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Why is it so uncommon for realtors to offer rebates? Are agents just greedy? Usually not.
Real estate is an expensive business. Aside from the obvious fixed overhead costs that offices incur, the individual agent is faced with a barrage of expenses throughout the year including advertising expenses, MLS fees, local, national and state association of realtors dues, and other specialized area dues and fees. Realtors also pay self-employment tax, fund their own retirements and frequently need to pay for updates to their continuing education requirements.
According to one survey, in order to survive the first year of real estate, the average agent should expect to spend a minimum of $10,000 out of pocket. This sum is insignificant in comparison to the fees most more experienced agents typically expend to maintain their business.
The home buying public, no thanks to the media, has a poor understanding of the real estate business as a business. Most buyers have been told time and again that real estate agents are all the same and that real estate agents are all overpaid. The general perception is that the typical real estate agent lives in a large home, drives an expensive automobile, and works only a few hours each week. This is in stark contrast to reality.
The real estate business is extremely competitive. With any highly competitive business, only a few exceptional individuals rise above the average. Most real estate agents do not sell very many homes at all. Most real estate agents do not stay in the business very long . For most who try, it is very difficult to make a living in real estate. 91% of agents survive less than 5 years.
The principal reason very few realtors offer rebates is because they cannot afford to do so.
According to Salary.com, most real estate agents earn an average of between $34,000 and $45,000 a year. The takes in the high earners so this figure is skewed upward. Most new real estate agents earn under $20,000. Most real estate agents sell only between four to six homes per year.
Consider an example. If you are an agent that sold a total of 10 houses during the year with an average sales price of $200,000, that would give you a gross sales of $2 million. That sounds like a large figure but it is not.
Assuming that on all of your sales you grossed 6% commission per home, and that you received a 3% split for your company per sale, your office would receive $60,000 for the total of the 10 homes you sold. Out of the $60,000 you should anticipate 50%-70% as your earnings (must share with your broker). If you receive 70% from your broker (a good deal), your pre tax, pre expenses sum would be just $42,000. Half, at a very minimum, will go for taxes and expenses (usually more). After expenses and taxes, you now under $21,000 of that $2 million in gross sales you made. Good job. You are now an above average agent.
What happens if this "typical agent" chooses to offer a rebate? Obviously, the bottom line for the agent will be significantly reduced. Using the same figures but this time offering 1.5% of the sales price or 50% of the buyer's agent's commission to the buyer as a rebate, the gross commission to the buyer's agent's office will be reduced to just $30,000.
Again, the agent will be required to share this figure with his office broker by providing the broker with at least 30%. After applying it expenses and taxes, it's easy to see how the same agent will now receive closer to $10,000 net for that $2 million in gross sales. Ouch.
An annual income of just $10,000 is not attractive for most agents.
Now that we've seen how little a typical agents earn if they offerer rebates, it makes one wonder how agents can offer rebates at all and still stay in business. The bottom line is that in order for most agents to survive and also offer rebates, they have to sell a lot more homes than the average agent. Or they have to be willing to work for very little pay.
There are two basic types of agents most attracted to offering rebates. The first type of agent is someone new to real estate who is seeking an aggressive method of marketing and is willing to accept a very low income in order to achieve a foothold in the marketplace.
The second type agent is an agent who who wishes to transition to offering rebates as a fundamental structural shift to the way he or she operates their real estate business. It is a risky move but can work if expenses (and client services?) are kept in close check.
Both models, rebate and traditional, will survive and both may thrive. With rebates in the mix, consumers will have more choices. Caution: there is no free lunch so be sure you are receiving the services you need. Even rebate agents must make a profit. Know where the cost trimming is going on and be sure you understand the impact on you.
Search for homes in Charleston, South Carolina
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Charleston Homes for Sale
Most homebuyers are not real estate agents. Most homebuyers shop for homes with some natural, but potentially expensive assumptions. Buyers usually think that it makes no difference if they began their property search on their own, looking at a few homes in person, or if they begin their property search by hiring an agent.
Often, buyers like to avoid wasting an agent's time by looking at homes too far in advance or hiring an agent before they have become comfortable with what they see in the marketplace. It is natural that buyers want to be out on their own, unencumbered as much as possible. Driving around and looking at homes to get a feel for the market – visiting new home communities and open houses - just seems to make sense to most people.
Previewing properties without an agent can cost you and your agent money.
What most homebuyers do not recognize, because there has been no real reason that they should, is that previewing properties in advance of working with a buyer's agent could literally cost the services of their own agent by barring their own agent from receiving a commission. Why? It’s all about procuring cause.
So what is procuring cause? According to Black’s Law Dictionary, procuring cause as " a series of events which, without break in their continuity, result in accomplishment of the prime objective". A simple way to think about this is that, when a person helps you locate a property initially and continues to help you until closing, that person is entitled to a commission via the procuring cause concept. Note: the definition of procuring cause does not include that, "if you have signed a buyers agency representation agreement, your agent is automatically entitled to a commission and you are automatically entitled to a rebate." The fact that you have a signed agreement with your agent does not prevent the procuring cause issue from being a problem if you do not follow the appropriate steps.
Until recently, concerns over procuring cause seldom involved any gains or losses by buyers. Most buyers had never heard of the term nor had any reason to have heard of it. Today, procuring cause issues no longer impact only agents but have the potential of costing buyers directly. Looking at homes without your own agent (not a site agent, a listing agent, or an agent holding an open house, etc.) could subvert later claims that your own agent’s actions were the procuring cause of the sale. It is critical that you understand procuring cause if you plan to have an agent representing you – unless you plan to pay the agent out of your own pocket!
In order for an agent to qualify to receive a commission (from the seller) , that agent needs to be the person who first introduced a property to a particular buyer – the procuring cause. If someone else introduces that buyer, or if that buyer was previously looking at that property without assistance, it is a likely that the agent who subsequently takes that buyer to the property will not be entitled to receive a commission.
"… homebuyers, particularly first-time homebuyers, will remain at a disadvantage if they do not have procuring cause explained to them as they begin their home search. The seemingly benign action of "just looking at a few homes" with an agent can force them into a precarious financial situation which prevents them from seeking advice and counsel from an agent who can ultimately protect their interests in the transaction." (International Real Estate Digest).
