- The Washington Times - Friday, December 8, 2000

As I come into contact with buyers and homeowners, I am reminded that misconceptions still abound about how the real estate process works, even in this new information age.

One of the most misunderstood aspects of how the business works is how agents show properties. I keep hearing from buyers who are going through lists of agents they plan to call so they can see all the homes available on the market. The assumption is that real estate agents can only show buyers their company's listings. Not so.

In the world of open access (which has been alive and well in the real estate industry for years), the multiple-listing system allows agents to find homes available on the market by any company and show them to buyers.

A Realtor who helps sell another agent's listing is called a co-op agent, a role played by virtually every salesperson in the marketplace. In essence, the Realtor cooperates with the listing agent to sell that agent's listing. In any type of market, cooperation between agents is in the best interest of the seller most of the time. Thus, listing agents want buyer agents to show the listing agent's properties in hopes of drawing more and better sales contracts.

Meanwhile, there are some listing agreements in which the owners want only their agent to show the house or require "by appointment only" showings. It could be because the owners don't want a lot of people touring the house, or there may be a resident with an illness or small children who fear the interruption in their daily routines.

Nevertheless, 99 percent of the time, any agent can show a buyer properties listed by any company.

Another misconception I have seen cropping up lately relates to financing. For some reason, even with all the new low-down-payment mortgage programs introduced in the past 10 years, buyers still believe they must have a huge down payment before they can purchase a house.

The definition of "huge" usually is around 10 to 20 percent of the purchase price, which in today's economy could mean $30,000 to $50,000. This is one misconception I wish would die a quick and resounding death.

New and expanded programs provide first-time buyers with new alternatives to the higher-down-payment programs. Fannie Mae's Flexible 97, for instance, appeals to first-time buyers with good credit who lack the funds for down-payment and closing costs. These buyers are approaching the market with nontraditional sources of cash, such as gifts, grants and unsecured loans from family, employer, government or nonprofit organization.

One of the exciting portions of the loan is its expanded ratios in the 33-41 range. Traditionally, the ratios have been at 28-36, meaning 28 percent of a buyer's income can be used for the mortgage payment, and that amount, plus all other installment debt, cannot exceed 36 percent of the buyer's income.

Another financing misconception is that when a homeowner refinances a loan, the borrower must take out cash on the home's equity in order to get the loan. Not so. In fact, refinancing the balance of a mortgage is an easy way for a homeowner to reduce monthly cash outlays. For instance, say you purchased a house at $250,000 with a 10 percent down payment (meaning a loan of $225,000) on a 30-year, 8 percent loan. The principal and interest payment would be $1,651.

Ten years later, the balance is down roughly to $200,000, and if it appreciated at a conservative rate of 4 percent per year, the home's value is $370,061. As you can see, this owner's equity has grown to $170,000 and provides several refinancing options:

• Lower payment by refinancing into another long-term loan. The $200,000 loan at 8 percent over 30 years drops the $1,651 payment to $1,467 nearly $200 in monthly savings, but adding 10 more years to the loan. Nevertheless, I have seen some owners do this to give them more cash flow.

• Reduce the term of the loan by refinancing into a 15-year loan, cutting off five years from the current term. On the $200,000 loan at 7.75 percent interest (shorter term loans usually come with lower rates) the monthly payment would be $1,882 and the owner would have cut time and money off the loan.

• Do a cash-out refinance and use the money for college, investments, improvements on the house, vacation, retirement, a new car whatever. If the house has appreciated enough that there is substantial equity there to use on several ventures, the owners may want to look for better opportunities to invest or to enjoy that hard-earned equity.

M. Anthony Carr has covered the real estate industry for 11 years. Send inquiries and comments to 8411 Arlington Blvd., Fairfax, Va. 22033; or by e-mail (macarr@nvar.com).

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