this if the lender decides to execute this right. The Seller needs to check with their current lender to determine if they will allow a Wraparound Mortgage BEFORE the Realtor markets this concept. If the Note does have this clause in it the “due on sale” clause could be triggered at the INITIATION of the Wraparound mortgage.

The actual Due-on-Sale clause as written in the Fannie Mae/Freddie Mac Uniform Deed of Trust reads:

“If all or any part of the Property or any interest in the Property is sold
or transferred (or if Borrower is NOT a natural person and a beneficial
interest in Borrower is sold or transferred ) WITHOUT Lender’s PRIOR
WRITTEN CONSENT, Lender MAY require immediate payment in full of
all sums secured by this Security Instrument.”

In other words….The Seller must confirm with the existing Lender that they would allow a Wrap-Around Mortgage (AITD). If all of the parties decide to proceed with the Wrap-Around Mortgage without prior Lender approval, then it would be wise to have both the Buyer and Seller sign an Agreement that all of the risks are known and understood and they still agree to proceed with the transaction.

Breach of ContractIf the Seller does NOT get Lender approval to do the Wrap-Around Mortgage and the Lender exercises the Due-on-Sale clause, the Buyer will lose the home as a result of the Seller’s foreclosure.
Consider these 2 questions…………How long do you, as the Seller, want to be at risk of a potential Buyer default?
How long do you, as the Buyer, want to be at risk of a Seller default because he/she did not forward your monthly payments to the Lender on the 1st Mortgage?

While this could certainly be beneficial to both the Buyer and Seller, it is very important to get legal advice before going down this road.

This is definitely a highly creative avenue in which to buy and sell a home, but it is NOT a course you should take lightly. Although many people have used Wrap-Around Mortgages, hopefully their Realtor and Mortgage Advisor will recommend that their real estate client solicit legal advice before proceeding with this type of transaction.

Sub 3 Loans

Sun, 29 Sep 2024 18:54:14 GMT

Opportunistic Landlords?

A recent news article caught my eye suggesting that sub-3% interest rates were causing some homeowners to become what they termed unintentional landlords. I don’t see it as unintentional as much as I’d term it opportunistic. Presented with an opportunity to make a choice that might be a great financial decision, there’s always a lot to consider here if that's what you are thinking of doing. It sounds good. Right? Could be… may not be……. So, before you act, there’s some things I suggest you think about. While it sounds like a surefire way to diversify your portfolio and make money; renting out a house and owning a stock, for instance, are vastly different. Perhaps one of the costliest mistakes of the “onesie” landlord is not understanding how intentional the IRS is about getting their money. Not only does the government want something from you, so does the house and the tenants.

Let's start with the ticking clock that is set by IRS rules on claiming a homeowner's exemption on the sale of your primary residence. Once you no longer live in the house, the timer starts! I am NOT a CPA and I always strongly encourage my clients to consult with their CPA and Financial Advisors before undertaking a financial action which may possibly, negatively impact them. However, I can share with you what I understand. I personally have my own CPA on speed dial before I make any important financial decisions to ensure that I fully understand all sides of any financial action I am considering doing.

It is my understanding that the current rules are that you must live in the house for 2 of the last 5 years. Click to IRS It does NOT need to be a consecutive 2 years however, and there are some exclusions. Click to IRS Exclusions

For example, let’s say that you decide to rent out your primary home on April 1 ^st , 2023 after living in it for the past 2 years. If you don’t intend to go back and live in it, you now have until March 31, 2026 to sell it and claim your homeowner’s exemption ($500,000 if you’re married and $250,000 if you’re single). “GREAT! What can go wrong? I can get market rent and still come out ahead!” Cha-ching! The sound of making money makes everyone happy.

OK... Here’s a scenario that’s happened before and if history ever repeats itself, it can possibly happen again. Let’s just hope it doesn’t occur while you’re “on the clock” – you know…. The IRS clock. The market changes in early 2026 and real estate prices are down and the market prices mean that you can NOT sell your house to clear your mortgage so now you have 3 choices:

Sell anyway and pay money to get out of the mortgage while at the same time having to pay additional taxes on top of the exemption. YES…even if you sold it for a loss! The IRS has some funny rules at times. I don’t make them up.
Hold the property longer and now you NO LONGER get to the use the homeowner’s exemption and save up for paying the tax bill with your rental profits (UNLESS you move back in – which most people don’t usually do, but I definitely agree with not wanting to be overly generous to the IRS!)
Hold onto the property longer than the exemption period, but then sell when the market is up and get into the REAL investor side of things and do a 1031 Exchange and defer those taxes. Now.. doing a 1031 Exchange is another topic we can discuss at a later time.

