Prior to looking into the process of buying a home, the term “escrow” may be foreign to you. After you’ve been through it however, you quickly realize what an important part of the process escrow is and why prospective home buyers should learn more about it.
When buying or selling a home, a large amount of money is at stake. Escrow is the term that essentially ensures the safety of this money and is a crucial part of the process that enables the transaction to take place.
Defined in layman’s terms, escrow is what happens when money is deposited by a buyer into an account proctored by a neutral third party. That neutral third party is known as an escrow agent or officer. This agent essentially holds onto the funds until all sides of the sale agreement are fulfilled by both the buyer and seller. Upon the completion of all tasks necessitated by the terms of the contract, the escrow account is opened and the money is then transferred to the seller.
This service works to ensure the safety of both the buyer and the seller. Prior to purchasing a home, a buyer wants to make sure that all measures are in place to make the investment a sound one, while a seller wants to make sure that the buyer has the appropriate funds to make sure the sales goes through. If something falls through on the deal, the money in the escrow account can be transferred back to the buyer.
Escrow Versus Trust
Many home owners often think of escrow as a trust agreement. While these two terms are often used interchangeably, there is an important difference between these two terms that often begs an explanation.
In terms of banking, there is not much to discern a trust agreement from escrow. Each is the process of depositing funds to a third party until the payer and payee both complete terms of an agreement. However, the key difference between these two terms lies in how the terms of said agreements are carried out.
In a trust, the relationship between the agent and the beneficiary can be a lot less defined than that of an escrow agent and the buyer and seller. A trustee’s duties are to take care of the trust assets so as to benefit the beneficiary in the agreement. This can include a broad range of activities and practices that only work to improve the standing of whoever is set to receive the funds.
An escrow arrangement is a lot like this, but with a narrower dictation as to how the deal is to be carried out. In escrow, the agent or officer works as a fiduciary between buyer and seller, rather than a representative of either. The element of the deal that dictates the officer’s action is the terms of sale written into the contract itself. This is a very narrow and special type of trust arrangement that only takes place in the real estate field.
In an effort to learn from mistakes from the past and safeguard for the future, the government is finally putting into an action a series of reforms and rules that would qualify lenders for residential mortgages. The measure also includes the creation of agencies such as the Federal Deposit Insurance Corporation, as a means to establish a strong system of checks and balances that will help to keep lending standards in the right place. Stemming from the 2010 banking reform bill that was a result of the financial crash in 2008 and subsequent years in crisis, the government is instituting a new system called the qualified residential mortgage (QRM) rule. The QRM rule outlines a series of obligations a loan must meet in order to be considered a safe loan and eligible to be sold to investors as part of a mortgage-backed security without having to maintain 5 percent of the loan amount in their ledgers. This is a safeguard that will allow lenders to loan money for less money to the borrower as they won’t have to pass along the risk-retention cost to the buyers. According to the National Association of REALTORS®, this move is a win for both lenders and borrowers, because it allows for a broad range of occurrences and situations so as to not limit lenders into creating an even tighter real estate market by increasing costs and adopting stricter policies. “NAR applauds the Federal Deposit Insurance Corporation for finalizing the Qualified Residential Mortgage rule today, which includes a broad definition of QRM and aligns with the Qualified Mortgage standard implemented earlier this year,” NAR President Steve Brown says.
QRM Rule Allows For Wide Range of Home Buyers
While many were fearing a reform that would ultimately weed out buyers facing difficult financial factors such as student loans, the QRM rule will actually work to make mortgage lending a universally attainable process for all demographics of serious home buyers. The QRM rule has been aligned with the QM rule, the qualified mortgage rule, which went into effect at the beginning of this year. Together, the two rules provide a unified, universally accepting front that economists hope will spur the continually ailing real estate market. The QRM rule, considers a loan qualified if the borrower’s debt-to-income ratio is 43 percent, among other factors. Another improvement was the removal of the idea of a singular down payment requirement, which NAR was strongly opposed to. “Importantly, the final rule relies on sound and responsible underwriting rather than on an onerous down payment requirement to qualify as a QRM loan,” Brown says. “NAR strongly opposed earlier versions of the rule that included 20 and 30 percent down payment requirements, which would have denied millions of Americans access to the lowest cost and safest mortgages.” With the QM rule already in effect, the QRM changes are expected to flow smoothly when the rule goes into effect 12 months from October 21. This grace period allows lenders to align their practices with the new rules, if they haven’t done so already.
