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Open House
Controversy Over Agents' Commission; Creative Financing Tips for Your Dream Home; Weekend Project: Create Your Own Corner of Eden
Aired May 14, 2005 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
GERRI WILLIS, HOST "OPEN HOUSE": Think paying a 6 percent commission to your real estate agent is too high? You're not alone.
ANNOUNCER: Today on OPEN HOUSE, commission controversy: your real estate agent may not have your best interests in mind. A look at some of the anti-competitive practices that could be costing you big money. Plus, don't give up on that dream house; tips on creative financing that might help you afford that home. And our "Weekend Project:" create a garden paradise in a small space. Tips from gardening pro Allen Smith (ph), next on OPEN HOUSE.
WILLIS: Hello, and welcome to CNN OPEN HOUSE. I'm Gerri Willis.
From buying and selling to renovation and design, we show you how to make your home your best investment. The Justice Department is taking steps to force realtors across the country to be more competitive alleging some full-commission brokers refuse to do business with discount brokers. It was a hot topic at this week's annual meeting of the National Association of Realtors in Washington. So, what does it mean for you? Ceci Rodgers takes a look.
(BEGIN VIDEOTAPE)
CECI RODGERS, CNN CORRESPONDENT: If you think you have to pay a real estate agent thousands of dollars in commissions when you sell your house, you haven't met Quin O'Brien.
QUIN O'BRIEN, 4SALE REALTY: That says you have no knowledge of lead-based paint.
RODGERS: He charges home sellers a flat fee, $450, to provide a listing on the holy grail of the industry, the multiple listing service. It's what many consider the future of real estate.
O'BRIEN: I've had clients easily save $12,000, $15,000.
RODGERS: But his clients won't be saving as much in the future. Lawmakers in Illinois have made it illegal for O'Brien to sell just a listing on the MLS. Now, he must perform other services, too, or risk losing his broker's license.
O'BRIEN: I don't understand why, if they want exposure, why they also have to pay for negotiating services.
RODGERS: The Justice Department agrees. In letters to lawmakers in Texas, Oklahoma and Alabama, the agency urged rejection of legislation similar to that in Illinois, saying it would, quote, "deprive citizens of the benefits of competition, such as lower prices and customized service levels provided by fee-for-service brokers." In Kentucky, the DoJ is suing the state real estate commission for not allowing brokers to offer rebates on their commissions. And even as President Bush was addressing the national meeting of the powerful National Association of Realtors, his anti-trust cops were pressuring the group to change proposed rules allowing brokers to boycott competitor's web listings.
LAURIE JANIK, NATIONAL ASSOCIATION OF REALTORS: We've been having ongoing discussions with the Justice Department since their review of our policy commenced in September of '03. And we're having healthy exchanges of our views.
RODGERS: Discount brokers like O'Brien say they expect a prolonged battle.
(on camera): With traditional brokers fighting every inch of the way to keep their full-service commissions, which added up to more than $60 billion last year alone.
For OPEN HOUSE, Ceci Rodgers, CNN, in Grays Lake, Illinois.
(END VIDEOTAPE)
WILLIS: So should real estate agents be subject to competition like every other industry?
Joining me now, Bill Powers. He's COO of full-commission real estate brokerage Realty Executives International. And Van Davis, CEO of discount real estate brokerage Foxton's North America.
All right, let's get down to it. Bill, I want to start with you. First off, are Realtors trying to force discounters out of the business?
BILL POWERS, COO, REALTY EXECUTIVES INTERNATIONAL: Absolutely not. In fact, we welcome all competition. Real estate's probably the most competitive and cooperative industry in the country.
WILLIS: Well, then, why is the Justice Department taking a look at this stuff?
POWERS: Actually, the Justice Department has been taking a look at it for two years, with National Association of Realtors help, to try and put the rules together. There are no rules right now on the Internet. We're trying to put the rules together to make sure that it's an even playing field and the consumer has their choice heard.
WILLIS: What do you say to that, Van?
VAN DAVIS, CEO, FOXTON'S NORTH AMERICA: Well, I think I welcome the Department of Justice entering into this. I believe that they will find a lot of information that will be interesting to them, and...
WILLIS: Is Bill trying to hurt your business?
DAVIS: I don't know about Bill, but I think that definitely the industry as a whole is trying to promote and preserve what they've had for the past three decades, and they are doing that through a variety of measures, not the least of which is the Internet, but also rules and regulations and legislative initiatives that either restrict certain services or require services or restrict marketing capabilities or require different activities.
So at the end of the day, I think the consumer is who we need to be focusing on, giving them the breadth of choice that they really deserve in this industry.
WILLIS: Well, what I'm reading, what I'm hearing about is that apparently, full-service agents and brokers out there just aren't doing business with discounters. Do you have that problem?
DAVIS: Absolutely. There's no question, every day my agents come to me with discussions they've had with other agents that basically say, We won't do business with you, we just -- we won't show your properties.
WILLIS: Bill, respond.
POWERS: I have to respond, I have to respond in the negative. Quite frankly, there's a number of much larger discounters out there, I would use Home Game as an example, that a number of my people are using every day. They are selling their leads, and they're selling their leads that come in from their Internet providers.
