One of the more interesting TV shows in the last decade asked viewers and contestants a simple preliminary opener: 'Are you Smarter than a 5th Grader'. The premisis was simple, adults were pitted against 5th graders to see who got more questions right. When I first heard about the show, I along with many other adults thought to themselves - of course I am! And many were amazed to find out that 5th grade was harder than we thought, especially now that we were adults!
The fact is that most real estate contracts are understandable if you have a good 5th grade level of reading ability. But, simply being able to read at a 5th grade level does not guarantee comprehension nor higher levels of awareness and wisdom required to craft a good negotiation. When it comes to real estate transactions, simply being able to read a form and/or fill it out is just the tip of the iceberg when it comes to understanding the new TILA/RESPA - Dodd Frank legislation changes that are just around the corner.
On October 5, 2015 REALTORS will go to their offices and find that not much has changed. The sun will still presumably shine yellow and grass will be green. In fact, for a period of time, escrow offices and lenders will be processing transactions under BOTH systems - the old and the new! But, that cursory observation will mask a much larger mass of critical information which will be surfacing in the days ahead as TILA/RESPA Integrated Disclosure guidelines are implemented primarly by the lending industry and associatiated partners including escrow companies. Its a sea change that will affect to some degree the way everyone in the industry facilitates business with the general public.
For many REALTORS, the changes that are underway have erronesouly been whittled down to one aspect of the end stage of the transaction, the closing - which will now be known as the consumation. Many in the industry believe that only two forms will directly impact the real estate portion of the transaction. That is true! However, it is not the whole story.
Any real estate professional who remembers the crisis of the past decade should think back and recollect how many FORMS changed with respect to the real estate transaction during that period of almost seven years? For most REALTORS, the transaction remained fairly consistent with regards to forms. What changed was process! A 30 day closing became a 90 and even 120 closing required for processing the average short sale. REALTORS who did not substantially increase their level of production found themselves taking a significant pay cut as earnings decreased 30 - 50% in any given calendar year.
The cause of this dramatic impact on take home pay aka Cash Flow was NOT forms or the real estate transcational process. Rather it was the choas in a closely tangental industry, the Lending Industry where the financial crisis dried up credit and caused many homeowners to find themselves in a negative position with regards to home equity. REALTORS who thrived in the last dispensation of 'change' adapted quickly and early. They took seriously the severity of the challenge and fostered close working relationships with REO service providers, banks and non-profits working to address the crisis.
REALTORS who succeeded during the last crisis expanded their portfolios. They changed their methodologies including their footprint online and most of all, they educated themselves. When I talk about education, I am not referring to just a general knowledge of the issues surrounding the crisis. What was most important was the implementation during that time and what will continue to be critical now is a working plan of action to figure out what adjustments, systems and process are necessary to turn a potential crisis into a situation that highlights the value added benefits of competent counsel.
I think that there is a real limitation to what REALTORS can acquire from other industries. Can you imagine a situation in which doctors invited lawyers to help them learn how to become competent in a new surgical technique? Probably not! While lawyers would certainly be able contributors with regards to the legalities surrounding complications, most surgeons understand that the best place to learn about a new medical technique is from another doctor whose experience is relevant and specific to the operation.
Are you prepared for Monday, October 5, 2015? Have you considered answers for these questions?
1. How will I be informing my clients about the revised timelines?
2. Can I explain the potential for delays in the transaction process beyond an extended closing date?
3. Do I understand how the changes my Lending partners and others are making will impact me?
4. Have I made some provision financially for closings which may require50 -100% more time?
5. Are my clients aware of how they will need to work in tandem with me and others in the future?
6. Am I aware of the penalities for 1st., 2nd and 3rd Tier Violations?
7. What will a 'clear to close mean' and how long will files be in review in the Closing Department?
8. Stacked Closings. Do I have a strategy in places to address this situation and advise clients?
9. Are there additional issues PRIOR to the closing which can inadvertently trigger a 'RE-dislosure?
I hope you noticed something. NONE of the questions above pertain to form changes. If you did, you're definitely as smart as a 5th grader! Success in the days ahead will require being smarter and being an excellent counsellor and communicator.
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