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Tips For Buying a Home

Mistakes to Avoid Prior to Home Ownership

  • Spending more than you make. This can lead to real danger in not being able to afford to purchase. Create a budget you can live with and cancel credit cards you do not use before applying for a loan.
  • Not Saving Enough for Down Payment and Closing Costs. Be sure to include these items when working on your home buying budget. It will be difficult to come up with thousands of dollars if you have not planned ahead.
  • Failure to Understand Cost to Own and Maintain a Home. You must understand the expenses involved in ownership and plan your budget to include these items. All homes are different and the costs vary depending on the type of home and construction.
  • No Knowledge of Mortgage Products. Investigate the types of mortgages available and find one that fits your needs. No two are alike and the costs can vary greatly. Shop lenders for the best rates and terms.
  • Failing to Seek Professional Help. If you find you are in financial trouble and getting deeper in debt, seek professional counseling to improve your credit history and ability to purchase a home.
  • Failing to Control Your Home Purchase. This is your home and be sure you are in charge of the location, style, and price you can pay. Never let family, friends, or a Real Estate Agent sell you on something you do not want.
  • Indecision. Know what you want in regards to your future. If you are unsure, now may not be the right time for you to buy a home.
  • Purchasing a Home Before You Are Ready. Buying a home is a major commitment. If you are not prepared for the responsibility of ownership and the financial obligation it creates by all means rent.

 

How To Avoid Home Buying Mistakes

  • Not doing your homework. Enter the market well-prepared by researching location, school district, deed restrictions and taxes.
  • Trying to make a shrewd investment. Focus on finding the best place for you and your family to live rather than trying to predict the real estate market.
  • Choosing a poor location. Consider what part of town you would like to live in and avoid homes located on busy streets.
  • Overlooking an inferior floor plan for an attractive exterior. Choose a great floor plan over a great exterior because you'll spend far more time inside the house than outside.
  • Overlooking how the home will function for your family. Consider features that are most important to your family and choose a home that will meet those needs.
  • Not having the home properly inspected when buying a resale. Hire a state-licensed, professional inspector to evaluate the home's true condition, which could save you thousands of dollars in repairs and maintenance.
  • Not having the home properly inspected when buying a new home. Research the number of homes sold, homeowner satisfaction, years in business, industry recognition and warranties offered.
  • Not getting what you want because you're impatient. If it's a used home, allow time to negotiate and get the best deal possible. Refusing to rush the process could save you $5,000 on the purchase price.
  • Waiting for a better time to buy based on the market and interest rates. History shows that those who purchased homes and kept them for three to five years or more did better than those who didn't. Waiting is one of the biggest mistakes a home buyer can make.
  • The biggest home buying mistake is not buying at all. Buying a home will give you a place to call your own and allow you to take advantage of tax breaks and build equity.
  • Avoiding common mistakes can make the home buying process simpler and less stressful.

Mistakes to Avoid When Buying a Home

  • A great way to make the home-buying process flow smoothly is to educate yourself and learn from mistakes others have made - this can make the difference between buying the home of your dreams and buying a "lemon."
  • Not getting pre-qualified or pre-approved
    If you receive pre-qualification or pre-approval from a reputable lender, your negotiating position is strengthened. It shows agents and sellers you are serious about buying a home.
  • Not seeking guidance from real estate professionals and inspectors
    These people are trained in buying, selling and inspecting. Find someone you respect and trust and allow them to help – it will benefit you in the end.
  • Choosing an agent haphazardly
    Don’t jump from agent to agent just because you saw their name on a sign outside of a house you like. Interview at least three agents and choose the one you feel most comfortable with and who will focus on your needs.
  • Not getting enough information about the properties
    Obtain market statistics and sales records for the area you are considering buying a home in so you know how things (prices, conditions, list-to-selling price ratios) stack up in your neighborhood.
  • Not looking at enough houses for sale
    The more you see, the more you’ll learn about what you want and what each house is worth.
  • Not making the correct price comparison
    Don’t assess the value of a house only on the asking price. Your real estate agent should compile reports that reflect and compare the selling price of similar houses recently sold.
  • Forgetting to calculate all the costs
    When calculating the maximum price you can afford, don’t forget to include hidden costs, i.e. courier costs. Calculate a reasonable price range and look for a house that is priced closer to the lower end of your range.
  • Not asking enough questions
    Don’t be afraid to ask questions! You’re not supposed to know everything about buying a home. Remember, this is potentially the biggest purchase you will make in your life – don’t get caught in a "lemon" because you didn’t ask enough questions!
  • Fear of losing a specific house
    Don’t fall in love with the first home you see. New listings come onto the market all the time. The best deal may still be around the corner.
  • Not looking past the interior decorating or cosmetic improvements
    Don’t choose a house because you like the interior decorating – that is not what you are buying and it will probably go with the seller when he moves. Check out the actual structure of the house!
  • Not checking out every nook and cranny before purchasing
    Go through the house with a fine-tooth comb. You don’t want to find out after you’ve bought the house that the roof is leaking. Open cabinets, turn on every switch, notice details, move stuff away from the walls, look in the attic, turn on faucets.
  • Not making a low offer
    Pay only what you can afford. The seller can always make a counter-offer, and you can counter-offer again until you settle on a suitable price, or you can simply walk away.
  • Being pushed into buying a certain home
    Don’t make a decision until you feel you’ve seen enough to pick the best one.

