An Adventure In Real Estate
Tech Crunch recently wrote an article on Redfin which sparked some personal angst against the current (and broken) way in which real estate transactions occur. My wife and I had recently attempted to purchase a house and even had an accepted offer. Once our real estate agent and mortgage broker saw the dollars (their commission), they began turning the screws to get a deal done - not on the terms we originally laid out for them, but on their own. It was quite educating. You have to watch your own back in a deal like this unless you’re positive the people you are dealing with are looking out for you.
Our terms were a house with a standard fixed rate mortgage coupled with several teacher loans. I knew we barely qualified for the loan but I also knew it was possible. They thought it would be much easier to just place us in a sub-prime loan after having one bank turn us down on a standard loan. I suspect this was just easier for them and required less work on their behalf with the same result (commission!). They even tried to convince us my wife’s teacher loans were a bum deal. The teacher loans inconveniently (for them) were not allowed to be used in conjunction with a sub-prime type of loan. The teacher loans financed nearly 20 percent of our loan, which made buying a house for us a reality in the first place. If you live in San Jose and are a teacher, check it out here.
We ended up with no house and no lost money, thankfully. But it’s easy to see how this industry can screw the less attentive over. A sub prime mortgage simply means a bank is going to lend money to someone whom has no business borrowing that amount to begin with. This is evident today by the current state of the sub-prime market. It’s also probably the leading cause of an overly accelerated housing market and its current subsequent slump.
Below are a couple of my gripes with the industry.
Why can’t one talk to the seller of the house until the deal is nearly done? When making such a large investment speaking with the current owner should not be considered taboo. Anyone should be freely able to not only explore the history of the house but interview the owner. They know more about the house than any inspector would. This seems like job security for real estate agents. No one else can do the talking, so they are mandatory for the process.
Why is the buyer’s agent financially motivated to screw the buyer over!? That is the most alarming part about the transaction. The more they can get you to pay for a house, the more money they make. For example a $500,000 house brings them about $15,000 in commission. Every $50k more they can get you to spend means another $1,500 in their pockets. We had to all but walk away from our agent to convince him to offer $40k below asking price (which was the accepted offer!).
If and when my wife and I decide to make a home purchase, services like Redfin seem a lot more attractive. Particularly since we never enlisted our agent to show us houses (we drove around on our own to open houses). Also, it seems a lot wiser to get your loan approved well ahead of time. Not pre-approved but completely approved. Not only does this let you know your exact capabilities, it gives you some extra bargaining power when your offer is being reviewed.