3 Questions Your Oregon Realtor Can’t Answer

Click here or on the ‘play’ button above for the audio podcast version of this article.

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When making the biggest financial decision of their lives, many homebuyers and homesellers understandably ask their Realtor to provide a professional opinion on a range of topics. Some common questions include if adding a bathroom will boost resale value, should wallpaper be removed, if re-painting will help, how long a home has been for sale, if sellers should leave when their home is being shown, or if a home shows better when ‘staged.’ These and many other questions are typically addressed with aplomb by an experienced Realtor.

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However, with other, less benign questions, agents are trained not only to be cautious, but simply refuse to answer them. Is it because the Realtor doesn’t have an opinion? Maybe, but maybe not. Often the reason is because rules don’t allow it.

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Federal, State & Ethics…Oh My!
What are these rules that might cause an otherwise conversational, if not super-chatty (or at least engaging) real estate agent to go mum? They include federal laws, state regulations and the Realtor Code of Ethics.  And while there are more than three topics agents are trained to be wary of, here we’ll address three examples of areas Realtors are supposed to be particularly cautious about. It helps to first understand that some of the following essentially forbidden conversations most often occur between a Realtor and clients. However, the specific topic of Question #3 below can also be especially problematic if discussed between Realtors.

Question #1 That Your Oregon Realtor Can’t Answer: “Do Many Minorities (or Other Protected Classes) Live Here?”
If there is even a hint of a question having a racial, religious, or other prohibited basis, law-abiding Oregon Realtors will not go there.

Federal Law Prohibits Real Estate Discrimination
Chief among the federal laws that limit a Realtor’s behavior in these areas is the Civil Rights Act of 1968. It prohibits:

  • A refusal to sell or rent a dwelling to any person because of race, color, religion, sex, or national origin.
  • Discrimination based on race, color, religion or national origin in the terms, conditions or privilege of the sale or rental of a dwelling.
  • Advertising the sale or rental of a dwelling indicating preference of discrimination based on race, color, religion or national origin.
  • Coercing, threatening, intimidating, or interfering with a person’s enjoyment or exercise of housing rights based on discriminatory reasons or retaliating against a person or organization that aids or encourages the exercise or enjoyment of fair housing rights.

Oregon Law Prohibits Real Estate Discrimination
Discrimination in Real Property Transactions-State discrimination law also prohibits a person from refusing to sell, lease, or rent any real property because of an individual´s race, color, sex (including pregnancy), sexual orientation, national origin, religion, marital status, familial status, physical or mental disability, or source of income.

The Realtor Code of Ethics Prohibits Real Estate Discrimination
Additional guidelines to assist Realtors in following laws against discrimination are incorporated in the Realtor Code of Ethics, which you can read in its entirety here. For the purposes of this discussion, here is a pertinent portion:

Article 10
REALTORS® shall not deny equal professional services to any person for reasons of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity. REALTORS® shall not be parties to any plan or agreement to discriminate against a person or persons on the basis of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity. (Amended 1/14)

REALTORS®, in their real estate employment practices, shall not discriminate against any person or persons on the basis of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity. (Amended 1/14) [listen]

  • Standard of Practice 10-1

When involved in the sale or lease of a residence, REALTORS® shall not volunteer information regarding the racial, religious or ethnic composition of any neighborhood nor shall they engage in any activity which may result in panic selling, however, REALTORS® may provide other demographic information.

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Steering
Related to this phenomena is the concept of ‘steering,’ where a real estate agent might guide prospective homebuyers toward or away from certain homes or neighborhoods based upon forbidden criteria. This article provides six ways a Realtor can help to avoid ‘steering.‘ Just one example of a forbidden topic might be: ‘Can you find me a Catholic neighborhood? (or Jewish, or Mormon, or Hispanic, or Lebanese…)’ As seen in the above example, just as religion and race are protected classes, so are nationalities.

