It’s a new world today for real estate professionals, a far cry from the unrealistic go-go life before the recession.
In the wake of the housing debacle and worst economic downturn in more than 70 years, real estate agents are back to the basics of doing business: working with homebuyers to find houses and mortgages based on what they can truly afford, not what they aspire to.
There’s a lot more paperwork, more regulations and more scrutiny of everything, and the process can take longer with more hurdles to jump through. But the result has been a better transaction in the end.
“I have seen nothing but a positive impact on my business and the dealings of my clients,” said Robert Blake, a broker at Hunt Real Estate Corp. “People are buying homes that they can actually afford.”
Real estate agents say they haven’t been directly affected by stringent new government oversight that was put in place to reform the industry. There is still continuing education and similar requirements for agents, though no new licensing or standards. But there are strict new rules governing lenders, appraisers and others in the industry that real estate agents have to be aware of.
“Without question, most of the scrutiny that comes down from regulation has gone toward the mortgage market,” said Jean-Michel Reed, a broker at Gurney, Becker & Bourne. “So what we’ve seen as Realtors is having to deal with the increased pressure on the mortgage market and appraisers.”
On the other hand, there are plenty of changes in how real estate agents serve customers, particularly related to technology.
“A lot of people don’t want to talk face-to-face anymore. It’s a lot of emails or text messages,” said Rafael Toledo, a broker at Nothnagle Realtors. “We have a client we’re dealing with. He wants to buy two houses, and we haven’t talked to him once.”
M.J. Peterson Corp. brokers Tammy Capozzi and Mike Watts, a wife-and-husband team, remember when brokers relied on the old multiple-listing books that came out every two weeks, the HomeFinder ads in the newspaper or a sign on the lawn to market a house.
“Now you list a property, the sign goes up, you put it up online, and it immediately goes live within seconds,” she said. “Everybody sees it.”
And the days of real estate brokers being the sole or primary funnel for information and deal-making are also gone – yet another result of the Internet’s ability to empower people. Now, consumers can do their research, find homes for sale, assess the correct value and get a mortgage online, all from home.
“More buyers are doing their own research and coming to a Realtor with more knowledge, and overall, that’s a positive thing,” Reed said. “Buyers have more information about values, such as how long something has been on the market, where before that was information that the Realtor held.”
No notes from mom
The nation’s economy was brought to its knees five years ago, as the bursting of the housing bubble and crash of the market in 2007 combined with a global financial crisis and the worst national recession in decades.
Much of the debacle was blamed on a mixture of careless lending, overconfident borrowers, deception and outright fraud, as demonstrated by loose mortgage underwriting, disregard for borrowers’ ability to pay and the pursuit of profits at all costs.
Lawmakers and regulators across the country, outraged over what they saw as the egregious behavior of major banks, Wall Street, mortgage brokers and appraisers, responded aggressively with new laws and rules designed to reign in the worst abuses.
Now, five years later, housing professionals are adjusting to the new world order. Gone are the days when borrowers barely had to provide any documentation or demonstrate their financial means.
Blake recalls having purchasers bring notes from their parents stating what they paid per month to rent a bedroom in the basement and then using such notes to justify getting a mortgage.
“Can you believe it? It’s true,” Blake said. “How confident would you be if you were selling your home to a purchaser that was unemployed or came with a note from mom saying he promises to pay the mortgage?”
Also gone is the ability or willingness of appraisers to agree to almost any value for a home simply to close a deal. Nervous appraisers, who “were really stuck out there in being complicit in the collapse of the real estate market,” instead became “excessively cautious,” Reed said. “It’s changed quite a bit since 2007 and 2008.”
The result was that a lot of appraisals have come in well under the deal price, as Western New York appraisers felt the nationwide heat on their industry. So the deal either collapses, or the price is renegotiated down.
“Before, you knew any appraisal would be OK. Now, they’re really being scrutinized, so we have to make sure,” said Hunt broker Robyn Cannata. “There are more deals lost today than there were five years ago because of the appraisal. It’s made everyone pay attention to that stuff more than in the past.”
Real estate agents also can’t just rely on one home inspector for all of their deals. Now they have to give clients two or three to choose from, so it doesn’t look like the broker is “guiding the decision,” Cannata said.
Regulations have also tightened up considerably on the loan side, with new requirements for lenders and mortgage brokers and limitations on what kinds of mortgages can be offered and what terms are allowed. Points and fees on so-called “qualified mortgages” have been capped, and there are limits on how much debt borrowers can take on relative to their income.
“This business has gotten very difficult,” said Thomas J. Liolos, branch manager in Buffalo for Paragon Home Loans. “It’s really, really tough. It’s keeping up on all the compliance issues. Customers are getting frustrated with how much paperwork they have to fill out during the process.”
“I like it,” said Blake of Hunt Real Estate Corp. “The buyers are better qualified. The pre-approval letters are much stronger. We know what we’re looking at, and the clients know what they’re looking at.”
As a result, real estate agents have to educate their buyers up front about how the home buying and mortgage process now works and how much longer the processes may take.
Agents are also working extra hard to guide their stressed home-buying clients, who must often make offers on several homes before winning one because the low inventory means a lot of competition for the good houses that are available. Meanwhile, they have to work equally hard to counsel the sellers, rein in expectations and properly “stage” a house to make it rise above the competition.
“It’s just a market that you have to work really hard in, which is good for the region,” Reed said. “It’s trying to manage their expectations in a really strong market.”
They must also be creative in working out solutions to problems that can scuttle a deal, such as how to cover repairs and closing costs.
“We’re doing a lot more creativity,” said Capozzi. “Everyday there’s something new.”
While the rise of websites such as Trulia.com and Zillow.com has empowered consumers, agents say those sites are largely unregulated and full of inaccuracies. So brokers must also do plenty of education.
“On the one hand, it’s good, because it gives them some knowledge of what other homes are selling for. But those websites aren’t held to any standards, so if it’s the wrong house, there’s no ramifications,” Blake said. “It’s good and bad. The fleas come with the dog.”