Ask the Expert: Loan Discount Points, Procuring Cause and Choosing an Agent

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. 

Q.  Every time I go to see a home, the agent tries to get me to see other homes with them.  I like my agent.  What should I do?

Realize that when you speak to an agent at an open house, call an agent for information from a newspaper ad or ask an agent to show you a home, you might be opening a can of worms for yourself if you don’t intend to buy a home through any of these agents. Your best bet to avoid procuring cause disputes is to be upfront with each real estate agent you interview and hire the best qualified to help you find a home. But the road that takes you there can be long and dusty. Along the way, you are likely to encounter other agents. But once you find an agent, use these tips to help your agent establish procuring cause:

    * Say you are working with another agent.
      If agents don’t ask you if you’re working with another agent, then promptly volunteer that information. Agents are supposed to ask you this question but sometimes they don’t: they forget, are afraid to hear the answer, become distracted. Set them straight immediately.

    * Sign a buyer’s broker agreement with your agent.
      Buyer’s broker agreements will clearly describe the relationships, compensation and duties. It’s the document that protects your interests in the buyer/ broker relationship.

    * Sign an agency disclosure with your agent.
      Agency disclosures describe the various capacities under which an agent can operate. Since the agent doesn’t know the specific capacity until a property is located, all capacities are described to you.  It outlines all the ways your agent must serve your interests.

    * Do not ask another agent to show you property.
      Your agent is eager to help you. Part of your agent’s duties is to show you homes for sale, even if those are homes that you have located yourself.  Let your agent represent your interests, protect your privacy, and earn her commission.

    * Do not directly call listing agents for information.
      Your agent will probably get more detailed information from the listing agent than you will get, anyway. There will be no confusion if your agent calls the listing agent.

    * Follow Open House protocol if you go unescorted.
      If you attend Open Houses without your agent, hand your agent’s business card to the agent hosting the Open. Sign guest books with your agent’s name next to your own. Not only will this help protect you, the open house agent won’t try to corral you or request personal information. 

Deborah Bremner
The Bremner Group at Coldwell Banker
REALTOR, 00588885, 


(O) 310-571-1364 DIRECT
(D) 818.564.6591

Posted via email from Debbie Bremner’s posterous

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