I feel strongly that ultimately the seller should pay for all (actually “most”) closing costs. But not in the way that you might be thinking. And this type of post will lead to the 101 hyper technical “but what if” scenarios and counterarguments.

I’m not talking about “Negotiate strongly and beat down the seller by getting closing costs thrown in, heck this is a buyer’s market!”
I’m talking about “The seller should care about their NET.” Once the net is established, go back and ask if the price can be adjusted (INCREASED) to include closing costs.

Example: $500,000 with 0 closing costs vs $510,000 with $10,000 back.

Why?
The higher the recording closing price, the better for the buyer. Ie $510,000
1) In the short term for comps: The higher it records on the county records and the MLS the better it is for “comps.” In other words it helps the next similar unit close for higher, which is better for the buyer (ie more of the cheesy “instant equity”).

Note that the MLS DOES show the seller subsidy (closing costs paid by seller) in Virginia, DC, MD, but
a) not everyone sees it (even though FranklyMLS nets out all closing costs when showing sold prices).
b) not all appraisers will adjust 100% for it (thus helping the next unit appraise for higher).

2) Better loan.
For some people adding back in 2% in closing costs, can help people jump from a 15% down loan to a 20% down loan, thus dropping the rate significantly.

3) In the long term: since the county records do NOT show the closing costs, this helps the buyer when they sell the unit in a few years. Many do-it-yourselfers and data hounds will say “well you bought it for $510,000… therefore” instead of “well you bought it for $500,000… therefore.” I would rather make it look like I spent more (and in essence, with all the closing costs, you really did spend $510k, so why not have people see that number?).

Common counter-arguments:

1) Some will say this artificially inflates the marketplace and might lead to a subsequent crash. Answer: I’m talking about a benefit to the individual buyer. A buyer agent’s job is to do what is in the best interest of the client, while being legal.

2) Taxes will go up. Yes, perhaps. Maybe $50 a year, big deal.
Buyer tip: See post on NOT using Tax Assessments to value a home)
Seller tip: Since some buyers DO use this, the HIGHER the tax assessment the better, so think twice before fighting to get it lowered, see post)

3) Seller might have to pay the commission on the seller subsidy.
Yes, this might be the case. The buyer can offer to pay the difference. Or skip the idea of asking for more seller subsidies after the fact, and ask for it up front in the initial offer.

Things to watch out for:
1) Don’t make the seller subsidy too high. This isn’t free money. Sometimes a lender will say “sure we can use up 3% or 4%”, but that defeats the point. Don’t start buying points if you weren’t already planning to.

2) The contract reads “Up to X in seller closing costs.” If you put a number that is too high, then the rest goes back to the seller. You can maybe add in your contract “unused closing costs will result in a drop in the contract price, with the same net to the seller.” Or get from your lender the closing cost estimate and leave $2,000 in wiggle room. Also if you need to use up the funds, you can count your home inspection and sometimes up to a year in condo fees. Worst case scenario, you can do a 2-1 buy down (more complex, prepays part of your mortgage) to use up funds.

3) Watch out if you ask for a credit for home inspection items, you don’t want your credits to go so high that the lender won’t allow it.

4) This might get tricky with how the appraisal is handled (it can actually help), but I can go into that next time as that can take a long time to explain.

Sorry if this was a little complex, but it is something that I strongly believe in, and I think most of you will get it. Feel free to add more “well, what if…” I did it for my personal home, and I would do it to help my clients.

Make sure to sign up for future posts!

Written by Frank Borges LL0SA
Broker FranklyRealty.com
Owner FranklyMLS.com

Cash photo by emdot

Out of the 47 zip codes, they said the #1 fastest growing zip code was 20170, Herndon at +14.4%.

How can this be? I recently wrote about Herndon and the Foreclosure mess going on over there with as many as 48% of homes on the MLS from $300k to $400k being in some stage of foreclosure (See my SOL foreclosure post).

So I set out to prove the data wrong (I’ll admit to my bias). I suspicious of the Post disclaimer saying “It excludes some types of marketplace transactions, particularly those that are not at market price.”

Aha! Gotcha! My translation: Take out the foreclosure and short sale problem in Herndon and home prices went up!

Oh this is gonna be good!

