June 13th, 2019 12:42 PM by Gregg Mower
The Real Estate business has been done the same way for decades and the only thing that has changed is how we deliver information to our clients. The internet has made the business easier without a doubt, in the way we can see homes for sale and do research on neighborhoods and schools and crimes in specific areas. The invention of digital documents has helped with signatures and the delivery of necessary disclosures to our clients. However, the core business model has not changed for most Real Estate firms. That model is to market to your clients and potential clients for their business, ascertain what they wish to do buy or sell, then have your clients contact a lender for pre-approval for a mortgage. Then once the Agent knows how much their client can afford, they then start searching the MLS for homes in their client’s desired area and price range. Or for listings they determine how much they can afford for their next home, as to not sell a home with no possibility of their client buying another one, in most cases. If they are working with a home buyer or when the seller becomes a home buyer upon the sale of their existing home, they then find properties in the area they wish to be in knowing what they qualify for from the client’s lender. Once a property has been identified as a property their client wishes to make an offer on the Agent then contacts the lender for a letter of qualification to be submitted with their offer to purchase. When the offer is accepted the documentation has to be disseminated to the lender and the Escrow/Title Company and the lender. Then the Agent arranges inspections and the lender sends out disclosures and orders the appraisal the Escrow/Title company orders the preliminary title report. When the documentation comes in it has to be shared with all involved. The Agent will periodically check with the lender for progress reports, but has no say at all in the loan, and the Loan Officer will give updates to all but has no say in the Real Estate transaction at all and may not know if things have changed with the disposition of the property and or contract and inspections. When the lender has completed their process, they send the legal Loan Documents to the Escrow/Title Company for the buyer and seller to sign. After everyone has signed and all the monies have been accounted for the loan funds the transaction closes and all the service providers get paid. This is the way Real Estate Transaction have been done since the beginning of modern times.
When you read this transaction flow you see there a several people and companies involved in making a Real Estate transaction close. When you have that many people, they all need to be paid and that is why it is so expensive to buy or sell a house. When you sell a house, you will pay an Agent or Agents, I most cases, 5 or 6% of the sales price and that is well worth not having the liability as a seller alone in the transaction. A highly qualified Agent will make that money back in many ways such as piece of mind that all the laws of selling your home are being met and all the required disclosures and inspections have been completed and done correctly. In many cases a good agent will price your home and market your home so that you get the highest and best price for your home thus making you more money than you probably could have trying to sell it on your own or using a cut rate internet real estate firm where you have to do most of the work. When you are the home buyer in a Real Estate transaction your Agent is paid by the seller out of the 5-6% commission that has been pre-set when the listing was originally taken. The commission to a buyer’s Agent is usually split between the listing Agent and the Selling Agent (the Agent representing the buyer). Why this is important I will get to in a bit.
When you work with a lender, in a traditional Real Estate Transaction, they are independent of the Real Estate Company and they get paid from the fees charged and rebates from the Interest rate on the loan. This may be confusing but usually a lender will make between 2 and 3% of the loan amount to keep it simple. Again, I will tie this in as to the importance of who gets paid what later. Remember in the transaction that the lender orders all their own disclosures orders the appraisal and has to communicate to all the Agents and title company. The lender also needs most of the documents that the Agent has signed such as the contract and any inspections the Agents have had done all the while keeping the Escrow/Title company informed of the progress.
As you can see the typical Real Estate Transaction still has many inefficiencies and redundancies in the typical transaction. I offer, as a solution to efficiency, to merge some of these functions together to make the transaction smoother and more cost efficient. I would merge the Real Estate and the Loan Functions together in order to be more transparent with the information in the transaction. This would cut time frames down and the client would only have to make one phone call to get the status of the loan and the Real Estate. This would cut out any miscommunications with the inspections as all eyes could offer advice as the inspections come in. Not to mention, prior to the contract being written the Agent and the Loan Officer are under the same roof so an efficient plan can be put together to benefit the buyer in an approach to making an offer that will get the buyer the best deal possible coupled with the best financing. If the Agent also is representing the seller and the buyer and the loan things can really be done efficiently.
Picture this, as a home buyer, you make one call to a company and you get your home loan pre-approved and you are looking at houses that same day. Then when you make an offer on a home your Agent and Loan officer already have made a strategic plan for you in the office they both work in, or they are one and the same person. When you make the offer there is no worry about the financing as your Agent has seen everything the Loan Officer has and vise versa. In addition, your loan officer is not tied to one lender he or she can find the best financing sources across the country saving you even more money. The Loan officer can offer tips with financing to negotiate a better price on the home. Some of the commission from the sale, that we talked about earlier, can be used to buy down the loan interest rate and fees. Remember the 5-6% commission the seller splits with the buyer’s Agent and the Seller’s Agent, well some of that commission can be used to get you a lower interest rate thus a lower payment. The additional monies can be used to lower your loan costs as well. If you have the same office collecting 5-6% on both the loan and the Real Estate Commission the company can afford to give back money so that you as a buyer get a lower interest rate and a lower monthly payment than you would have got buy using an Agent from separate firm as the Loan Officer. The trading of information will also speed up the transaction and make it far more efficient. As a Home buyer you would only have to meet at one office or talk to the same office to get all your information and within the office the loan and the Real Estate transaction are being completed at the same time under the exact terms of the contract with both the Agent and the loan officer working together and in some cases if the Agent is a Broker he or she can do both the Real Estate and the Loan.An Example will look like this: A First time home buyer contacts the Real Estate and Loan Firm and wants to buy a house. The Agent prequalifies the buyer over the phone or computer and gives them a list of items they need to become fully approved for the home loan. The Agent can run credit and run the information through automated underwriting and receive the approval with the client still on the phone. The Agent then can determine from the client where they wish to live and provide current listings in that area for the client to view. The client can ask to see specific houses and the Agent can then arrange to show them with the sellers. Knowing the client needs and financing options the Agent can make an offer that is the best for the client and provide the approval to the seller with the offer thus making the client's offer more attractive than other offers they may have received. The client throughout the process only needs to make one call as does the Agent. The agent can get the Loan information and the Real Estate information at the same time. On the other side of the transaction the listing Agent only needs to make one call to get everything they need to keep the seller informed. The Buyer's Agent finds the best lender in the country for their client getting them the lowest interest rate possible as well as contributing to their closing costs lowering their rate and monthly payment. The buyer gets into their house with very little running around and stress of the transaction. Everyone wins.
This may sound like utopia, but it is reality here at MAE Capital Real Estate and Loan. We have perfected this system and we are saving our client thousands of dollars when we represent them as their Realtor and their Lender. We can save home sellers thousands as well when we represent them as the seller of their home and find their next home for them and do the financing. The efficiency in bundling these services in incredible and saves our clients thousands of dollars and countless hours tracking down their Agents and Loan Officer. If you would like to see this in action, please give us a call at 916-672-6130 or click here to email us. We are looking forward to showing you this incredible modern system.