Allow me to emphasize: unless your own real estate agent receives a commission, as compensation for being the procuring cause, you will not no-cost representation. In order for Realtors to provide representation to buyers at no charge, they must be in a position to receive a commission from the seller, whether that seller is an individual or that seller is the builder.
The concept of procuring cause is deceptively simple; yet, it is often the basis for disputes among real estate agents. Commissions are gained or lost over this concept in every city of the country every day. Determining procuring cause can be complicated. The National Association of Realtors provides guidelines to direct arbitration boards in determining procuring cause. Suffice it to say for this discussion, that the outcome of procuring cause arbitration proceedings among agents often surprises all parties involved. It's extremely important that all parties, prior to the closing and at all times during the home search, fully understand who is represented by whom.
Plus, most people who receive assistance from a real estate agent want that real estate agent to receive compensation. That’s fair. Still, it is not uncommon for an agent to provide extensive services and receive no commission. This is most often a result of a procuring cause dispute.
Why wouldn't the listing agent just be willing to pay the commission anyway, procuring cause or not? The answer is simple. The listing agent will receive 100% commission rather than 50% of the commission if the listing agent can show that the agent for the buyer was not the procuring cause or reason for the sale. The listing agent has a strong motivation not to look the other way if the buyer and the buyer’s agent fail to follow the correct procedures.
The bottom line: hire an agent before you begin looking for homes. That way, you receive the representation you deserve and your agent gets a paycheck from the seller for helping you.
Charleston MLS
Filed under: Real Estate, Charleston new homes, new construction, discount real estate agents, Commissions, charleston real estate, charleston mls, Charleston market conditions, charleston home sales, charleston homes for sale, Charleston home rebates, rebates, rebate agents, home rebates, new construction rebates, new construction in charleston, are home rebates legal, agents who rebate in charleston, charleston real estate rebate site, brokers who rebate, buyers agents who rebate, charleston home rebate site, rebate realtors, chris deloach
As you might expect, builders look at selling a home from a very different perspective than that of individual home sellers. Builders are business people and selling is a full time business - not an occasional necessity. Builders recognize that agents are important to selling their product. They are willing to pay for the services agents’ offer – if it is earned.
Procuring cause issues frequently involve new construction. This is because it is so easy for buyers to locate new home communities on their own. It is easy for buyers to just drop by to preview models and to speak with site agents about the community and the offerings.
In most circumstances, the listing agent (site agent) receives equal compensation whether a buyer comes with a buyer’s agent or not. That is to say, that just because a buyer comes with an agent does not mean that the site agent is paid less. And, conversely, when a buyer purchases a home from new home community without an agent, the site agent is typically compensated the same amount as if the buyer had an agent. Most builders employ this equivalent compensation to the site agent to promote cooperation among site agents and buyers’ agents.
Why would a builder be concerned about procuring cause? Money retained = improved profit margins. These are business people.
Any money not paid out to the buyer's agent remains with the builder as profit. If you are looking at new construction, you have seen builders advertise. You may have heard builders’ advertisements on the radio. You may have seen numerous promotions conducted by builders such as specials that are being run for particular weekend to draw in buyers. These and other promotions cost a lot of money.
While builders look favorably at paying commissions to buyers agents who promote their properties, builders avoid paying commissions when the buyer is generated, not by the effort of their real estate agent, but as the result of other promotional activities. In essence, buyers consider real estate agents commissions as an advertising expense. They're happy to pay for this advertising expense as long as they can track that the advertising expense generated the resulting sale. So for builders, as well as for listing agents, procuring cause is critical.
One way that many builders handle this concern is through a registration process. If you register with a builder, you will be asked to verify that you have a real estate agent representing you or to verify that you are unrepresented at the time of registration. If you are unrepresented at the time of registration, in all likelihood, you will be barred from receiving any rebate from an agent. Also, your agent will be barred from receiving a commission.
Builders do hope to foster a cooperative relationship with agents. The registration process is one way to eliminate friction between builders and agents because everyone understands the expectations. Registration creates clarity as to procuring cause. Everyone understands that an unrepresented buyer cannot justifiably claim that their agent was the procuring cause of discovering a particular community or a particular home within that community. This registration process also prevents a buyer from bringing in an agent after the fact just to claim a commission.
1. Selected your buyer's agent before you begin previewing any properties
2. Avoid house hunting without your agent by your side
3. Once you have hired an agent, if you decide to view property without your agent present, inform anyone who needs to know, such as an on-site agent or an agent conducting an open house, that you are already represented by your own agent. Ask your agent to provide you with a few of his or her business card to offer to agents that you meet.
4. Do not register on line with any builder. Do not register in person with any builder without your agent present even if you are already represented by an agent.
5. Sign a buyers agency agreement with your agent
Bottom line: Even experienced home buyers need representation – an agent looking out for their interests. The builder’s agent is looking out for the builder’s interests. Don’t give up a chance to have your own representation – it’s free and it will make a positive difference for you.
Filed under: Real Estate, Open Houses, Buyer Information, new construction, selling in Charleston, discount real estate agents, discount brokers, discount realtors, Commissions, charleston real estate, charleston mls, charleston home sales, time to buy a home, charleston market, charleston homes for sale, Charleston home rebates, Charleston rebates, rebates, rebate agents, builder rebates, home rebates, new construction rebates, new construction in charleston, charleston real estate rebate site, buyers agents who rebate, charleston home rebate site, rebate realtors, chris deloach, builders, using a buyers agent
Charleston Real Estate
The marketplace for buying or selling a home has changed – again – and dramatically. Along with market changes have been a natural evolution processes among consumers. Not long ago, nearly every home buyer was a baby boomer.
Today, the field of homebuyers is being populated by a burgeoning number of Gen X and Gen Y homebuyers. Studies on all of these groups have shown that there are definite differences among buying habits and expectations. The unique circumstances that have influenced each have created challenges for agents - not the least of which is understanding how to serve a highly independent, tech savvy, demanding crowd of newcomers. Agents need to be ready to accommodate the new buyer wave. The mantra of the post baby-boom buyer contingent includes fairness, efficiency, skepticism, and independence. To them, competition for their dollar is very important.
