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“Buyers Choice Act“  (AB 957/Galgiani) Singed into Law

When you have a choice in something, doesn’t your mind sit more at ease?  This, for me, is true regarding almost anything; a choice in cars, dinner, schools, clients, and you-name-it.  However, would that still be true if I paid extra money for my choice?  That’s when “you-name-it” starts getting qualified.

In the last 18 months, the REO (bank-owned property) market has been the most active.  The banks have the lion’s share of actual AND shadow inventory.  The banks therefore have much of the control in the resulting transactions.  When people say it is a “buyer’s market”, they are partially correct.  Indeed the prices are affordable and the attainable interest rates make this a FANTASTIC market for buyers.  However, the banks are the decision makers which means their rules must be met.  And if there is an escrow company on the bank’s team, they become almost as powerful.

Over this same 18 months, these banks have modified, augmented, and improved their business processes due to the volume of activity directed at their least well-staffed departments.  Believe me, they don’t WANT a foreclosure department and they REALLY don’t want a Short Sale department.  Both of these mean the bank has “non-performing assets” which gets the accounting department in trouble so they yell at the asset management department.  Would you want a non-performing asset in your portfolio?  Oh, wait, most of us have one.

Together with the banks’ streamlining of processes, the frantic hiring of quasi-qualified personnel, the lobbying to avoid local fines for blight and neglect, and the management of these REO homes through the conveyance process (escrow), the banks made some arrangements that can be construed as unfair.  When something is unfair, that’s when our government feels compelled to step in to save the consumer.

Banks, even the good ones, have made contractual arrangements with escrow and title companies (separate companies in southern California) and those same companies are not playing fairly once an offer is accepted.  They are drunk with their proxy power.  If a buyer had submitted an offer with the buyer’s choice of escrow/title service provider, the offer would not get considered by the selling bank.  This is the fundamental issue:  Even if the buyer commits to paying 50% of the escrow/title fees, the banks are unable and unwilling to modify the process to allow the buyer’s choice.  Subsequently, the escrow agent that is not local and therefore does not understand business rules in our region gets to direct the flow of activity, paperwork, and “fees”.

This would not be a problem if the escrow/title companies and processes were uniform throughout the state.  These southern California companies are charging “padding” and other fees which are not customary in northern California.  In fact, they are hinging on usurious.  But we can’t complain for our client’s offer is at risk.

We have standardized on much of the legal, tax, and municipal processes in real estate.  Why can’t we standardize on these necessary and supporting real estate services?  Follow the money.  That will explain everything.

As a real estate broker, I have taken an oath to uphold the Business Code of Conduct.  This means I’m first protecting my client and then being ethical for all involved in the transaction.  I wish this was a truism for all others involved.

What remains to be seen is if the buyer can choose escrow/title 1) without committing to pay, or 2) only after committing to pay for 50%.  Will this element of offers still cause the offer to get “round-filed”?  Does a falling tree make a noise if nobody is around?

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