 

5 Buyer Secrets

Get "Pre-Approved" - Not "Pre-Qualified!"

  • Do you want to get the best property you can for the least amount of money? Then make sure you are in the strongest negotiating position possible. Price is only one element in the negotiations, and not necessarily the most important one. Often other terms, such as the strength of the buyer or the length of escrow, are critical to a seller.
  • In years past, I always recommended that buyers get "pre-qualified" by a lender. This means that you spend a few minutes on the phone with a lender who asks you a few questions. Based on the answers, the lender pronounces you "pre-qualified" and issues a certificate that you can show to a seller. Sellers are aware that such certificates are WORTHLESS, and here's why! None of the information has been verified!
  • Many times unknown problems can come to the surface! Some of the problems I've seen include recorded judgments, alimony payments due, glitches on the credit report due to any number of reasons both accurately and inaccurately, down payments that have not been in the clients' bank account long enough, etc.
  • So the way to make the strongest offer today is to get "pre-approved".
  • This happens AFTER all information has been checked and verified. You are actually APPROVED for the loan and the only loose end is the appraisal on the property. This process takes anywhere from a few days to a few weeks depending on your situation. It's VERY POWERFUL and a weapon I recommend all my clients have in their negotiating arsenal.

 

Sell Your Property First, Then Buy the House

  • If you have a house to sell, sell it before selecting a house to buy! Contingency sales aren't nearly as strong as one that comes in with a ready, willing and able buyer. Consider this scenario You've found the perfect house - now you have to go make an offer to the seller.
  • You want the seller to reduce the price and wait until you sell your house. The seller figures that this is a risky deal, since he might pass up a buyer who DOESN'T have to sell a house while he's waiting for you. So he says OK, he'll do the contingency but it has to be a full price offer! You have now paid more for the house than you could have because of the contingency, and you have to sell your existing house in a hurry! Otherwise you lose the house! So to sell quickly you might take an offer that's lower than if you had more time. The bottom line is that buying before selling might cost you THOUSANDS of dollars.
  • If you're concerned that there is not a house on the market for you, then go on a window-shopping trip. You can identify possible houses and locations without falling in love with a specific house. If you feel confident after that then put your house on the market. Another tactic is to make the sale "subject to seller finding suitable housing". Adding this phrase to the listing means that WHEN YOU DO FIND A BUYER, you will have some time to find the new place. If you don't find anything to your liking, you don't have to sell your present home.

 

Play the Game of Nines

  • Before house hunting, make a list of things you want in the new place. Then make a list of the things you don't want. You can use this list as a guide to rate each property that you see. The one with the biggest score wins! This helps avoid confusion and keeps things in perspective when you're comparing dozens of homes. When house hunting, keep in mind the difference between "STYLE AND SUBSTANCE". The SUBSTANCE are things that cannot be changed such as the location, view, size of lot, noise in the area, school district, and floor plan. The STYLE represents easily changed surface finishes like carpet, wallpaper, color, and window coverings. Buy the house with good SUBSTANCE, because the STYLE can always be changed to match your tastes. I always recommend that you imagine each house as if it were vacant. Consider each house on its underlying merits, not the seller's decorating skills.

 

Don't Be Pushed Into Any House

  • Your agent should show you everything available that meets your requirements. Don't make a decision on a house until you feel that you've seen enough to pick the best one. A decade ago, homes were selling quickly, usually a few days after listing. In that kind of market, agents advised their clients to make an offer ON THE SPOT if they liked the house. That was good advice at the time. Today there isn't always this urgency, unless a home is drastically underpriced, and you'll know if it is.
  • Don't forget to check into the SCHOOL DISTRICTS of the area you're considering. Information is available on every school; such as class sizes, % of students that go on to college, SAT scores, etc. You can get this information from this web site.

 

Be prepared to act fast!