Traditionally, in our country, consumers have looked at prices for most items and services as either non-negotiable or occasionally negotiable within a small range. In real estate, we expect a certain amount of negotiation between the listing agent and the seller in establishing the parameters for listing the home; we expect negotiation to happen between the buyer and the seller and their representatives when working out the details of the sales agreement; but, we have come to accept that negotiation does not occur between the seller and the agent for the buyer as it relates to commissions paid to the buyer's agent.
Why? Because the seller does not pay the buyer's agent directly but compensates the buyer's agent through their own listing agent’s commission. This sum is negotiated well in advance during the listing meeting and is later split between the selling agent and the listing agent upon closing of the sale. This also means that, until recently, the buyer has had no part in determining the compensation for his or her own agent.
The way in which the commission is divided between agents is not fixed. The listing agent has the option of changing how the commission is shared between the two. While it is true that compensation to a buyers’ agent flows from the seller not from the buyer, without the buyer's decision to purchase, no commission would be paid to the buyer's agent.
Buyer clients are progressing through an evolution consistent with changing demographic influences. A number of studies have been conducted looking at the differences in how buyers operate and how these differences have been changing. The baby boom generation, which has had so much influence over home buying for the last 30+ years, is beginning to lose its influence ever so slowly over the real estate business and the impact of the follow on generations is clear.
To better understand why we need to make changes to accommodate the growing influence of the Gen X and General Y homebuyers, we need to consider how these homebuyers perceive the role of the real estate agent in the marketplace.
A buyer from the post baby-boom segment thinks very differently about a real estate agent than the preceding generation. This buyer considers a real estate agent to be a somewhat helpful individual but not an absolutely necessary component of the home purchasing process. This buyer knows that his or her parents used real estate agents to purchase homes and to sell homes - that there is still value to their services.
But, the Gen X and Y buyers also know that they, as buyers, are extremely resourceful and possibly savvier with technology than most agents they might hire. They know that they can turn on their computer and begin searching for homes instantly. They are good at making quick comparisons between and among properties and calculating important information about homes such as price per square foot and taxes. Most have no problem researching demographic information such finding detailed data on the area schools. Most are capable of quickly locating builder incentives and they know where to find new home communities. Some question the need for having a real estate agent at all while others know agents may be able to save them money and that other services provided by real estate agents are of real value - such as local market knowledge and experience with negotiations and tactics.
Gen X, Gen Y buyers want personal, hands-on involvement in the home search process. In the past, buyers relied almost entirely on real estate agents to narrow down the broad field of properties to a short list of homes that were good candidates for purchase. No longer is the buyer a captive of the real estate agent. The growth in availability of online research tools, most notably local MLS systems that have enabled comprehensive public access, has changed how buyers look for homes.
In fact, 92% of buyers today begin their research on the Internet even before contacting a real estate agent. Many of these buyers have narrowed down homes to a small group of properties of interest in advance of contacting real estate agents. These are the buyers who are who are most interested in maintaining control over the buying process and who want to have an agent who can work with them as a partner. They want an agent who can move the process along efficiently and help them gain every advantage at the negotiating table. These buyers are not looking for agents who tell them which homes will be of value to them; rather, they want to tell the agents what they want and they want to be listened to - intently. They want a qualified advocate who is a market expert, highly knowledgeable and willing to fight for them - not an old fashioned property pusher.
Today's younger buyer wants maximum flexibility in the home search process. They are accustomed to instant gratification through instant feedback. When asking questions, they want and need answers immediately. They want to have agents who are quick to respond and who are willing to allow them to participate in the process in a meaningful way. They don’t mind rolling up their sleeves to work side by side with an agent – and actually hope to find an agent who can work that way. The kinds of questions they have are less about generalities and much more about specifics.
Home buying is always an emotional process and less so with this generation than before. The Gen x and Gen Y buyers want to understand, not only how much they are spending, but also what the agent is earning and why. They want agents who are at the top of their game yet are not boastful. When they look at an agent's website, they want information not a dissertation on the how magnificent the agent is. This generation is 100% media savvy. They are skeptical of any claims that are made that might influence the sale of anything. This group does not mind direct confrontation in negotiation - with friend or foe – seller or their own agent. They are highly self-sufficient and skilled at multitasking. This group tends to be impatient, loathing having their time wasted. An agent who is slow to respond to a Gen X or Gen Y client’s needs will likely lose that client quickly.
Agents willing to earn for their commission dollars are what these buyers want. These post boomers expect fairness and equity in all of their relationships including their relationship with a real estate agent. To these new buyers, maximum service is a must.
Filed under: Real Estate, charleston real estate, charleston mls, Charleston home rebates, Charleston rebates, rebates, rebate agents, builder rebates, home rebates, new construction rebates, rental homes in charleston, are home rebates legal, agents who rebate in charleston, Gen x home rebates
Charleston Area Real Estate
Where we live, the type of home we choose to live in, and how we make that home our own are intimate, careful choices. The home, for most of us, transcends the physical. Even the term "home" itself evokes a powerful positive emotional response. For most of us our home is much more than investment.
It's time that we reconsider our homes for what they really are: places to live. Yes, appreciation potential and tax advantages are key components in determining if and when we choose to own a home. But, are they the most important factors? What about the old fashioned idea of owning a home that is right for you that brings with it pride of ownership and all of the underlying personal and emotional reasons for homeownership? In times like we've seen in the last few years, perhaps it is time that we re-balance our perspective on ownership.
Owning a home is far more than just owning an investment vehicle. I have been overwhelmed with the number of calls I have received recently from people requesting information on rental properties. Yet, even with the experience we've had with home values of late, I am still surprised that so many people are willing to miss out on homeownership at what is probably the best time to buy a home in the past 100 years.
Certainly, many people cannot afford to own a home. I acknowledge that there are many reasons for renting beyond the fear or misunderstanding of the current market and I think many of those reasons are perfectly fine. There are times when you should rent. But homeownership remains the single most important component in long-term economic stability and long-term value accumulation for most households in America. This holds true even after the decreasing values that we've experienced. In fact, who can deny that home values will eventually began to head up once again? Clearly, we do not know the schedule for this rise but we do know, with near certainty, that it is coming.