So what’s a buyer to do? If there are particular places where you want to reside, like specific neighborhoods where your friends currently live, or an area where your church is located, then an agent can show you homes in areas you request.  Real trouble comes when asking a Realtor to specify neighborhoods for you that involve protected classes. So questions about the racial, religious, or nationality composition of a neighborhood are not something to bring up with a real estate agent.

It really helps to leave protected classes out the discussion. Instead, after doing your own research of factors that are most important to you (which may include crime as we’ll address below, or proximity to good restaurants, or parks, or a reasonable commute to work), then provide your agent with boundaries of areas where you want to focus your homesearch. There are several other terms used to define related discriminatory illegal real estate activity.

Blockbusting
The practice of persuading owners to sell property cheaply because of the fear of people of another race or class moving into the neighborhood, and thus profiting by reselling at a higher price.

Redlining
Refusing a loan or insurance to someone because they live in an area deemed to be a poor financial risk.

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Question #2 That Your Oregon Realtor Can’t Answer: “Is This a Safe Neighborhood?” Real estate agents are instructed not to disclose information regarding crime and the safety of a neighborhood in part due to concerns of violating the Fair Housing Act. The following paragraph is from a Realtor article about how agents are advised to advise homebuyers on crime figures, along with a host of other topics:

‘Direct them to the police. If buyers want to get a picture of the area’s crime rate, direct them to the police department or other sources of information. Don’t disclose crime statistics or say a neighborhood is a safe place to live even if you believe it to be true.’

Why Crime Statistics Can Be Difficult to Get-Part A
There’s another reason why getting reliable crime information, at least from a Realtor, is not preferred. That’s because in Portland, for example, Oregon Revised Statute 696.880 states that an Oregon real estate agent is not required to disclose the proximity of a sex offender. For some, this may be difficult to believe. As a result, it’s helpful to take the attitude of ‘buyer beware’ if you have small children, or simply want to avoid living near a convicted sexual predator.

Why Crime Statistics Can Be Difficult to Get-Part B
There is currently a strange situation being experienced in parts of Oregon, because while FBI crime statistics have long been seen as a helpful source of public safety information, for Portland and 40 surrounding communities, these important recent figures will not be available.

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Are Sex Offenders Living in the Neighborhood?
Megan’s Law requires convicted sex offenders to register their address with local officials. This information is available to the public. You may check the public records, or get information from local police near where you’re considering a move. But it’s important to know that online information is hardly foolproof. Here’s why, as stated in the Oregon Sex Offender website which reads in part, with my highlights:

This website only lists sex offenders designated: a Level 3 offender under ORS 181.800; a predatory sex offender under ORS 181.585; or a sexually violent dangerous offender under ORS 144.635.  Not all sex offenders are listed on the website. In addition, the information on this website refers only to sex offenses defined under ORS 181.805(5) and does not reflect the entire criminal history of a particular individual.

Since all information is subject to change (and not everyone registers how they’re supposed to), if accurately determining if a sex offender might live in your next neighborhood is important, make sure you’re comfortable with the information you gather. Here’s a link to the State of Oregon’s sex offender website.

There are good reasons to avoid living near a convicted sex offender. In addition to the reasonable desire for safety, it’s proven that homebuyers can take a financial ‘hit’ after purchasing in unsafe neighborhoods. For example, one study showed that a home’s value declines by 4% on average if it’s located within one-tenth of a mile of a sex offender’s residence, according to the National Bureau of Economic Research.

What’s A Buyer to Do?
Many homebuyers would like to see local crime statistics before buying a home. However, getting reliable information isn’t always as simple as asking a real estate agent. Why? First, realize that Realtors are not police and therefore typically not always well-versed on crime statistics. To get those, it really does make sense for buyers to contact local law enforcement, or research online themselves, using a variety of available resources.

