Flower Mound Real Estate BlogRecently posted or modified blog posts in the category - Real Estatehttps://www.blackjackrealty.net/blog/Copyright BlackJackRealty.net2024-03-20T17:55:16-07:00tag:blackjackrealty.net,2012-09-20:24362The Death of 6% Commission!?!Is it true that selling a home no longer costs 6%? News broke on Friday about the end of 6% commissions and heralded the coming age of home sellers saving thousands of dollars on the sale of their homes. But, as is often the case, the truth is a bit more complicated. Or a lot more complicated in this instance.
The idea that it no longer costs 6% for an agent to sell your home is nonsensical. First off, that was never the case. Real estate commissions are negotiable. As they always have been. There are some agents that charge that much. And there are agents that charge more than that. But there are others that charge a fraction of the cost. Some even charge a flat fee from a few hundred to a few thousand. That is the free market. A “standard” commission of 6% is illegal. It is price fixing and is a violation of the Sherman Act. Every company sets their own rate. I have discussed this in previous articles <a href="https://www.blackjackrealty.net/blog/how-real-estate-commission-work/" title="How Real Estate Commission Work" target="_blank">such as this one</a>.
What Sets Us Apart
Here at BlackJack Realty we do things a bit differently. We have different commission rates depending on the level of service home sellers want. If you want fancy 3D tours and video walkthroughs and custom websites to promote your home then that will cost you 6%. However, many homeowners opt to skip a lot of those marketing techniques in order to save some money.
Well the News Says…
So then, why is the <a href="https://www.cnn.com/2024/03/15/economy/nar-realtor-commissions-settlement/index.html" title="The 6% commission on buying or selling a home is gone after Realtors association agrees to seismic settlement" target="_blank">news media</a> stating the opposite? Well it is hard to say, but one reason might be because they like sensationalism and a headline such as “The 6% Commission on Buying or Selling a Home is Gone” will generate more traffic which results in more ad revenue. But the real reason for these stories and headlines is probably a fundamental lack of understanding on how commissions work.
<img src="https://assets.site-static.com/userfiles/2763/image/blog_images/saving-money-to-buy-house-or-real-estate-business-2023-11-27-05-21-45-utc.jpeg" width="3648" height="2736" alt="Real Estate Costs" title="Commission" />
When you hire an agent to sell your home, you agree to pay them a certain percentage. The agent then agrees to share their commission with the buyer's agents. If another agent brings a buyer to the deal then the seller’s agent splits the commission with the buyer’s agent. The seller’s agent is the one paying the buyer’s agent, not the seller. So when these articles state that sellers will no longer pay for the buyer's agent they are wrong because that was not the case to begin with. Nothing has changed in this aspect. If you pay your agent 6% they could then do whatever they wanted with that including offering some of it to buyer’s agents. But the vast majority of the time seller’s agents would offer to split it because they knew that it would increase the pool of buyers and be more likely to result in a successful sale.
How Commercial Real Estate Works
Let’s compare this to commercial real estate. In commercial RE agents charge similar commissions. In fact, I think 6% is a lot more common on the commercial side. But they will often lower the commission based upon the sales price. For instance, an agent selling a $2,000,000 office building will typically charge 6%. But if it is $20,000,000 they will usually charge a lower percentage. The higher the price the lower the commission percentage. But there is a big difference in commercial where it is very uncommon for an agent to pay a buyer’s agent. Most of the time if a buyer wants their own agent, they will pay for it themselves. There are a number of reasons for this but a lot of it revolves around the way the commercial side of things works. In residential real estate there are millions and millions of potential buyers. In commercial, there are only so many people that have the funding and know how to buy high dollar investment properties. So in residential, the buyer could be anyone which means the agent has to have a large net for their marketing to reach. By offering compensation for buyer’s agents they are casting the widest net possible and asking other agents for help. In commercial, there might only be dozens or maybe a few hundred potential buyers for a property. So instead of spending a lot of time and money on marketing, they instead turn to their trusty rolodex. Commercial real estate is run by networking. Agents maintain a list of investors who buy a certain type of property and have the financial ability and experience to do so. So when they have a property to sell, they pick up the phone and call through their list of investors. Now, that isn’t to say that they don’t also work with buyers. Instead they just do it differently. If they have a buyer looking for a certain type of property, they will call the owners of properties that match that criteria and see if they are interested in selling. So this leaves little room for buyer’s agents.
<img src="https://assets.site-static.com/userfiles/2763/image/blog_images/office-building-2023-11-27-05-03-55-utc.jpeg" width="5184" height="3456" alt="Office Building" title="Office Building" />
So What’s the Story?
So, you are probably wondering what all the hubbub is about then. Well, a couple years ago there was a lawsuit filed by a couple sellers claiming that they were overcharged for commission because they were forced to pay for the buyer agent's commission. This was a class action lawsuit and it resulted in a number of copycat lawsuits from other sellers. But, as we went over before, they weren’t paying the buyer agent’s commission, instead their agent was sharing their commission. These lawsuits ignored that fact and in the end the sellers won. The National Association of REALTORS, which was the main defendant, along with many of the big brokerages appealed the lawsuit. On Friday, it was announced that a settlement had been reached. Now, this settlement isn’t a done deal yet. It has to go before the judge and be approved. Some of the settlement is financial. But it has a couple pretty big changes to the industry which is what the media has latched onto.
The first is that agents will be required to have a signed agreement with any buyer they are working with. This is the way things have always been with sellers. We cannot market a property without a signed contract. Makes perfect sense. Now we have to have one for buyers which is something that always existed, but many agents didn’t prioritize it. To me, this will be a slight annoyance and will put a wrench in our business. With sellers, they are hiring you to sell their home and expect you to pay for marketing so it only makes sense for there to be a signed contract. With buyers, you should eventually have a signed contract but not right away. A number of the buyers we work with are new to us. We often meet them for the first time at the first home that we show them. Now we will have to ask them to sign a legally binding contract before they have ever met us. Most buyers are not comfortable with that. Myself, I will usually give the buyer one or two “free” showings for us to get to know each other so that we can mutually decide to work together before I require a contract. Now, I will have to tell someone over the phone that I have only spoken to for a few minutes that they need to sign a contract. And for many, that will be a hard pill to swallow.