Washington Post’s Herndon data:
Jan-June 2006
356 Homes $411,000
Jan-June 2007
123 Homes $470,000
$59,000 increase or +14.4%

Frankly Herndon Data (from MRIS)
Jan-June 2006 291 Homes $475,000 Jan-June 2007 199 Homes $485,000
$10,000 increase or +2.1%

I didn’t see 14.4%, but it still went up!?

So then I ran the numbers from July 1 2007 to present.

Frankly Herndon Current Data (from MRIS)
July-Nov 25 2007
134 Homes $421,000
(vs $485k in 1st part of year)
$66,000 DECREASE or 13.1%
(this was based on 6 months later, so one could argue that annualized that is 26.2%)

Up 14%? Down 13%? Down 26.2%? Flip Flop!

How can you compare 300 homes in a zip code to a completely different 150 homes a year later? These are NOT the same homes. Add in a new community of 30 homes (which are always much higher than resale homes) and it can make a zipcode look like it was skyrocketing. I even think new homes actually might be the reason why NAR has never shown a decrease in home sale prices (with the exception of this past year).

And even if you DID believe the data, what then? It is still useless! So, if Herndon is one of the few zip codes that are UP (as well as 22046, 22041,22309), what?, you should buy there? Or are they implying that you should buy in the zip code that they say is down 10-19% (22102, 22124, 22031, 22030, 20124)? Since they are a better “deal?”

You also have data extremists, such as bubble prognosticators. To the right is a famous chart from the S&P Case-Shiller index. They are claiming that prices will drop 50%. Is your $500,000 condo going to be worth $250,000 in a couple of years?

Oh, by the way, Robert Shiller is getting rich on this doomsday prognosis.

And the Realtor Assoc comeback to this is weak:

Lawrence Yun, NAR’s chief economist says, “In some ways we’re tracking different things. We use MLS data, so our figures are as timely as possible and are more representative of markets. Shiller uses county records and mortgage data from the secondary market. These sources lag further than ours and they capture a disproportionate percentage of higher-priced homes.”

Let me break that down really quick. NAR’s main excuse is that the data is delayed and is more weighted toward higher priced homes? Um, that was a horrible comeback.

1. Ok, it is 3,6, 9 months behind, so just wait, or move the data over.
2. Are you saying you agree with them in regards to higher priced home? So with the average home in the US being somewhere around $250,000, anything “high priced” like $400k will drop like they say?

NAR better come up with a better comeback to that, no wonder people believe it.

Bottom line is, data is too easy to manipulate.

Ok, so what should buyers do (if they, not their Realtor, decide to buy)?

1) Don’t try to time the market Attn. Market Timers! The EXACT Best Day to Buy!

2) If you are ready to buy, use the Round Robin Method “Round Robin” Buying System. Unearthing The Desperate Seller.

And the only data to look at is data pulled by your agent showing you extremely local data (as in down to the neighborhood) while making adjustme
nts PER house. Does it have a garage? Compensate for that. Larger Sq Footage? Etc. Then and only then can you see any real trends.

- Written by Frank Borges LL0SA- Broker FranklyRealty.com (please report typos!)

Like what you read? Thanks. Make sure you subscribe (upper corner of Blog.FranklyRealty.com) so you can get my next post on Days on the Market correlation to prices in Northern Virginia. Also forward this post to others or share this post using your Facebook account.

Update: Look at the Nova Housing Bubble and their example of Herndon homes selling for 41% off their previous purchase price.

So with this trouble comes questionable practices in order to unload properties. Get a Realtor (the price is built into the condo, you won’t get a better deal without one) to represent YOUR best interest.

I already called out one Arlington Condo builder with my: Beware: New Constructions Illegally Not Disclosing Seller Subsidies. After that article came out, that builder suddenly started disclosing their $50,000 seller subsidies. And Builder: Guaranteed Lowest Price* where builders use subsidies and decorator allowances so as not to technically drop the sales price and have to recalibrate earlier contracts.

Well I found yet another builder expanding on those tricks. This time the builder will list a property and the day it closes, it will withdraw the listing! Why? Because when a place is listed for $599,900 and closes for $529,000, they don’t want the public to know. Also the tax records (where I found the sale) does not allow for disclosure of the seller subsidies (the MLS does require it).