Every once in a while, a real estate agent will come across a property in which it seems the home will “sell itself.” These are properties that are just so alluring to buyers that the home is snatched off the market almost as soon as it is listed. While this is a best case scenario and one that many home owners would hope for when it comes time to sell their own home, this is an incredibly rare occurrence.
Even an attractive, clean home with plenty of features that would connect with a wide range of buyers can sometimes have a little trouble selling. The key to keeping these homes from languishing on the market for so long that they become undervalued is to market them to as wide a network as possible.
Here are a few tips for exposing your home listing to a larger market of buyers.
Call in a stager
As a real estate agent or even the home owner, it is sometimes a little more difficult to see the potential of a home once you’ve been immersed in it for so long. Calling in someone with a fresh eye for furniture placement can bring in new energy to the house and can create an environment that will appeal to a larger mass of buyers. Many home owners decorate their homes to their personal tastes, which can be very different from what home buyers are interested in seeing in a home.
After a stager has done their work, call in a photographer to take proper pictures that really show the true potential of the home. Many successful real estate professionals have seen a strong correlation between staging and photography to selling quickly and for the best price point.
Add floor plans and property photos to the listing
While professional photos can give potential buyers a feel for the home’s space, including a floor plan will create a more complete picture in their heads. The floor plan can better indicate the flow from room to room in the home. It can also give your listing a little bit of edge if there is new construction in the area that you may be competing with. The floor plan can highlight remodeling or important structural features that might not be as obvious from the photos.
Many MLSs are now allowing for upwards of 35 photos, so while you’re including plenty of photos of the inside of the home, make sure to include some of the outside too. This will help to give buyers a better idea of the neighborhood and overall lifestyle of the home and its environment.
Rewrite the property description
Many consumers today are more concerned with hearing a story rather than just facts. Make sure your property description really conveys what life is like in this particular home and community. Create a visual and emotional experience with your words so that when potential buyers go to look at pictures they remember the excitement exuded by your property description.
Closing escrow on a new home is quite an accomplishment and one that takes an incredible amount of work, research and collaboration to get to. However, once those papers are signed and the keys are exchanged, the work isn’t over. There are at least three things you must to in order to give yourself a better peace of mind and ensure the security and well-being of your new investment.
Here are the three things you should do immediately after closing escrow on your home.
Change The Locks
In order to ensure that you and your family are the only ones that have access to your new home, have your locks changed so that previous owners’ keys won’t grant them access. Not doing so can invite those who have lived in the home, or anyone who may have come into possession of a key in the past, to come on in and help themselves. Leaving you, your family and your possessions open to such a danger, even if the possibility seems remote, is needless as the problem is rather cheap to fix.
Get Home Warranty Contacts Into Your Phone
Keeping track of your home warranty policy is crucial for the first year of which you own your home. Make sure to get the contact information for the customer service division of your home warranty company in your phone. This way if something goes wrong, you can easily call up and inquire if the problem is covered under the warranty, it never hurts to ask!
In addition to getting contact information, set a reminder for the 345th day after you close on your home. Home warranty policies should cover your home for one year. Setting a reminder for a few weeks before the expiration of the policy will give you a chance to explore the home, checking for any maintenance needs that should be taken care of prior.
Set Termite Inspection Reminders
Much like the home warranty, termite-related damages can be covered under warranty for a certain amount of time. Again, make sure you have the termite company’s name and number in your phone so that you have easy access to the information in the event of a problem. Then, set yourself two reminders, one for the 345th day and another for the 700th day after closing escrow.
The state of California mandates a one-year warranty on any wood or other home repairs done to fix damage caused by termites. Check any work that has been done on your home on the 345th day, and schedule any work that may need to be updated. California also mandates a two-year warranty on termite inspections, so on the 700th day you should be calling out the termite company to come out and re-inspect for active infestation. Give yourself plenty of time before the two year mark is up as it could take some time to coordinate an inspection and re-treatment, if necessary.
On September 25, the real estate world received a shock when one of its own was kidnapped from a private home showing and found dead days later. In the wake of the terrible tragedy of the death of Beverly Carter, agents and brokers have been working to improve the security of agents.