Renting a home is only a substitute for homeownership. While it provides many of the benefits that come with home ownership, it still lacks the most important benefits – the essential intangible ones. Renting does provide you a place with a roof, walls and a floor. It also allows you to defer some of the upfront investment costs you may experience with purchasing a home. When you rent you can forgo many of the repair costs homeownership might entail as well.
Yes, there are reasons to rent; yet, when you rent you own nothing. The pride of ownership belongs to your landlord. The title belongs to your landlord. The right to determine how long you live there and whether or not you have to move belongs to the landlord - even the choice of whether or not to own a pet belongs to the landlord. The equity appreciation potential belongs to the landlord, too. And, making that property your home rather than just a house or just a place to live, from an emotional standpoint, is elusive. For most of us, a rental property is not quite a home.
Even if the market were to remain completely flat forever, most people would still choose to own a home. But, we know that the market will appreciate again and may appreciate very quickly over a short period of time. Since we know that in most parts of the country, the decrease in home values appears to be near its end, making a purchase decision at this time has much less downside potential than in the last several years including the years of rapid appreciation we experienced that got us to this point. I am saying that fear of home value depreciation as a reason to avoid purchasing is quickly losing support.
If you are considering renting a home and you are in a position to purchase a home, do yourself a big favor and list the reasons owning a home is important to you and to your family (it should be a lengthy list). Next, balance those reasons against the fears you currently have about market conditions. Ask yourself whether or not you feel home values will continue to decline. Consider your timeline - that should be an important ingredient in the decision. For example, if you plan to stay in your home for more than five years, what is the likelihood that your home will be worth more or be worth less when it's time to sell? What's the probability that ownership will be a poor decision for you? What’s the likelihood that renting will end up costing you more than buying? What are you giving up so you can stay out of the owners’ club?
Before you choose to rent a home rather than purchase, step back and think. Get past the unsettling emotions of the recent market and think about the positive reasons for homeownership. Are you being driven by balanced considerations or are you being driven by fear?
There is no question that purchasing a home requires careful financial consideration. But homeownership, having your own home, is the American dream that embodies so much more than the monetary investment. When you own the place that you call home, it becomes part of you and part of your family.
Charleston Area Real Estate
Filed under: Real Estate, For Sale, For Rent/Lease, Buyer Information, Charleston new homes, realtor communication, charleston real estate, charleston mls, Charleston market conditions, charleston sale, charleston home sales, time to buy a home, charleston market, charleston homes for sale, Charleston home rebates, Charleston rebates, rebate agents, builder rebates, home rebates, new construction rebates, rental homes in charleston, charleston homes for rent, rent or buy, rental property in south carolina
Charleston Real Estate
A hot real estate market over the past decade has brought with it a lot of changes for the real estate industry. Changes in technology have also been key in altering the way the public and the real estate profession sees the role of the agent.
A contentious topic among agents is the concept and practice of buyer rebates. For many years in most states rebates were prohibited. Legal or not, rebates tend to be resisted by agents and unknown by or misunderstood by the general public.
Why in the world would an agent be willing to make such a deal – to give away money that they earned? It’s simple - competition. Yet, giving away some of your commission is very risky business if you don’t know what you are doing. To survive, you better be doing volume business. You better be watching costs. Many rebating agents have failed. Most who try rebating, do not continue.
Like any new way of doing business, there is resistance. Most real estate companies avoid discussing rebates as the whole idea is distasteful to them at a number of levels. The stress between the traditional model and the new rebate model is clear. Companies considering rebates are often indirectly - and occasionally directly - ostracized by their local real estate colleagues. Most real estate companies do not offer them and do not want consumers to ask about them. Rebate talk is taboo in most companies.
Rebates do not represent the panacea for consumers suggested by companies that offer rebates either. They are an alternative but they do not replace the extensive dedication offered by most full service companies. Buyers and sellers all realize that, in order for real estate companies to provide excellent service using well-trained experienced agents, those agents need to be paid for their services. Consumers also know that, with real estate as with other businesses, the old saying of “you get what you pay for” does hold true. Yes there are ways to streamline real estate and pass the savings along to consumers. Intuitively, it’s very difficult to consider any business that usually operates on a 3% to 5% gross margin to be able to provide the same level of service to consumers after reducing their commissions by 50%. While it may not be precise to say consumers who use agents who rebate give a half of the services, or that they give up half of the quality of the services, it seems clear that they must give up something.
Real estate is a very tough business. Most new agents who begin working in real estate quit within their first year. Plus, 90% of agents are out of the business by their fifth year. What is it that the best real estate agents provide for consumers that sets them apart resulting in limitless referrals and a solid, ongoing business? When you hire an agent, what do you want them to be able to do for you? Are you going to save more on the bottom line by having a powerful negotiator, experienced in the market and able to fight for you, or will you save more through the rebate? Is using a company that offers rebate, “penny wise and pound foolish” ?
I do not oppose companies that rebate. I think that they have their place but I also think that consumers need to be fully informed as to the value of choosing a rebate model over traditional model that has such an extensive history of developing the very best agents.
We live in a capitalistic society where people are paid for their success. Consumers need to carefully balance whether or not they wish to have services of those that have proven themselves through traditional means or whether they would be better served by signing on with company that promises to give away a portion of what they expect to receive in order to secure the business.
As a whole, the real estate world views rebates as an unpleasant genie struggling to get out of the bottle, eager to steal commissions. I think it’s a mistake to envision rebates as such an evil – just another consumer choice in an ever evolving business. I doubt it is either the best or the worst way to go. Still, the buyer’s greed instinct does make rebates a good marketing tool.
Like any model, the rebate model has some advantages balanced against some not so obvious disadvantages. It is not for every agent nor is it for every buyer. Having experimented with rebates myself, I seriously doubt that most consumers will benefit more from the rebate model than they will from the traditional model.
Charleston Real Estate
Filed under: Real Estate, Open Houses, Point2, Buyer Information, Charleston new homes, new construction, realtor communication, New Communities, discount real estate agents, discount brokers, discount realtors, bank property, Commissions, charleston real estate, charleston mls, Charleston market conditions, charleston sale, charleston home sales, time to buy a home, charleston market, charleston homes for sale, Charleston home rebates, Charleston rebates, rebates, rebate agents, builder rebates, new construction rebates, new construction in charleston
Charleston Real Estate
Rebate is from14th century English, in effect, to deduct. Re-bate is to “un-deduct” - or, simply, give back. Now by this definition, and the usual concept of rebate we all well understand, the person who paid should also be the one to get any rebate - if a rebate were given. Right? Hummm. Not so when we are talking about home rebates.
