Q. What Are Discount Points?
A. Discount points are fees paid to a lender in order to purchase a lower interest rate. This process is also known as a “rate buydown” and the net result is a lower monthly mortgage payment over the life of the loan.
One point is 1% of the loan amount. So the cost — paid at closing — for one point on a loan of $100,000 is $1,000. Typically, one point will lower the interest rate .25% to .375%, depending on the type of loan.
Does it make sense for you to consider purchasing discount points? That depends on a number of factors. Usually, it is best to avoid discount points if you will be in the home less than four years, are applying for an adjustable rate mortgage or plan to refinance within a few years. Discount points are generally a good idea if you plan to remain in the home over five years and are not planning on refinancing in the near future.
When considering discount points, it’s best to conduct a break-even analysis. This is done by calculating the monthly mortgage payment with no points, then subtracting the monthly mortgage payment with points. The difference is the monthly savings. Then divide the cost of the discount points by the savings. The result is the number of months until the savings on the loan will break even.
Discount points for residential property are tax deductible in the year they are paid. Discount points are available when refinancing, but those are deductible over the life of the loan. It’s best to consult with a tax advisor regarding the details of these deductions.
Q. I saw a home with one agent, but he seems to lack the knowledge or experience or interest in getting me the information I need to make a good decision. I heard I have to keep him as my agent due to “procuring cause”. How long do I have to wait until I can choose my own agent to represent me?
A. I think you are mixing apples and oranges. There are really two questions here: can I select a new agent of my own choosing, and who gets paid for writing the offer (procuring cause).
Procuring Cause is a term used in determining to whom the seller will pay a commission based on the MLS offering to a sub-agent (the person who brings the offer). It has absolutely nothing to do with you, as a buyer, because you are not a party to the MLS offering, nor to the commission.
Commission disputes boil down to what is referred to in the industry as “procuring cause.” The agent who ultimately caused the buyer to purchase the home and earned the commission is generally the procuring cause agent. That procuring cause agent might not be the agent who obtained the offer from the buyer, presented the offer and successfully negotiated the seller’s acceptance of that offer. But it’s often not the agent who simply first showed the home.
The only time you need be concerned with who, or how, an agent is being paid in the transaction, is if you have an exclusive buyer representation agreement, wherein it states that you, not the seller, will be paying the commission.
You have EVERY RIGHT to choose a new agent for yourself, especially if the standard of representation you are receiving is not up to the standards specified in your agency agreement, including, but not limited to, diligence and knowledgeably on the part of your (existing) agent.
When you hire a new agent, make them aware of what has transpired, and be sure they speak with all parties (previous agent and seller’s agent) on your behalf, to notify them of the change in representation. I find it often helps to have my buyers write a brief email or letter stating that they are no longer working with broker A, because he lacks the skill, knowledge, etc. to put the transaction together on your behalf, and that, due to your strong desire to acquire the property, you will be working with broker B, who you believe will work more effectively on your behalf.
This will give the new agent the negotiating strength he/ she needs, and makes it clear that you are quite serious in your endeavors, and not someone flighty whom the seller should worry about, if they get into an escrow with you.
As for how long to wait, as in every real estate transaction, TIME IS OF THE ESSENCE. Don’t wait. The primary goal here is acquiring the property for you. Commission is secondary, because the needs of the buyer and seller outweigh the right to commission. Let the compensation chips fall where they may. The agents can resolve that, amongst themselves, down the line.
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