Do Buyers or Sellers Pay the Buyer’s Real Estate Agent?

This has caused a great deal of confusion in the real estate industry and with consumers. Generally, a listing agreement between the seller and the seller’s listing agent specifies how much the listing brokerage will pay the selling brokerage for bringing a buyer.

Yes, you read that correctly. The seller, in effect, pays your buyer’s agent to negotiate on behalf of the buyer, not the seller. C. A.R. buyer broker representation agreements state that if anybody other than the buyer pays the commission, then the buyer is relieved of the obligation to pay it.

There are instances where a buyer may pay a brokerage directly such as when there is no commission offered because the property is a for sale by owner. But typically the commission is paid by the seller to the listing brokerage. The listing brokerage divides the commission in some fashion with the broker of the agent who brings an offer.

Buyer’s Agents Usually Do Not Work for Free

When you ask a buyer’s agent to show you property, you are implying that you will eventually write an offer through that buyer’s agent.

Procuring cause is a complex process that determines which buyer’s agent is entitled to a real estate commission when a buyer works with more than one agent. Generally, the agent who writes the offer gets paid.

Therefore, if you ask an agent to spend weekends driving you around, sharing knowledge and helping you to select a home, it is only fair to be loyal to that agent.

What You Should Know – The 203k Loan Process:

In simple terms, the 203k loan is a type of home improvement loan program insured through the FHA that works by allowing homebuyers the ability to finance the purchase and costs of upgrades through one single mortgage. The 203k loan can also work as a refinance option for homeowners who want to add basic cosmetic or structural improvements to their home. The 203k Loan Process

It is important to remember that neither the FHA or HUD do not actually lend the money to a borrower. Instead, the FHA “Insures” a loan that is provided by an FHA approved lender.

While the borrower eligibility requirements for a 203k loan follow standard FHA lending guidelines, there are a few extra steps involving a contractor, inspector and HUD consultant to ensure the property meets FHA’s insurance standards.

The Renovation and Loan Process

We have highlighted the primary steps of how the 203k loan process works below to serve as a general reference guide, so please don’t worry about a test at the end of this chapter.

Step 1 – Meet With A 203k Mortgage Lender

Many home buyers may rush out to look at properties before speaking with a qualified Renovation Loan Specialist, which obviously may present some future challenges after a purchase contract has been accepted by a seller.

Our initial conversation with a borrower starts with the basic loan qualifying questions, such as budgeted down payment, total loan amount, employment, income and credit history.

Once we get a picture of the borrower’s lending scenario, we start drilling down on the property and home improvement requirements to determine which loan program best matches short and long-term financing goals.

Our best advice would be to please have your real estate agent contact us first to ensure you fall in love with a property that qualifies for this program. With a little insight, your agent may even be able to help you find a better deal on a home that can be renovated to your specific needs and wants.

Step 2 – Preliminary Market Analysis

With your loan pre-qualification letter prepared stating the terms and a maximum loan amount that fits your budget, it is time to start searching for properties.

Once you’ve found a potential property, a Preliminary Market Analysis can be completed by your real estate agent and with the help of a contractor and 203k Consultant to help get an estimate of what the property’s projected value might be after the renovation is complete. This should be performed prior to signing the sales contract and before you commit funds for an appraisal.

The market analysis should include:

• The extent of the rehabilitation work required (Contact a 203K Consultant)
• The rough cost estimate of the work (Contact a 203K Consultant or/and Contractor)
• The expected market value of the property after completion of the work (Contact a Real Estate Agent)

Step 3 – Writing The Sales Contract

A provision should be included in the sales contract that the buyer has applied for FHA 203k financing, and that the contract is contingent upon loan approval and the buyer’s acceptance of additional required improvements as determined by HUD, the Appraiser and/or the Rehab Lender.

Step 4 – Work Write-up, Cost Estimate and HUD Case #

With the Consultant’s help, a feasibility study and preliminary cost estimate is used to produce the SOR – Specification of Repairs. After having refined and determined the specification of repairs, the Contractor submits the bid for repairs.

At this point the lender will request the HUD Case number and the project will now move quickly to the appraisal stage.

Note: HUD does not require a Consultant on a Streamlined 203k loan (a rehab with minor repairs that total less then $35,000 and/or that does not include structural repairs). However, the experience and value of the consultant’s advice can often save more than the fees charged for the service.

Step 5 – Lender Prepares/Issues Firm Commitment Application

After the appraisal and the contractor’s bid have been accepted, the lender will issue a Conditional Commitment and Statement of Appraised Value to establish the maximum insurable mortgage amount for the property. The 203k Loan Process

Step 6 – Mortgage Loan Closing

Note To Real Estate Agents – This is a typical closing where the buyers would sign final loan documents and the close of escrow date is met, which is also when the real estate agents are paid and technically done with the transaction. To meet the COE deadline with as little anxiety as possible, we ask our agents to let us drive the bus from steps 4-6.

Note To Buyers – The mortgage closing is where the lender prepares the Rehab Loan Agreement and other pre-closing documents required for the mortgage closing. The Agreement is executed by both borrower and lender, and establishes conditions under which the lender will release funds from the Rehab Escrow Account.

A few of these conditions include the construction draw schedule, fees schedule, work item change orders and identity of interest statement.

Step 7 – Construction Begins

At closing, mortgage proceeds are disbursed and the Rehab Escrow Account is established. Construction may begin immediately, and must begin with 30 days of closing.

Step 8 – Funds are Released from Rehab Escrow Account

Funds are disbursed to the various contractors according to the Rehab Lon Agreement. Changes to the work write-up are made through written change orders and are typically inspected by the Consultant or Lender’s Fee Inspector. A final release of the funds confirms the substantial competition of the rehab.The 203k Loan Process