Before we talk about the intricacies of getting a rebate, it's helpful to understand the context within which rebating occurs. So let’s talk rebates. In its simplest form, we all understand the concept of a rebate. Rebates have been around for a very long time and have proven to be a popular, effective marketing tool for businesses. Today, businesses use rebates in selling health and beauty aids, household supplies, cars, appliances, computers and even wine. They are used to create brand awareness and loyalty and to help manage the production pipeline. Rebates are also used by governmental bodies for tax relief and for fiscal stimulus. And, they serve to build political good will with the happily taxed public.
Whether as a marketing tool or a governmental convention, the rebate is traditionally the return of money paid. With government rebates, they may even pay money out to people who did not pay anything to begin with.
Let’s consider rebates on homes in light of what we already know about the rebates. I want to focus on rebates to buyers (rebates to sellers exist, too). In some ways, the term “rebate”, when you're talking about homes, is a misnomer. The function and structure deviate from your run of the mill rebate with which we are accustomed. Like some government rebates, home rebate money gets paid in the form of a cash given to someone who never paid money into the deal in the first place.
Allow me to clarify that claim. When you buy a home, there is a complex exchange of funds, usually orchestrated by a closing attorney, who summarizes the transaction on a standard closing statement (HUD 1). The document records who paid how much and to whom. It clearly states that the agent or agents, if any, received a commission for their participation.
If two agents are involved, you often (not always) see that the total commission paid by the seller is split 50/50. If there is just a listing agent involved and no selling agent, the listing agent usually earns the full 100%. The commission is almost always paid 100% by the seller.
Here is how the home rebate happens:
The seller pays the listing agent a commission at closing. The listing agent pays a portion, typically half, to the agent representing the buyer as their compensation. The agent for the buyer then pays the buyer, the agent’s client, a portion of those commission earnings. So the buyer gets paid a “rebate” but did not pay into the deal. In this situation there is no “re” in rebate. The buyer is paid cash at closing earned by another party in a transaction.
Of course the buyer did “pay” … exchange money for a home. The money for the purchase went to the cost of the home - not to paying the agents. The home seller paid the agents - out of the proceeds from the sale (out of equity). Thus, if there had been no buyer’s agent commission (the buyer did not have their own agent), the buyer would not get any money.
The rebate money to the buyer flows from his/her agent not from the seller because, at the instant of sale, the seller compensates the listing agent for services rendered. Next, the listing agent pays the buyer’s agent. The buyer’s agent then pays the buyer. This is one reason there were objections to rebates for so long by people claiming that rebates are actually illegal kickbacks.
Frankly, I think “kickback” far better defines the transaction than “rebate”. “Rebate” seems more palatable and less threatening and certainly sounds more legal. “Kickback” just sounds unscrupulous. (big corporations pay kickbacks, politicians get kickbacks, etc). So we've adopted the friendly term “rebate” to describe this transaction. But, if it looks like a duck, walks and sounds like a duck, it might be a duck.
Charleston Real Estate
Filed under: Real Estate, Buyer Information, Charleston new homes, new construction, selling in Charleston, closing statement, New Communities, discount real estate agents, discount brokers, negotiating commissions, discount realtors, bank property, charleston real estate, charleston mls, Charleston market conditions, charleston sale, charleston home sales, time to buy a home, charleston market, charleston homes for sale, Charleston home rebates, Charleston rebates, rebates, rebate agents, builder rebates, new construction in charleston
Banks have a lot of money
… but they don't have enough money to provide all the funding for loans that they need in order to be profitable without the help of the larger secondary market.
The secondary market is where the primary lender can sell loans and receive a profit in the exchange. The secondary market includes two primary elements: the first is private and the second is governmental.
The recent liquidity issues have come as a result of the secondary market having less interest in purchasing loans from the originating institutions. In order for lenders to offer new loans to new buyers, they have to continually market a portion of their portfolios. If they are not able to resell loans to the secondary market, they quickly lose their ability to issue loans as they will run out of money. Still, there are some originators that are large enough to hold their full portfolio but very few lenders are that large (an example of one that often keeps their loans in house is Wells Fargo).
The reason for the lack of strength in the secondary market relates directly to the probability of default on loans. Even with the various sorts of insurance available, no one wants to own a loan that is going to default. This is even truer in a market with falling home values where the equity buffer is eroding.
The “governmental” side of the secondary market includes the institutions of Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac purchase loans from primary lenders and resell them on the secondary market. Their activity accounts for approximately 20% of all US mortgage funds. These two entities are sometimes referred to as “conduits” because of how they function by buying loans and re-marketing them.
The non-governmental or private sector of the secondary market accounts for about 80% of the funds available to back loans. Loans are sold on the secondary private market through many different mechanisms that are owned by a broad range of investors who are looking for reasonably secure investment instruments that have a predefined schedule for repayment.
The main investors in the secondary private market include pension funds, life insurance companies, commercial banks, and thrifts. So what is it that the secondary market purchases? Sometimes they purchase the actual loans, sometimes they purchase pools of mortgage backed securities, and sometimes they purchase bonds that are backed by mortgages.
Contrary to the popular perception, there is no explicit guarantee by the federal government to back Fannie Mae or Freddie Mac. In fact, these are private corporations that are only chartered by the federal government - they are not governmental organizations at all. They are private for profit companies. But, you can bet that Uncle Sam keeps close tabs on them. Have you ever heard of Ginnie Mae? This is a true governmental organization that backs FHA and VA loans. The guarantees of Ginnie Mae are explicit not implicit.
There are upper limits to the loan amounts that Fannie Mae and Freddie Mac are permitted to handle. These limits change from time to time and have been manipulated recently as a mechanism to help stimulate the issuance of loans.