But the other big change is the one that the media has latched onto, but it doesn’t mean what they say it means. Right now seller’s agents put in the Multiple Listing Service the commission that they are offering to buyer’s agents. This can be a percentage or a flat amount or even 0. This way the buyer agents know what they will earn. Now, this does put us in tricky situations at times. Ethically and legally speaking, we are not allowed to base any decisions on this. If your client is looking at 2 homes and one is offering 3% and the other is offering 2% it is unethical and illegal to pressure them one way or another. It should not make a difference one way or another. But humans are self interested and offering a lower commission will often result in less interest in your listing. The way around this is to require the buyer to pay the difference, but I don’t do that and I just accept whatever I get. I don’t push my clients one way or the other and try to represent their interests to the best of my ability. I also tell all the agents under me to do the same. At the end of the day, a happy client will send us more business to make up for the difference in commission.
So really, this is the biggest change. The commission will no longer be advertised. For some reason the media has decided that this means that seller’s will now pay less and that buyers will have to pay for their own agents. This won’t work. There is a reason that the system was the way it was. It was an evolution. I have an entire article on the <a href="https://www.blackjackrealty.net/blog/how-did-buyer-agency-come-to-be/" title="How Did Buyer Agency Come to Be?" target="_blank">history of buyer agency</a> and I recommend you check it out. But the short of it is that prior to the 1990’s there were no buyer’s agents. Buyers were on their own. They would go to the seller’s agent and hope the seller's agent treated them fairly.
So why don’t buyer’s pay for their own agents? Well, for the majority they can’t afford to. And this has only gotten worse with the skyrocketing prices. Few buyers can put 20% down like they used to. Most buyers are putting between 3-5% on a home now. And then closing costs can be another 3% or so. If we added another 2-3% for buyer’s agents they would no longer be able to afford buying a home. And this would result in buyer’s going back to seller’s agents directly and again getting taken advantage of. And this getting taken advantage of is not illegal or even unethical. A seller’s agent has a fiduciary duty to get the best deal for their client. They must look out for their clients best interest which means the buyer is at a disadvantage. Think of it like going into court without a lawyer, but the other side does have a lawyer. Is that lawyer going to try to get you to come out on top? No, they have to do their best for their client. This is no different when it comes to real estate. You want someone looking out for your best interests, not the interests of the seller.
The way the system works now, the price of the home is inflated to cover commissions and other closing costs. So in the end, the buyer is paying the commission, they are just doing it through the price of the home. And then the commission is bundled in the mortgage and is paid over 30 years.
What the Future Holds
So, what does all this mean to the future of real estate? Well, we don’t really know just yet. What we do know is that, as mentioned above, buyer’s often cannot afford an agent. Well what if they ask the seller to pay for their agent? That is fine, except that loans have caps on the amounts that sellers can pay on behalf of the buyer. A conventional loan allows up to 3% in seller paid closing costs. And sellers are often paying some of the buyer’s closing costs already so there is a high likelihood that they won’t be able to pay some or even any of the buyer’s agent commission.
There is a bigger problem though. The Veterans Administration does not allow veteran buyers to pay any commission at all. So if the buyer is using a VA loan it would be illegal for them to pay for their agent. So they would be left not being able to have an agent at all.
But here's the thing. The settlement doesn’t prohibit seller’s agents from sharing their commission, it only prohibits the amount being advertised in the MLS. So what will most likely happen is that buyer’s agents will have to ask the seller’s agent the amount of commission before writing the contract. So in the end it won’t be much different than it is now. <br />
I know this is all complicated which is generally reflected in the media’s misrepresentation of the issue. Hopefully this has explained it well enough for you to understand the issue. But ultimately, I recommend not listening to what the media says and asking your local real estate agent. If you have any questions or if we can be of any assistance please feel free to reach out. <a href="https://www.blackjackrealty.net/contact/" title="Contact Us">We are only a call/text/email away!</a>2024-03-17T17:10:00-07:002024-03-20T17:55:16-07:00DC Turnertag:blackjackrealty.net,2012-09-20:19959What is a Luxury Home?
Have you ever dreamed about owning a luxury home? What even is a luxury home? I know I often dream of winning the lottery and buying my dream home. Today we are going to explore what a luxury home is and how much one costs.
<img src="https://assets.site-static.com/userfiles/2763/image/blog_images/Luxury_1.jpg" width="5524" height="3683" alt="Luxury Home" title="Luxury Home" />
<br />What is a Luxury Home?
When considering what a luxury home is, the first thing that probably comes to mind is price. That is probably the biggest criteria separating an average home from a luxury home. But with that price comes a lot of additional features. Some of these features are readily apparent, others are hidden but certainly play a part in what sets a luxury home apart.
On top of that, it is important to realize that a home having one or two of these features doesn’t necessarily make it a luxury home. Luxury homes will typically contain many of these features.
How Much Does a Luxury Home Cost?
So how much do you need to spend in order to buy a luxury home? We’ll, that depends. The cost will vary depending on the area. Here in Texas, a million dollar home will certainly be considered luxury. On the other hand, in Beverly Hills or San Francisco, a million dollar home might be pretty modest. Or it might even be a tear down.
Before we go on, tell me in the comments what you think a luxury home costs.
<img src="https://assets.site-static.com/userfiles/2763/image/blog_images/ILHMS.jpg" width="200" height="200" alt="Institute for Luxury Home Marketing" title="Institute for Luxury Home Marketing" style="display: block; margin-left: auto; margin-right: auto;" />
The starting price of a luxury home is obviously subjective. I’m sure this could be debated until the end of time. But for my purposes, I am using the<a href="https://www.luxuryhomemarketing.com/" target="_blank"> Institute for Luxury Home Marketing’s </a>determination. Unfortunately, I have been unable to determine the criteria they have used for setting these thresholds. But at least it gives us an unbiased value. They have different values for each county, but one thing I have noticed is that it seems the minimum is $500,000. I pulled the values for North Texas and they are as follows:
Collin County: $640,000
Dallas County: $660,000
Denton County: $610,000
Tarrant County: $530,000
Not as much as you might have expected, right?