Also understand that if you’re concerned about a factor like crime, certain kinds of research will best come from someone other than your agent. This may not seem fair, but in Oregon, an agent is not required to provide such information. The good news is that there are established sources of information for homebuyers interested in a safer neighborhood. Yet you may have to dig.

Some Helpful Oregon Homebuyer Websites
CrimeReports.com
FamilyWatchdog.us
FBI Crime Report
MyLocalCrime.com
Oregon Drug Lab Properties Website

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Question #3 That Your Oregon Realtor Can’t Answer: “What’s the Standard Real Estate Commission?”

The reality? There is no ‘standard’ real estate commission. A Realtor can tell you what they charge, but commissions are negotiable and one real estate agent can’t speak to what another company or agent charges. There is also good reason why a real estate agent would not want to discuss real estate commissions with other agents.

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Some Questions Will Get Realtors Running!

A Different Kind of ‘Running Suit’
A major antitrust lawsuit that has reverberations to this day involved real estate brokers who attempted to ‘coordinate’ an increase in their commissions. Federal investigators were not amused. As a result, now Realtors are advised very early in their training to avoid discussion of commissions with other real estate brokers, lest they be accused of ‘price fixing.’  Some real estate agents are instructed to simply leave a room if someone attempts to discuss such illegal tactics. For example, Realtors have been observed scrambling out of such a meeting to avoid talking about commission collusion, or ‘price fixing.’Oregon Real Estate PodcastDo you have questions or are you considering the sale of your Oregon property? Contact veteran Oregon Realtor Roy Widing using the convenient form below for a free consultation.

The Power of Oregon Seller Financing

While most Oregon homebuyers use traditional loan providers like banks, mortgage brokers or credit unions, there are solid reasons (and a very helpful alternative) for purchasing a home without them. Buyers avoid traditional lenders for a variety of factors and when they do, one mechanism they frequently turn to is known in our area as seller financing.

Click here or on the above ‘play button’ to hear the audio podcast presentation of this article, The Power of Oregon Seller Financing.

owner-finance

What Is Seller Financing?
Also called owner financing, seller terms, owner carry, seller carryback, or seller carry, seller financing allows a homebuyer to purchase a property by making an initial down payment, then making direct payments to the seller. While Oregon law has rules in place especially to regulate large-scale property sellers who handle a significant amount of seller-financed transactions (notably commercial firms, such as finance companies), the process still remains relatively simple for Oregon home buyers and sellers who enter into a home sale without using a traditional lender.

Fundamentals  
A key factor that helps to make seller financing an option is if a homeseller has either no loan, or a very small loan remaining on the property to be sold. Having little or no loan on the home being sold means that more of the buyer’s down payment will go to the seller, and not diverted to the lender of a seller’s existing home loan. Most home loans now have what’s called a ‘due on sale’ clause, which means a seller’s home loan must first be paid off upon the sale of a property. The single factor of having no or little loan balance on a property is often the single most limiting condition in determining if seller financing is an option. If the property has either no loan, or only a small loan remaining, this can really open the door to seller financing. 

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Playing the Bank
Another factor for prospective sellers to consider when thinking about seller financing is if they’re okay with ‘taking payments’ instead of receiving a ‘lump sum.’ By ‘playing the bank,’ sellers receive payments from the buyer as they are made, not all at once. Some sellers greatly prefer the income of proceeds from their home sale over time. That said, unless the payments are made according to a ‘straight line’ amortization, there usually will be a lump sum paid to the seller at the end of the agreed upon term, often several years or much longer.

Oregon-Housing

Seller Financing is the ‘Swiss Army Knife’ of Loan Options

Basic Tools
Several tools can be used to establish seller financing. In Oregon, these include either a trust deed and note, or a land sales contract. Here is a recent legal article outlining some differences between these two instruments for Oregon seller financing . Most common is the trust deed and note, which can be prepared by Oregon title companies/escrow firms. Less common is the land sales contract, which can usually be considerably more labor intensive and expensive, since in Oregon land sales contracts can only be drawn up by an attorney. Another difference: ‘Equitable title’ is how buyers take ownership using a land sales contract and ‘legal title’ is how buyers take ownership using a trust deed and note.