What is that limit? To find out, go to the HUD site at : https://entp.hud.gov/idapp/html/hicostlook.cfm
As long as your loan is below the maximum limits currently available, it is considered to be a conforming loan. If it is above those limits, it is considered to be non-conforming or jumbo loan. There are additional costs for obtaining jumbo or nonconforming loans (including higher interest rates) so it is to your advantage to stay below that limit if possible.
Filed under: Charleston new homes, HUD 1, bank property, mortgage brokers, charleston real estate, charleston home sales, charleston market, mortgages, loans, FHA, VA, PMI
With all the talk in the media about defaults and foreclosures, it’s not a bad idea to have an understanding of how loans are issued and how banks are protected when they issue loans. It is getting harder to get a loan – even for well qualified folks like you.
Clearly, lending can be a risky business. Lenders have no choice but to be careful.
In order to encourage banks to lend money for mortgages, the government provides guarantees through three major lending entities: the FHA, the VA, and the FMHA. In addition to the government guarantees that are available to banks, there is also private mortgage insurance or PMI. As long as the lender has more than 80% of equity exposure, they will require some sort of assurance to guarantee the loan. In other words, until you have 20% equity in your home, you will need private mortgage insurance unless your mortgage is protected through one of those three quasi governmental entities mentioned above.
Mortgage lenders incur losses or have the potential for incurring losses during any default and foreclosure. Lenders issuing loans where the buyer puts down less than 20% require private mortgage insurance for nongovernment backed loans and require that this insurance be paid for by the borrower.
Of course, this will increase your monthly payment by the amount of that insurance premium. Once you reach 20% equity in your home, you are no longer required to pay private mortgage insurance. The 20% figure is the amount that banks have determined, over years of experience, is necessary in order for them to recover the costs of liquidating their residential real estate backed loans (selling your home on the open market) should that need arise (you default).
Government backed loans include FHA from the Federal Housing Administration, the loans guaranteed by the Department of Veteran Affairs or VA, and those backed by the Farmers Home Administration or FMHA. These are not direct lenders but these are entities that provide insurance to protect commercial lenders when they issue loans to borrowers who qualify for one of these agency backed loans. Of course, the big benefit to the borrower is that they are not required to pay for private mortgage insurance or PMI - plus, they may be able to obtain a loan with little or even zero down. There are costs to the borrower when using these agencies - but those costs are usually offset by the benefits.
In a nutshell, the FHA is designed to help low to moderate income people obtain mortgages, the VA offers loans to veterans or active-duty personnel, and they FmHA is designed for people who meet certain income requirements that want to buy in very rural areas.
Note: most offers to purchase will disclose the sort of lending to be sought by the buyer. The seller may factor in the more lengthy process and higher demands on the seller when considering accepting an offer from a buyer using a government-backed loan. Usually it doesn't have a great impact on whether or not the offer will be accepted; but, in markets that are very fast-moving (strong sellers markets) it has been known to create a disincentive for the seller to accept an offer from someone using a government-backed loan.
Filed under: Buyer Information, closing statement, HUD 1, bank property, lenders, mortgage brokers, charleston real estate, charleston mls, charleston home sales, charleston market, charleston homes for sale, mortgages, FHA, VA, PMI
Let’s first eliminate a common misunderstanding. Banks do not GIVE mortgages.
If you have a home with a mortgage, the bank owns the mortgage. How did they get it? You GAVE it to them. Most people say that they are going to get a mortgage when in fact they are really giving a mortgage.
A mortgage is the legal documentation that gives the lender the right to foreclose. If you choose not to pay, the mortgage provides the steps the bank will follow in order to regain their investment by selling your house. It also give the legal power to make that sale happen. When you give a mortgage, you are giving to the lender the right to take away your property if you default.
When you purchase a home and you use a lender, the lender will require some sort of promise from you that you will repay a loan. That promise from you is your “note”. Don't confuse this with the term mortgage. The note is your IOU or promise to pay while the mortgage is the lender’s right to compensation. (Note: A Deed of Trust, for practical purposes, is nearly the same as a mortgage).
You might ask, “… if the bank has a mortgage on my home, do I own my home or does the bank own it? “ That depends on where you live (which state). Who ever owns the title to the property is the owner of the property.
In our state, the state of South Carolina, we are a lien theory state. That is, the homebuyer owns the title to the property at closing (close of escrow); but, the bank places a lien on the property (described in the mortgage language).
There are circumstances in other states where the bank retains title to the property until the entire series of mortgage payments are paid -- at which time the title is issued to the buyer. This can be the case with certain types of governmental owned properties such as those foreclosed on by the VA (VA Repo) and placed on the market for resale. It is possible, in a case like this, that the VA will retain the title to the property until the second loan is re-paid. Also, with certain forms of owner financing, the previous owner may retain title to the property until all payments are completed (example: contract for deed or land contract).
Yes, the bank owns the mortgage on your home. But ... YOU get to live in that beautiful home. You might even own it!
Filed under: Real Estate, Buyer Information, HUD 1, bank property, lenders, mortgage brokers, charleston mls, charleston home sales, charleston market, charleston homes for sale, mortgages, loans
The perfect buyers market is at hand - but it will not last.
Existing home sales have plunged to a 25 year low. The National Association of Realtors reported sales of single-family homes and condominiums dropped by 2.2% in December of 2007 to a seasonally adjusted annual rate of 4.89 million units. Sales fell by 4.6% in the Northeast, 1.7% in the Midwest, 1% in the South and 2.1% in the West. Sales of single-family homes were down 13% and the median price for single-family homes dropped by 1.8% to $217,000. The chief economist for The National Association of Realtors suggested that this was likely the first decline in housing prices for an entire year since the Great Depression.
If you want to buy a home, is it time to act or time to wait? Do you expect prices to decline even more?
ATTENTION SHOPPERS: Now is time to take advantage of one of the best opportunities that we have seen in decades – yes, decades. Real estate is ON SALE now.
If you're considering purchasing a home, it seems hardly even imaginable that there could be a better time to do so. Interest rates are low and may even move lower. The supply of housing is abundant. Builders are offering great deals. And finally, after months of resistance to lowering prices or making concessions, sellers are dropping prices. Sellers of existing homes have come to the realization that they are going to have to relinquish more in negotiations in order to sell their homes. Yes, buyers are now fully in the driver's seat. In addition, while home foreclosures are unfortunate, they present unprecedented opportunities for buyers who are prepared to purchase.
