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Things are A Changing in the Real Estate World
September 5th, 2007 categories: Home Buyer, Real Estate, Real Estate Tips
Just like the spider (isn’t that the biggest spider who’ve ever seen?) waiting for its prey I learned something today that is happening in Southern CA and may reach our area.
Dont be caught unaware just in case your Realtor is not familiar with this new practice
Here in the Sacramento and surrounding areas we have Title Companies to handle our Escrow when a house sells. Thats where you typically go to sign all the papers on your house that you are selling and when buying a home.
In Southern CA, there are two separate entities Escrow Companies and Title Companies. And therefore seems to me to be twice the cost associated with closing on a house. Thats not what this article is all about but I couldnt help but comment on double spending in Southern CA. Well, thats not the worst of it
A fellow friend and Realtor in San Diego, Roberta Murphy of Luxury Home Digest recently helped a Home Buyer who decided to back out of the contract. The Home Buyer backed out during the disclosure period. All well and good, one would think not so in this case.
Apparently, the Escrow Company decided to exercise their right to assess the Home Buyer $1,115 due to the cancellation of escrow. They assert that this is their cost and they have a right to impose it upon the Home Buyer for cancelling.
Title Companies do have that right, which quite a few Home Buyers and Realtors are not aware of. I have never seen anyone exercise this privilege but it is possible.
This seems to be a way of Title and Escrow Companies recouping some of their losses. We all have losses in Real Estate but thats just part of being in business or at least for some of us. Oh, what a web they weave
Is this just the start of a new way to generate revenue? My,my, my!
Roberta and I agreed that from now on when writing a contract for a Home Buyer it will be imperative that we include language that prohibits any Title or Escrow cancellation charges to our clients.
Hope your Realtor knows about this so that you arent saddled with an extra charge you werent planning on.
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Hi, interesting blog. Thanks for the read!
I just noticed in today’s headlines that the Realtors pending home sale index fell by 12.2% for July 2007. This is a huge drop especially considering that most economists thought it would only be off by 2%.
Today I noted in a San Diego real estate broker’s blog (http://www.brokerforyou.com/brokerforyou/) an interesting post about this as well as some really eye opening statistics for the San Diego real estate market.
You definitely want to view the chart posted on August 27th showing the one year value decline for condominiums in the San Diego area. This chart shows that in one zip code, values were off by over 34.2% in just this time period. When one considers that the top of the market was actually sometime around the summer of 2005, there is a good possibility that before this is over, some real estate values could be off by 50% or more from their peak.
San Francisco attorneys
Thanks for stopping in to Sacramento Real Estate. Based on the article it would appear that we are in for a Real Estate recession. Obviously, once the “creative” loans have reached their “due dates” it should be a leveling off in the market.
The chart for San Diego condo’s was overwhelming. I can assume that it would be the same in our market…location, location, location. Some will suffer more than others.
Thanks for bringing my attention to the Broker for you blog site.
Gena: Thanks for bringing up this issue. It a warning call to all Realtors and I feel this is now a disclosure issue/warning for all of our real estate transactions.
The San Diego real estate market is a fragmented one. Condos (especially condo conversions) in the South Bay and east end have been hit very hard. We currently have one townhome listing there that is now priced below what the seller paid for it in April, 2003.
My advice to San Diego real estate buyers? Buy blue chip (coastal location), where the rest of the world would like to live,
Love your sassy blog!
–Roberta Murphy
Roberta, great hearing from San Diego. Thanks for bringing this information to the forefront so that Home Buyers can be further protected.
Great response on the Blue Chip…coastal buying is always good!
Hi Gena,
This practice has actually been around for sometime. Prior to having my broker’s license, I worked in the title industry for about 10 years. Believe it or not, in Northern CA we used to assess cancellation fees when escrow would cancel. It wasn’t until the last real estate boom that we started seeing those go away. However, the fees were usually not so excessive. Most of the time it was under $200, which is the cost to produce a prelim. In my opinion that is an acceptable practice considering the amount of labor that goes into a title search (something that not many Realtors really appreciate). It seems that most agents think that title searches come out with a single push of a button.