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What Makes Seller Financing so Powerful
Seller financing can be very powerful. How else to describe a form of financing that can:

  1. Make an otherwise ‘unsellable’ property sellable, and/or
  2. Render an otherwise ‘unqualified’ buyer qualified, whilst escaping considerable loan fees, underwriting and requirements, like an appraisal, and/or
  3. Provide income to a home seller, with interest, all secured with the protection of a legal instrument in case of default, and/or
  4. Allow a homebuyer the ability to purchase a home while selling a less liquid (hard to sell) asset, or re-building credit, and/or
  5. Give both buyer and seller the flexibility to negotiate what works for them, rather than a bank’s pre-determined, ‘cookie-cutter’ loan term, interest rate, or myriad other conditions.

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Seller Financing Can Be ‘Win-Win’ for Buyer & Seller
Here are a few ‘win-win’ scenarios illustrating some of real life advantages of seller financing.

Scenario #1 involves a house located in a large Oregon town with no foundation and a faulty roof.
The property is otherwise attractive, yet routine lender guidelines require a foundation for residential properties. The seller begins to think his house is a ‘lemon.’ That is, until he learns that since he owns the property ‘free and clear’ with no loan, that he can sell the property directly to a buyer. A buyer who happens to be a contractor discovers the house and realizes he can put a roof on the house for the cost of materials, then hire foundation work far more cheaply than someone unlike him who is not in the building trades. An agreement is made. As a result, buyer and seller see the transaction as a ‘win-win.’ 

Scenario #2 involves a nice home located in a tiny Oregon town between the Willamette Valley and Oregon Coast.
Given the somewhat remote location, there isn’t a lot of demand for the property in Scenario #2. In an effort to ‘open up the buyer pool’ and ‘jumpstart’ buyer activity, the seller’s Realtor advises his seller client to consider seller financing.

The seller agrees and before long, an out of state buyer who just retired discovers the property, located near an elderly relative. The buyer wants to first sell his large ranch in California, but because he will be listing his out-of-state property for 4 million dollars, it may take more than a few months to sell it. The California seller doesn’t want to sell his out-of-state property at a discount and wants to purchase a home meanwhile near his relative.  

So the Californian strikes a deal with the tiny Oregon town homeseller. Because the seller is open to seller financing and therefore providing the buyer with a helpful benefit, the buyer agrees to pay full price for the seller’s property and places $75,000, or 25% down of the $300,000 purchase price using seller financing. Confident his California property will sell within 3 years, buyer and seller agree to mutually agreeable monthly payments, with a balloon payment of the remaining loan balance within 36 months.

The buyer gets full price, a quicker home sale, interest (on top of his full selling price) and the security of a legal instrument as protection in the unlikely event of buyer default. The buyer is provided sufficient time to sell his out-of-state asset, plus can move quickly to live near his Oregon relative. As a result, buyer and seller see the transaction as a ‘win-win.’

Scenario #3 involves a homebuyer who recently experienced a ‘short sale’ on an investment rental he owned.
Because traditional lenders are unlikely to loan to borrowers with a recent ‘short sale,’ this homebuyer can either wait possibly years until lenders are satisfied that this experience is well behind him, or look at other options.  Knowing his buyer’s situation, the Realtor for this ‘short sale’ purchaser searches specifically for, then locates a property suitable for his buyer which is being offered with seller financing. The buyer’s Realtor writes up a clean, solid offer with 20% down at a competitive interest rate and 5 year balloon. The seller accepts the ‘short sale’ buyer’s offer. There is a successful closing of the transaction, perhaps years before a traditional lender would have said ‘yes’ to providing the ‘short sale’ buyer with a home loan. As a result, buyer and seller see the transaction as a ‘win-win.’