WILLIS: So, you're, Bill, you're saying you're not getting in the way of the discounters?
POWERS: (INAUDIBLE) executives welcomes all of this. Anything that can help the consumer. The bottom line is the consumer. It's their decision.
WILLIS: All right, Bill. Another complaint here that we're hearing from the National Association of Realtors is that the discounters, particularly Internet discounters, are stealing listings. I think they use the term "scraping," or something like that. What does that mean, and do you have that problem?
POWERS: That is correct. And quite frankly, a number of not just the Realtor sites, but the actual broker sites, are being scraped. And in essence, what that means is, an Internet provider, and I'm certainly not accusing Mr. Davis of doing this, an Internet provider will actually go into the site, unknown to the people who have the site, and take the data off of that site, and then use it for their own usage.
WILLIS: Van, or -- is this going on? It sounds like a privacy issue.
DAVIS: Well, just to set one thing straight, we actually are a full-service brokerage, and so we are not a limited service (INAUDIBLE).
WILLIS: OK, all right.
DAVIS: We are full service, 3 percent. So we're a little different from everybody else. We actually do leverage the Internet very effectively ourselves...
WILLIS: OK.
DAVIS: ... and we are members of the NLS (ph). But, yes, people are actually going in and utilizing the information that's available on the Internet.
WILLIS: Is that a problem?
DAVIS: It could be, theoretically. But I don't believe it is. I think that ultimately -- and I agree with Mr. Powers on this -- we have to be looking at the consumers' best interests. And when...
WILLIS: OK.
DAVIS: ... you list a home, your job is provide the most -- the broadest exposure possible, and that includes all avenues that are available on the Internet.
WILLIS: There at the heart of this disagreement, this debate that's going on, isn't it that Realtors, members of the National Association of Realtors, are trying to protect 6 percent commissions? Isn't this a debate over who makes the profit?
DAVIS: I believe it is. I think that it's not just a matter of the Internet, but it's a matter of legislative initiatives, it's a matter of industry protocol that's been there for decades. And that all, when combined, really creates an atmosphere where they are trying to secure their own future, and frequently at the consumers' expense.
WILLIS: Bill?
POWERS: Gerri, I couldn't disagree more. Quite frankly, there's a number of discount brokers that are members of the National Association of Realtors. This has nothing to do with fee structures. This has to do with ethical behavior and level playing fields, and consumer choice.
WILLIS: Do you want to respond, Van?
DAVIS: We are a member of the National Association of Realtors. All of our agents are, all 300 of them. We believe that the National Association of Realtors does many functions and does it very well.
We just have a challenge at this point with the legislative and other initiatives at the state and real estate commission levels that we think are really specifically designed to thwart competition, thwart optionality for the consumers, as opposed to provide additional optionality.
WILLIS: I'm afraid we're going to have to...
POWERS: (INAUDIBLE)...
WILLIS: Go ahead, Bill...
(CROSSTALK)
WILLIS: ... last word in here.
POWERS: The last word is, it sounds to me like, Mr. Davis, you have some issues that are located in areas that I'm not very strong in. We across the country, we have 14,000 agents, and we have not experienced the type of experiences that you're describing.
WILLIS: We have to leave it at that. Bill Powers, Van Davis, thanks for joining us today.
Coming up on OPEN HOUSE, creative financing may get you into that expensive home. But does it make financial sense?
And our weekend project. Wait till you see these gardens. Gardening guru Allen Smith shows us how to create container gardens.
But first, your tip of the day.
(BEGIN VIDEO CLIP)
ANNOUNCER: You may be tempted to do some home renovations yourself. But beware of a common pitfall. Many homeowners try to save money on renovation projects by becoming their own general contractors, but they often end up spending more money than if they had hired a professional in the first place. Here's why.
Subcontractors give general contractors a good rate on services, but homeowners will likely pay retail. That's because subcontractors see you as a one-time deal.
So for minor home improvement projects, an experienced general contractor will probably be the most cost-effective route.
And that's your tip of the day.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
WILLIS: It used to be the 30-year fixed-rate mortgage was the only game in town. Not any more. There are plenty of creative financing options to help you buy your dream home.
One example, the interest-only mortgage. But, as Allan Chernoff show us, it's not for everyone.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): A living room and a wet bar. It's a dream home in Manhattan for Charles Carter and his wife, Carolyn, who lived in a tiny studio for nine years.
But the cost, $460,000, plus another 150-grand in renovations for a three-bedroom apartment, was intimidating. But the Carters took out what their banker described as an interest-only mortgage.
CHARLES CARTER: And we didn't know much about it, going into the process, actually. And we looked at, and we thought, compared to a conventional loan, that there was certainly more flexibility as well as more buying power.
CHERNOFF: Lenders call them interest-only loans, but that's a misnomer. The borrower is required to make only interest payments in the early years of the mortgage. Later on, though, the borrower still has to pay back the principal. At that point, monthly payments can soar.
ALLEN FISHBEIN, CONSUMER FEDERATION OF AMERICA: Many first-time homebuyers are unaware of the risks involved, and the fact that payments could increase by 30 percent or more after the initial interest-only period has expired.