Luxury Construction Features
So what else makes a home luxury? We’ll, as I mentioned before, a lot of the features might be hidden. What I mean is, that they are used in the construction process rather than being cosmetic. For instance, a luxury home might have a better foundation. Here in North Texas, most homes have concrete slab foundations. Some older homes might have pier and beam and even some extreme luxury might have basements but those are certainly far from the norm. That said, a typical home is going to have a post tension slab. While a higher priced luxury home might still have a post tension slab but with piers added during construction in order to ensure the foundation will have minimal movement.
Another construction difference might be the use of 2x6 instead of 2x4. While some production builders use 2x6, the majority use 2x4. Whereas, luxury homes are more likely to utilize the larger studs. These larger stands will have an impact in the overall strength of a home, such as being able to withstand greater wind speed. They will also be quieter since the walls are thicker. Plus, thicker walls allow for increased energy efficiency since there is more room for insulation.
Luxury homes might also include better sheathing. Sheathing is the material that goes on the outside of the framing. Most cheaper houses around here use Thermo-ply or similar products for sheathing. Thermo-ply is basically a laminated cardboard. On the other hand, a luxury home might use an EPS or XPS foam board or OBS plywood. EPS and XPS will add additional energy efficiency while plywood is thicker and more rigid than Thermo-ply.
Another construction difference might be the roof. While not always the case, many luxury homes will have slate or tile roofs. In addition to being more expensive, these roofing materials are significantly heavier and require additional bracing to carry the load.
Visible Features
Luxury homes will include many convenience, cosmetic and other visible features. Luxury kitchens will typically be large and include significant counter space. The cabinets will often be solid wood while the counters will be either natural stone or engineered stone. Of course we have seen those materials trickle down to lower cost homes over the past decade. Kitchens might also feature a second sink for cleaning vegetables, maybe a pot filler over the stove, and under cabinet lighting. The appliances will be different. Ranges and stoves might be more commercial grade, the vent will be significantly stronger and often include make up air. The brands will often be Wolf/SubZero, Bosch, Viking, Dacor, Miele, among others. The dishwasher and fridge will sometimes be made to look like any other cabinet. There might be additional appliances such as ice makers, warming drawers or wine fridges.
Flooring in luxury homes will typically be solid hardwood, marble tile or other hard surfaces. No luxury vinyl plank despite its name. Also no laminate flooring. Might be some carpet but certainly not in the majority of the house.
These days luxury homes might include a number of smart features. Systems such as Control4 control the entire home, from the TV’s and lighting, to the window shades, security systems and temperatures. Everything controlled by one app on your phone.
Luxury homes will sometimes have guest houses. Often these are attached to the main home but with a separate entrance, but on larger properties it isn’t uncommon for these to be a separate structure. In addition to being used for guests, these can be utilized for housing aging family members.
Garages usually have a minimum of 3 spaces for cars but 4 or more is becoming increasing common.
Outside, luxury homes often have many amenities such as pool, cabanas and outdoor kitchens. Large cover patios with fireplaces. Outdoor living is a big part of what makes these homes luxurious. Some will feature large sliding glass walls in order to make the inside and the outside one area.
As you can see, luxury homes have a lot of features which justify the higher price. But over time it isn’t uncommon for some of these features to work their way down to the average home.
If you are thinking of buying a luxury home or even an average home we would love to help so please <a href="https://www.blackjackrealty.net/Contact/">contact us. </a>2023-08-31T07:37:46-07:002023-09-04T17:04:01-07:00DC Turnertag:blackjackrealty.net,2012-09-20:19626What is a Fixture?
In today’s article, we are going to be talking about fixtures. Now, you are probably asking yourself “what the heck is a fixture”?!? That’s a great question so let’s jump in.
What is a Fixture?
A fixture is an improvement made to real property that is affixed or attached to the property so that it becomes part of the property. Clear as mud, right? Well, in order to understand what a fixture is, let's first look at other types of property.
When buying property everything starts with the land. Pretty simple, right? Then you have improvements placed upon the land. This is the house, garage, or any other structure you place on the land including such things as fences or even an in ground swimming pool.
Then you have Fixtures and Accessories. Before digging into them, let's quickly discuss another type of property: personal property. Personal property is anything that is not part of the house. If you are selling your home, your clothes or shoes aren’t included in the purchase because they are personal property. Your car is personal property. While occasionally these things are included in the sale of a house, they aren’t automatically included.
So that brings us to fixtures. As I said before, a fixture is an improvement to real property that is affixed or attached to the property so that it becomes part of the property. So anything that is permanently attached is a fixture. Kitchen cabinets are fixtures, wood floors are fixtures, chandeliers, window treatments, fans, mirrors etc.
Making a Determination
Sometimes there can be a debate over whether something is a fixture or personal property. The general rule of thumb is that if it is permanently attached it is a fixture. This can be a bit confusing. Take for instance TV mounts. A TV mount is permanently attached to the wall so it is a fixture and it stays with the house. The TV itself though is considered personal property. Curtains and drapes are another one that can be confusing. Since the curtain rod is mounted to the wall it is considered a fixture and in this case, the curtains themselves are considered an accessory and are supposed to stay too. More on accessories later.
Appliances are a bit fluid. Washers and dryers are not permanently attached and are therefore considered personal property. Dishwashers are bolted into the cabinet so they are a fixture. A range or stove is typically bolted to the wall with an anti tip mechanism and therefore is a fixture. Microwaves can go either way. If it is just sitting on the counter it is personal property. If it is mounted above the stove or built into the cabinets it is a fixture. Refrigerators are typically considered personal property, however some are built in and are then fixtures. Be sure to keep this in mind the next time you are looking for a home in Texas. I always have to remember to explain this to buyers especially when they are from out of state. Apparently in some states it is expected the fridge will always stay.
