So You Wanna Buy a For-Sale-By-Owner (FISBO)?

Being in the real estate business you can't avoid things like For-Sale-By-Owner properties, they are part of the territory. Also known as FISBO's (pronounced "fizz-bow'), one might think that they can get a bargain if they are trying to buy one of these properties. Unfortunately, that is not always true. Typically, in my experience, it's rarely true. What is true, however, is that people who try to sell their homes on their own and Realtors don't get along very well.

Almost everything in life comes down to numbers, or math, in some form or another. Such is usually the case for the seller who just wants to sell his home on his own. So why do people decide to try to sell their homes on their own? Because they think they can save money. That's pretty much it. For-Sale-By-Owners think they can cut out the listing Realtor, and possibly the buyer's agent as well, and save a bunch on commissions. But can they? And can a buyer get a "deal" on a FISBO? Are there other concerns?
 
First off, it's important to understand that homes are rarely sold in an arms-length transaction without the use of a Realtor. Why is that? Well, let's say the seller doesn't want a Realtor to list his home; he want's to try and sell it on his own. That's fine. However, almost all buyers, the savvy ones anyway, have their "own" agent, a buyer's agent. Rarely will buyers undertake such an important transaction without having someone to guide them. Why should they? Why would they? Considering that buyers rarely, if ever, have to pay their agent, why wouldn't they engage the services of a knowledgeable buyer's agent? Well, they would. So, what
normally happens is that these buyers are paired up with a buyer's agent and either the agent, or they, come across a FISBO. What now? As I said, buyers don't normally "pay" their agent. This is because in most situations a buyer's agent's fee is included in the price of the home, paid (shared) by the listing agent, for any home that is listed on the MLS (multiple listing service). So, you have a situation where the seller, in this case, is not a Realtor (agent). That means the FISBO seller has no agreement to pay any fees (or commissions) to anybody. However, will buyers look at a FISBO knowing that their agent may not get paid? Will buyer's agents show a home if they are not going to get paid in the end? Can you see how complicated this can get?

In reality, most FISBO sellers will agree to pay a "buyer's agent," they just don't want to "list" the house and pay "full commission." Most of them are aware that if they don't offer a fee to the buyer's agents it will be difficult to get showings and difficult to sell. So typically FISBO sellers will say "Realtor's welcome," or "will co-op," both of which mean that they are willing to pay the agent who is representing the buyer. So in essence, they may save partial commission, the commission that they didn't pay the listing Realtor. So is this a good deal for a buyer? I mean, if the seller doesn't have to pay a "full" commission, they will sell the house for less, right? Hardly. Did I mention that most FISBO sellers are  mostly motivated by money? 99% of the time if a buyer purchases a For-Sale-By-Owner the seller just pockets the extra commission they saved by not paying their own Realtor. Savings rarely get passed on to the buyer. So where are the savings to the buyer? Typically, there aren't any. In addition to not getting a discount from a FISBO purchase, sellers who attempt sell on their own notoriously over-price their homes. They always think their houses are better than the ones up and down the block. And occasionally they have some strange ways of coming to their asking price. Rarely does a FISBO seller accurately price their home due to lack of understanding, lack of knowledge, or just plain stubbornness. Ultimately, these homes are NOT a value for a buyer. And along with over-valuing their homes and being overly -thrifty (read: cheap), they usually do not understand how to negotiate a sale and they also rarely budge on their asking price. (Note: many FISBO sellers are not very motiveated to sell, either).  And some FISBO sellers seem downright paranoid that some  pesky buyer's agent is trying to get his clients, the buyers, a fair price on a home. That doesn't seem to resonate with most FISBO sellers that I've encountered. In the end, if the sellers save a few bucks on commission and sell for what they want, don't they save money? Isn't that goal in the first place?