CHERNOFF: The Carters didn't want to increase their risk, only reduce it. So they're making optional payments on the principal of the loan every month.
CARTER: But we know that we have the flexibility on, let's say, any given month or any given year, for us to stop paying, you know, principal, if we wanted to.
CHERNOFF: By making those payments, the Carters are building ownership in their new home. Homebuyers who pay only interest to the bank are essentially renting from their lender.
So-called interest-only loans can be helpful for people who can't predict their incomes, says mortgage lender Bob Moulton.
BOB MOULTON, AMERICAN MORTGAGE GROUP: An interest-only mortgage is good for someone who receives a bonus at the end of the year, or who is commission-driven and comes into uneven cash flows. An interest-only mortgage will lower your payment approximately 25 percent, versus a fixed-rate mortgage.
CHERNOFF: The Carters will have to remain disciplined, paying down principal to take full advantage of their loan. But for most people who want to build equity in their homes, so-called interest- only mortgages can be a risky proposition.
Allan Chernoff, CNN, New York.
(END VIDEOTAPE)
WILLIS: Mortgage bankers sure are creative. So you need to understand what you're getting yourself into before you sign on the dotted line.
Joining us now from Irvine, California, is Anthony Hsieh. He's president of LendingTree.com.
Anthony, welcome.
ANTHONY HSIEH, PRESIDENT, LENDINGTREE.COM: Thanks for having me, Gerri.
WILLIS: You know, we just saw this story on interest-only loans. I got to tell you, I know they're popular out there, but they are not my favorite product. Why don't people just take out home loans or home equity lines of credit to borrow money, instead of these interest-only products?
HSIEH: Well, Gerri, I thought you were the interest-only type of gal, but (INAUDIBLE)...
WILLIS: Why is that?
HSIEH: Well, because, simply, people that are asking for interest-only, and some of these other so-called creative programs, are from people that are fairly on top of their financial situations. So they're not looking at this as so much of taking a risk as a best way for them to leverage their borrowing power.
WILLIS: So tell me, who is this for, then? You say it's for savvy people, sophisticated people. Is there any other way you can describe who this suits, and what kind of problems it might solve?
HSIEH: Well, it's not so much of problem solving as it is just free cash flow. For example, if you took a normalized traditional 30- year mortgage, most people are not staying in their homes for 30 years, and many of them are forecasting they'll be in the house five to seven years. And when you go and sell a home in five years, and you pay that payment on a 30-year fixed rate for five years, you're only paying off about 5 percent of the principal balance.
Now, that 5 percent is still significant, but certainly is not going to achieve your objective if you wanted to pay off that home. So many people are taking the opportunity just to keep that cash, that 5 percent, in their, pocket and lower their monthly payment.
WILLIS: Back to my question, though. Why wouldn't you just take out a HELOC, a home equity line of credit? And, you know, you can -- they can be really inexpensive, if not free, and then you don't find yourself tempted not just to do the interest-only payments.
HSIEH: Well, keep in mind that most HELOCs out there also have the option of interest-only payments. So the interest-only is really a payback option these days, and not just constrained to first or second mortgages.
WILLIS: Let's go on to hybrids, adjustable-rate mortgages, very popular. Why would you want to use one of these products, and how have they improved and changed over time?
HSIEH: Well, they improved quite a bit, because certainly the old law of supply and demand certainly applies here. For the last year and a half, as you know, the 30-year mortgages have been going up slightly. Anytime we're in an upward-rate environment, consumers get creative, and they start looking for other opportunities to save on their borrowing.
And certainly the spread on a hybrid, for example, like a five- year fixed, is about more than 1 percent difference now, as compared to a 30-year fixed. So most people are telling themselves, If I'm not staying in the house for 30 years, why should I pay for a 30-year mortgage? I will take my chances, but I'd like to have my payments fixed for five years.
WILLIS: All right. I want to get you to payment option loans really quickly. These can be pretty controversial. Is there anybody that these payment option loans suit? Give us a thumbnail description, if you could.
HSIEH: Sure. A payment option loan is really taking that borrowing power and leveraging it even a step further. So the traditional loan is fully amortized, which means that you pay off principal and interest. Interest-only that we talked about is just paying the interest on the amount of money that you borrow.
Payment option loans are payment (INAUDIBLE) ARMs that are becoming very popular. It takes that to another degree, where you can actually defer some of your interest due, so your monthly payment even declines even further.
But there's no free lunch. The other side of it is that the deferred interest portion of it gets added onto your principal balance, so you're (INAUDIBLE)...
WILLIS: So in the end...
HSIEH: ... (INAUDIBLE)...
WILLIS: ... you can actually end up owing more after you've held the loan for a while and made payments. Right?
HSIEH: If you defer your interest payment, you will end up owing more than you borrowed. That is an option, not a mandatory requirement on the loan.
WILLIS: All right. Well, Anthony Hsieh, thanks for taking us to school on this complicated topic.
HSIEH: You're very welcome. Thanks for having me.
WILLIS: Coming up on OPEN HOUSE, our weekend project. Create a garden paradise in a small container. Expert Allen Smith shows us how, and share his amazing garden. It's coming up next on OPEN HOUSE.