  • The biggest mistake I see home buyers make is they find something they really like, ask to see other homes, and by the time they decide their first choice was right, the home is gone. In a seller's market, there aren't enough homes to satisfy every homebuyer. Prices are usually sky high because of the low inventory. Homebuyers typically make a fast offer - often for more than the list price - or risk losing the home to a more agile homebuyer. There isn't much room to negotiate in a seller's market unless the property is overpriced. Your agent should show you everything available that meets your requirements. If you see something you like and can afford, buy it. Inexperienced or not, in today's market you must be willing to act fast.

 

Finding Financing

Once a contract becomes binding, you probably will have to arrange for financing. Depending on the terms of the contract, the purchase of the home may be contingent on your being able to get financing at certain terms by a certain date.

Lenders
The Real Estate Professional might provide you a list of lenders. Most home buyers get loans through savings institutions and mortgage bankers and, to a lessor extent, from commercial banks, credit unions, or other private sources. In some cases, the seller may be willing to offer financing. Sellers often can offer a loan to a buyer at a competitive interest rate and attractive terms. Check on specifics.

Types of loans
In general, three broad categories of loans are available:

  1. Private versus government loans - Most mortgage loans are made by savings institutions, banks and mortgage companies. On government (FHA and VA) loans, the government does not actually loan the money but rather guarantees (or insures) to repay the lender if you default for some reason. Generally, a lender will require you to buy mortgage insurance, particularly if you make a low down payment. This insurance may be paid at closing or added to the loan amount. VA loans require no mortgage insurance, but only qualified veterans may apply for them. Mortgage insurance protects the lender, to a degree, in the event of default.

Government loans have important advantages - they generally require a lower down payment than conventional loans and often have a lower interest rate or points. One the down side, government loans limit the amount you can borrow, often take longer to process, and sometimes have higher closing costs.

  1. Fixed rate versus adjustable rate - On a fixed rate mortgage, the interest rate stays the same over the life of the loan, usually 15 or 30 years. That means your payment will not change except for adjustments for taxes and insurance.

Adjustable rate mortgages go by a variety of names, but basically these loans have interest rates or monthly payments that can go up or down over time. These mortgages typically start out with a lower interest rate, lower monthly payments, and lower fees and points than fixed rate mortgages. They often appeal to first-time home buyers, younger couples who expect their incomes to grow in the coming years, and people who might not have much cash for down payment and closing costs.

If you consider an adjustable rate mortgage, ask the lender to explain the terms fully. Ask about the interest rate cap; the maximum rate you will be charged no matter how high rates go in the market. Don't confuse rate cap with payment cap. When the payment is not enough to cover interest, the excess interest is added to your principal balance, so your debt increases instead of decreases. Also ask about the index that will be used to calculate future interest rates and how index charges will affect your mortgage.

  1. Assumable versus new loan - Some loans, particularly FHA and VA loans as well as some adjustable rate mortgages, are assumable. That means a buyer can assume an existing loan usually on the same terms as the previous owner.

Assuming a loan may save some costs and time. As the buyer, you may pay the lender a fee at closing for processing the assumption.

The true price of financing
When shopping for a loan, don't judge the loan by the interest rate alone. Compare several items in the entire loan package, including:

  • Points on a low-interest-rate loan can be double those for a loan with a higher interest rate, causing you to pay more up front and in cash.
  • Total fees charged by the lender. Some lenders will absorb the cost of many services, while other do not, so ask in advance.
  • Term. In general, the longer the life of the loan and the more fixed the payment, the more you can expect to pay over the life of the loan. For example, a 30-year, fixed-rate loan will cost more in interest than a 15-year, fixed-rate loan.
  • Penalties. Ask what penalties will be charged if you pay off the note early. A prepayment clause could require you to pay a penalty if you pay off the loan early, such as refinancing the loan at a later time.

Loan approval process
When you apply for a loan, the lender will ask about your finances. You will already have most of the facts and figures in the financial information you compiled earlier. The process can take several weeks.

From the lender's viewpoint, approving the loan is only part of the risk; the other part is the property itself. The lender may require an appraisal to verify that the home is worth the loan as well as a physical survey to discover any encroachments on the property. Repairs may be required. Insurance must be purchased. Verifications of employment, deposits, and other matters must be obtained. Loan documentation and conveyances instruments must be drawn and approved. In addition, the title company must research the title and arrange for paying off any liens, taxes, and other costs. All these conditions and other conditions must be satisfied before a transaction can close.

Hazard insurance
As another protection, the lender may require insurance protecting the home against hazards such as fire and storms. (Flood insurance will most likely be required if the house is in the flood plain and would be a separate policy.) Hazard insurance may be included in a homeowner's policy that covers other risks such as theft and liability. Even if not required by a lender, it is probably a good idea for you to seriously consider all types of insurance. Discuss these issues with your insurance agent.