Then You Have Fixture Leases
We also have a thing called fixture leases. These are becoming more and more common. A fixture lease is when a fixture isn’t owned by the seller and instead is leased. Might seem a bit crazy at first glance, but two of the most common uses of these are security systems and solar panels. For instance, most people that have solar panels did not pay the $30-60,000 that the system costs. Instead they typically have a 20-30 year lease where they are paying that system off. But the panels are bolted to the roof so they are a fixture. Security systems are also often sold this way but for a much much shorter time frame. When the seller wants to sell they either have to pay off the lease or get the buyer of the home to assume the remaining loan.
What About Accessories?
Lastly we have Accessories. Accessories are things that are part of the home or fixtures but not permanently attached. As I mentioned before, curtains are one such thing. Another great example is the garage door remote. House and mailbox keys also fall under this. More and more commonly we are seeing homes with smart home features. These control devices also fall under Accessories.
Excluding Fixtures
Hopefully that clears up any confusion. Now, what happens if you want to keep that antique crystal chandelier that your grandmother gave you? Well there are a couple ways to go about that. In the Texas Residential Contracts there is a place for exclusions. Whatever you want to keep can be placed here. However, I don’t like doing it that way. This way is too prone to mistakes. In the heat of the moment during negotiations, this is something that can easily get overlooked. If your agent forgets or overlooks this then you could end up losing that family heirloom. So in my opinion it is best to just replace it before ever listing your home for sale. If it is gone then there is nothing to overlook. Plus, what happens if the buyer just absolutely falls in love with it and says they will only buy the home if it is included? If they never see it, that can’t happen.
So that is about it for fixtures. Now, next time you buy or sell you can have a better understanding of what is included with the house. This is one area that I have often seen disagreement between buyers and sellers because they have different ideas of what should stay.
2023-08-13T05:41:49-07:002023-08-14T18:20:45-07:00DC Turnertag:blackjackrealty.net,2012-09-20:19377How Real Estate Commission Work
Have you ever wondered how real estate commissions work? Or maybe you have wanted to know how your buyer’s agent gets paid? Or how much selling your home will cost you? Today we will be discussing these and other commission related questions and explaining how it all works.
How Much Does it Cost to Sell My Home?
There are a lot of misconceptions regarding real estate commissions. To begin, let's look at how much selling a home costs. We have another post discussing all the closing costs sellers can expect to pay when selling a home in Texas. You can see that <a href="https://www.blackjackrealty.net/blog/what-are-the-closing-costs-for-selling-my-home/" target="_blank">post here</a>. When sellers hire an agent to sell their home they will agree to pay that agent a certain amount. Every brokerage is free to set their own pricing and structure of payment. One brokerage might take a flat fee payment up front while another might take a flat fee at closing. When done at closing, they only get paid if they successfully sell the house. More commonly, however, the seller agrees to pay a percentage of the sale price. There is not a standard amount that is charged but 6% is not uncommon. I have seen some of our competitors charging as low as 4% and others as high as 8%. There is a lot of variation and even then, sellers can attempt to negotiate for a lower commission.
At BlackJack Realty, we give sellers options. We have 3 different plans that charge different percentages based upon the level of marketing the client wants. If a client wants full marketing including aerial photography, walkthrough videos and 3D tours then they will be paying a higher commission than a client that only wants professional pictures. Marketing costs can add up quickly and since we typically get paid at closing there is a risk spending thousands of dollars upfront and then never getting paid if the house doesn’t sell.
Welcome to the Multiple Listing Service
So let’s say an agent charges you 6% to list your $400,000 home. Wow $24,000 is a huge commission for one sale. Except that is not how it works. See, most agents belong to what is called the Multiple Listing Service or MLS. The MLS is a database that allows agents to share their listings with other agents in hopes those agents will have a buyer that can buy the home. The MLS streamlines the real estate process, otherwise if you wanted to buy a home you would have to go to each and every brokerage and see what homes that individual brokerage was selling. Instead, you are able to go to one agent that can help you with most any home that is for sale.
If you want to learn more about the history of this and how the current system came to be, check out <a href="https://www.blackjackrealty.net/blog/how-did-buyer-agency-come-to-be/" target="_blank">this article</a>.
What About the Buyer's Agent?
So, you hire an agent to sell your home for 6% and they in turn put it in the MLS and offer to share some of that 6% with buyer’s agents. Part of the purpose of the MLS is for agents to have a blanket commission agreement between each other. Now, the seller’s agent can choose how much they are willing to share with the buyer's agent. A lot of agents want to be fair and offer to split the commission 50/50 but they are not bound to that and can offer more or less. So now you have a seller’s agent making 3% and a buyer’s agent making 3%. Back to our example at $400,000 that is $12,000 to each of them. But again, not really.
The Brokerages Cut
The thing is, agents work for brokerages so really it is the brokerage earning that amount. And brokerages often have lots of overhead such as staff, office space, and marketing budgets. So the agents get paid depending on the agreement with their brokerages. Some brokerages pay their agents hourly or salary but that is far from the norm. Most agents are independent contractors and instead have an agreement with their brokerage as to how much they will get paid per sale. This could be as low as 30 or 40% of the earned commission. Other brokerages might give the agent 100% of the commission and instead charge the agent monthly and annual fees along with a transaction fee each time they sell a property. Or somewhere in between.
The Pie Gets Divided into Smaller and Smaller Slices
So to recap, that $400,000 house with a 6% commission paid $24,000 which became $12,000 when split between buyer’s agent and seller’s agent. It then again was maybe cut in half to $6,000. Of course, the seller’s agent then spent a large chunk of that on marketing while the buyer’s agent spent a lot of time and gas showing the buyer different homes until they found the right one. Lastly, let’s not forget our good buddy Uncle Sam. He feels entitled to a large slice of this especially since most agents are considered self employed and have to pay higher tax rates because of this.