(COMMERCIAL BREAK)
NGUYEN: Good morning. I'm Betty Nguyen at the CNN Center. OPEN HOUSE will be right back. But first, here's a look at stories right now in the news. An al Qaeda operative, a key al Qaeda operative, was killed near the Afghan-Pakistan border earlier this week. Sources tell CNN the man was hit by a missile fired by a CIA-operated Predator drone. Now, U.S. military officials had hoped the man would lead them to Osama bin Laden.
The death toll in Uzbekistan riots may be in the hundreds after soldiers opened fire on protesters. Thousands took to the streets this week to demand the government resign. This morning, thousands are leaving the country.
The death toll from Operation Matador rose to nine U.S. Marines. The U.S. offensive is against infiltrators in western Iraq, specifically in the Anbar Province. Intelligence reports those insurgents are either hiding or have fled the area.
And a rare weekend for Tiger Woods. He might be sleeping a little late this morning. The Masters champion missed the cut. That's right, he missed the cut in the Byron Nelson Classic in Texas. That ends his streak of making 142 straight cuts in the last seven years on the PGA Tour.
I'm Betty Nguyen. OPEN HOUSE will be right back after this break.
(COMMERCIAL BREAK)
WILLIS: Welcome back to OPEN HOUSE.
How would you like your back yard to look like this?
Gardening expert Allen Smith is here to show us the secrets of container gardening.
(BEGIN VIDEOTAPE)
WILLIS: Let's get started.
Allen, hi. Thanks for inviting us.
P. ALLEN SMITH, GARDEN DESIGN EXPERT: Hi, Gerri, oh...
WILLIS: So good to se you.
SMITH: Oh, good to see you again as well.
WILLIS: We're going to do container gardening?
SMITH: You better believe it.
WILLIS: And this is gardening on training wheels. I need to say these steps, OK?
SMITH: Container gardening's perfect for beginners. You know, it doesn't take a lot of time, you don't have a lot of space, and you don't have to have a big budget. WILLIS: I love that.
SMITH: Now, when you choose a container, you really want it to work with the style of your house. Or if you just get really turned on by a color or a shape, just go for it.
You need to start with fresh potting soil every year, OK?
WILLIS: Any potting soil? Because that's complicated. You know, you go and you look at the soil there's all kinds of different (INAUDIBLE).
SMITH: I know, there's a million different kinds. But to simplify it, go for something that is a container mix, something that has "Container Mix" on it. It's blended by the professionals to work in containers. And if you get one of these container blends, you don't have to worry about putting gravel in the bottom and that sort of thing.
WILLIS: Oh, OK.
SMITH: The soil will drain perfectly.
So we're going to moisten it. Doing a good job. And when you grab ahold of the soil, when it's moist...
WILLIS: This is like...
SMITH: ... and you hold it and you...
WILLIS: ... it looks like (INAUDIBLE).
SMITH: ... squeeze it, and you squeeze it as hard as you can, and open your hand, if falls apart, you know it's just right.
WILLIS: OK.
SMITH: We want to feed the plant. All right? So what I like to do is, I like to start with a slow-release fertilizer. Now, when we...
WILLIS: How much, though? Because I know people are always burning out their plants with too much fertilizer.
SMITH: Well, what's great about the slow release, and this one, for instance, I think will feed up to four months. What I'd like to do here is show you this (INAUDIBLE)...
WILLIS: This looks like salt.
SMITH: ... water-retentive polymer, all right? Now, it doesn't take much of this. For a container of this size, about two tablespoons, all right? And what happens with this little granule is that it will absorb water, and that water will be available to the young plants.
So we've added soil. We've added a slow-release fertilizer, we've used the water-retentive crystal...
WILLIS: Right.
SMITH: ... so now it's time for the fun part.
You want plants that respond to the same sort of growing conditions. For -- you don't to put a sun-lover and a shade-lover together, because one of them's going to suffer, all right? And you want to make sure that the plant forms all work together. And that means...
WILLIS: You mean the shapes, the (INAUDIBLE) shapes?
SMITH: The shapes of them.
So I like to use three different flower shapes if I'm going to do a container, a combination container. You could call this a thriller, filler, and a spiller.
WILLIS: A thriller, a filler, and a spiller.
SMITH: That's right.
WILLIS: That's great.
Well, the results are simply stunning.
SMITH: Well, thank you. I mean, it's so simple and easy to do.
Now, how about a tour of the garden?
WILLIS: This is just so pretty.
SMITH: Well, I mean, Gerri, why have a garden if you don't have places in the garden where you can just sit back and relax and enjoy it?
But if you need a flower fix, hey, go back to those containers and fill those containers till your heart's content.
WILLIS: Sounds beautiful. Allen, thanks so much for giving us the tour today.
SMITH: Well, you're welcome. Thanks for being here. It's been a lot of fun.
(END VIDEOTAPE)
WILLIS: That was a beautiful garden.
Coming up, a look at next week's show.
But first, the mortgage snapshot.
(COMMERCIAL BREAK)
WILLIS: Next week on OPEN HOUSE, a special look at home safety.
Thanks for watching.
Coming up, "DOLANS UNSCRIPTED."
