Weekly Rate & Market Update 9-16-16
Question of the week: Who pays who when I buy a home and when?
Answer: Who pays who how much and when in a real estate transaction is always negotiable between buyer and seller and those involved. In theory this can happen, in our local Southern California markets here is who customarily pays what to who and when:
Real estate agent(s): Once or twice a year after we go through the amount of money they will need to close on their new home for down payment and closing costs a first time homebuyer will ask me, “when and how much do I have to pay my real estate agent?”
The answer is nothing. Well sort of nothing.
The real estate agents are paid by the seller when the transaction closes. A seller will sign a listing agreement with an agent to represent them in the marketing and sale of their home. The agent will put the listing on the Multiple Listing Service (MLS) and will let the other agents know the amount, as a percentage of sales price, that the agent representing the buyer will be paid.
As a buyer you do pay the commission to the agents, just not directly. The commissions to the agents are paid out of the seller’s proceeds, however the amount of those proceeds is paid by you the buyer in the sales price. This is why when we assist with transactions with one party buying another off of title, for instance in a divorce or partnership split up or one sibling buying out another from the family home after parents have passed away, we discount the market value by the amount of real estate commissions. Since there are no commissions being paid then the sales price should reflect the lack of commissions.
So when you are buying a home you do not need the funds to pay the real estate agent, s/he will be paid by the seller as part of your sales price.
Loan originator/lender: Like real estate agents we get paid when the transaction is completed. In the third of my four part series that was a semi-mortgage 101 course I discussed the relationship between cash to close and interest-payment. When it comes to paying for your loan and the services of the lender you can either pay higher closing costs for points and get a lower rate, or pay lower points and closing costs and have a higher rate. Should you choose the higher interest rate and lower fees then the lender funding the loan will pay the origination costs to your loan originator after the loan is funded.
Escrow: Everyone in the industry loves escrow because they are the ones who disperse the funds to everyone for commissions, fees, etc after the transaction closes—including themselves. Escrow fees are typically split evenly between the buyer and seller, though if one side has more work done, such as drawing multiple deeds or paying off multiple accounts or liens their cost may be higher. The standard purchase contract has a clause to which the buyer and seller agree to split the escrow fee.
Title company: Buyer and seller have separate costs for title insurance. The buyer pays a lower cost for the coverage required by the lender to insure the position of their lien on title and the seller pays a higher fee for insurance that the title being transferred to the buyer is clean, or not clouded—i.e. when you buy the home you are the owner and no one can come along later and claim ownership, if they do and are correct the title company will pay to correct the claim.
The title insurance company is also paid when the transaction closes.
The two services that the buyer commonly pays for outside of escrow and before the transaction are for a physical inspection of the property and the appraisal.
All fees are negotiable as to who pays, as I mentioned at the top, but it usually depends on overall market conditions. When properties are slow to sell and it is a buyer’s market it is not unusual for us to see purchase agreements where the seller agrees to pay closing costs for the buyer. In a market as we have now in Southern California with multiple offers on many properties a buyer cannot expect to have a seller agree to pay their closing costs.
As a buyer when you meet with us and we show you the fee worksheet for the purchase of your new home you will have listed all the costs you will pay, with the exception of the home inspection. The bottom line of funds needed to close is what you need to close, no additional funds for escrow or title—as those fees are included in our worksheet; no additional loan fees-as those are included in our worksheet; no fees for real estate commissions as those are included in your sales price and paid by the seller.
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
Not a lot of positive economic news on Thursday. Both retail sales and the Producer Price Index data for August were released. Retail sales in August dropped 0.3%, since a lot of back to school shopping typically done in August this makes the news a bit troubling. Since consumer spending is 65-70% of our economy a drop in retails sales does not support a growing economy. Another gauge of a growing economy is rising prices, which is not what the PPI data showed for August. Producers’ prices were flat in August, after dropping in July, and flat from August 2015. The combination of dropping retail sales and flat prices for producers is positive for low interest rates.
Friday provided some positive data. This morning’s release of Consumer Price Index data showed some life as prices increased 0.3% in August from July and are up 1.1% from last August. While under the Fed’s target range for inflation the price growth is positive for the economy and somewhat negative for interest rates.
At this point investors are holding tight waiting for next Wednesday when the Federal Reserve Open Market Committee will announce if there they decided to increase the Fed Funds rate. The consensus is that they will not for a myriad of reasons, even political, but the basic reason there is no reason to push up the rate is that the economic data does not show any substantive reason for higher rates.
Rates for Friday September 16, 2016: Rates are flat from last Friday. Mortgage Backed Securities spent the week jumping around on rumor, innuendo and speculation about the Fed’s move next week but in the end the trading was confined to a tight range and we see no change in our rates. My advice remains eliminate any upside risk as there is not much to gain with lower rates and lock when you can.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.375% Flat
30 year high-balance conforming 3.50% Flat
30 year FHA 3.00% *** Flat
30 year FHA high-balance 3.25% *** Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have may have no points and credit towards closing costs, changes daily.
Five friends and I have had the same football pool format for over twenty-five years. Before fantasy sports became popular and everyone from the science teacher to the church administrator were picking players for their fantasy my friends and I drafted teams at the beginning of each season and through a complicated formula of weekly wins, losing to undrafted teams and playoff performances have had the same pool going for a few decades plus. There are three of us in Southern California and one player each in Washington, Oregon and Florida.
This weekend we are getting together for the first time in five or six years, gathering in Denver for a guys’ sports weekend going to the Rockies baseball game on Saturday night and the Broncos and Colts game on Sunday.
So if my return phone call or email is a bit delayed through the weekend you now know why!
Have a great week,
Dennis
P.S. For those wondering what five teams I drafted this year: Green Bay, Indianapolis, Oakland, Chicago and Philadelphia.