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Covering the Bases
As with any business agreement, things can and sometimes do go wrong. One of the more important factors for sellers to consider prior to entering into any seller financing agreement is a possible default by a buyer who cannot continue making payments as agreed. In this case, placing the situation before an Oregon real estate attorney is frequently a good move. If the buyer is dealing in good faith, sometimes a temporary restructuring of payments can be agreed upon, or mutually agreeable ‘exit strategy’ to provide the buyer a pathway to meet the agreement, or sell the property. If the situation becomes difficult, an attorney’s guidance can be helpful. 

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Happy Bankers
Studies show that traditional lenders start relaxing requirements when a buyer can make a 20% downpayment, known as 80% ‘loan to value.’ This is a good general rule for seller financing, too. A minimum 20% downpayment typically means a buyer will be a better risk. The graph below shows how such an 80% ‘loan to value’ situation has historically reduced the delinquency rate for loan transactions.

Foreclosure

Insurance
One other condition for sellers to be aware of relates to insurance. This can include fire and liability insurance. Especially helpful is if the seller is named as a ‘loss payee.’ This means that if there is a loss, such as a fire, the seller has a priority to insurance compensation.

Guidelines and regulations stamps

New Rules
Federal and state mortgage laws often change and this is certainly true of Oregon seller financing. The good news is that for many routine transactions, Oregon homebuyers and homesellers can participate in the benefits of seller financing.

The latest batch of regulations are largely designed to hold commercial lenders more accountable. If a homeseller is not a major creditor or commercial lender, in Oregon the process of a typical seller using seller financing remains relatively simple. The latest rules create a situation where it’s best to be clear if you’ll be dealing with a ‘vanilla’ type ‘mom and pop’ seller financing transaction, or a more complicated ‘corporate’ one that requires additional time, money and outside assistance.

The following information is not legal advice, but a ‘thumbnail’ overview of two simpler scenarios for Oregon seller financing. For real estate advice, consult a Realtor. For legal advice, consult an attorney.

vanilla

The ‘Vanilla’ Scenario
Let’s have dessert first. One of the easier scenarios for seller financing is if you’re buying a home from a seller who has lived in the house as a primary residence. This simple factor is a decent sized ‘green light’ and avoids much additional paperwork, like the need to hire a mortgage loan originator, or MLO, to handle the seller financed transaction. Under the new rules, another ‘vanilla’ scenario that simplifies the process are transactions between family members.

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The ‘Small Potatoes’ Scenario
Even if the seller has never lived in the home you’re buying, if the seller is deemed ‘small potatoes’ and not a major creditor or commercial lender, the seller can still provide seller financing. In this case, a ‘green light’ to simplicity is found among sellers who have provided seller financing in a home sale for three or fewer transactions within a 1 year period.  This exemption is helpful, since few residential homeowners sell even one home each year.

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The Meat of the Matter
Regardless of the kind of seller financing you consider, consider working with a professional experienced in this unique area of real estate practice. Seller financing offers many potential advantages, but it’s important to understand the process and your limitations.

Collection-Escrow

Collection escrow companies maintain order for seller financed transactions

Collection Escrow Account
One very convenient service often used by buyers and sellers who use seller financing is called a collection escrow account. Collection escrow accounts are usually set up during the escrow process, once an offer has been accepted. In our region, collection escrow companies receive payments from the buyer on behalf of the seller, handle processing and accounting, then forward the payment to the seller, often by direct deposit or via a mailed check. Why is this convenient? Because both parties then have a state-licensed firm keeping track of payments.  This also makes it easier around tax time for buyer and seller. Sellers can more easily show income and buyers can better account for their mortgage interest deduction. 

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Thinking about using seller financing? Contact Realtor Roy Widing with Certified Realty for more information about this frequently helpful real estate tool using the convenient form below.

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