My partner and I were touring new homes yesterday in Rancho Cucamonga, for a future blog. Each time we went into an office the sales representative gave us a nice brochure and a price sheet. Explained what Phase they were selling, how many more to come, and what lots were available for each home. Of course the prices were for a basic home, all of the models have many upgrades and are professionally decorated. This of course is to lure in home-buyers. The decor is screaming you can have all this for an amazing price. Their next statement is what hit home. All the representative's said "the builder is giving incentives to purchase a new home" of XXX Dollars. And "if you use the builder's lender you will get" XXX more dollars.
THIS COULD BE ANYONE . . . . . . . . . . YOUR CLIENT'S, FREINDS, OR MOM
I thought about one of our client's. A couple, a few kids, hard-working, and not a blemish on their credit. This niave couple, just a few short months ago, toured a home model very much like the ones we toured. They fell in love with the model and thought "we can have all this" and proceeded to purchase through the builder, get lots of upgrades, and lender assisted financing. Sounds good so far, doesn't it?
The salesperson (who does not have to be licensed by the Department of Real Estate) processed their application for the new home. Set them up with their lender to get approval, and waaaalllllaaaa, they were approved. Now they move on to pick their lot, choose their decor, and purchase appliances. They of course remembered that model and upgraded everything. The home closed and they were proud of their first home purchase with all the hardwood floors and stainless steel appliances. Great Story Right?
I guess I forgot to mention that this couple has contracted with us to do a short-sale on their lovely first home. They are for the first time not able to pay for something they purchased. Now they have expressed that they feel really devastated by the fact that they cannot afford this home, it has eaten all of their savings. Some of the feelings they expressed include embarrassment, failure, and stupidity. I have a lot of compassion for this young couple, and I can't help feeling that there are thousands of them just in the Inland Empire, and probably more to come. I feel sort of helpless myself because I can't undo what has already been done. So the best I can do is make this as quick and painless as possible, and try to reassure them that all of the "blame" per se is not on them.
Now, for a little background on this transaction. 1) By allowing the builder to finance the transaction, they got a little higher interest rate. 2) 100% financing 3) Were allowed to include upgrades into their loan for any decor items that were over-and-above their initial incentive. 4) Approved with a payment, including taxes and insurance, that is 71% of their income. Is this screaming to any of you the way it screams at me?
Here are my thoughts and I would really like to hear yours.
I am not sure that it is a good idea to have salespersons who are probably not licensed by the DRE and who may have little or no background in real estate or mortgages in the sales offices for builders. These individuals are not held to any real ethical standard and may not have the proper training. Also, they are employees of the builder, therefore, the client they protect is . . . you guessed it - the builder. So who is representing the buyer?
Ok, now if you remember not to long ago builders were not cooperating with brokers. So even if a buyer wanted to use their own agent, the agent could not get paid. So if you are Mr. Client, and you want to purchase a new home, you give up your right to representation by your own agent and have to trust that the builder is representing you fairly. Now, how does this fly through the DRE? What recourse does Mr. Client have when he is not represented fairly?
And, now my final question. How in the heck does anyone get approved at 71% of their income? I mean even sub-subprime cut off at 55%. Or am I mistaken? What happened here? Please help me to understand. Because for the life of me I don't get it.
Now, I tell everyone of my clients, whether I represent you or you have another agent represent you, don't ever do a home purchase without consulting a trusted real estate professional or attorney, new home or not.
This is just wrong on so many levels. Please send me any information and your thoughts on this subject. If there is anything I can do to help these individuals that are left with this devastation and self-loathing I want to know about it.
Kathryn Tharp - Inland Empire - 626/374-1583 or e-mail: ktharp408@yahoo.com
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