QUESTION: When are you going to expose the realtors? I thought they could be trusted. But my wife and I found out their so-called Code of Ethics is a joke. We made a $500 earnest money deposit to buy a house. The realtor assured us we should have no trouble getting a mortgage. After the seller accepted our offer, we learned mortgage interest rates had jumped. We couldn't qualify for even an adjustable-rate mortgage.
When we asked for our $500 back, the realtor refused to refund it. I called the local Board of Realtors. The executive director said there was nothing she could do to help us get our $500 back. I asked about the Realtor's Code of Ethics but she couldn't find any violation, even though the agent assured us we could get the mortgage we needed.
Since the realtor was holding our money, we sued her in Small Claims Court and the judge ordered her to refund our $500. Even after we got our judgment, the realtor refused to pay us and we had to attach her bank account to get our money. Don't you think this is unethical behavior?
ANSWER: Yes. The realtor should have included a mortgage finance contingency clause in your purchase offer. Such a clause might read "This offer contingent upon buyer and property qualifying for a new mortgage" with the specific terms acceptable to you spelled out.
On paper, the Realtor's Code of Ethics looks great. But the enforcement is virtually nil. I have tried to learn how many realtors are annually kicked out of the National Assn. of Realtors and their state associations as well as the local Board of Realtors for violations of the Code of Ethics. But apparently no statistics are kept.
However, there is a very good reason. If the local Board of Realtors cancels a membership, the wayward agent could sue the realtors for damages. The defense costs can be tremendous. As a result, few realtors are tossed out. I think the realtors rely on the state real estate license officials to revoke licenses of their members whose conduct is less than admirable.
There's Certain Risk in Buying a Home 'As Is'
Q: About two years ago we bought our home. The two real estate agents seemed to gang up on us. It was our first home purchase. Now we realize the seller hid some defects from us. A friend, who is a building contractor, says the roof rafters are separating. I don't quite understand what is happening, but there are cracks in the walls. However, our problem is we bought the house "as is." The contractor showed us where the cracks were patched by the seller. The estimated cost of repair is at least $5,000. Do you think the seller is liable to us for concealing defects?
A: When a property buyer purchases "as is," that means the buyer accepts the property in its present condition with no warranties or representations. In other words, the seller is not responsible for repairs.
However, the seller and real estate agent must disclose any known defects. That is the problem. If the seller and realty agent are liable to you for damages, then you must be able to prove they knew of the defects and failed to disclose them to you. Please consult your attorney for details.
Some Lenders Appear Anxious for Business
Q: I don't know if this is true every place, but as a realty agent I have found in the last few months that mortgage lenders are extremely anxious for business. Several of the major lenders in our town are so eager for business their loan agents have suggested offering less than their posted rates and terms. Some of my buyers have taken advantage of these offerings and, to my surprise, got the loans they requested. I just thought I would pass along this information in case it might help your readers.
A: Thank you for sharing that valuable information. While I haven't noticed lenders in my area willing to negotiate, I have had a rash of phone calls in the last few weeks from lenders begging me to refinance mortgages with them. However, the terms they offer are nothing special and they still want unnecessary documentation. Perhaps I'll try your strategy of trying to negotiate better terms than the lender originally offers.
Home Is an Investment, Not Just a Residence
Q: Recently you said a home should be looked at both as a personal residence and as an investment. Please elaborate on how to look at a home as an investment.
A: If you were buying a common stock, you wouldn't buy in a company with poor prospects for future earnings. Similarly, you shouldn't buy a home that is unlikely to appreciate in market value.
Or, if you are investing in a bond, you expect the yield to be competitive with other investments. When buying a home, you can enhance the yield by making as small a cash down payment as possible, so if the house goes up in value your yield per dollar invested is maximized.