In the end, agents might walk away with only a couple grand from a sale. Not as good as you expected right?
Hopefully this answered a lot of your questions about real estate commissions. Let us know if you have any other questions and if you are considering buying or selling, <a href="https://www.blackjackrealty.net/contact/">please reach out to us</a>. 2023-07-27T07:05:26-07:002023-08-03T13:07:46-07:00DC Turnertag:blackjackrealty.net,2012-09-20:19379How Did Buyer Agency Come to Be?
Did you know that buyer’s used to not use a real estate agent to represent them? Buyer’s agents are a relatively new thing in the world of real estate. In this article we are going to explore the history of real estate agency and how things came to be.
In the beginning…
The real estate industry traces its origins back to the Industrial Revolution. The early 20th century saw things begin to take shape and the National Association of REALTORS was born in 1908. For the first several decades buyers had to go from one office to another to see each agency's listings. Other than that the only way to see what was for sale was to drive around town and look for “For Sale” signs. This was a very inefficient way to shop for homes. It required more time and energy on behalf of the buyer and the brokerage could only sell a home if their listing was the right property for the buyer.
The Birth of the MLS
Back in the olden times, also known as the the early 1960’s, the National Association of REALTORS, or NAR, began the Multiple Listing Service in order to foster cooperation between brokerages. The MLS allowed brokerages to share their listings with one another. Originally all the local listings would be put in a book and a copy would be delivered to each office. New books would be delivered every month or maybe twice a month in larger cities. This situation was great for everyone. Now buyers no longer had to go from office to office to see what was for sale and sellers would get more exposure for their listing. Agents benefited by having twice the opportunity to sell homes represented by other offices.
In addition to this, brokerages agreed to share the commission paid by sellers. This allowed agents who were not representing the seller to sell the property. These agents were known as sub agents as they were sub contracted by the listing brokerage to sell the home. This meant that the sub agents legally represented the seller and owed the seller fiduciary duty even though they might not have ever met the seller. So the agent showing you properties had a legal obligation to protect the seller’s best interests rather than yours. This led to a lot of confusion and disenfranchised a lot of buyers. Kind of a crazy system but it is what existed for several decades more. In 1983 a FTC study revealed that 72% of buyers mistakenly believed the agent showing them homes represented their best interests.
Coming Out of the Dark Ages
It wasn’t until the early 1990’s that buyer’s agency was established. With this for the first time agents represented the buyer’s best interest. No longer was there confusion and buyers being taken advantage of, well at least we hope not. Sub agency didn’t completely die out but it no longer has the prevalence that it once had. Check out our article on the <a href="https://www.blackjackrealty.net/blog/agency-disclosures-and-what-to-expect/" target="_blank">different types of agency. </a>
With the internet, MLS’s moved online allowing agents to move the most up to date and accurate information. Not to mention all the trees and ink saved by not printing those books all the time. The internet continues to change the industry and there are more changes on the horizon. Only time will tell where we go.
If you are thinking about buying or selling a home, or if you just have questions we would love to talk to you. 2023-07-21T07:27:00-07:002023-07-30T08:15:43-07:00DC Turnertag:blackjackrealty.net,2012-09-20:18806Agency Disclosures and What to ExpectIf you have ever worked with a real estate agent in Texas you will likely have been provided the consumer notice titled “Information About Brokerage Services”. The IABS is a form that agents are required to provide to any prospective client. In this article we will go over this notice and explain its meaning and purpose.
Types of License Holders
To start with the IABS defines the two different types of real estate agents: Agents and Brokers
A BROKER is responsible for all brokerage activities, including acts performed by sales agents sponsored by the broker.
A SALES AGENT must be sponsored by a broker and works with clients on behalf of the broker.
So what does this mean? To begin with, Brokers are licensed by the state and can conduct real estate activities such as representing clients, giving real estate advice and writing contracts. Sales agents, on the other hand, are licensed through their brokers. Agents cannot perform real estate activities unless they are sponsored by a broker. Any activities they do are done on behalf of their broker. Any work performed by an agent is done on behalf of their broker. Brokers are liable for their agents actions and must supervise their agents. If an agent violates the law or their duty to their client it is ultimately the broker who is responsible. That said, the majority of the time you will be dealing with an agent rather than a broker.
<img src="https://assets.site-static.com/userfiles/2763/image/blog_images/Types_of_Licenses.png" width="2388" height="159" alt="IABS Types of License Holders" />
A Broker’s Minimum Duties Required by Law
The next section lays out what a broker is required to do. This is known as their fiduciary duty. If you hire an agent, they and their broker, will be required to do these 4 things for you.
Put the interests of the client above all others, including the broker’s own interests.
Inform the client of any material information about the property or transaction received by the broker.
Answer the client’s questions and present any offer to or counter-offer from the client.
Treat all parties to a real estate transaction honestly and fairly.
First off this spells out the brokers duty to put their clients interests first even their own. This is an important one. It means that we cannot direct clients to a property that pays a higher commission, or we cannot hold back information because it benefits us, or to get a quick sale. We have to do what we feel is best for the client.
The second point says that we cannot hold any material information back. This one is important. Say a buyer’s agent finds out the roof of the home their client is buying is faulty. Or foundation or any other part of the home. The agent must disclose this to their client. They cannot withhold it because they want a quick sale.
The third point is pretty self explanatory. We have to answer any questions and present all offers. In practicality, this one is easy for agents to violate but without malice. As a listing agent, just about every house you list will get low ball offers from investors. Usually within hours of putting the home on the market. If you list a home for $300,000 and an hour later you get an offer for $200,000 you might be tempted to just delete the email and move on to real offers. But this is a violation of our duties. Even though we KNOW our client won’t be interested, we must still present the offer. Now, there is an exception this this: if your client has instructed you otherwise. If a seller says “don’t send me any offers below $280,000” then you don’t need to present anything below that. But it is best to have this in writing.