Luckily with the proliferation of mobile apps and wearable technology, agents have been able to take an active approach in ensuring their own security out in the field. Here are a few of the most popular gadgets out on the market that are increasing safety in the office and individual agents working alone at showings and open houses.
Mobile Apps For Safety
Any savvy agent won’t go anywhere without their smartphone, and luckily there are a number of apps that can help to ensure safety and rescue in the event of an emergency. The Guardly Safety App is one such application that is available for every smart device regardless of its operating system. The app offers an automatic connection with emergency services, real-time notification to designated people, real-time location tracking and an emergency beacon. The app requires a $19.99 yearly subscription fee and features typically run about $1.99 each per month, a small price for personal safety.
Another great app is Secure Show, an app that allows you to verify prospects by running their id against various state databases. While this isn’t a background check, it is a great way to make sure there aren’t any immediate red flags and can also point to who the agent is with in the case of a disappearance.
While a phone is a rather obvious device that would aid in rescue or prevention, many companies are working on devices that aren’t quite so obvious. “Smart jewelry” is quickly becoming more popular as agents can wear a seemingly innocuous piece of jewelry that can actually pin point the location of an agent. Cuff is a small device that looks like a bracelet or necklace and can send out a signal for location as well as pick up audio recordings from the device.
A number of other companies such as First Sign and Stiletto have also been disguising jewelry with GPS tracking and access to emergency services in the event it is needed.
At industry events such as an open house, agents’ possessions sometimes have a tendency to “walk away” while they might be busy showing a client around the home. In order to maintain the security of possessions, a number of companies including Tile have made devices that help to keep track of things. Tile is a device that can be attached to keys, purses, computer cases or practically anything else, and can alert you to their location within a 100-foot range.
Another device, yet to be released, is the TrackR, which is a disc that can alert you via your smartphone if your belongings such as a purse or keys are walking away from you. You can also get GPS updates as to the location of your belongings.
As difficult as it can be to attract new clients to your real estate business, it can be even more difficult to keep those clients. You can employ a variety of tactics to convince home buyers or sellers to use you as their agent in the process, but the only thing that is going to ensure that those clients don’t jump ship to another agent’s services is your ability as an agent.
Buying or selling a home is a long and complicated process and there are a number of things that can scare away clients from wanting to stick with your throughout it. Here are a few reasons and signs your client might be ready to ditch you as an agent, and how to win back their trust once the relationship has taken a wrong turn.
Your Answers Leave Them With Many More Questions
As an agent, your job is to help to guide your client through the process of buying or selling a home. If you find yourself answering questions about advice that your clients have found elsewhere, you may not be fulfilling your duties as their guide. Establish good lines of communication with your clients and make sure that you’re thoroughly answering their questions and coming up with solutions to their problems. Keeping them out of the loop will make them feel unsatisfied and uneducated, feelings that no one really appreciates.
They Are Blindly Following You Through The Process
Especially in a transaction as big as a home sale, clients and customers want to feel like they know what is going on throughout the process, what to expect and how to deal with different occurrences that pop up. Make sure your clients aren’t “flying blind” to the closing of their home. Use your expertise from past transactions to show them what this road looks like and how you’ll help them prepare for what comes up along the way. Show them that you’ve not only worked in the field, but that you’re keeping up on your research by informing them of the latest trends and statistics in real estate.
They Sound Like A Broken Record
Take stock in each and every conversation and information exchange you have with your clients. Let them know that you are hearing their concerns and questions and are actively working to resolve them. If they keep on bringing up the same issues to you, they may feel frustration and may be looking for your replacement.
You Mistake Kindness With Good Business
While it’s always a good rule of thumb to maintain a pleasant demeanor, charming the pants off your client won’t get them in their new home. Make sure you back up your friendly attitude with informed business tactics that will help you get the job done.
They’re Googling Everything
If a client is consulting the mother of all search engines for their real estate questions, chances are you have been knocked down a notch in the expertise area of the field. Keeping in touch with your clients and making sure they’re informed of what you’re doing for them is the best way to maintain your authority on the matter.