 

The Nine Most Common Mistakes to Avoid When Obtaining a Home Mortgage!

You are about to make what will most likely be the largest transaction of your life: your home mortgage. Unfortunately, many homebuyers do not take the time to research some of the little but weighty intricacies of mortgages. Researching the mortgage process takes little time compared to the tens of thousands of dollars it could save you.

Doesn’t it make sense to become as completely informed as possible before you buy your next home? This special report is designed to help you avoid nine common mistakes. Remember that the right lender can help you make good, sound business decisions based on your personal financial situation.

  • Find a Reputable Lender - This is the most important choice you can make when starting the mortgage process. If you don’t trust your lender, you are in for a long and stressful home-buying experience.
  • Pricing - Don’t be lured into a mortgage company strictly by promises of low rates. Find out how long the advertised rate is guaranteed for. Make sure there is enough time to close on your loan. Some companies may make these "promises" but will try changing the rate prior to closing. They may claim that your "lock-in" rate has expired so make sure you have the expiration date in writing. In some cases, the lender may even try to delay your closing to break the "lock-in" rate. In other cases the delay may be beyond the lender’s control. Make sure to allow yourself plenty of time for closing. Delays in the process are common and everyone (builders, title companies, even yourself) is responsible.
  • Programs - You will see several programs that offer special low-interest rates. Keep in mind that they may not be the best program for your situation. Make your lender explain what programs they feel best serve your needs and more importantly, why.
  • Fixed or Adjustable Rate Mortgage (ARM) - Conventional thinking is that fixed is always better and while this is sometimes true, it is not always the case. The key here is to ask, "How long am I going to live at this property?" An ARM can actually be a better choice if you are going to be in the home for a short time. The average for how long a first time homebuyer keeps their mortgage is less than four years. In general, the longer you plan on staying in your home, the better a fixed rate mortgage will suit your needs.
  • Don’t try to bottom out the market - Deciding when to lock in to a mortgage rate can be difficult. Many people will float, trying to guess when rates have hit bottom. Unfortunately, a lot of times they will wait too long and end up with a much higher interest rate. There is nothing wrong with floating but keep a close eye on economic indicators. Your daily newspaper or even the nightly news can be an excellent source of information on the latest interest rate activity. As closing nears, it might be worth locking in.
  • Negotiate problems prior to closing – Its common for a problem to arise before closing. Waiting until closing will rarely be in your best interest. For instance, if you accept $400 at closing in lieu of the seller making a repair and after closing you find that the repair will actually cost $600, you’ve obviously made a poor decision. Whether the builder agreed to add an item and has not or the seller has made a repair that is not acceptable to you, discussing a solution prior to closing will give both parties time to analyze and determine options.
  • Be prepared for closing costs – In addition to the down payment, you will be required to pay fees and other closing costs at the time of the final transaction. Closing costs typically range from 2 percent to 6 percent but will be dependent upon your situation. Lenders must provide you with a "Good Faith Estimate." The "Good Faith Estimate" will breakdown all costs so that you may know what to expect at closing.
  • Close at the end of the month – When making a mortgage payment, you will be paying interest that has accrued from the previous month. Upon closing however, your lender will charge you prepaid interest for the date the loan is recorded through the end of that month. Therefore, one way to lower your closing costs is to close in the latter part of the month. This will lower the amount of prepaid interest that you must pay.
  • Look out for hidden fees -- Check for certain miscellaneous fees such as inspection, notary, and document preparation. These types of fees can mean hundreds of dollars in closing costs. Remember that this is your money at stake. Never should you be afraid to ask for explanations of fees you are being charged.

 

What You Want, What You Need

Here are some suggestions to help you prepare for your search.

Needs and wants list
Make a list of your needs and wants. Do you need an extra bathroom, a garage, a fenced backyard, lower utility bills? Do you want a fireplace, a short drive to work, a lakeside view, or maybe minimal yard work?

Once your list is made, go back over it and decide what is most important to your lifestyle. It may be privacy, creativity, or recreation. Decide which items are musts and which you are willing to give up. Assign each item a priority so that you will know what to look for as you begin house hunting.

Location
Deciding where you want to live may be the single most important factor in choosing a home. Location affects your day-to-day living. Location to employment centers, shopping centers, schools, major traffic arteries, and other attractions are important. Evaluate location carefully. Location of a property is one of the most significant influences on value.

Your choice of location may be limited somewhat by the price you can afford. Even so, make sure you consider such things as:

  • prices of properties and property taxes,
  • distance to work, schools, shopping, and entertainment,
  • proposed changes in land use such as commercial shopping centers and roads, and potential hazards such as flooding and noise from a nearby airport or highways.