The final point is just as important as the others. Treat everyone honestly and fairly. Notice that it doesn’t specify just clients. This includes bother buyers and sellers, their agents, lenders and title officers. This is a good idea not just because it is a requirement but also because it helps to keep the transaction flowing smoothly.
<img src="https://assets.site-static.com/userfiles/2763/image/blog_images/Minimum_Duties.png" width="2388" height="243" alt="Minimum Duties" /><br /><br />Types of Clients
The next section spells out the different broker/client relationships. The first one being the relationship between a broker and a seller. This is usually done through a listing agreement. Then there is the relationship between a broker and a buyer typically done through a buyer’s representation agreement.
After those two it gets more complicated. Intermediary relationships are when a broker represents both a buyer and seller at the same time. In Texas this requires both parties to specifically agree to this. Both the buyer’s representation agreement and the listing agreement have provisions that spell this out and allow the client to agree or decline intermediary relationships. However, it is best for the broker to go over it again when this situation arises.
Intermediary relationships are significantly different due to the obligations to both parties. When representing both sides, brokers are not allowed to give advice to either side. They must stay neutral and act as mediators. They must keep everything either side tells them confidential.
In order to maintain these requirements a broker might appointment specific agents to each party. For instance, Sally might be assigned to work with the seller and John might be assigned to work with the buyers. Each agent then owes confidentiality to their assigned client and has the ability to give guidance. In this instance the broker is kept insulated so that they are not violating their duties to either party.
The last agent type is subagent. Sub agency is an antiquated concept from the early days of real estate. It hasn’t been commonly practiced in over 30 years. Before this point, buyer’s agents didn’t really exist. Instead, listing agents would list the property and subagents would assist buyers. Sounds like a buyer’s agent right? Not quite. Subagents do not represent buyers. Instead they owe duties to the seller because they are a sub agent of the listing agent. They may not know the seller and may never have any dealings with them, but they must put the seller’s interests above the buyers. Complicated right?
<img src="https://assets.site-static.com/userfiles/2763/image/blog_images/Parties.png" width="2388" height="1023" alt="Parties" />
So how do you know if your agent is a buyer’s agent or a subagent? Well, the easiest way is to have a written buyer’s representation agreement. This will spell out the agency relationship between your agent and yourself. If you are just using an agent to open doors and don’t want to sign a representation agreement then you are setting yourself up for a sub agency relationship in which case the agent will be looking out for the sellers interest and working to get them the highest price and best terms. So it is best to always have a written agreement. In fact, the next portion of the IABS states just that.
<img src="https://assets.site-static.com/userfiles/2763/image/blog_images/In_Writing.png" width="2388" height="143" alt="In Writing" />
Contact Information
The last section of the IABS is the contact information of the Brokerage, Broker, Agent Supervisor and the Agent themselves. If you are working with an agent and not a broker, this is important so you can contact the supervisor or the broker themselves if you need to.
<img src="https://assets.site-static.com/userfiles/2763/image/blog_images/Contact_Info.png" width="2388" height="774" alt="Contact Info" />
Next time you work with an agent make sure they provide you this document. In fact, brokers and agents are required to place this notice on their websites and even provide it via email. Most agents just have it included on all emails. But they should also hand you one when meeting in person. If they aren’t doing that, can you be sure they are working in your best interest?2023-06-18T08:33:11-07:002023-07-30T08:22:30-07:00DC Turnertag:blackjackrealty.net,2012-09-20:17252What the MUD!?!: Exploring MUDs, PIDs and TIRZs
When buying a home in Texas you may come across things such as MUDs, SUDs, PUDs, PIDs, or TIRZs. What they heck are these? Or maybe you are selling your home and being told you need to disclose information about one of these entities. Let's take a look at what they are and how they differ from each other.
Tax Districts
All of these different entities are special tax districts. Their use varies depending on the type but essentially, these entities are formed to allow cities and counties to finance development through the use of future taxes. Typically they are proposed by developers in order to help fund their projects and lower their investment cost. From a developers perspective, it is a win win for them. First, they get to offset their initial cost, but then once the community is built, it allows for lower home prices since the development cost has been offset by taxes. For homeowners though, it is a bit like kicking the can down the road. Up front they get a lower home cost, but are then on the hook for potentially thousands of dollars extra in taxes every year they own the home. Also, when they go to sell their home, their home will typically sell for less than a similar house in a non tax district area since those taxes take into account the homes affordability and monthly payment. You got a discount when you bought, but that discount stays around when you sale. The home is less marketable with higher taxes so that is something to keep in mind if you chose to purchase in these districts.
Municipal Utility District
MUDs are one of the most common and oldest of the tax district entity types. They have been used extensively over the past several decades to develop the growing metropolitan cities in Texas. They can be found in communities throughout Dallas/Fort Worth, Houston and Austin. They are especially popular post 2008 recession after banks became hesitant to fund projects after many went belly up.
MUD's pay for utilities, roads, curbs, sidewalks, traffic signals and other community infrastructure instead of these costs being rolled into the sales price of the house. The MUD issues bonds that then pay the developer back for development costs. The MUD cannot be annexed until the bonds are mostly paid off.
Public Improvement District
PIDs are similar to MUDs except that PIDs pay for the infrastructure upfront vs reimbursement after the fact. Because of this, PIDs can be annexed by a city. With a PID, bonds are issued to pay for development and then property owners pay a special assessment to repay the bonds. When the bonds are paid off, the special assessment/property tax goes down.
Public Utility District
A PUD is similar to a PID except that instead of being controlled by the city or county, it is controlled by the property owners. It is ran by a board elected by the property owners located in the PUD and their existence is solely to provide utilities to the community.
Tax Increment Reinvestment Zone
TIRZ is a bit different in that the developer pays for the development cost upfront and are then repaid by the increase in tax value. Basically the idea is that the undeveloped property will have a low tax value and as the property is developed the tax value will increase and the developer is reimbursed from this additional tax revenue. This option is more common on commercial projects.
So How Does This Affect Me?