So not only are they hiding a $70,000 price drop, the seller subsidy could range from $5k to $25k. By hiding this data, the appraisals can be kept up for future closings! Sounds to me like fraud, but that is just my opinion.

Speaking of appraisals, if you are buying a new construction and using their “preferred lender,” I have heard of multiple situations where the builder is applying pressure on the lender to “get it done,” which is code for “fudge the appraisal so the numbers work.”

And that is code for JAILTIME. That is FRAUD.

If you suspect something fishy is going on, pay the extra $200-400 and get your own independent appraisal (without mentioning what the lender’s appraiser came up with). If they come in over $15,000 different, somebody got some explaining to do (insert Ricky Ricardo voice).

After the independent appraiser’s report is complete, ask him to look at your lender’s appraisal report. If he says it appears fraudulent, report it to the FBI. Yes the FBI is very interested in hearing about fraudulent lender practices.

Now one last word about lenders. I don’t want you to think that they are all crooks, or even that some are. But you have to understand the phrase “fiduciary duty.” That is defined as “The legal responsibility for investing money or acting wisely on behalf of another.” Agents have that duty with their clients… but lenders don’t.

Again, lenders, albeit nice, helpful etc etc, they do NOT have a fiduciary duty to look after your best interest. Their duty is to their employer. So know your rights, get that second appraisal and don’t get bullied into a fraudulent loan.

Lenders, I hope you didn’t find that offensive. Appraisers, what do you think about faulty appraisals and how do you suggest handling it? Do you ask the appraiser that is “off” if he really wants his appraisal reviewed by the state board (or who else would you recommend?)

Best of luck,

- Written by Frank Borges LL0SA- Broker FranklyRealty.com (Now paying $1 per typo)

Feel free to forward this to friends. To subscribe to this blog via email, go to http://blog.FranklyRealty.com and look on the right side of the page to sign up.

There are 2 levels of MLS fudging. One is a NVAR (Local Realtor association) violation and the other is borderline ethical. And there are 2 reasons agents fudge the MLS.

• BORDERLINE MLS FUDGING (like sugar-free fudge, is it really fudge?):
  This is what happens when a listing agent wants to re-list a property they are already listing for sale. Maybe the house has sat for a few months or there is a big price change. Instead of a 2 minute change, they will withdraw one listing and spend 30-45 minutes reentering all the data.
  


This low-fat fudge will:

• a) Restart the Days On the Market “M” ticker, DOMM (The other ticker is DOMP which is ALL days for this Property regardless of normal relisting)
• b) Reset the “Original List Price”.

So if a house drops from $600k to $550k after 100 days, and the plan is to drop again, but to $500k, the “borderline fudger” will do a normal delist (expire or withdraw) and relist.

• a) The new DOMM will be 1 (but the DOMP will be remain “101″)
  • b) “Current List Price” will become $500k
  • c) “Original List Price” will be $500k (the $600k is hidden and stays with the old listing)

  80% of Realtors will see the DOMP at 101 and look back at the old listing to get more information before making an offer. I found one agent did this 17 times!

• ILLEGAL MLS FUDGING (very fattening fudge):

This fudge is harder to do. After delisting the property, the agent goes back to relist. The system by default will recognize the property by the address and ask you if you wish to pre-fill the Tax-ID and some other data from the tax records. And agent doing illegal fudging has to go out of their way to press NO and override the system by entering gibberish into a tax ID of 000000 and then another 40 minutes reentering data. (The MRIS claim that they have a system to protect against this, however I have seen it over a few dozen times.)

• This fattening fudge will:
• a) Restart BOTH the DOMM AND the DOMP
• b) Reset the “Original List Price”.
• c) Leave NO indication that this property ever was listed.
• It looks like a 100% brand new listing. This is a NVAR violation.

Maybe only 25% of Realtors will find this fudging. They know that when submitting an offer they should search for expires and withdrawn listings for that address (and variations like St vs Street and N vs North).

What a shame that we can’t trust our fellow Realtors to be honest.

In the graph above, that is not the default of what a Realtor sees after a search. I had to create a special search to put it in that form. It is much harder to find. Also note that in this case the first 4 light fudgings were from one agent and then a new agent took it on and did the Tax ID=0000 to reset everything. This is NOT as bad (still illegal) as one agent relisting multiple times using the 0000 trick.

