Urban Legends... Who's Working for Whom?

Remember Aunt Maude from a few posts ago? She’s everyone’s Real Estate Armchair Quarterback that has all kinds of real estate advice. One of the classics goes something like this:

“Never use anybody recommended by your real estate agent, those guys are all in cahoots and will do whatever necessary to get a deal closed.”

While it is true that some agents I have come into contact with over the years were snakes only out to make a buck, most practitioners in my business are honest, hard working people that do this because they like helping people. I know I get paid for my efforts, why shouldn’t I? I work hard, but I put the needs of my clients first. I am in a business more of representation than of sales. So, when I meet people that serve my clients well, I remember them and recommend them to others.

I have met a lot of contractors, painters, and insurance agents in my career that I would recommend; however, there are two types of extra service providers that I end up recommending most often: Loan Officers and Home Inspectors. Both of these groups, in my experience, contain more bad eggs than good. Here are a couple of quick stories and some recommendations:

Very early in my career, toward the end of my first year, I learned the Loan Officer lesson. It didn’t cost me much, but my clients paid for it dearly, they might not even realize it, but they are still paying for it today. This couple called me up, as excited as can be, brandishing their pre-approval certificate, ready to buy their first home. They already had their loan guy, so I didn’t ask many questions. I just found them the house of their dreams, showed it to them, and asked them if they would like to write an offer. They were ready to go, so I called their Loan Officer to ask him what variety of terms they needed so I could structure the deal properly for their loan terms. He was very vague, but I was directed to write it to accommodate one of those FHA downpayment assistance programs. So, I did my best and got them the best deal I could. The nightmare scenario went something like this: the new tax assessment was due out on the first of December, we wrote the deal late in October (plenty of time to get a deal closed for a loan guy that does his job) he couldn’t get it done until two weeks into December. This led to my buyers needing a couple thousand dollars more at closing for tax prorations. Did I mention that they were using a zero down program? By the way, he never gave them a good faith estimate, so they had no idea how much the loan would cost them. When they finally got the final figures, the day before closing, they just about had a heart attack. The house had appraised for much more than our purchase price, so, the night before closing, the Loan Officer called the listing agent and had him raise the price and the concessions to cover the extra cost. Even at that, my buyers brought all of the money they could scrape together to the closing and still I needed to give them a dollar out of my pocket for them to have enough money to close. After the closing, I took a look at the HUD statement and saw that the bump up in price and concessions (about $10,000) went in the form of junk fees to the LOAN OFFICER!

Still want to listen to Aunt Maude? Fine, at least follow these guidelines when you’re shopping for a loan:
1.) Never, Never, Never pay an application fee for a pre-approval.
These people, after I smelled trouble, felt bound to this loan shark because he had taken $400 from them and he claimed they would get it back as a credit at the closing.
2.) Get a “Good Faith Estimate.”
This is a form that is required by law at the time of application. You should ask for it by name. It lists all of the costs associated with the loan and the estimated interest rate.
3.) Shop rates and terms.
Yes, even if you decide to use somebody recommended to you as “the best guy in town” talk to at least two or three different lenders. Do it on the same day, too, rates adjust every two hours on weekdays, so you want to make sure you are comparing apples to apples. Try to compare the same types of programs too, rates and terms vary depending on what type of program you’re getting.
4.) Beware of Junk Fees.
As you read the Good Faith Estimate, keep your eyes open for words like “points”,” origination fee”,” discount fee”, and others.

Follow these guidelines and you’ll likely save yourself many headaches and probably thousands of dollars. This post is a little longer than I expected, so I’ll save Home Inspectors for next time.