As mentioned previously, these can affect a homes value so be sure to keep this in mind if you are considering one. If you do decide to buy a home in one of these districts there are certain obligations that the seller must adhere to. Sellers in these areas must give the buyer a disclosure before signing a the contract. Typically the disclosure can be obtained by the taxing entity.
If you want to learn more the State of Texas has put out a <a href="https://www.tceq.texas.gov/downloads/water-districts/guidance/gi-043.pdf" title="Texas Water Districts: A General Guide" target="_blank">guide</a>.
If you want to know what areas are within these districts you can see <a href="https://tceq.maps.arcgis.com/apps/webappviewer/index.html?id=04bbf8b322b34d8abaea7b06996d3775" title="Water Districts Viewer" target="_blank">here</a>.
As always, the team here at BlackJack Realty is happy to answer any of your questions or help you with your next move. Please <a href="https://www.blackjackrealty.net/contact/">reach out to us</a> if we can be of any assistance. 2023-03-06T12:15:00-07:002023-03-15T07:14:10-07:00DC Turnertag:blackjackrealty.net,2012-09-20:16371The Ins and Outs of Title Insurance
If you have ever bought a home you have probably purchased Title Insurance or maybe it was purchased for you. The vast majority of real estate transactions will include this policy. If there is a loan involved, the lender will require you to have title insurance. So what is it?
An Insurance Policy for Title?
Title insurance protects the home purchaser from defects in title. It protects your ownership of the property. When buying a home the title company will perform a title search. They will check county records and public data in order to determine the history of the property. Who owned it and when, what liens have been placed on the property, if the liens were paid off or if any lawsuits have been filed against the property. This is important to ensure the seller has the proper rights to sell the property and nobody additional can come along and claim otherwise.
Provided that the title is clean, the title company will issue a insurance policy that protects the buyer from any claim that may arrise. For instance, say a long lost relative of a previous owner comes along and claims they actually inherited the property. The title policy would provide you an attorney to fight the claim in court and potentialy pay you back the purchase price of the property. Another common example would be a lien. Maybe the previous owner took out a second mortgage to put in a pool or remodel the kitchen but that lien never got filed with the county. Then after buying the home the lien gets filed. The lien stays with the property so the buyer would be on the hook for it. But with title insurance the buyer is protected and the insurance policy will take care of the lien.
What's the Cost?
The cost for title insurance in Texas is set by the Texas Department of Insurance. As discussed in our article about <a href="https://www.blackjackrealty.net/blog/what-are-the-closing-costs-for-selling-my-home/" title="What are the closing costs for selling my home?">seller closing costs</a>, the formula is a bit complicated. See below.
<img src="https://assets.site-static.com/userfiles/2763/image/blog_images/Title_Insurance_Cost.JPG" width="972" height="548" alt="Title Insurance Cost" title="Title Insurance Cost" />
One thing to note is that this cost is a one time cost. Unlike other insurances, you don't have to renew it every year. It exists for as long as you own your home.
Who Pays for It?
The cost of title insurance in Texas is negotiable. Either the buyer or the seller can pay for it, although traditionally it is paid for by the seller. Basically it is the seller guaranteeing that there aren't any defects with the title. But in a hot sellers market with multiple offers it is not uncommon to see buyers paying for it themselves. On rare occaisions the cost might be split by the two sides.
Another important aspect to this is that technically there are 2 title policies if there is a loan. One is the owner's title policy and the second is the lender's title policy. The title company will do what is called a simulatanious issue which keeps you from having to pay for it twice. The lender policy will only cost an additional $100. This allows both the buyer and the lender to be protected in the event of a claim.
Endorsements
Endorsements are add ons the policy. Some of the more common ones are:
Area and Boundry Exception - This one adds additional coverage to include the property boundries. It protects you in case there is a dispute over the boundries such as where the fence is located or driveway, etc. We recommend all clients include this coverage.
Tax Amendment - Often required by lenders if the property taxes aren't paid yet.
Condominium Endorsement - Provides coverage that the condo is actually part of the condo association.
Planned Unit Development Endorsement - Protects lender for properties that are in a convent or home owners association.
Minerals Endorsement - Protects the property if there are mineral leases.
The endorsements purchased will mostly be decided by the lender and the circumstances of the property.
What Do I Do If I Need To Use My Policy?
If you are buying a home in Texas it is important to understand what this couple thousand dollars is purchasing you. Also important to know is what to do if and when you need to use it. Simply call the title company that closed your home and they will assist you. They will get you in touch with an attorney to protect you. The title company issued the policy and their attorney is most likely who will be handling the issue.
Hopefully you now have a better understanding of what a title policy is and what it covers. Please <a href="https://www.blackjackrealty.net/contact/">contact us</a> if you have any questions. As always, if you are looking to buy or sell a home please reach out to us. We will gladly assist you. 2022-12-23T16:48:00-07:002023-03-12T07:16:28-07:00DC Turnertag:blackjackrealty.net,2012-09-20:16025What is My Option?Why am I paying an "Option Fee" and what is it for?
If you have ever bought a home in Texas you are probably familiar with the terms "Option Fee" and "Option Period". But do you know what they mean and why you paid that fee? I will attempt to break it down so that this often confusing concept becomes clear as day.
Paragraph 5
One of the most impactful parts of the <a href="https://www.trec.texas.gov/agency-information/contracts" target="_blank">Texas residential sales contracts</a> is Paragraph 5. This paragraph is long and has a number of items in it, but we will only be discussing part of that paragraph today. Section A states "Within 3 days after the Effective Date, Buyer must deliver to (Escrow Agent) ______ as the Option Fee."
<img src="https://assets.site-static.com/userfiles/2763/image/TREC_20-16_Paragraph_5_A.JPG" width="715" height="102" alt="TREC Paragraph 5 A" title="Option Fee" style="display: block; margin-left: auto; margin-right: auto;" />
Section B then states "For nominal consideration, the receipt of which Seller acknowledges and Buyer's agreement to pay the Option Fee within the time required, Seller grants Buyer the unrestricted right to terminate this contract by giving notice of termination to Seller within ______ days after the Effective Date of this contract (Option Period)." Boy is that a mouthful.