Being a high-producing REALTOR® means being organized above almost anything else. In day-to-day dealings, an agent is in contact with a myriad of personalities, each with a specific purpose for current or future business. In order to truly succeed in a business that thrives off of contacts, a savvy agent should take some time to organize each and every one of these contacts by categorizing each and keeping them in lists. Keeping these lists will not only help to keep names, organizations and contact information in the right places, but will also help to make your job easier when it comes to reaching out for correspondence.
According to Bryan Robertson, an expert in the field who frequently contributes to Inman News, there are six essential lists of contacts that every REALTOR® should create and use for success. Those contacts lists are: your sphere of influence, your past clients, “A” leads, “B” leads, “C” leads and business development contacts.
Your sphere of influence list should include those closest to you in your daily life such as friends, family and colleagues both current and past that are outside the field of real estate. The past clients list is, of course, made up of clients you’ve serviced in the past. Keeping in touch with these clients is a great way to refer yourself to more business in the future.
The leads lists are a way of keeping track of potential clients ranging in importance. Those in “A” leads are likely clients that are preapproved and motivated to make a move on the market in the next 90 days. “B” leads are likely not immediately getting involved in the market, but are planning on it in the next six months or so, while “C” leads are anyone thinking about real estate that you encounter in your journey. Business development contacts are people that you work with to get a transaction done such as builders, lawyers or accountants.
Manage Real Estate Contacts Accordingly Once Organized
After you’ve organized all of your contacts into these essential lists, whether on a CRM or through another system, the next step is to utilize these lists to the best of your abilities. Use these lists to follow up with each and every one of your contacts on a somewhat regular basis. You don’t have to stay at the very top of mind by badgering them with constant emails, however it is nice to simply reach out every once in a while.
Correspondence with your contacts should be light, useful and in no way a pitch for business. Perhaps you’ll want to reach out just to wish someone a happy birthday or anniversary. Some agents have taken to sending out short and informative quarterly newsletters. Make sure each correspondence is personalized according to the category which you are targeting.
The focus of creating these lists is not just to garner more leads and business for yourself, but to establish yourself as a respected member of your community.
As home prices in many markets across the country continue on their meteoric rise and the amount of available homes dwindles, there is hardly a market out there that isn’t competitive for the buyer. With homes becoming a hotter commodity every day, sellers have been in the driver’s seat for some time now. As a result, a number of issues have arisen dealing with offers and counteroffers. For the right home in the right market, home buyers have had to resort to different strategies in order to get the attention of the seller. Outlined here are the three most common issues buyers and sellers run into when bidding on homes in a competitive market.
In competitive markets, buyers may resort to waiving sale contingencies on factors such as the appraisal, loan or inspection in order to lure a seller into accepting their offer. Conversely, the seller may extend the notion that offers with no contingencies will be favored over others.
While this can be a smooth and effective tactic, buyers run a very high risk at waiving any or all contingencies as they are liable to lose money invested in the earnest deposit if they are unable to close on the home in the end. While all disclosures must be made to the buyer prior to the offer even being made, the appraisal, inspection and loan factors are there to help protect the buyer and ensure a smooth and easy transaction for both parties. Without these properly put in place, a buyer can open themselves up to a lot of risk if even the slightest matter of the deal should fall through or change.
For buyers who are very serious about putting down the right amount of money for a home, the option exists to place an escalation clause, or “sharp bid” on an offer. This type of offer usually involves the buyer offering to beat the next highest bid by “X” amount of dollars. In situations where multiple bids are being placed on a home, this gives the buyer a great advantage as they are always on top of the bidding pool.
The downside to this tactic, however, is that there is a very real possibility that the buyer may end up paying more than they initially expected. A cap can be placed on sharp bids, but savvy home sellers will most likely counter offer with other bidders to fetch that high price.
Many problems also arise for buyers when savvy home sellers receive multiple offers. When a seller counters a good offer, but then gets another, even better offer, they have to right to revoke their counter from the original offer. This can be done orally or through the more formal method of the “Withdrawal of Offer” form provided by CAR. This means that buyers are on the clock the second a counter offer is made, and must act accordingly in order to secure their purchase.
In the push to make homes greener, more efficient and less expensive every month, home owners are turning to leased solar panels as a solution to these issues. Leasing these earth-friendly kits has been quite in style for home owners as the process requires no money upfront for a system that typically costs thousands of dollars to install. In just one year, leasing of solar panels has gained so much popularity that residential installations across the United States jumped by 38 percent.