Well, the answer is really "no." The main problem with true For-Sale-By-Owner homes is that they aren't marketed very well, if at all. Even with the internet it is difficult to find a For-Sale-By-Owner home, even if you are looking for one. These sellers are competing with the marketing power of thousands of Realtors in their local market. The bottom line is that buyers rarely find these properties. And that means they sit on the market, and eventually they end up being listed with a Realtor anyway. I would guess that 90% of homes that try to go FISBO end of being listed eventually (I read that stat just today). That means that the seller will now have to pay "full" commission anyway. And what about all of the lost market time, where the house just sat? It seems like, to me, that FISBO sellers who eventually list with an agent do so after six to twelve months. That's more mortgage payments, more upkeep, and potentially missed opportunities to buy something else because you couldn't sell your home fist.
In the end, there are rarely any savings to be had if you are a buyer considering buying a For-Sale-By-Owner home. But if you must buy one, proceed cautiously, know the value, and make sure you have a buyer's agent!

Can a Buyer's Agent Help if I Want to Build a New Home?

So that's a question we agents get sometimes. We sure can. Many home buyers don't know that Realtors are a very valuable resource to someone who is considering building home, or buying a an "inventory" home (A.K.A. a "spec" home). Did you know that greater than 50% of people who build or buy a new home in this area use a buyer's agent? I'll bet you didn't!

Many people think that a "Realtor" can't really help them with a new-build property because Realtors just "sell homes." But that's not really true if you have a buyer's agent (or in my case, an exclusive buyer's agent). So what can a buyer's agent do for you? Can they really bring "value" to the purchase of a new home?

First off, it's important to understand that almost all builders are "friendly" with Realtor and will pay a "co-op fee" to a buyer's agent. This is built into the price of the new-build. Did you know that? In the old days it was possible that you might be able to "knock this off the price" if you didn't have a Realtor, at least with some builders. However, builders don't do that any more. The good ones, IMO, never did. These days it's just part of the price. If you, as a new-home buyer, don't have a buyer's agent the builder simply pockets the money that is included for your buyer's agent's fee. It's just like having a Realtor on a resale house. The fee is already in there so why wouldn't you get your own representation, somebody looking out for you? Why wouldn't you engage the services of somebody who understands the process and will be there on your behalf?

The other thing new-home buyers need to understand is that the builder representative, or the Realtor who might be working in that model, always represents the builder. Their job is to sell you one of their homes and sell you options. Nothing wrong with that, it's their job. Most of them are very professional and knowledgeable. However, they are biased for their company and aren't likely to tell you any negative sentiments about them or tell you about the positives of another builder. There primary job is to represent the builder and protect the builder's interest. So you should have somebody protecting yours.

So what kind of things can a buyer's agent
do for you if you want to buy a new-build home?

• Most buyer's agents are familiar with most, if not all builders in the area. They usually have contacts at the larger builders and they know the key players.

• A buyer's agent can tell you the differences between builders. For example, what price point they build in, what style of home (production, semi-custom, custom), what materials they use and what is good/bad, who is easy to deal with, who is not, who is higher quality and who is not, etc.

• A buyer's agent can help you through the process and tell you what to expect from the beginning. Many buyer's agents like myself have helped many buyers with new-build homes and have even been through the process personally. I know I have.

• A buyer's agent can help you pick options by suggesting things that you have not thought of since they have been through the process before. They can also tell you why you should/should not add/subtract certain options from a resale perspective. And they can usually tell you what options other buyers like and which may add value to the home.

• A buyer's agent also acts as a "go between" between you and the sales rep or the superintendent. Sometimes you may not have time to deal with an issue or you may not understand an issue that has arisen. A buyer's agent can take care of the problems for you that you are not able to address due to time or lack of understanding.

• A buyer's agent will be there for all meetings with the builder salesperson, superintendent, or otherwise. I also visit your lot weekly, give you a progress update, and take pictures of the home as it is being built. This gives you a pictorial record for future reference and also allows concerns to be more easily addressed.

• A buyer's agent will help you schedule at least (2) home inspections, done by an inspector of your choice. Did you know you should have your own independent inspection, even on a new build? That's right. And a buyer's agent will help you negotiate the problems that arise from the inspections.

• A buyer's agent can help you pick the right floor plan based on your needs, the right subdivision based on your needs, and can help you with lot-orientation and with picking the right lot. There are some lots you absolutely do NOT want to have. There are some floor plans that may be very hard to resell or that may be better for you based on your needs and desires.

• And yes, a buyer's agent can help you negotiate the price of a new build. Granted, there isn't normally as much negotiation as with a resale property but there is usually some room for negotiation. This is especially true of a an inventory home, a home that is already built and is completed or almost completed. Many of those will sell for much less than the asking price because a previous buyer has backed out and the builder wants to move it from their inventory.