In many ways the housing market is similar to the stock market. We need to react in a similar fashion to its cyclical nature. Attempting to time either market is incredibly difficult. But it is much easy to know when the market is down - and it is down now.
In fact, it may even be better to purchase prior to the bottoming out in the market. Why? Because once the bottoming occurs there is a clear and definite power shift from the buyers back to the sellers. In a bottomed out market, that shift in power is similar to what occurs at the top of the market but in the opposite direction.
That's why, in hindsight, we can see many examples of sellers who sold just prior to the market peak who had amazing leverage with their buyers. They were able to drive the very toughest bargains for their own advantage. They maximized their selling advantage. Now it’s the buyers’ turn to be tough before the tide changes once again.
Is this the bottom? No one knows. Are we close? Probably. Is this an outstanding time to buy... you bet.
It is time to buy!
Chris DeLoach
House Plan Realty - Charleston
843-388-7027
Filed under: For Sale, Buyer Information, Charleston new homes, Dorchester County, charleston real estate, charleston mls, Charleston market conditions, charleston sale, charleston home sales, time to buy a home, charleston market, charleston homes for sale
• 2,640 sq. ft., 2 bath, 5 bdrm 2 story - 
MLS® $459,900
Hidden Cove, Mount Pleasant - This is a beautiful large 5 bedroom home located in Hidden Cove, one of the most desirable and most convenient neighborhoods in Mt Pleasant just around the corner from the Belle Hall Shopping Center and I-526. Enjoy amenities including a private community boat landing and dock, tennis courts, and a fantastic new pool due to open by Memorial Day 2008. This is a very popular traditional style home plan with a formal living room/ formal dining room arrangement plus a separate family room and eat in kitchen. This home features a large screened back porch (16x16) over-looking an expansive, private back yard. The lot, at about .47 ac, is exceptionally large and has mature landscaping with a generous number of trees - and plenty of room between you and your neighbors! A few notable features include a brick front, irrigation system with well, fireplace with gas logs, gutters, new roof (2007), ceiling fans, built in book cases, recently upgraded smooth top range, hardwood floors in dining room, tile floors in two of the bathrooms, new carpet in the family room, tile counters and tile back splashes in the kitchen, an insulated overhead garage door, plus an amazing storage capacity in the over garage attic space as well as excellent storage in the main portion of the home. This is a great home!
If square footage is important - MEASURE!!
Property information
A growing number of area real estate professionals are daring fate by starting to talk about an imminent market recovery. Yes, the months of pain for sellers may soon give way to a gradual improvement in market balance. Will the recovery be a run away boom? That's not very likely. But most seem to agree that by early next year, the recovery will begin to be noticeable if not quite in full swing.
Here are a few interesting signs that may point to an improving market:
1. From time to time, even in a buyers' market, you may notice prices rising. The statistics for June in Charleston indicated a reversal in price declines, even if just a short term reversal. I am not ready to suggest that this one month reversal will change the negative momentum, but it is a very good sign.
2. Another good sign is in the direction of inventory. If you study the inventory trends month to month in light of the inventory for the same month of last year, you will see something very interesting. With the exception of a slight uptick in May for single family homes, since January, the months on inventory (as a percentage of inventory levels for the same month last year) have been slowly trending downward. This trend is easily obscured if you look at just the raw totals but the trend is there. This trend is even more obvious when you look at the data on condos. The condo market seems to be moving in the direction of inventory equilibrium much faster that the single home market. It may be that sellers of condos have been more ready to accept price adjustments but I suspect it is probably that inventories are falling faster because more condo owners than owners of single family homes are turning to the strengthening rental market as an alternative to selling right now.
3. Looking as sales volume, the news is not as rosy - but there may be a glimmer of hope starting to show. Sales volume is continuing to decline across the region and is about 30% below this time last year. Important: the negative movement was rapid from January through May but there was little change from May to June. This could be the indication of a bottom, a slow stabilization or just a pause. It is a good sign.
4. According to the national Association of Realtors, home prices are expected to recover in 2008 with existing home sales picking up late in 2007 and new home sales rising early in 2008. New home builders will begin limiting new starts which will reduce the upper pressure on inventories. Existing home sales are expected to total 6.11 million this year and 6.37 million in 2008 (which is down from 6.48 million last year). Existing home prices will probably rise nationally in the range of 1.8% in 2008 following a 1.4% decline in 2007. The median new-home price should rise 2.2% next year following a 2.6% drop in 2007.
According to Lawrence Yun, senior economist for the national sensation of Realtors, “Markets that sharply reduce new construction in 2007 will generally experience respectable price increases in 2008."
Realtors like a market with a nice balance of buyers and sellers - where demand and supply are both reasonably strong. For real estate professionals, neither a buyers' market nor a sellers' market are as desirable for the long haul as balance in the market. We refer to a balanced market as a "healthy" market. It looks like we will be heading in this direction soon.
Buyers: If you are looking for the right time to buy, this time may be about as "right" as you will ever see.
Filed under: Real Estate, For Sale, Buyer Information, Seller Information, Selling your home, selling in Charleston, charleston real estate, charleston mls, Charleston market conditions, charleston sale, charleston home sales
Welcome to a buyers’ market. It has taken at number of months but our area has evolved into a market dominated by the power of the buyer. As a buyer, of course this is great news. As a seller, you may be starting to pace the floor and you may be experiencing a slight sinking feeling. Take a deep breath – it’s almost over.
Now that you've been overwhelmed by the media gloom and doom, let's step back and take a look at where we really are. Good news - it's not so bad after all. There is light at the end of the tunnel.
It is remarkable that everyone knows real estate, equity, has cycles just as any other equity experiences; but, we still seem surprised - even indignant - when the market declines. Yes, there is something a little different about the psychology of real estate - especially when it involves the single family primary residence. Declines are somehow a little more painful here. Still, market ups and downs are the normal, predictable course of things. Expect the market to move up once again ... it will.
If you follow the stock market, you know that the best time to buy is when the market is down because that is when stocks are "on sale". When should you buy homes? Maybe anytime but the best buys are made when the market is down. Still, people love to buy on a rising market whether that is the stock market or the real estate market.