But first, a look at the day's headlines.
Have a great weekend.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
Aired May 14, 2005 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
GERRI WILLIS, HOST "OPEN HOUSE": Think paying a 6 percent commission to your real estate agent is too high? You're not alone.
ANNOUNCER: Today on OPEN HOUSE, commission controversy: your real estate agent may not have your best interests in mind. A look at some of the anti-competitive practices that could be costing you big money. Plus, don't give up on that dream house; tips on creative financing that might help you afford that home. And our "Weekend Project:" create a garden paradise in a small space. Tips from gardening pro Allen Smith (ph), next on OPEN HOUSE.
WILLIS: Hello, and welcome to CNN OPEN HOUSE. I'm Gerri Willis.
From buying and selling to renovation and design, we show you how to make your home your best investment. The Justice Department is taking steps to force realtors across the country to be more competitive alleging some full-commission brokers refuse to do business with discount brokers. It was a hot topic at this week's annual meeting of the National Association of Realtors in Washington. So, what does it mean for you? Ceci Rodgers takes a look.
(BEGIN VIDEOTAPE)
CECI RODGERS, CNN CORRESPONDENT: If you think you have to pay a real estate agent thousands of dollars in commissions when you sell your house, you haven't met Quin O'Brien.
QUIN O'BRIEN, 4SALE REALTY: That says you have no knowledge of lead-based paint.
RODGERS: He charges home sellers a flat fee, $450, to provide a listing on the holy grail of the industry, the multiple listing service. It's what many consider the future of real estate.
O'BRIEN: I've had clients easily save $12,000, $15,000.
RODGERS: But his clients won't be saving as much in the future. Lawmakers in Illinois have made it illegal for O'Brien to sell just a listing on the MLS. Now, he must perform other services, too, or risk losing his broker's license.
O'BRIEN: I don't understand why, if they want exposure, why they also have to pay for negotiating services.
RODGERS: The Justice Department agrees. In letters to lawmakers in Texas, Oklahoma and Alabama, the agency urged rejection of legislation similar to that in Illinois, saying it would, quote, "deprive citizens of the benefits of competition, such as lower prices and customized service levels provided by fee-for-service brokers." In Kentucky, the DoJ is suing the state real estate commission for not allowing brokers to offer rebates on their commissions. And even as President Bush was addressing the national meeting of the powerful National Association of Realtors, his anti-trust cops were pressuring the group to change proposed rules allowing brokers to boycott competitor's web listings.
LAURIE JANIK, NATIONAL ASSOCIATION OF REALTORS: We've been having ongoing discussions with the Justice Department since their review of our policy commenced in September of '03. And we're having healthy exchanges of our views.
RODGERS: Discount brokers like O'Brien say they expect a prolonged battle.
(on camera): With traditional brokers fighting every inch of the way to keep their full-service commissions, which added up to more than $60 billion last year alone.
For OPEN HOUSE, Ceci Rodgers, CNN, in Grays Lake, Illinois.
(END VIDEOTAPE)
WILLIS: So should real estate agents be subject to competition like every other industry?
Joining me now, Bill Powers. He's COO of full-commission real estate brokerage Realty Executives International. And Van Davis, CEO of discount real estate brokerage Foxton's North America.
All right, let's get down to it. Bill, I want to start with you. First off, are Realtors trying to force discounters out of the business?
BILL POWERS, COO, REALTY EXECUTIVES INTERNATIONAL: Absolutely not. In fact, we welcome all competition. Real estate's probably the most competitive and cooperative industry in the country.
WILLIS: Well, then, why is the Justice Department taking a look at this stuff?
POWERS: Actually, the Justice Department has been taking a look at it for two years, with National Association of Realtors help, to try and put the rules together. There are no rules right now on the Internet. We're trying to put the rules together to make sure that it's an even playing field and the consumer has their choice heard.
WILLIS: What do you say to that, Van?
VAN DAVIS, CEO, FOXTON'S NORTH AMERICA: Well, I think I welcome the Department of Justice entering into this. I believe that they will find a lot of information that will be interesting to them, and...
WILLIS: Is Bill trying to hurt your business?
DAVIS: I don't know about Bill, but I think that definitely the industry as a whole is trying to promote and preserve what they've had for the past three decades, and they are doing that through a variety of measures, not the least of which is the Internet, but also rules and regulations and legislative initiatives that either restrict certain services or require services or restrict marketing capabilities or require different activities.
So at the end of the day, I think the consumer is who we need to be focusing on, giving them the breadth of choice that they really deserve in this industry.
WILLIS: Well, what I'm reading, what I'm hearing about is that apparently, full-service agents and brokers out there just aren't doing business with discounters. Do you have that problem?
DAVIS: Absolutely. There's no question, every day my agents come to me with discussions they've had with other agents that basically say, We won't do business with you, we just -- we won't show your properties.
WILLIS: Bill, respond.
POWERS: I have to respond, I have to respond in the negative. Quite frankly, there's a number of much larger discounters out there, I would use Home Game as an example, that a number of my people are using every day. They are selling their leads, and they're selling their leads that come in from their Internet providers.
WILLIS: So, you're, Bill, you're saying you're not getting in the way of the discounters?