Type of home and lot
A single-family detached home is attractive to a lot of people because it typically provides more living space and land area than other types of living units. Typically the detached structure permits you greater freedom (less restrictions) on remodeling, expanding, painting, and altering the appearances of the structure.

If you don't like spending leisure time on yard work, consider garden or patio homes. These homes are set on small lots. Many garden home developments share common garden areas.
A condominium is another option. Condos and patio homes often offer shared greenbelts or membership in private recreational facilities such as swimming, golf, and tennis.

New vs. older homes
In selecting the type of home you want, consider new versus preowned homes. Preowned homes usually have established yards, and usually the neighborhood or subdivision is built-out. On the other hand, older homes may require more maintenance and need some repairs.

New homes are not without problems. Although they require less maintenance in the first few years, you may have to put in landscaping and call the builder back to correct faults. If buildings are still active in area, you may have to endure nearby construction.

Finally, consider size and style. You may already have in mind a wood-and-glass contemporary lodge with sun decks or a two-story Victorian mansion with a cozy attic. Or you won't know what you like until you see it. Either way, your Real Estate Professional will listen to your preferences and help you find the right home for you.

 

The Offer

  • When a buyer makes an offer to purchase your home, your Real Estate Professional will contact you promptly. The Real Estate Professional will scrutinize the document, review it with you carefully, and answer your questions. The written offer is important because it lays out all the terms of the proposed transaction and will become a binding contract if you sign it. The offer states the price the buyer is willing to pay and the financing terms, such as assuming your loan or arranging a new loan.
  • The offer may be contingent on the buyer's selling a home first, or obtaining an inspection. Ask the Real Estate Professional how these terms affect you and whether the offer is reasonable and in line with the market. The offer describes the property, states who pays for which closing costs, and specifies dates of closing and possession. Along with making the offer, the buyer may place some earnest money with the escrow agent as a sign of good faith. The earnest money will be kept in an escrow account and applied to the buyer's down payment or closing costs when the sale closes.
  • Your options
    In reviewing the offer, you have three options: accept, reject, or make a counteroffer. A counteroffer is a rejection of a buyer's offer with a simultaneous offer from you to the buyer. In making your decision, carefully review the figures compiled earlier to determine your net proceeds. Because the terms and estimated closing costs may be quite different from earlier calculations, you will want to discuss the possibilities with your Real Estate Professional. You are also encouraged to seek the advice of an attorney and a tax adviser.
  • Seller's Disclosure
    In most residential sales, a seller will deliver a Seller's Disclosure Notice to a buyer on or before the effective date of a contract to purchase the property. The notice is required by law to be delivered. It provides important information about the seller's knowledge of the condition of the property. Complete the notice to your best knowledge and belief. Your Real Estate Professional will most likely ask that you complete the notice at the time the listing is first taken. Copies of the completed notice will be made available to the prospects looking at your property.
  • Lead-Based Paint Disclosure
    If your property was built before 1978, federal law requires that before a buyer is obligated under a contract to buy the property, the seller shall: 1) provide the buyer with a lead hazard information pamphlet (as prescribed by EPA); 2) disclose the presence of any known lead-based paint or hazard; 3) provide the buyer with a lead hazard evaluation report or records available to the seller; and 4) permit the buyer to conduct a risk assessment or inspection for the presence of lead-based paint or hazards. A contract for the sale of property built before 1978 must contain a statutorily prescribed Lead Warning Statement to the buyer. Your Real Estate Professional will provide you with the forms necessary to comply with their law and will suggest procedures to follow in order to comply.
  • Accepting the offer
    Once you and the buyer agree on terms and sign the contract, the buyer will generally have to find a lender and apply for a loan. Your Real Estate Professional may monitor the loan process, which could last several weeks. During this time, your Real Estate Professional will also be busy coordinating other arrangements to prepare for the final sale.
  • Title search
    As part of the process, the title company may order a survey of your property and research the title to your home, making sure the chain of title is clear. Clearing the title may require paying off liens - that is, any monetary claims - against your property. Examples are mechanic's liens, unpaid state and federal tax liens, court judgments, and probate considerations (if a co-owner has died). The product of the title search can be in the form of title insurance, abstract of title, or certificate of title, depending on what is commonly used in your area.
  • Inspection and repairs
    If the buyer requires inspections of your home, your Real Estate Professional may coordinate the scheduling of inspectors. A buyer may hire an inspector to review many items in the property such as the structural components, mechanical items, electrical systems and plumbing systems. The inspector will report to the buyer the items that the inspector finds to be in need of repair. Most likely the buyer will provide a copy of the inspection report to you and may ask you to complete certain repairs. Do not be surprised when the inspection notes some items in need of repair. An inspector is trained to see items and defects that are not obvious to you and your Real Estate Professional. No matter how new or well maintained a home is, an inspector may very well find some items in need of repair.