NEW: Part 2:
Illegal MLS Fudging. 20% Chance You’ll See One

- Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4OO6

Videos at YouTube.FranklyRealty.com
Keywords: Housing bubble? Arlington, Alexandria, mls, homes, Real estate, Virginia, DC Realty, Realtor

One blog reader asked me, “How frequently does MLS fudging really occurred. Are we talking once in a blue moon, is it commonplace or even the default?”

Great question!

They wanted a breakdown of the frequency of both the Fat-Free MLS Fudge (technically allowed which is the same agent relisting a property to reset some data like the DOMM not DOMP and Starting Price), and the Full-o-Fat MLS Fudging that is a MRIS violation, which resets the DOMM and DOMP and makes the listing look brand new, with no trace of the old listing.

Quick DOMM vs DOMP recap.

• DOMM= Days on the Market- MLS (days for that MLS listing only)
• DOMP= Days on the Market for the property (regardless of relistings, unless fudged)

Quick Full-o-Fudge MLS recap.

An agent can pull their listing and when given a 1 click option to restart it, bypass the default and put “00000″ in the tax id box. This is an MRIS violation but done so that buyers and many agents won’t see how long it has been on the market, in hopes of getting a higher price.

My estimations:
I can’t get exact figures. There are probably over 10,000 active listings right now in this area. The system only allows us to pull up 500 at a time. While I was able to search for Tax ID 00* (* meaning anything after two zeros), and 999*, XX* and 123* I then had to manually look up EACH result to make sure it wasn’t a new construction or condo conversion (which don’t have Tax ID’s yet and putting in “000″ is and acceptable and legit practice). Some of you might think I have too much time on my hand (maybe since I sometimes talk people OUT of buying), but I don’t have THAT much time.

So I pulled up one county and price range and did a sample analysis. 2400 active homes analyzed.

My search criteria:
Homes and condos in Fairfax County priced from $300,000 to $600,000 built before 2004.
The result was 2400. (Since the max search is 500 I had to do smaller $50k range searches and add them.)

Then I searched for tax ID of 00*,XX*, 999* and came up with about 40 results. Again, sometimes not having the Tax ID (which attaches a property to prior MLS listings) can be legit in cases of new construction, condo conversion and a couple other reasons.

So I took those 40 and opened another browser. I searched for that street address and included all Withdrawns, Temp off, and Expired to see if that property was previously listed and whether the Tax ID of 000 was used to reset the data.

I found 21 Full-o-Fat MLS Fudgings and 17 of those were from the same agent (vs a new agent taking on a listing and wanting to reset everything, which is also not allowed but not AS bad in my opinion).

So out of the sample of 2400 homes, I found 21. Which is just under 1%. This doesn’t seem like a lot and I do remember seeing it fairly frequently, so I started looking at that 1% another way.

Lets say an average buyer might go into about 7-10 homes, they probably have the agent look into about 20 homes online. That means there is a 20% (20, 1% chances) chance that you will come across a listing that has been fudged by the Realtor to deceive the public in order to get their listing sold faster.

Fat-Free MLS Fudge frequency?

So then I wanted to see how frequently a listing undergoes Fat-Free MLS Fudging, the act of relisting the property but not removing the Tax ID. This practice is allowed. Heck, one agent did it 17 times.

I couldn’t look at all 2400 homes, so I focused on 90. , the results from a price range search of $499,900 to $500,000 in Fairfax built before 2004.

25 of the 90 were relisted and had a different DOMM vs DOMP (defined above). This 25 is legit, and tells you that there is a ton of turnover of listings to a different agent. Sucks to be those that lose the listing agents losing those deals.

Of the 25 active listings with a DOMM and DOMP discrepancy
• 15 were new listings from one agent taking over for another agent. This is 100% legit.
• 10 were the same agent (Fat-Free Fudge, allowed but questionable)
• 3 (of the 10) were relisted and withdrawn 3 times for a total of 4 MLS #s each
• 1 (of the 10) was Full-o-Fat Fudged

Conclusion:
About 12% of listings get relisted by the same agent
About 3% of the time they relist it multiple times, sometimes 4 times.
About 1% of the listings (in the example of 90 and 2400) are fudged.

So if you look at 20 properties, there is a almost certain chance that a few were using the Fat-Free Fudge technique and probably a 20% chance that you will encounter the illegal fudging technique.