POWERS: (INAUDIBLE) executives welcomes all of this. Anything that can help the consumer. The bottom line is the consumer. It's their decision.
WILLIS: All right, Bill. Another complaint here that we're hearing from the National Association of Realtors is that the discounters, particularly Internet discounters, are stealing listings. I think they use the term "scraping," or something like that. What does that mean, and do you have that problem?
POWERS: That is correct. And quite frankly, a number of not just the Realtor sites, but the actual broker sites, are being scraped. And in essence, what that means is, an Internet provider, and I'm certainly not accusing Mr. Davis of doing this, an Internet provider will actually go into the site, unknown to the people who have the site, and take the data off of that site, and then use it for their own usage.
WILLIS: Van, or -- is this going on? It sounds like a privacy issue.
DAVIS: Well, just to set one thing straight, we actually are a full-service brokerage, and so we are not a limited service (INAUDIBLE).
WILLIS: OK, all right.
DAVIS: We are full service, 3 percent. So we're a little different from everybody else. We actually do leverage the Internet very effectively ourselves...
WILLIS: OK.
DAVIS: ... and we are members of the NLS (ph). But, yes, people are actually going in and utilizing the information that's available on the Internet.
WILLIS: Is that a problem?
DAVIS: It could be, theoretically. But I don't believe it is. I think that ultimately -- and I agree with Mr. Powers on this -- we have to be looking at the consumers' best interests. And when...
WILLIS: OK.
DAVIS: ... you list a home, your job is provide the most -- the broadest exposure possible, and that includes all avenues that are available on the Internet.
WILLIS: There at the heart of this disagreement, this debate that's going on, isn't it that Realtors, members of the National Association of Realtors, are trying to protect 6 percent commissions? Isn't this a debate over who makes the profit?
DAVIS: I believe it is. I think that it's not just a matter of the Internet, but it's a matter of legislative initiatives, it's a matter of industry protocol that's been there for decades. And that all, when combined, really creates an atmosphere where they are trying to secure their own future, and frequently at the consumers' expense.
WILLIS: Bill?
POWERS: Gerri, I couldn't disagree more. Quite frankly, there's a number of discount brokers that are members of the National Association of Realtors. This has nothing to do with fee structures. This has to do with ethical behavior and level playing fields, and consumer choice.
WILLIS: Do you want to respond, Van?
DAVIS: We are a member of the National Association of Realtors. All of our agents are, all 300 of them. We believe that the National Association of Realtors does many functions and does it very well.
We just have a challenge at this point with the legislative and other initiatives at the state and real estate commission levels that we think are really specifically designed to thwart competition, thwart optionality for the consumers, as opposed to provide additional optionality.
WILLIS: I'm afraid we're going to have to...
POWERS: (INAUDIBLE)...
WILLIS: Go ahead, Bill...
(CROSSTALK)
WILLIS: ... last word in here.
POWERS: The last word is, it sounds to me like, Mr. Davis, you have some issues that are located in areas that I'm not very strong in. We across the country, we have 14,000 agents, and we have not experienced the type of experiences that you're describing.
WILLIS: We have to leave it at that. Bill Powers, Van Davis, thanks for joining us today.
Coming up on OPEN HOUSE, creative financing may get you into that expensive home. But does it make financial sense?
And our weekend project. Wait till you see these gardens. Gardening guru Allen Smith shows us how to create container gardens.
But first, your tip of the day.
(BEGIN VIDEO CLIP)
ANNOUNCER: You may be tempted to do some home renovations yourself. But beware of a common pitfall. Many homeowners try to save money on renovation projects by becoming their own general contractors, but they often end up spending more money than if they had hired a professional in the first place. Here's why.
Subcontractors give general contractors a good rate on services, but homeowners will likely pay retail. That's because subcontractors see you as a one-time deal.
So for minor home improvement projects, an experienced general contractor will probably be the most cost-effective route.
And that's your tip of the day.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
WILLIS: It used to be the 30-year fixed-rate mortgage was the only game in town. Not any more. There are plenty of creative financing options to help you buy your dream home.
One example, the interest-only mortgage. But, as Allan Chernoff show us, it's not for everyone.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): A living room and a wet bar. It's a dream home in Manhattan for Charles Carter and his wife, Carolyn, who lived in a tiny studio for nine years.
But the cost, $460,000, plus another 150-grand in renovations for a three-bedroom apartment, was intimidating. But the Carters took out what their banker described as an interest-only mortgage.
CHARLES CARTER: And we didn't know much about it, going into the process, actually. And we looked at, and we thought, compared to a conventional loan, that there was certainly more flexibility as well as more buying power.
CHERNOFF: Lenders call them interest-only loans, but that's a misnomer. The borrower is required to make only interest payments in the early years of the mortgage. Later on, though, the borrower still has to pay back the principal. At that point, monthly payments can soar.
ALLEN FISHBEIN, CONSUMER FEDERATION OF AMERICA: Many first-time homebuyers are unaware of the risks involved, and the fact that payments could increase by 30 percent or more after the initial interest-only period has expired.
CHERNOFF: The Carters didn't want to increase their risk, only reduce it. So they're making optional payments on the principal of the loan every month.