 

What to Offer

A Real Estate Professional can help you find your perfect home, but only you can decide how much you are willing to offer for it. The Real Estate Professional can supply you with information about the selling prices and marketing time of other houses in the area.

Once you have determined the amount you are willing to offer, the Real Estate Professional will help you prepare a written offer. In most transactions you will offer to deposit earnest money with the escrow agent. Earnest money manifests your sincerity in making a reasonable offer and abiding by the terms of the written contract.

Contract forms
Your Real Estate Professional will help you prepare an offer using standard forms. The offer, if accepted, will become a binding contract. This document is the most important paper you will sign because it lays out all the terms of the transaction. It will contain such things as:

  • a legal description of the property,
  • any property that will be transferred with the home, (blinds, curtains, fireplace screens, etc.)
  • the price,
  • financing conditions and contingencies,
  • amount of earnest money deposit,
  • name of the escrow agent and title company,
  • proration of insurance, taxes, and interest,
  • fees to be paid and who pays for which,
  • rights to inspect the property and for repairs to be made,
  • dates of closing and possession, and
  • what happens if either party defaults on the contract.

Inspections and warranties
Before signing the contract, take precautions to protect yourself against unseen defects in the home. An inspection by a qualified inspector or other professional can provide you with unbiased opinions about the condition of components and systems in the property such as the foundation, mechanical systems, plumbing systems, appliances, etc.

If you can, accompany the inspector at the time the inspection is conducted. When ordering the inspection, ask the inspector the approximate time needed to complete the inspection so you can reserve sufficient time from your schedule. Be sure to ask the inspector to detail the scope of the inspection. Not every inspector inspects every component in a house. For example, does the inspector inspect foundations, air conditioning and heating units, roofs, swimming pools, septic tanks, etc.? The cost of home inspection depends on the size of the home, but the price could prove to be worth it. It's also a good idea to get a termite and other wood destroying insect inspection.

You may also want to investigate the possibility of buying a residential service contract. Such a contract is an agreement with a residential service company that certain items will be repaired by the company if such items fail to function after you move in. If you buy a new home, the builder may offer a warranty as well. Whether you buy a residential service contract or receive any other warranty, find out how claims will be processed and how any necessary repairs will be made.

Seller's options
The Real Estate Professional working with you will present the contract to the seller's agent or seller. The seller has three options: accept, reject or make a counter offer. A counter offer is a rejection of the offer with a simultaneous offer from the seller to the buyer. If a seller makes a counter offer to you, you then have three options: accept, reject, or make another counter offer. Whoever makes an offer or counter offer is giving the power of acceptance to the recipient of the offer or counter offer.

Binding contract
Once you and the seller unequivocally agree to the written terms and both of you sign, the document becomes a binding contract.

As part of the contract you may have the right to have the property inspected and certain repairs may be required to be completed. Be sure that you pay close attention as to when certain items must be completed. Otherwise, you may waive some contractual rights. For example, the contract may provide for you to deliver a copy of the inspection report to the seller within a specified time and to deliver a list of the items you require to be repaired. If you fail to provide the information within the specified time, the contract may provide that you waived certain rights.

The contract may also set out other contingencies that have to be satisfied. We cannot address all conditions and contingencies. Read the contract carefully, know its terms and comply with its requirements timely.

If repairs are required, the contract will specify who will bear the cost of the repairs, who will arrange for the repairs, and when the repairs must be made. Before you close, be sure that the condition of the property meets the required condition specified in the contract.

 

Put it in Writing

Put negotiations in writing. Don't reveal your strategy, and don't make oral offers. You want to buy the house, but don't hand over money until you're sure the seller is legally capable of conveying a good title and meeting other conditions. The seller, in turn, doesn't want to deliver the deed until you've paid for the property. Now what? Present the seller with a written contract setting out the commitments and promises that you and the seller need to agree on and fulfill to make the sale. A well-drawn contract should protect all parties.