Why does this matter?
When bidding on a property, you should have ALL the available information. If a place appears to have just hit the market 5 days ago, there might be a little rush to winsecure it. If you bought it to then find out that it was really on the market for 300 days, you wouldn’t be happy that you were duped. Also the amount you offer might be lower if it sat for the same price for 200 days.

Recommendations:

• MRIS (our local MLS system), do a better job at catching these manipulations. A simple review of all 00* would be a start. Secondly impose fines and get serious about cracking down on this. (Email me if you want an address to complain to MRIS)
• Buyer Agent Realtors, report these violations to compliance, they can reset the listings.
• Listing Agent Realtors, stop fudging the MLS or risk losing your l
  icense!
• Buyers, don’t be scared, just be aware and make sure your agent double checks into this before putting in an offer. Also ask your agent if their emailed reports use the DOMM or the DOMP (most use the DOMM).

Disclaimer: The data that I collected might not be statistically perfect, but it was the best that I could do. I would be happy to work with a research person to get more exact figures. Also the Fat-Free Fudge, which is allowed, is my opinion not kosher, many agents might debate this or say it is company policy. To each his own. I just wanted to bring up the debate.

Now talk amongst yourselves…

- Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4OO6

MRIS stands for Metropolitan Regional Information Systems. They are the company that provides the Washington DC area MLS system for all Realtors. They also provide data to consumers and the press to reveal how the market is doing. The only problem is that the data is limited and can easily be misinterpreted without giving proper clarification.

When I first saw these numbers, I was shocked that the zip code 22204 was able to get 98.6% of the list price. Only a drop of 1.4%? How is that possible in such a slow market?

So I set out to recreate the numbers and I finally think that I understand how they came up with their data. I don’t question whether the data is correct, I just question how it is presented.

I believe now that the “% of Asking Price” means the “% of the last and lowest asking list price to the sold price, excluding seller subsidies.” So if a house was initially listed at:

Hypothetical example:
$600,000 Starting Price
$500,000 Lowered List Price
$495,000 Contract price
$10,000 Seller subsidy (about average for 22204)
________
$485,000 Net (counting the $10,000)

= a 1% drop using MRIS’s data
= a 20% drop from the top number.

So if you were to include the subsidy and the starting price, the price drop would be almost 20% lower, yet this hypothetical numbers would be reported by the MRIS as a 1% drop ($500k to $495k).

So back to recreating the actual numbers from MRIS. (My Excel document is available upon request.)

I took all homes for the period of 7/01/06 to 9/30/06. I found 72. This number is off from their their 128, I’m not sure why.

From this data I was able to come very close to recreating their numbers (option 1 below).

1) % of Final list price was 98.4% (vs their 98.6%, no big deal).
2) % of Final list price MINUS seller subsidy= 96.8%
3) % of Original list price MINUS seller subsidy= 94.25%
4) % of Highest price (prior Realtor or listing#) MINUS seller subsidy= 92.2%

Using the $600k example from earlier, #3 takes the starting price of $600k and counts the $10,000 seller to make a final closed price of $485,000. However #4 above takes into account if the listing had a prior agent with an even higher price. So with #4 I took the starting price of a house regardless of how many Realtors had tried to sell it, or how many times one Realtor relisted it to reset the Days on the Market.

So while the MRIS data is not necessarily incorrect, the public should know that it does NOT mean that the average house in that zip code only dropped 1.4% from what the seller started with. That number is probably closer to an 8% drop once you count the seller subsidy (which was near 0 a couple years ago) and the initial starting price.

Recalculated drop for 22204: 8% (92.2% of the starting list price, including subsidies)

Conclusion: Don’t assume information that is given to you is correct, question how the numbers are compiled.

Update: I have a Part 2 on this posting: Part 2: Illegal MLS Fudging. 20% Chance You’ll See 1.

And make sure you see the 22 other blogs on shady agent tricks and things that buyers should be aware of. Blog.FranklyRealty.com

- Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4006

Videos at YouTube.FranklyRealty.com
Keywords: DOM DOMM DOMP CDOM Days on the Market, Housing bubble? Arlington, Alexandria, MLS MRIS, search, Homes, Real estate, Virginia, Alexandria, 22201, 22314, Fairfax Va, DC Realty, Realtor