CARTER: But we know that we have the flexibility on, let's say, any given month or any given year, for us to stop paying, you know, principal, if we wanted to.
CHERNOFF: By making those payments, the Carters are building ownership in their new home. Homebuyers who pay only interest to the bank are essentially renting from their lender.
So-called interest-only loans can be helpful for people who can't predict their incomes, says mortgage lender Bob Moulton.
BOB MOULTON, AMERICAN MORTGAGE GROUP: An interest-only mortgage is good for someone who receives a bonus at the end of the year, or who is commission-driven and comes into uneven cash flows. An interest-only mortgage will lower your payment approximately 25 percent, versus a fixed-rate mortgage.
CHERNOFF: The Carters will have to remain disciplined, paying down principal to take full advantage of their loan. But for most people who want to build equity in their homes, so-called interest- only mortgages can be a risky proposition.
Allan Chernoff, CNN, New York.
(END VIDEOTAPE)
WILLIS: Mortgage bankers sure are creative. So you need to understand what you're getting yourself into before you sign on the dotted line.
Joining us now from Irvine, California, is Anthony Hsieh. He's president of LendingTree.com.
Anthony, welcome.
ANTHONY HSIEH, PRESIDENT, LENDINGTREE.COM: Thanks for having me, Gerri.
WILLIS: You know, we just saw this story on interest-only loans. I got to tell you, I know they're popular out there, but they are not my favorite product. Why don't people just take out home loans or home equity lines of credit to borrow money, instead of these interest-only products?
HSIEH: Well, Gerri, I thought you were the interest-only type of gal, but (INAUDIBLE)...
WILLIS: Why is that?
HSIEH: Well, because, simply, people that are asking for interest-only, and some of these other so-called creative programs, are from people that are fairly on top of their financial situations. So they're not looking at this as so much of taking a risk as a best way for them to leverage their borrowing power.
WILLIS: So tell me, who is this for, then? You say it's for savvy people, sophisticated people. Is there any other way you can describe who this suits, and what kind of problems it might solve?
HSIEH: Well, it's not so much of problem solving as it is just free cash flow. For example, if you took a normalized traditional 30- year mortgage, most people are not staying in their homes for 30 years, and many of them are forecasting they'll be in the house five to seven years. And when you go and sell a home in five years, and you pay that payment on a 30-year fixed rate for five years, you're only paying off about 5 percent of the principal balance.
Now, that 5 percent is still significant, but certainly is not going to achieve your objective if you wanted to pay off that home. So many people are taking the opportunity just to keep that cash, that 5 percent, in their, pocket and lower their monthly payment.
WILLIS: Back to my question, though. Why wouldn't you just take out a HELOC, a home equity line of credit? And, you know, you can -- they can be really inexpensive, if not free, and then you don't find yourself tempted not just to do the interest-only payments.
HSIEH: Well, keep in mind that most HELOCs out there also have the option of interest-only payments. So the interest-only is really a payback option these days, and not just constrained to first or second mortgages.
WILLIS: Let's go on to hybrids, adjustable-rate mortgages, very popular. Why would you want to use one of these products, and how have they improved and changed over time?
HSIEH: Well, they improved quite a bit, because certainly the old law of supply and demand certainly applies here. For the last year and a half, as you know, the 30-year mortgages have been going up slightly. Anytime we're in an upward-rate environment, consumers get creative, and they start looking for other opportunities to save on their borrowing.
And certainly the spread on a hybrid, for example, like a five- year fixed, is about more than 1 percent difference now, as compared to a 30-year fixed. So most people are telling themselves, If I'm not staying in the house for 30 years, why should I pay for a 30-year mortgage? I will take my chances, but I'd like to have my payments fixed for five years.
WILLIS: All right. I want to get you to payment option loans really quickly. These can be pretty controversial. Is there anybody that these payment option loans suit? Give us a thumbnail description, if you could.
HSIEH: Sure. A payment option loan is really taking that borrowing power and leveraging it even a step further. So the traditional loan is fully amortized, which means that you pay off principal and interest. Interest-only that we talked about is just paying the interest on the amount of money that you borrow.
Payment option loans are payment (INAUDIBLE) ARMs that are becoming very popular. It takes that to another degree, where you can actually defer some of your interest due, so your monthly payment even declines even further.
But there's no free lunch. The other side of it is that the deferred interest portion of it gets added onto your principal balance, so you're (INAUDIBLE)...
WILLIS: So in the end...
HSIEH: ... (INAUDIBLE)...
WILLIS: ... you can actually end up owing more after you've held the loan for a while and made payments. Right?
HSIEH: If you defer your interest payment, you will end up owing more than you borrowed. That is an option, not a mandatory requirement on the loan.
WILLIS: All right. Well, Anthony Hsieh, thanks for taking us to school on this complicated topic.
HSIEH: You're very welcome. Thanks for having me.
WILLIS: Coming up on OPEN HOUSE, our weekend project. Create a garden paradise in a small container. Expert Allen Smith shows us how, and share his amazing garden. It's coming up next on OPEN HOUSE.