• Some builders offer "bonuses" to a buyer's agent, like extra commission, gift certificates, big screen t.v.'s, and even vacations. A good buyer's agent, like myself, will usually pass these incentives on to the buyer. After all, you are really the one who deserves any incentives because it's really your money that's paying for them!

So if you are considering buying or building a new-build home please consider using somebody who has experience helping buyers like yourself and who will be there as your advocate throughout the entire process. I guarantee you will be glad you did.

The Life of a Realtor Part 1

Back in 1995 a friend of mine told me he was going to open his own real estate company and asked me if I'd be interested in coming to work for him as an agent. I had no real experience in the real estate field and not really any experience in "sales." But I was interested in houses, how they were built, how neighborhoods were put together and I liked working with people. I liked watching HGTV. So I made one of the few really risky moves in my entire life, against the advice of a few others. I went to real estate school, got my license, quit my comfortable, secure job with the county government, and went to work for my friend at his brand-new company. And I stepped out into the world of working for one's self and humping for commission.

My conversation with my friend, who eventually became my broker, was over 16 years ago. Initially, I thought a career in real estate would be a "good opportunity" but likely just be a stepping stone to my next "career move." I honestly never thought I'd be in this business this long. And it appears that I'll be sticking around for as long as the economy allows. For the first ten years in the business I learned and honed my craft and became a successful agent for my friend's company. And for over five years now I have been the broker and owner of a successful (non-franchise) real estate company, with no plans to do anything else any time soon. I pretty much started the company from scratch and made it work.

I remember asking my friend "what's a normal day as a Realtor like?" To which he said "There is no "normal" day in this business. Every day is different." So I pressed him, "Well, what do you do all day?" He Said, "It depends. Every day is different. Some days I'm out showing homes, some days I'm in the office doing paperwork. It just depends." That answer left me with more questions than answers. Eventually, as I got my wings as a new agent, I learned what he meant. No day is ever the same.

The nice thing about being a Realtor, especially if you are the broker/owner, is that you can pretty much do what you want, when you want. Now before you rush out the door to sign up for your classes, there are limits. You really can do what you what when you want. However, if what your doing and when you are doing it isn't leading to any income you soon find that there are limits to how you do what you do. What you can do, what you have the freedom to do, is find a way to be successful. You have the ability to be creative and find ways to make things work for you. You have the ability to be your own boss, to make decisions completely by and for yourself, and to also reap the rewards of those decisions, or suffer the consequences. And if you step out to try an idea there is probably a better chance that it won't work than it will. So you dust yourself off and try something else. It's a pattern I have repeated over the years. Find what works by trial and error. And then when find something that IS successful, don't sit on your laurels. Find something else that works as well. But try something, try anything. And remember the old adage: it takes money to make money. If you don't believe that then you wouldn't make it in this business.

But I digress. So, every day is a little bit different. Some days are scheduled and regimented, others allow more flexibility to catch up on paperwork, work on some marketing, go buy office supplies, or catch lunch with a lender or a friend (or both). Some days start at 8:00 a.m. and end at 10:00 p.m. Many times I've left the office after everybody in my building is gone and the crickets tell me "goodnight." When it's busy it's not uncommon for me to eat dinner after my kids are in bed and most of the day is gone. Some days I put it 8 hours of work but it takes 12 hours because I squeeze in other things: personal appointments, kid things, stuff like that. Sometimes I'll work most of a day, go see my daughters' (x 2, same team) soccer game and then go back to work. Sometimes I'll work in the office all day, go home at dinner time, and then work in my home office for a while. Some days I'm on showing appointments or home inspections most of the day. Other days I have appointments in and out of the office so I come and go. Once in a great while I'll take the afternoon off an just go goof off. Don't worry, I always make up for it later.

Some days all I do is work on client files and get caught up on contract issues and paperwork. Other times, like now, I'm caught up on that stuff so before I have to leave for showings I work on my blog, or my company Facebook page, or I revise some document I use or I create a new document of some sort. On the days that I'm caught up on client files the sky is the limit. Sometimes I'm extremely productive, sometimes I'm not that motivated. Remember: I can do what I want when I want. And since I'm my own boss I sometimes don't feel like working! YouTube comes calling and I zone out for a while. But usually just for a while and it's back to work.