With such a marked jump in popularity, it was only a matter of time before home owners began experiencing a backlash for the innovative measure. That backlash became apparent when home owners with leased solar panels went to sell their homes. Many of them found that while the notion is so new, many home buyers are unaccustomed and rather wary of signing up for a financial arrangement that involves leasing a solar panel system for their home.
“Some buyers just won’t be on board” with assuming a solar lease, said Nick Culver, a solar analyst at Bloomberg New Energy Finance, to Bloomberg News. “Even if you save money every month, you limit yourself to a certain subset of buyers.”
While owning a rooftop solar power system can add as much as $25,000 to the value of a home, owners who are leasing these systems are finding that they have to shave off more than a few thousand in order to get buyers to commit to taking ownership of a contract that may still have 15 to 20 years left on it.
Solar Panel Leasing Not a Lose-Lose Situation for Home Buyers
While many home owners are uneasy at the thought of signing on to finance something that they did not take part in authorizing in the first place, the benefits to those that are able to take on the financial commitment are apparent with the first set of utility bills. Dorian Bishopp, a home owner in Maricopa, Arizona, saw his utility prices slash by about $50 a month when he had his leased solar panels installed on the roof of his home.
However, these long-term savings have not been able to provide enough immediate reason to attract buyers into purchasing a home with leased solar panels. When it came time for Bishopp to sell his home, he had to reduce his price three times taking 10 percent off his initial asking price in order to attract the right buyer.
“We had one offer in five months, and they pulled back as soon as they found out about the solar lease,” Bishopp said to Bloomberg News. “It’s a deterrent, definitely.”
As United States home owners become more dependent and knowledgeable on alternative forms of energy for their homes, however, this aversion is expected to wane. In time, many real estate agents and property owners hope that solar panels are as common as having energy efficient lightbulbs.
It seems the National Association of REALTORS® is making good on its promise to promote legitimate and transparent activity for its members. The association recently called out a large Alabama real estate broker as part of a judiciary slap on the wrist for some indecent referral practices with its affiliated businesses.
The Consumer Financial Protection Bureau (CFPB) determined at a recent hearing that Alabama-based RealtySouth failed to comply with a code of ethics known as the Real Estate Settlement Procedures Act (RESPA) after it essentially pressured clients into using their affiliated businesses for assistance in their real estate transactions.
The section of the act that was found to be violated is Section 8(a) which prohibits giving or accepting a “fee, kickback, or thing of value” for business referrals to settlement services for federally-related mortgage loans. The section also outlines that a specific statement must be included in the language of the disclosure of services that clients are free to shop for the best possible rates and services and that they are in no way expected to use a brokers’ affiliated companies.
The CFPB found RealtySouth guilty of violating RESPA as it had strongly encouraged, and in some cases required, its agents to use affiliated companies in addition to completely leaving out a statement from the disclosure of services that encourages clients to shop for settlement services. As a result, the CFPB ordered the broker to emphasize to its agents that the required use of any affiliate is strictly prohibited while also having to pay a hefty civil penalty of $500,000.
RESPA Exists to Protect Clients and Agents
While RESPA outlines many rules and regulations for real estate brokerages, these rules exist as a safeguard as much for clients as they are for agents themselves. In fact, RealtySouth may have been able to protect itself from disciplinary action for referring client to their affiliated businesses had the brokerage just followed a few simple “safe harbor” requirements.
RESPA does not completely negate the possibility of businesses fostering relationships with each other, especially after many years of working together. As a result, the act outlines a few requirements that, if followed correctly, warrant complete compliance for such practices. These requirements exist as a three-prong test and consist of (1) providing a client with a written disclosure that outlines in specific format the nature of the relationship between the two businesses, (2) the client is not at all required to use the affiliated service and (3) the only “thing of value” received by the referring business are returns on ownership interest.
Had RealtySouth recommended its affiliates under these provisions, the brokerage would not be facing the stern actions the CFPB has had to implement. While the brokerage was the main entity at fault, its affiliated companies were also implicated in the violations and were forced to pay a portion of the $500,000 penalty that was enforced on all of the offending parties.