(COMMERCIAL BREAK)
NGUYEN: Good morning. I'm Betty Nguyen at the CNN Center. OPEN HOUSE will be right back. But first, here's a look at stories right now in the news. An al Qaeda operative, a key al Qaeda operative, was killed near the Afghan-Pakistan border earlier this week. Sources tell CNN the man was hit by a missile fired by a CIA-operated Predator drone. Now, U.S. military officials had hoped the man would lead them to Osama bin Laden.
The death toll in Uzbekistan riots may be in the hundreds after soldiers opened fire on protesters. Thousands took to the streets this week to demand the government resign. This morning, thousands are leaving the country.
The death toll from Operation Matador rose to nine U.S. Marines. The U.S. offensive is against infiltrators in western Iraq, specifically in the Anbar Province. Intelligence reports those insurgents are either hiding or have fled the area.
And a rare weekend for Tiger Woods. He might be sleeping a little late this morning. The Masters champion missed the cut. That's right, he missed the cut in the Byron Nelson Classic in Texas. That ends his streak of making 142 straight cuts in the last seven years on the PGA Tour.
I'm Betty Nguyen. OPEN HOUSE will be right back after this break.
(COMMERCIAL BREAK)
WILLIS: Welcome back to OPEN HOUSE.
How would you like your back yard to look like this?
Gardening expert Allen Smith is here to show us the secrets of container gardening.
(BEGIN VIDEOTAPE)
WILLIS: Let's get started.
Allen, hi. Thanks for inviting us.
P. ALLEN SMITH, GARDEN DESIGN EXPERT: Hi, Gerri, oh...
WILLIS: So good to se you.
SMITH: Oh, good to see you again as well.
WILLIS: We're going to do container gardening?
SMITH: You better believe it.
WILLIS: And this is gardening on training wheels. I need to say these steps, OK?
SMITH: Container gardening's perfect for beginners. You know, it doesn't take a lot of time, you don't have a lot of space, and you don't have to have a big budget. WILLIS: I love that.
SMITH: Now, when you choose a container, you really want it to work with the style of your house. Or if you just get really turned on by a color or a shape, just go for it.
You need to start with fresh potting soil every year, OK?
WILLIS: Any potting soil? Because that's complicated. You know, you go and you look at the soil there's all kinds of different (INAUDIBLE).
SMITH: I know, there's a million different kinds. But to simplify it, go for something that is a container mix, something that has "Container Mix" on it. It's blended by the professionals to work in containers. And if you get one of these container blends, you don't have to worry about putting gravel in the bottom and that sort of thing.
WILLIS: Oh, OK.
SMITH: The soil will drain perfectly.
So we're going to moisten it. Doing a good job. And when you grab ahold of the soil, when it's moist...
WILLIS: This is like...
SMITH: ... and you hold it and you...
WILLIS: ... it looks like (INAUDIBLE).
SMITH: ... squeeze it, and you squeeze it as hard as you can, and open your hand, if falls apart, you know it's just right.
WILLIS: OK.
SMITH: We want to feed the plant. All right? So what I like to do is, I like to start with a slow-release fertilizer. Now, when we...
WILLIS: How much, though? Because I know people are always burning out their plants with too much fertilizer.
SMITH: Well, what's great about the slow release, and this one, for instance, I think will feed up to four months. What I'd like to do here is show you this (INAUDIBLE)...
WILLIS: This looks like salt.
SMITH: ... water-retentive polymer, all right? Now, it doesn't take much of this. For a container of this size, about two tablespoons, all right? And what happens with this little granule is that it will absorb water, and that water will be available to the young plants.
So we've added soil. We've added a slow-release fertilizer, we've used the water-retentive crystal...
WILLIS: Right.
SMITH: ... so now it's time for the fun part.
You want plants that respond to the same sort of growing conditions. For -- you don't to put a sun-lover and a shade-lover together, because one of them's going to suffer, all right? And you want to make sure that the plant forms all work together. And that means...
WILLIS: You mean the shapes, the (INAUDIBLE) shapes?
SMITH: The shapes of them.
So I like to use three different flower shapes if I'm going to do a container, a combination container. You could call this a thriller, filler, and a spiller.
WILLIS: A thriller, a filler, and a spiller.
SMITH: That's right.
WILLIS: That's great.
Well, the results are simply stunning.
SMITH: Well, thank you. I mean, it's so simple and easy to do.
Now, how about a tour of the garden?
WILLIS: This is just so pretty.
SMITH: Well, I mean, Gerri, why have a garden if you don't have places in the garden where you can just sit back and relax and enjoy it?
But if you need a flower fix, hey, go back to those containers and fill those containers till your heart's content.
WILLIS: Sounds beautiful. Allen, thanks so much for giving us the tour today.
SMITH: Well, you're welcome. Thanks for being here. It's been a lot of fun.
(END VIDEOTAPE)
WILLIS: That was a beautiful garden.
Coming up, a look at next week's show.
But first, the mortgage snapshot.
(COMMERCIAL BREAK)
WILLIS: Next week on OPEN HOUSE, a special look at home safety.
Thanks for watching.
Coming up, "DOLANS UNSCRIPTED."
But first, a look at the day's headlines.
Have a great weekend.
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