Realtors don't have "normal" hours, either, or "normal" days off, for that matter. We are expected to be available from sun up to sun down (and then some), seven days a week, to service our clients. Now, it's not always like that, and every client isn't overly-demanding. But the industry has created a model that basically says that real estate business goes on seven days a week. We do not have "business days" like other people have. We're like doctors who are on call and all of our clients are like patients. We need to be there for them. But it's the sacrifice we make because we believe in what we do and we enjoy our careers. Holidays, you say? Well I normally get Christmas, Easter and Thanksgiving off. But I've probably worked every other holiday at one time. I've negotiated contracts on Christmas eve, shown houses on labor day, and met a client on the 4th of July. A few years ago I even stepped away from my daughters' birthday party to negotiate a transaction with the other (impatient) agent. I won't do that again.

Being a Realtor, and especially a broker/owner means I have to wear several hats. I am a counselor. I counsel people on their decision about buying a home. I help them understand the financial implications of owning a home as well. So I know a little about lending and investing. I also have to constantly negotiate contracts and home inspection issues so I'm a negotiator. I have to try and understand people and sometimes predict how things will turn out so I'm bit of a sociologist, psychologist and a soothsayer! As a broker, I have to manage the business, make financial decisions, pay bills, and clean the office. And I have to be familiar with any legal changes that affect real estate and keep up on industry trends. I also have to train my agents occasionally.

I have to stay up on technology because our industry is very technology-driven, when you consider the information that is out there on web sites and the "speed" at which things move these days. I also stay sharp on home construction because I need to know what I'm looking at when my clients and I are considering potential homes. So I'm a bit of a home inspector as well.

In some ways, my most important job is to be a captain. I help people make their way thorough the sea of home buying, trying to avoid the waves, and give them a safe, comfortable, and memorable journey. And I do that while trying to make sure we don't get boarded by the pirates of bad experiences or sunk by cannonballs fired by resistant sellers, bad home inspections, or bad lenders. It's quite a job, if you ask me. In the end, though, we are normally sailing into the sunset on a bed of calm waters.

Stay tuned for more in the life of a Realtor.

Mold and Stucco

I've been meaning to post some information on homes with stucco that are having problems with mold. I had to collect some information first.

Typically, my feeling is that stucco is a very good building material. Real stucco (vs. synthetic stucco) is basically cement. Because of that, it's usually a good building material and it needs very little maintenance. Stucco has been used on houses Columbus, Ohio area for decades. and dates back hundreds of years to Europe. It does take a little maintenance, because it can crack and peel since it is cement, but it can usually be readily fixed. And it's practically impervious to weather conditions.

Home inspectors will tell you that in-and-of-itself stucco is a good building material. The problem that inspectors and builders are finding is that it's not being installed properly. What does that mean? Basically, it's not being sealed and/or flashed properly around windows and doors, and water is seeping in behind the stucco and into the interior walls of the house. This can, and has led to major damage to homes, including a proliferation of mold because the water is in the wall cavity and can't dry out. So you get homes that basically rot from the inside out in some cases, and that are harbingers for mold. All of this happens unbeknown to the home owner.

So is this something new? What changed? Stucco has been around for a long time, why are we just now hearing about this? It appears that they way they install stucco may have changed, and that may be based on builders methods or local building codes. However, one of my inspector friends says that this may be a larger problem than anybody knows because it's so hard to detect. There may be homes that were built many years ago that have issues yet the owners are unaware. And by the time it gets detected there can be serious damage that has already taken place. The Columbus Dispatch recently posted a couple of articles regarding the problem. One is from October 2010 and one is from December 2010. Here they are:

http://www.dispatch.com/live/content/local_news/stories/2010/10/30/house_mold.html

http://www.dispatch.com/live/content/home_garden/stories/2010/12/12/moldy-moderns.html

If you read these articles you'll see that stucco problems can be very hard to detect, as I mentioned earlier. And it also appears that this is not limited to any particular builder, price range or area. It appears that this can affect any home built just about anywhere.