The first contract you submit should be comprehensive; everything of any importance should be included. Once it is accepted by the seller, it may be too late to add or change anything. Your contract should include:

  • Offering price
  • Down payment
  • Legal description of the property
  • Method of conveying the title
  • Fees to be paid and who will pay them
  • Amount of deposit
  • Conditions under which the seller and buyer can void the contract
  • The settlement date
  • Financing arrangements
  • A list of appliances, furnishings and personal property being sold with the home

 

Role of A Title Company

Now that you've decided to buy a home, what happens between now and the time you legally own it? The next step is to obtain title for the property from the title company. A title gives the owner the right to possess and use the property. But before receiving title, the title company will need to complete the following:

  • Earnest money: To show the seller and his agent you are a serious buyer, you will be asked to give the title company a deposit called earnest money. If the sale goes through, the earnest money is applied toward the down payment. If the sale falls through, the earnest money will not be given back unless it is stated in the offer to purchase that it is refundable.
  • Title search: A title search is a thorough check of the records concerning the property. It is performed to verify the seller's right to change ownership. A title search will uncover any demands, faults, liens and other privileges or restrictions on the property.
  • Document preparation: Appropriate forms are prepared for settlement.
  • Settlement: Many events happen during settlement. The seller signs the deed, the buyer signs the new mortgage, the old loan is paid off and the new loan is established. The seller, real estate professionals, attorneys, surveyors and others performing services for the parties are paid. Title insurance policies are then delivered to the buyer and their lender.

 

Title Insurance FAQ

  • What Protection Does Title Insurance Give?
    It insures that the "record" title, is good subject only to the exceptions expressly set out in the Policy. lt also insures against certain matters which do not appear of record, such as forgery, identity of parties, incompetence of former owners, interest of missing heirs, and status of individuals not having the "right" to sell property.
  • What Risks Are Not Covered?
    The standard owners policy and standard mortgage policy are based on public records of the recording district in which the land is located. It does not insure against matters which would only be disclosed by actual inspection or survey of the property. It does not insure against certain matters not shown by the public records such as unrecorded easements, liens or money obligations; unrecorded utility rights of way, public or private roads, community driveways and other types of encumbrances, or against the rights or claims of persons in possession of the property which are not shown by the public records.
  • Can Protection Be Obtained Against Matters Not of Record?
    Upon application, the issuing company may specially cover matters which are disclosed by a physical inspection and/or a survey of the property, subject to any exceptions which the inspection will determine to be proper. An additional risk premium is charged for this type of coverage. Insurance of this kind is called 'extended coverage'.
  • Are There Different Kinds of Policies?
    Yes. Owners Policies are issued to real estate owners. Purchasers Policies are issued to purchasers of real estate under contract. Mortgage Policies are issued to mortgage companies. In addition there are several other special forms of policies. There is a type of policy to meet the requirements of almost any form of real estate transaction.
  • When Is the Policy Issued?
    An owner's policy protects only the owner while a Mortgage policy protects only the holder of the mortgage on the property. Separate policies are required to protect both interests. Special rates are available when both Owner's and Mortgage policies are applied at the same time.
  • The Owners Policy of title insurance usually is issued after the deed to the buyer is 'delivered' and recorded. A Purchasers Policy is usually issued after the contract has been executed by both parties or after the signed contract has been recorded. The mortgage policy of title insurance is usually issued after the mortgage or deed of trust has been properly executed and recorded.
  • If I Was Insured When I Bought the Land, Why Should I Have It Re-Issued to My Purchaser When I Sell?
    The coverage of your policy is against all matters that appeared of record up to the date of issuance of your policy. Since that time many documents may have been recorded, some of which may affect the title to your land. Taxes and assessments may have accrued and be unpaid. There may have been actions in court affecting your title. The purchaser is entitled to have full information and protection as to the condition of the title right up to the date of his purchase. In addition, there may be matters of record which would prevent either the seller or buyer from selling, buying, or mortgaging land until such matters have been cleared. These items include such things as federal tax liens, judgements, incompetencies, divorce actions and other conditions which the title search may disclose.
  • How Are Premiums for Title Insurance Determined?
    Title Insurance Premiums are determined by the amount and type of coverage provided. Unlike other insurance premiums, however, the title insurance premium is paid only once as the policy is effective for so long as title or "ownership" remains in the name of the insured, or his heirs or devises. Rates are filed with the insurance commissioner who regulates the activities of title insurers.

 

Flood Insurance

  • Flooding is not covered by a standard homeowners insurance policy.
  • To determine if you need flood insurance, ask your insurance professional, mortgage company or neighbors about the flood history in your area. If there is a potential for flooding, you should consider purchasing a policy that covers the structure and your personal belongings.
  • Flood insurance can be purchased from an insurance agent or company under contract with the Federal Insurance Administration (FIA), part of the Federal Emergency Management Agency (FEMA). Flood insurance is only available where the local government has adopted adequate flood plain management regulations under the National Flood Insurance Program (NFIP).

 

How to Buy Your First Home... the Easy Way!

