SF and Daly City: Sneaky or Squeaky Clean?

Awhile back, I posted an article about brokers: specifically, your realtor’s broker, and the way that using them both, as a matching set, is not always in your best interests.

Broker referrals from realtors, though certainly not illegal, can be problematic, because, as the New York Times reported in November, 2007:

Mortgage brokers say real estate agents sometimes steer clients to in-house mortgage brokers without making such connections clear, thereby leading inexperienced buyers into costlier loans than they could have found if they had shopped around.

The old “use my broker” line is not the only shady practice in real estate today. I don’t necessarily mean “shady” in terms of underhanded; sometimes the practice is just obscure to sellers and/or buyers. In other words, these people are in the dark when it comes to what their realtors are doing.

Carol Lloyd of The San Franciso Chronicle wrote of a few such “gray areas” this Friday. I’ve picked a few that would be helpful, for all of us, if clarified.

1. My agent says I can get credits back at closing, thereby getting some cash out. Is that kosher or is that mortgage fraud?

“A lot of people don’t understand that banks usually allow up to 3 percent of non-recurring closing costs. If the cash-back deal is concealed from the bank, however, it’s a serious crime. In effect, if you’re borrowing money under false premises and lying to the bank, that’s mortgage fraud.

2. The listing agent informed our agent we can do any inspections we want, but she doesn’t want to hear about them. In turn, our agent told us that it’s our job to pass on any reports to the listing agent. Is that normal?

“If you’re a professional, you don’t do this,” says Lorrie French of Pacific Union GMAC. Even if a home falls out of escrow, inspections become part of the public record and the seller must disclose them to any future buyers. Such disclosure laws may explain why some agents decide to act like real estate ostriches, but it’s not considered an acceptable practice.

3. We hired an inspector who will only give us a verbal appraisal of the property unless we receive written permission from the seller that he can write up his opinions. What’s this about?

Technically, the sales contract already gives written permission to inspect the property. The only kind of sales exempt from inspections are probate sales, so the buyer already has the explicit permission from the seller.

But according to real estate agents I spoke to, inspectors sometimes try this tack when they are afraid their inspection could substantially lower the property’s value and therefore lead the seller to sue the inspector. After all, as long as there is nothing in writing, the inspector is less liable for his opinions. It’s unlikely that sellers will give additional written permission, so the buyer may be tempted to simply hire the inspector for an oral evaluation of the property.

An oral evaluation may help the buyer decide whether or not to buy the property, but, unfortunately, it won’t help in negotiating a new price.  It’s only when you have a written report — which legally must be added to the disclosure packet for future sellers — that most sellers begin to pay attention.

For more (and yes, there are many, many more) such gray areas, take a look at Lloyd’s column in full. And to protect yourself, keep in mind that real estate is an “adversarial business.” Best to know your opponent, and know him well.