If you take a look at the pictures below you will see something really interesting. These pictures were taken locally. First, look at the picture in the upper left corner. From a layperson's perspective it looks fine and normal. It's a little hard to see, but there doesn't appear to be anything wrong with the stucco from this view. Now look at the (2) pictures to the right. These were taken using an infared camera (I had my picture taken with this, camera, I looked like something from Predator). The camera doesn't detect water, it detects heat variations. A camera like this is useful for other applications as well, like heat loss from a roof, due to improper insulation, etc. Regardless, you'll see the blue in the pictures. Blue, meaning cooler. You would expect to see blue at the window, windows typically loose heat. But notice the stucco under the window. It is possible that there could be heat loss based on improper insulation in the wall cavities. However, the blue here was because of moisture, which is at a lower temperature than the wall or the stucco. And you can see that its basically in a drip pattern.

It the same scenario in the (2) lager pictures in the second row. Same house, same problem. Looks fine in the first picture, blue in the second picture, indicating moisture.

The next two pictures down show small cracks in the stucco. Are these the cause of the moisture? Likely not, because most of the problems are with the sealing around the windows. This is likely a crack caused by the water. Keep in mind these are just my interpretations of the pictures and the problem. I was not present when these pictures were taken.

The last two pictures show where water has affected the flooring and the framing in the home. It appears that this was not detectable without removing drywall. Again, it's really hard to detect.

My reason for posting this particular topic was to make sure that sellers, and especially buyers, were aware of these problems related to stucco. If you are a home buyer you need to know of things like this so you can better make an informed decision when purchasing a home. Because I work with only home buyers I try to stay up on issues like this for the sake of my clients. Information is power, especially when it come to buying a home. The more information, the better.

These pictures were provided by David Tamny, with Professional Property Inspection. If you have any questions or concerns please feel free to contact him. He has become somewhat of local "expert" on stucco and mold issues. FYI, there is no specific test or inspection for this sort of thing. Typically, an inspection can include a visual inspection, pictures with an infared camera such as this, mold testing by scraping and air-quality sampling, and more invasive procedures like removing drywyall, framing or wall board.

Here Today, Gone Tomorrow

I've been thinking about something that struck me the other day. Actually, it's struck me several times in the fifteen years I've been in real estate. What is it, you ask? Read on.....

There are many different types of people that choose to go into real estate. Many people get into real estate as a second career. Very few people start their professional career as a real estate agent. So, we get people from all walks of life. Some are the business-minded types, you know, the ones with MBA's that want to "start a business venture." There are the "salespeople," those who have had success with selling something else and want to try their hand at real estate. There are the "investors" who decide if they're going to make ongoing investments they might as well get their real estate license. And then, there are what I call the "opportunists." One can only imagine how their eyes widen and they begin to salivate as they run through their "business model" with their friend as they sip a grande latte at Starbucks. It all seems pretty easy: start with a giant, blazing marketing plan, position yourself as an "expert," get all the tools in place, jump in, and get rich quickly. Have you seen them? I have. What bothers me most about these types? They are all about slick marketing. They have the look, the style, and the confidence. Their websites are spot-on. They speak the lingo, they look the part. But in the end, they have no substance. And many times, they're gone as fast as they appear. Truly, many of these "opportunists" are nothing more than flashes in the pan. Maybe you need some help spotting one of them. Here are some things to watch out for:

First, they come on the scene out of nowhere. They seem to have a huge presence but it doesn't appear that they've been around very long. They seem to have answers for everything, how it all works. They seem very sharp and they are well-connected to technology. They use a lot of real estate buzzwords in their advertising and when they talk. They are usually young and tech-savvy. They have an err of impersonalness, very business-like. They might talk a previous "successful venture" that they were involved in. They seem to change companies a lot. They like to talk about "systems" and "investment potential" and things like that. They seem confident but always moving around, not satisfied with what they are currently doing. They position themselves as the ones who "know the tricks of the trade" and they talk about how they are "the top Realtor" in town. Don't get me wrong. Many of the previous attributes are good ones to have in a career like real estate. But there is a certain type, one who seems to possesses all those qualities and more. There's just something about them....