So this leads me to the next question:
Do you think it would be practical for a Realtor to incorporate a cancellation fee into a listing contract? It is logical if you think about it. How many listing presentations do you attend only to find out that the sellers are just “market testers” and are not really serious about selling. What they do not realize is that we are sometimes out a couple of grand in advertising costs (for some homes that is) when we market their homes. Why not incorporate a cancellation fee to minimize the loss and weed out the non-serious sellers?
Edde, I understand your point and value the cost of doing business…Title reports as far as I know don’t cost near that amount and the business that you might loose with that business philosophy, in my opinon would not be worth it.
Realtors, as you say put our money up front and sometimes we have to walk away empty handed. It is a cost of business. Do you think the client would call you back the next time they were in need of Real Estate services if you charged them the 1st time.
I have only charged a client once and that was on a listing where I told the lady that she really shouldn’t list and she wanted to anyway. Two days after the sign went up, she spoke with her accountant and found out she shouldn’t be selling. She paid for the sign, on that one.
Frankly, I am very particular about the Listings that I take and interview the Sellers to determine their motivation. If the motivation isn’t there and the cost is no where near reasonable, I won’t take the listing.
So, in answer to her question about incorporating a fee for cancellation into a listing contract…if the agent isn’t discerning to begin with then probably so.
Thanks for bringing up a good debat.
I guess there are two schools of thought on that. I am usually not too concerned about loosing business from charging cancellation fees to my clients. For the most part I never have had to. On the other hand I have had sellers offer to reimburse me for costs simply because the saw the effort that went into marketing their home and felt bad.
Like you, I pick and choose my listings. Some are not worth taking. However, I approach it from the stand point that you never want to openly “walk away”. So if it is someone that I can see that I really do not want to work with, I throw the cancellation fee into the RLA and see if the bite. Usually they don’t.
I come from the Brian Buffini school of thought that not everyone is an “A+” client. Some are “D” clients and those are not worth your time and energy because they take away from your ability to work with you better clients.
Last I checked the average cost for producing a prelim was between $99 to $200 depending upon how complex the title search is. Here in El Dorado County, it is not uncommon to have to search the chain of title all the way back to 1850. That takes quite a few man hours to accomplish. Usually the cost for those is about $1000 or more when you add up the amount of work and hours. However, the title company will not charge that to the client. They will usually eat the loss or try to make it up on the lesser complicated title searches. I know that because my last real job was a Title Officer at Chicago Title Company.
Some companies have gone to outsourcing some of their title products to India and the Phillipeans. First American and Fidelity are the first to attempt that. For the most part, that has lowered the cost of prelim production significantly, but there is still cost none the less. And, you have quality control issues to contend with.
With the amount of escrow cancellations happening many of the title companies are starting to take significant losses. First American just announced HUGE 2nd quarter losses for this year. They also announced in an Inman News article that they are laying off 1900 employees between 2nd and 3rd quarter. One of those 1900 is a good friend of mine. I have friends and family over at Chicago Title and Fidelity who have just been laid off.
So in my opinion… Not all losses are acceptable. Especially when those losses affect the lives of the average worker… Forgive me if I sound a little too passionate about this, but unfortunately I have lived though it.
You are right in say that you could lose business for charging cancellation fees, however, their comes a point where you are going to lose business anyway. Sometimes it is better to do what is necessary to cut you losses.
by the way…
my “R” key is not working very well on my keyboard.. I have to hammer it to make it work.. Hence the many typos.. Sorry
Edde, you sound as passionate as I do about the folks in Short Sale. I will bow to your comments on expressing the importance of charging cancellation fees in order to stay in business.
I will say that after speaking with my Title officer, she indicated that she would never charge me since she wouldn’t want to loose my business.
I can say that I will do everything in my power, if the home buyer or investor cancels during the disclosure period to make sure that they are not charged a cancellation fee by the Title Co. I stand firm on that since this is a time of decision making.
*Don’t worry about the “R’s”. It would be nice to have spell check on the comment section.
Gena- Here in Alabama we don’t even have escrow companies. The title companies research the titles, and you have some title agents that close the sales, but not many. Most closings are still handled by lawyers. Around what year in California did the closing business shift away from lawyers?
Thanks,
John C