Option 1:

At tax time, sellers are always surprised to find out that they may still owe money if, by looking at the whole scenario if it is a loss, but it can work out that way with the accounting and depreciating the asset, etc.

Option 2:

Holding on and enjoying the rental profit, the costs of maintaining a house come into play. YES. There’s some maintenance you can hedge and defer like paint or landscaping, but waters heaters, roofs and HVAC systems going out require an IMMEDIATE cash investment and can get expensive. Tenants aren’t always careful either – putting things down toilets that cause backups and flooding, pets you didn’t approve doing damage, appliances you’ve provided going out like microwaves, refrigerators, ranges, etc. I’m NOT an unintentional or an opportunistic landlord, but I have learned some of these lessons with cold hard cash outlays that I’ve seen.

Option 3:

The 1031 Exchange. This is an IRS rule and it’s got a very tight timeline as well. You miss the dates and you can possibly end up with a huge tax bill. The IRS is unforgiving. If you sell in a fast market like in 2020 or 2021, good luck trying to find that replacement property because you’re competing with multiple offers and many Sellers prefer NOT to take a buyer in the middle of a 1031 Exchange when they can choose a much simpler transaction presented by another competing Buyer.

I’m certainly NOT advocating that you NOT hold onto your sub-3% home and rent it out. I’m just strongly encouraging you to consult with a CPA who is knowledgeable in rental properties and go into it with your eyes wide open. Not all CPA's are thoroughly knowledgeable in all areas of taxation. You will want an expert!

The market has currently flattened out -- high interest rates causing buyers to fall out, concern about the economic prognosis over the next year with some people worrying about corporate downsizing, impacts of a possible government shutdown, inflation, stagflation, elections ramping up in 2024 and simply the 4 ^th Quarter Holiday season as it impacts the real estate market. Although new listings are coming onto the market, most of those sellers are selling right now simply because they have to ---major events such as death, job and/or military relocation, health.

There IS a 4 ^th Option to consider.

If you have a well-upgraded property that may also be in a coveted location, consider selling before this flat market possibly turns into a strong buyer market. No crystal ball here. Just my opinion based upon historical highs and lows that I’ve seen over many years. Invest the money into other safer and/or other possible lucrative investment opportunities while you can still keep most of the high equity position your property may have earned for you over the past few years. Interest rates are high for purchasing a property, BUT banks are also actually paying higher interest on savings, CDs and other financial vehicles. Granted…it’s not much, but at least you don’t run the risk of losing more if the market declines.

Lastly....there is a 5th Option as well.

You may decide not to move out of your property and either "Move Up", "Downsize" or relocate out of state to retire, because you don't want to pay higher interest rates on a new mortgage. That seems like an easy decision, but IF the prices decline, buyers will run back into the market and you could possibly be looking at multiple offers and escalating offers again, but you would no longer have access to your cash from equity on your own home. That means you would have less cash to bring to the table and beat out other offers, OR you may need to ask for a contingency from a Buyer purchasing your primary home to allow you the right to get your "Home of Choice" AND you would have to ask the Seller of the new home you want to buy to agree to give you a contingency that their sale would be contingent upon selling/closing your current home. Hence....you are back to the "Catch 22" position again. Sigh........

Again, please consult your CPA and/or Financial Advisor before making any such decisions, because a short-term gain could possibly create a loss due to the IRS rules. If you are evaluating the 5th Option, I also encourage you to consult with your Realtor and Mortgage Lender to get a better understanding of what's really happening in the market regarding: buying, selling, rental rates, home improvements and such. This is a tough time economically for many people and these are big decisions to consider. The biggest reason that I mention the 4th option is that at least some of these other investment vehicles don’t require any physical maintenance or upkeep costs that can easily cut into you profits.

Whew……. That’s a lot for today. Each topic is a course in and of itself, but hopefully this has given you some food for thought.

Herndon, VA Market Update

Fri, 10 Nov 2023 17:36:04 GMT

$685,245

Median List Price

$603,250

Median Sale Price

42

Homes For Sale

54

Homes Sold

14

Days on Market

Curious about home values in this area?