<img src="https://assets.site-static.com/userfiles/2763/image/TREC_20-16_Paragraph_5_B.JPG" width="715" height="116" alt="TREC Paragraph 5 B" title="Option Period" style="display: block; margin-left: auto; margin-right: auto;" />
Your REALTOR® should consult you on this fee and the time period and explain the ramifications. But that doesn't always happen so we are going to break it down for you.
Inspection Contingency or Due Diligence Period?
Other states have different rules and laws regarding inspections and their contracts have different provisions on what is allowed and what isn't allowed. I have often heard people in other states refer to this as Inspection Contingency or Due Diligence Period. Texas has neither one of these in its residential sales contracts. Instead, Paragraph 5 outlines a blanket termination option. This means that during the specified timeframe, the buyer can terminate the sale for ANY REASON whatsoever. In fact, they don't even have to give a reason. That is what Paragraph 5 lays out. By using the term "unrestricted right to terminate" the buyer is allowed to walk away from the purchase. They will receive their Earnest Money back and are free to move on to another house or not purchase anything.
This Option Period essentially acts as a Inspection Contingency or Due Diligence Period. The buyer will typically use this time period to complete any inspections they require. They might also use the time to firm up their financing. Or maybe they will continue to shop houses in case a better comes along, although I recommend against this.
How much is the option fee?
The option fee amount is negotiable. The contract has a blank for the amount. So what is a reasonable amount? Well that depends and is constantly changing. When I got started in this business the amount was most commonly $100. By paying $100 you could have full purchase rights for a number of days. The sellers couldn't sell to anyone else that came along even if they offered more. The buyers, on the other hand, were able to walk away whenever they felt like it and all the sellers would have to show for their lost time was $100. Not very fair to them.
Shortly after I started, the market started to heat up. The 2008 recession was officially over and we entered a sellers market for the first time in several years. We quickly saw the option fee rise. Now $200 or $250 were pretty common. In a multiple offer scenario we would maybe see $500 or so but that certainly wasn't the norm.
Everything changed in early 2020. COVID-19 led to a run on real estate. We saw crazy bidding wars. For the next 2 years we saw $500 becoming pretty normal. With the bidding wars some buyers began offering insane option fees. $1,000 was not uncommon but $2,000 wasn't unheard of. Heck, I even heard of some cases of buyers offering $10,000. To me that is just crazy. I would never recommend that to a client. The option fee is completely NON-REFUNDABLE. If the buyer cancels they don't get this back. If they find out the house has mold or the foundation is collapsing they don't get that money back. Typically, I think an option between $200 and $500 is sufficient depending on the situation.
Timeframe
The length of the option period is again open for negotiation. It has traveled in the reverse of the option fee. As the option fee went up, the days typically went down. Again, back when I started 10 days was pretty standard. It shortly thereafter changed to 7 days or maybe 5 in a multiple offer situation. In the pandemic market we saw this often dropped to 3 days or even less.
When I am writing an offer for a buyer I often base the length on days of the week. I don't like to spend my weekends and holidays negotiating repairs. As such, if I am writing an offer on a Saturday and I put 7 days for the option period, I know that I will probably spend my next weekend negotiating. Instead I will shift the days to either end on Friday or on Monday depending on the circumstances. I will also make note of that when I deliver the offer to the seller's agent since they will likely appreciate that forethought.
One thing to note is that Paragraph 5 Section B states "Notices under this paragraph must be given by 5:00 p.m. (local time where the Property is located) by the date specified. This means that the option period ends at 5pm on the last day, not at 11:59 pm. When determining contract dates, it is important to note that the day the contract is fully signed by everyone (executed) is day zero. For instance, if buyers and seller sign the contract on the 5th of August, then the 6th is day 1, the 7th is day 2 and so on. So if the option period is 7 days, the option period would end at 5 pm on the 12th of August.
Is there always an option period?
Sometimes buyers will forgo the option period in a multiple offer situation. While some may think this is foolish, there are often other contingencies that can take the place of the option period. Things such as financing contingencies, seller disclosure notices and HOA documents can allow the buyer plenty of time to have an out without needing to pay the option fee. A good seller's agent will negotiate to remove as much of these as possible, but a good buyer's agent will try to keep them in.
Another thing to keep in mind is the time period to deliver the option fee. If you look back at Section A of Paragraph 5 it states "Within 3 days after the Effective Date, Buyer must deliver to (Escrow Agent) ______ as the Option Fee." As I mentioned before, the effective date is day zero so you have 3 days to deliver this to the escrow agent. Paragraph D then states "FAILURE TO TIMELY DELIVER OPTION FEE: If no dollar amount is stated as the Option Fee or if Buyer fails to deliver the Option Fee within the time required, Buyer shall not have the unrestricted right to terminate the contract under paragraph 5." So if you don't get it delivered in time, then you don't have an option period. Another little tidbit in that is that the buyer MUST pay a fee in order for them to have an Option Period. I have occasionally been told by seller's agents that the seller doesn't want an Option Fee but the buyer can still have the Option Period. This is very common with institutional sellers and relocation companies. So while the sellers may not want the fee, there MUST be one in order for the buyer to have the right to terminate.
<img src="https://assets.site-static.com/userfiles/2763/image/TREC_Paragraph_5_D.JPG" width="683" height="42" alt="TREC Paragraph 5 D" title="Option Fee Failure to Deliver" />
In conclusion...
Hopefully you now have a better understanding about the Option Fee and Option Period. If not, <a href="https://www.blackjackrealty.net/contact/">please reach out</a> to us and we can answer any questions you might have. Whether you chose to work with us or another brokerage, make sure your next REALTOR® understands the in's and out's of this vital part of the Texas residential real estate transaction.2022-12-12T13:09:00-07:002023-08-03T13:08:11-07:00DC Turner