Let me share with you briefly a few positive aspects of the current market. If you are buying a home, you are in an amazingly fortunate (but rare and fleeting) situation. This is a great time to buy – in fact, an incredibly great time to buy! Homes are truly ON SALE! Please, please take advantage of this historic opportunity!!
If you have real estate that you are in no hurry to sell, no problem. Prices will rise again as they always have. If you have to sell, be realistic. It will take longer and you may have to accept less than you would like. If you can wait, it may be a wise move. Try to see the big picture and avoid hitting that panic button.
The situation is driven by nothing more than basic elementary economics. Currently the number of homes that are on the market is poorly balanced against the number of buyers who are in the market. With fewer buyers for available home, every home, in theory at least, will take longer to sell. Today, expect an average of about 90 days on market. If your home is in a newer area competing against ever increasingly aggressive builders, expect it to take even longer.
Sellers: price your home as aggressively as possible when you FIRST list it. Do not list high and slowly reduce your price. It is tempting to try that but you will be missing many of those early shoppers and you may unnecessarily extend the time on market. Plus, you risk having a stale listing that agents avoid showing. The bottom line is that your home is only worth what the buyers will pay TODAY. Tomorrow, it will be different. Be realistic and be patient.
In my opinion, for sellers in the Charleston market, the worst is just about over.
>> For buyers, hurry up -- the big sale will end soon and without notice!
Chris DeLoach, BIC
Search Homes Now
Filed under: Real Estate, Buyer Information, Seller Information, Selling your home, Charleston new homes, selling in Charleston, media coverage, charleston real estate, charleston mls, Charleston market conditions, charleston sale, charleston home sales
"Chipping Away at Realtors' Six Percent" Lesley Stahl - 60 Minutes May 13, 2007 ( http://www.cbsnews.com/stories/2007/05/11/60minutes/main2790865.shtml)
"Dear Fellow REALTOR®:
I am disappointed and dismayed at the biased story that 60 Minutes aired on Sunday evening. I want to let you know that we've been working to stay on top of this story.
One of the most difficult challenges we face is educating the news media about today's real estate industry. There's no better example than this 60 Minutes show. For more than a year, NAR worked with the producers who put the segment together and offered several spokespersons to be interviewed for the show, including myself. Yet, NAR's voice was strangely and noticeably absent from the segment though CBS gave time to two critics who disagree with our policies on the display of listings on the Internet.
At times, NAR and REALTORS® have often been the subject of less than accurate news coverage. Your association and its professional staff is making every effort to get the REALTOR® message out to the news media. The result is that only a fraction-less than five percent-of the vast news media we receive is negative.
We encourage all of you to contact CBS to voice your concerns -- maybe have some of your satisified customers do the same. Thank you for your support.
Pat V. Combs
President"
My Response -
CBS:
Ahh, another expose on those evil, wealthy, Realtors.
I support public access to MLS data because it is advantageous to both the consumer and to the real estate industry as a whole. It is unfortunate that there is such a disconnect between the media and the reality of the industry. The vast majority of MLS systems are already accessible to the public via a nearly limitless number of independent sites - including mine - all made available by the Realtors who have built the MLS systems and who pay for the operation and maintenance those systems. Each MLS is an independently owned company. Each was originally designed to share listings information among agents so as to improve service delivery to consumers - to make it easier for sellers to sell and for buyers to buy.
The system offered by Redfin is essentially a flat fee service - already common to this industry and already widely available. It, however, is not a free service nor inexpensive for the level of service provided. In most areas, there is at least one company that will be happy to list a home on their local MLS for a flat fee. But, as compared to the professional assistance provided by a flesh and blood Realtor, the Redfin fee for limited service seems reasonable. From what I see, I have no objection to their approach.
However, Redfin does not. "... display(s) for free" as you reported any more than any MLS displays for free. Redfin charges $3000. Most Realtors, providing the same level of minimum service, would be happy to accept $3000 as a listing side fee; but, most consumers want much more from Realtors than just a simple listing - they want hands on help. And remember, that $3000 is just on the listing side. Buyers today want their own representation, too - who will pay for that? Buyers today expect the sellers to cover the buyer's commission costs. Buyers understand that they need their own advocates. Agents for buyers do not work without compensation.
So, the total cost of using a service such as Redfin is likely very close to that of using a local company that is willing to provide the same level of limited services. There is nothing wrong with what Redfin offers; but, if you want more, expect to pay for more. Some companies offer limited service listings while others are always full service. You, as a consumer, already can freely choose the level of service you want. There is no 6% conspiracy. Let me say that again … there is NO 6% conspiracy.
A 6% commission is not, nor has it ever been, a “standard commission“. Certainly CBS realizes that an industry wide set commission rate would be illegal and in violation of Rico and anti-trust laws; thus, the 6% as a set commission DOES NOT exist. In my own market, I see 3%, 4%, 5%, and yes, 6% commissions - plus I see flat listing fees such as those highlighted by the segment. The consumer has many choices. "They charge a 6% commission..." as presented by your program as a standard fee is misleading at best.
Real estate is not a get rich quick business. It is tough, it is expensive, the commissions are competitive, and half of new agents fail to survive past the first year while over 90% are out of the business by their 5th year. It takes real work to get a home sold today. There is so much more involved than just listing - and the liability incurred by agents is huge.
Of the 1,200,000 realtors in the country, only 36,000 of them make more than $50,000 per year - that's just 3%. Realtors in the business for two years or less earned a median of $15,300 per year in 2006. Realtors with three to five years of experience earned $44,200. Of those 10% of Realtors who survive past 5 years, those with six to 15 years in the business earned $64,600. Finally, the heavy hitters with 16 or more years of experience earned a whopping $76,200. How does that compare to professionals of similar experience and attrition?
Yes, attacking Realtors sells well but it hurts consumers as well as Realtors. Give Realtors AND consumers a break - pick on an industry that is actually hurting consumers. There is no shortage of evil doers.
Chris DeLoach, MEd, MAT, ABR
Broker-in-Charge, House Plan Realty, LLC
Charleston, South Carolina
843-270-1272 Toll Free 877-773-9270
Chris@houseplanrealty.com
www.searchSChomes.com