Please feel free to get in touch with any real estate questions. We welcome your business, and we promise to take exceptional care of you and any of your referrals.

3 Types of natural disaster relief offered by the United States government

Thu, 09 Nov 2023 17:36:07 GMT

The United States Government offers natural disaster relief options for homeowners affected by natural disasters. Disaster assistance comes in a few different forms, including loans for home repairs, utility bills and property tax relief.

To help you learn more about the kind of financial assistance available after a major disaster, here is a short guide with the basics:

Disaster Mortgage Insurance

The Federal Housing Administration (FHA) offers a program for homeowners who need financial help buying a new home or repairing their existing home. As long as the home is your primary residence, you might be eligible for an insured mortgage through the FHA.

These mortgages have zero down payments, but come with all the usual closing costs and prepaid costs of other mortgages.

Emergency help with utility bills & expenses

Even if your home does not sustain significant damage in a natural disaster, such scenarios can make it difficult to afford utility repairs and expenses. Disaster relief funding available through the Low Income Home Energy Assistance Program (LIHEAP) and can be used to pay your utility bills, reconnect utilities and repair or replace components like furnaces or air conditioners.

Disaster-related tax relief

These mortgages have zero down payments, but come with all the usual closing costs and prepaid costs of other mortgages.

Vienna, VA Market update

Thu, 30 Mar 2023 16:36:12 GMT

$1,095,000

Median List Price

$975,000

Median Sale Price

123

Homes For Sale

72

Homes Sold

11

Days on Market

Curious about home values in this area?

Please feel free to get in touch with any real estate questions. We welcome your business, and we promise to take exceptional care of you and any of your referrals.

Oakton, VA Market Update

Tue, 07 Mar 2023 17:36:10 GMT

$1,599,500

Median List Price

$1,040,000

Median Sale Price

26

Homes For Sale

12

Homes Sold

12

Days on Market

Curious about home values in this area?

Please feel free to get in touch with any real estate questions. We welcome your business, and we promise to take exceptional care of you and any of your referrals.

Ashburn, VA Market Update

Sat, 28 Jan 2023 17:36:10 GMT

$782,875

Median List Price

$716,100

Median Sale Price

122

Homes For Sale

91

Homes Sold

12

Days on Market

Curious about home values in this area?

Please feel free to get in touch with any real estate questions. We welcome your business, and we promise to take exceptional care of you and any of your referrals.

Expert Tips for Open Floor Plan Decorating

Fri, 06 Jan 2023 17:36:13 GMT

Repeat Colors & Patterns

One of the key elements of a successful open floor plan design is to keep the entire space connected with color and pattern. You can take the same color or color palette and use it throughout a variety of unique materials and textures to make all parts of the room feel cohesive.

One example would be the same gray color of your quartz countertops in an area rug of a similar shade. You can also carry color through using curtains and smaller decor alongside larger furniture pieces. The idea is not to be completely monochromatic, but to have a recognizable theme that pulls the entire design together and makes it feel like home.

Keep the Walls & Floors Consistent

Another way to decorate for an open floor plan is to keep the floor material and wall color the same for the entire space. It’s tempting to section off smaller pieces of a large open layout using different flooring or painting in an accent color, but this can make the space feel disjointed rather than comfortable. There are plenty of other ways to create “zones” of your home with furniture placement and other decor. Using the same flooring and walls throughout will remind you it’s still all the same home, making it that much more comfortable and inviting no matter the design style you choose.

Use Area Rugs for Definition

An easy and effective way to separate and define smaller spaces in an open floor plan is with area rugs. You can use area rugs as an anchor to an individual space and add furnishings on and around it to create a specific living zone. Try using an area rug to anchor a love seat and armchairs for a cozy sitting area or separate out the dining room from the rest of the space with a large rug under the table. Even the boldest rugs are relatively unobtrusive in the openness of this type of layout but still do a great job of defining specific areas for specific purposes. Whether it’s eating, chatting or watching a movie, each part of your open floor plan will serve a unique purpose while still feeling cohesive.

Every home is different, even with similar layout styles. Open floor plans have been incredibly popular for decades for many reasons including flexibility. However, that flexibility can feel overwhelming if you don’t know where to begin. In decorating an open floor plan home, stick to these best practices and you’ll have an excellent starting point in creating the perfect design for your home.