Everyone tells you it’s a good idea to check out the real estate agent, mortgage lender and personal finance advisor you want to work with. But how far should you go?
Generally, “checking out” a real estate agent means you solicit referrals from friends and relatives who have had good home buying and selling experiences. You call up a handful of these referrals and interview them over the telephone. The primary purpose of the call is to see if you like their manner and professionalism, and to see if the market area and price range in which they work match what you’re looking for and are willing to spend.
If you’re buying, you might get together for a cup of coffee with the top agent or two to discuss in finer details exactly what you and your spouse or partner are looking for in a home. If you’re selling, you should invite at least three agents to your home to do a comparative marketing analysis – a report that compares your home to others like it in the neighborhood that have recently sold – and to present a marketing plan and prospective list price.
If you take your time checking out your future real estate agent and if you use a well-known local firm, such as a Koenig & Strey in Chicago, Jon Douglas in Los Angeles, or Ebby Halliday in Dallas, or if you go with a nationally-recognized brand name firm, such as Century 21, Coldwell Banker, or Better Homes & Gardens, conventional wisdom says you probably won’t have too many problems with the person you choose.
Checking out your mortgage lender may require a slightly different path. You should again start by requesting referrals from your friends and family who have recently obtained a mortgage or refinanced their homes. Make sure their experiences were good, that the lender returned calls promptly, and didn’t come back again and again for additional or repetitive information.
If you’re working with a nationally-recognized lender, such as Countrywide Home Loans, Bank of America, or Norwest, or a locally known lender such as First Chicago NBD, Anchor Mortgage, or Great Western Financial, the risk that this lender would defraud you is next to nil. If, however, you’re working with a local, one-office mortgage broker, you may want to check with the state agency that regulates mortgages lenders and banking institutions.
Generally, it necessary to go this far. However, sometimes bad apples do fall into the real estate industry. If you’re the kind of person who worries about working with someone with a less than stellar track history, and don’t want to rely on yourself to conduct the proper background check, a new company might be able to help.
The National Fraud Exchange (NAFEX) allows individuals to search the backgrounds of the real estate professionals, mortgage brokers, and companies for which they work. Using an extensive database of more than 100 sources, including state real estate commissions, mortgage banking departments, the FDIC, and the Department of Justices, NAFEX can help individuals find out if there have been disciplinary actions taken against individuals and companies in the real estate or mortgage industries, says Bill Matthews, managing director of the firm.
Matthews says his database currently tracks over 200,000 individuals who have run afoul of the rules and regulations in the real estate and securities industries. The company adds another 2,000 names per month. But there is no guarantee that the NAFEX database will catch every disciplinary, legal, and regulatory agency of which your agent, lender, or personal finance advisor has run afoul.
The database keeps track of whether your agent or lender has a minor infraction, such as a paperwork problem, or a serious action like a license revocation. How often do problems turn up? More than you’d imagine, Matthews said.
One home buyer discovered her lender had been prohibited from working in the banking industry by the Office of Thrift Supervision, which supervises Savings & Loans. The loan officer’s supervisors were unaware of the problem. Another caller discovered his loan broker had just finished serving three years in prison on a conviction for 22 counts of securities fraud in an adjacent state. Another home seller discovered that his real estate agent had a history of serving as a real estate broker without a proper license. The state real estate commission had issued a $2,000 fine and restricted the agent’s licensed activities.
Would it bother you if your agent or mortgage broker had these problem? Possibly, although it’s unclear how a home buyer or seller would be irreparably harmed. A real estate agent can’t push you into buying a home you can’t afford, although you could get poor service and advice. Matthews said a mortgage lender could falsify an application to get you approved for your loan. If the loan was audited and discovered to be fraudulent, the home owner could be prosecuted for fraud. When pushed, Matthews agreed that the home buyer would have to knowingly sign the fraudulent application, or foolishly sign a blank application.
Real estate transactions tend to occur quickly, with homes typically being bought in as little as 2 to 4 months. A bigger concern would be to check out the financial background of a financial advisor, someone with whom you might have an ongoing relationship and who would have his or hand directly on your cash, investments and retirement accounts.
You can ask for the complete 2-part form ADV, which the Securities and Exchange Commission requires registered investment advisors to show their clients. That shows how your planner gets paid. You should also call the National Association of Personal Financial Advisors (800) 366-2732), which has a directory of members listed by state. They require members to have at least three years experience in comprehensive financial planning, and reviews financial planning, which is some help. Anyone who is a Certified Financial Planner has passed the tough CFP certification exam and has a minimum of one year experience in full-service planning. Finally, make sure your planner is licensed by calling the North American Securities Administrators Association (202) 737-0900. Finally, the Better Business Bureau and state Attorney Generals office is always a good place for discovering complaints.
Consumers can get more information or order a comprehensive NAFEX search on a real estate agent, mortgage broker or financial advisor by calling (800) 822-0416 x 100. The cost is $39 for the first search, $20 for each additional search in the same call. Depending on your level of anxiety, spending the money to check on your real estate agent or lender may be overkill. On the other hand, I’d be tempted to check out a future financial advisor.
Published: May 19, 2007