Blog > Posts by Steve Barnes

In each market we enter, we must strictly follow the local MLS (multiple listing service) rules governing the display of certain housing data.  In Dallas, local MLS rules do not permit us – or any other broker – to display the final "sold" prices for properties.  Therefore, any "Recent Sales" information that is displayed on Sawbuck is not based on actual final sold prices, but rather on the final "list" price of the property(s).

When you view a specific "Recent Sale" on Sawbuck, you will be able to see the date on which it sold and its final list price (along with the listing history, which shows the initial date it listed and any list price changes prior to selling), but not the actual sold price.  Also, all market statistics for Dallas which relate to recent sales are similarly driven by final list prices and not actual sold prices.  So, for example, when a median sales price is noted for a particular zip code in the Dallas area, it is based on the final list price of sold properties.

Despite the fact that it is not based on actual sold prices, we think the "Recent Sales" data for Dallas which we display on Sawbuck is still very useful and relevant to consumers who want to educate themselves about the real estate market.  Several data points, such as Total Sales and Days on Market, are particularly valuable.

Unfortunately, I think I jinxed the US Senate's recent attempt to add an amendment to the stimulus bill that would have increased the homebuyer tax credit to $15,000 (read my previous post).  The final version that made it through both houses ended up with a first time homebuyer credit of $8,000.  While not what the Senate had hoped for, it is still a very meaningful credit and, unlike the current incentive in place, it does not have to be repaid.

It looks like Washington is finally going to do something significant to support the housing market. Last night the Senate passed an amendment to be included in the economic stimulus bill that would give all homebuyers over the next year a $15,000 tax credit. This is a vast improvement from the current credit, which gives first-time homebuyers a credit of $7500 that must be repaid over a 15 year period, effectively making it an interest free loan. The new amendment, sponsored by Senator Johnny Isakson (R-Ga.), has a few minor caveats – e.g. primary residences only – but by and large it’s as good as it appears. Uncle Sam is truly paying you to buy a home. The effect on the housing market could be substantial, as the new tax credit gives prospective homebuyers a reason to jump off the fence and get into a home.

We're excited to report that Sawbuck co-founder Guy Wolcott has been asked to participate as a speaker at the Real Estate Connect conference in San Francisco this summer.  He will participate in a session entitled "Building a Brokerage Brand in a Web 2.0 World."

This conference is the most prominent event in our industry.  Real Estate Connect has been described as "a gathering of the brightest minds in real estate and technology, who get together to tackle some of the most pressing issues facing the real estate industry."  Pretty lofty company.  Guy should fit right in!

Seriously, we're very honored to be participating and grateful that industry "insiders" are taking note of the unique Sawbuck business model.

What's a "short sale"?  In brief, it's when a homeowner sells their home for less than what they owe on their mortgage(s).  Obviously, in order for this to happen their lender needs to agree to the deal and get less than they are owed.  This is why you will often see the words "Third Party Approval Required" on a listing.  That's code for "The seller's lender needs to sign off on any deal."

There is a perception in the market that because there are so many "short sale" listings then lenders must be signing off on these deals.  Unfortunately, the reality  is a bit different.  Lenders are agreeing to some short sales, but the majority of offers are rejected after a laborious and time consuming process.  Check out this article in The Wall Street Journal.

Bottom line: approach "short sale" listings with the idea that there are likely many obstacles to overcome in order to make a deal.  They are worth checking out, but manage your expectations.

After much anticipation, the US Department of Housing & Urban Development (HUD) finally announced the new conforming and FHA loan limits.  The Washington DC metro area will have a loan limit of $729,750 and the Baltimore area will have a limit of $560,000.  These new limits apply to both conforming and FHA loans (previously the conforming limit was $417,000 and the FHA limit was $362,790).  Most attention will be given to the fact that many loans that were previously "jumbos" will now be conforming -- which means they will now have an interest rate that is dramatically lower (currently over 1% lower).  But this expanded availability of lower rates, in my opinion, is not the primary benefit of HUD's much needed action.

More important is that down payment requirements and other underwriting standards are much more lenient on conforming and FHA loans.  As an example, the down payment required on an FHA loan can be as little as 3% -- as compared to "jumbos" that now often require at least 10% down.  Lower down payment requirements will provide a huge shot in the arm to our real estate market, where entry level homes in some sub-markets easily exceeded the previous conforming and FHA limits.  At Sawbuck, we know first hand that our region has an extremely high number of young professionals with great income and credit -- but who understandably have not yet saved enough money to buy a home under current "jumbo" guidelines.  HUD's new loan limits are a welcome change for these folks, not to mention home sellers who for the first time in many months could start seeing more prospective buyers coming through their homes.

Between 1980 and 2000, power shifted from real estate brokers to real estate agents. Now, brokers must compete harder to attract and retain their agents. To do so, they have steadily increased the "split"—the portion of the sales commission the agent keeps. As brokers earn less and less on real estate, they have looked for other ways to make money.

Enter the ABA

In an Affiliated Business Arrangement (ABA), the real estate broker and settlement company form a third, jointly-owned company that becomes the title insurance agent. The settlement company still does the same work they would do for any settlement, but the title insurance policy is issued through the jointly-owned company. That company then keeps 80-90% of the premium (see How Settlement Companies Make Money). This revenue is split between the two owners of that company—the real estate broker and the settlement company.

The net result is that the settlement company just gave half of its largest source of revenue back to the real estate broker—a legal kickback. They do it to guarantee a steady stream of business from that broker and their agents. But it also means they have to make up for that lost revenue.

Bring on the Fees

Settlement companies with ABAs have to charge higher fees—settlement fees, title examination fees, doc prep fees, binder prep fees, courier fees, notary fees, attorney's fees—because they're only making half as much on title insurance, while doing just as much work.

Now, none of this would work if the broker's agents weren't asked to send their customers to the settlement company with the ABA. And that's what happens. Unless the buyer specifically objects (and how would they know to object?), the deal often goes to the ABA by default.

While these ABAs are specifically structured to stay within the bounds of the law, they are typically bad for buyers, and increasingly under scrutiny by regulatory agencies and consumer advocates.