You can call it jealousy if you'd like. But honestly, I have a couple of issues with these types. First, they tend to attract unsuspecting buyers and sellers by their pitch. It sounds real good but when you get down to it there isn't a lot of substance. They don't back up what they say. Unfortunately, these types of Realtors do appeal to some people. Second, they are opportunists of the worst kind. Is there anything wrong with chasing an opportunity? Not at all. But those of us who have done this for a while know that the successful people in the business are in for the long haul. Many of these "opportunist" types have a short-term plan. Get in, make money, get out. Move on to the "next big thing." And in the meantime they seem to lack attention to detail and care little about service to their customer or their client. After all, everybody else is really just a means-to-and. You've seen these types, whether you know it, or not. You can't miss them. Because I am so unlike them, and because I've been around a while, I can spot them from a mile away. People in my profession who are committed to their craft and have chosen a career rather than a "money-making venture" know who these types are. We see them when they come, we watch them and then we see them go. And we're not surprised when they go. Some go unwilling via loosing their licenses and others just go, looking for the "next big thing" out there. But for the most part, they flash, and then they're gone. And our industry is better when they leave. Not only that, but the public at large is much better off.

If you are a buyer, or a seller, do your homework. Don't be a victim of one of these slickmeisters just trying to make a buck at your expense. Find out how long they've been around. Ask them if they've switched real estate companies and ask them why, if they did. Ask them what they did before they got into real estate. If they say they are the "best" Realtor, or "most successful," or that they've won awards, ask them how many transactions they've done. I checked on a couple of these opportunists and they had very average numbers, at best. Ask for references, many of them. Ask they whey they are in real estate and ask them what their philosophy is when it comes to buyers and sellers. I can tell you from experience if you ask them these questions and something doesn't feel right it probably isn't. Trust your instincts. Happy hunting!

Another One Bites the Dust, Part 2

So, my first blog posting a few weeks ago was regarding a case where a few Realtors, a builder, and some other people were convicted of fraud involving the purchase of real estate. Here is the follow- up story from the Columbus Dispatch on December 09, 2010. As I said before, I don't take satisfaction when others get punished but I am glad that justice was served here, for the benefit of the public at large and for the real estate community.

Realty agent gets 18 months in fraud case

Thursday, December 9, 2010 02:55 AM

By Kathy Lynn Gray

THE COLUMBUS DISPATCH

A real-estate agent for convicted builder Thomas Parenteau was sent to prison yesterday for helping Parenteau set up fraudulent real-estate deals in Franklin County and lying about it.

U.S. District Judge Michael Watson sentenced Bonnie Helt to 18 months for conspiring to commit bank fraud, then the same amount of time for conspiring to obstruct justice and tamper with witnesses. Watson ordered, however, that the sentences run concurrently.

Helt was indicted in June 2009 along with Parenteau and his accountant, Dennis G. Sartain, for a tax-evasion scheme and a plot to defraud lending institutions of millions of dollars.

Helt, 61, pleaded guilty in January to the bank fraud and obstruction charges.

As part of a plea agreement, she agreed to forfeit $124,544, the amount she earned in commission on the fraudulent deals.

Prosecutors had recommended a sentence of two years and nine months.

"She was one of the last of his (Parenteau's) co-conspirators to take responsibility for her actions and to offer to cooperate," the government's sentencing memorandum states. Greed led her into the conspiracy, it says.

"As the licensed real-estate professional in the transaction, she should have been the one to say 'no' to this conduct," it says.

William A. Settina, Helt's attorney, requested a sentence of nine to 13 months. He argued in court that his client was naive and unsophisticated, and didn't really understand until it was too late that what she was doing was wrong.

"Ms. Helt clearly was Mr. Parenteau's dupe, easily manipulated and too unsure of herself to object or question methods and motives," he said.

Settina said Parenteau used Helt's belief that she had spiritual powers and could talk to the dead to control her behavior.

Settina said Helt lost her home and her license to practice real estate, and has filed for bankruptcy.

Parenteau's sentencing date has not been set.

Sartain was sentenced to 11 years in prison. Co-defendant Todd M. Gongwer, also a real-estate agent, was given two years in prison.

kgray@dispatch.com

What Really Caused the Mortgage Crisis of 2008?

(note: this is a blog message that I posted back in October of 2008 when the market was truly in a crisis mode. I wanted to re-post it on here because I think it still has relevance, especially looking back to (2) years ago. Note my comment toward the end:

"In the future I guarantee that banks will make wiser decisions and there will be more oversight into how banks loan money."

I couldn't have been more prophetic. The Federal Government enacted sweeping bank regulations affecting mortgage lending that took affect on January 01, 2010. I wonder what else I said (2) years ago still resonates at the end of 2010?)

SNIP>>>>>>>>>>>>

October, 2008

Sure, you’ve heard all kinds of reasons why Wall Street is in crisis mode right now. Everybody has a reason as to why several prominent banks have failed. But I think it’s a little more complex than people think. Most people seem to be blaming it on “greedy executives.” I’ve got another take on this.

No doubt you’ve heard about “bad loans” and loan officers giving out some of these bad loans to “unsuspecting home buyers.” I am sure there are unscrupulous loan originators and mortgage people out there. Am I am also sure there some loan originators who were “casually” explaining the terms of their loan programs glossing over things like “adjustable” and “balloon payment” and the like.

So, many loan originators made mistakes, that's a fact. But who also should shoulder the blame? Maybe the consumer? That’s right, that “unknowing, innocent victim” that was taken advantage of by the loan officer with a pitchfork and a spiked tail. This crisis that is befalling Wall Street is partially caused by consumers who were getting loans but had no real ability to pay that mortgage. “You mean consumers knowingly got loans that they knew they couldn’t pay back?” (FYI, many of the buyers I have worked with had a budget and knew exactly what they could afford.)

I didn’t say the borrowers knew they couldn’t pay back the loan itself but I'm sure some of them knew that the amount of the loan and the payment "seemed kind-of high." I am also sure some loan officers and the underwriters knew that many of these borrowers were questionable. So even though the loan officers knew there was a risk involved with giving a loan to a questionable borrower, was the borrower actually “duped” into agreeing to a mortgage they didn’t understand? Did the loan officer hypnotize the borrowers and then make them sign something that would put them into ruin? Or did the borrowers maybe, just maybe, have a feeling they were getting in over their head? Did the borrowers read what they were signing?

We already know that many of the loans that were defaulted on were initially given to borrowers that were considered “risky” or even very risky. So why would the banks loan money to these people? First, because they could. This is because of the loosening of regulations that banks must follow in order to lend money to people. You’ve already heard about this. But what is the other reason that banks gave loans to people who may never pay them back? Because people wanted them. "If you'll give it to me, I'll take it."

Look, I’m not saying that there were not people who were mislead or outright lied to. There were. But there were many borrowers who knew what they were getting into. To be fair, lenders are required to give borrowers a “good-faith” estimate so that they understand things like interest rate, payment, closing costs, points, etc. If these borrowers didn’t understand the terms of their loan they could have asked. So, borrowers are given a good-faith estimate when they apply for a loan and then sign papers at closing that tell them what kind of loan and what kind of terms they are getting. Did somebody pull a fast one? Buyers can actually back out at closing if they do not agree to the terms of the loan. If a buyer signs something they don’t understand or don’t agree with I’d say that’s on them. Again, this is assuming that the lender didn't do something completely deceptive.

Mortgage people get a bad rap because of a few bad apples. But we have to remember that many of these people who defaulted on loans already had a history of credit problems and were “marginal” borrowers from the beginning. It’s not that hard to understand when the loan officer says “this loan is adjustable, that means your payment may go up.” Many buyers have a “buy now pay later mentality” these days. They see their friends buying big homes and they want one, too. So why would they want to risk loosing a house later for something like an adjustable rate mortgage or a balloon mortgage? Because it’s all about the here-and-the-now. “I want it, now find a way for me to get it. If the rate adjusts and my payment goes up I’ll find a way to deal with it.” Unfortunately, they way many of these marginal buyers dealt with the huge increases in their payments was by just not paying any more. And that is partially why we are where we are now.

I know there were legitimate, hard-working buyers who were probably misled by unethical mortgage brokers and they are now paying the price. But there are many buyers who got just what they bargained for. And now we all suffer the repercussions of loosening regulation, opportunistic mortgage people, and borrowers who made bad choices. We will dig out of this mess eventually. In the future I guarantee that banks will make wiser decisions and there will be more oversight into how banks loan money. I can only hope that buyers will also begin to make better choices as well.