Avoid the 10 Most Common, Painful, Frustrating Mistakes First-Time Home Buyers Make

Buying a residence can be a hair raising experience. You will experience a roller coaster of emotions while finding the right place, securing the loan and finally moving in. For most of us, the first time home purchase is the largest investment we’ve ever considered. The emotions of purchasing something so expensive and personal can often cloud our business judgment.

Most home purchasers do little or no research before they invest their nest egg. Doesn’t it make sense to become as completely informed as possible before you buy your first home? This special report is designed to help you avoid 10 common and crucial mistakes. The right real estate professional can help you make good sound business decisions based on your personal situation.

  • Inspect, Inspect and Inspect - Go over the inspection report with a fine tooth comb. Make sure the report was done by a professional organization. For condo purchases go over the CC&R’s, By-Laws, and Association Fees. Don’t take anything for granted... inspect everything!
  • Imagine the Property Vacant - Your furnishings and decorations will be the ones filling this new residence. Don’t be swayed by beautiful furniture; it leaves with the owner.
  • Income + Lifestyle = Mortgage Payment - Sit down with your professional real estate agent and honestly discuss your income level and living expenses. Take into account future considerations, children, add-ons, amenities, and fix-ups. Your dream home is certainly worth a sacrifice but don’t mortgage your entire future.
  • View Several Homes - See at least 7-10 properties. Don’t move too slow but don’t move on the first property you see. With your agent’s help you should be able to view enough properties to get a good overall perspective of the home market. When you find the right property all the leg work will be worth it.
  • Utilize Your Team - By aligning yourself with the right real estate professional you will have an entire team at your disposal. Utilize your lender, title rep and agent. Each of them should work hand in hand for your benefit. Explore all the options before you sign.
  • Be Columbo - Check out all costs and expenses before you sign. Utilities, taxes, insurance, maintenance and home owner dues if applicable. Make sure all utilities (gas, electricity, and water) are on during tyour walk-throughso you can inspect everything in working order. Ask lots of questions and be very detail conscious.
  • Do a Final Walk-Through - Visit the property after all furnishings have been moved out to be sure there are no surprises. Be absolutely positive the property was left exactly as you had agreed upon in the contract. Things that could have been spotted in a final walk-through are often unintentionally overlooked.
  • Plan For Flexibility - Closing dates are not written in stone. Allow for contingencies and have a back-up plan. If you or the sellers need a little more time to conclude the final arrangements, don’t let these delays upset or frustrate you. These types of circumstances are not uncommon in a real estate transaction.
  • If It’s Not In Writing, It Doesn’t Exist - All promises and discussions should be in writing. Don’t make any assumptions or believe any assurances. Even the best intentions can be misinterpreted. Have your professional keep an ongoing log in writing of all discussions and get the seller’s written approval on all agreements.
  • Loyalty Breeds Loyalty - Be open, honest and up front with your team. Hard feelings and disloyalty will cause head aches, delays or may even keep you from getting into the home you worked so hard to locate. Take the time to select the right team in the beginning and your first home purchase will be a pleasing and memorable experience.

 

How Much Home Do I Qualify For?

Income. Debt. Down Payment. Closing Costs. Two Years Income Tax Returns. Assets. Liabilities. IRAs. You want WHAT? Just what can I afford?

Buying a home in today’s marketplace is a bit intimidating. And your new home purchase is likely to be one of the most important decisions you’ve ever had to make. Usually it’s one of the single most valuable assets you’ll own.

Where to Start
Before you invest hundreds of hours searching--and to avoid any heartbreak if you find yourself unable to qualify for your dream home--sit down with a lender. Your lender can perform a simple verbal prequalfication in about twenty minutes and a full-fledged prequalfication in about 5 days.

Pre-qualification not only allows you to focus your search in the correct price range, saving a lot of wasted time and frustration, but it can also give you an edge when competing with other offers on a home that you find. If a seller is deciding between two offers—-yours who has been qualified and another unqualified offer, they are much more likely to pick yours. Pre-qualification will also give you leverage when negotiating with a seller in a non-competitive atmosphere; it essentially makes you a cash buyer.

The amount of home that you qualify for will be determined by three key factors: your down payment, your ability to qualify for a mortgage and closing costs.

The Down Payment
Whereas a current homeowner can rely on equity from their home sale, a first time homebuyer is limited to the money they can save. The days of having to put 20 percent down on a home are in the past, although putting a large amount of money down definitely makes it easier to qualify for a mortgage and to get the lowest interest rates available. With the various programs that are available today, you can put as little as 3 percent down on a home.

Qualifying for the Mortgage
There are two basic guidelines that lenders use to determine what size mortgage you are eligible for:

  • Your monthly mortgage payment of principal, interest, taxes and insurance (PITI) should not exceed 25 to 28% of your monthly gross income.
  • Your monthly housing cost (PITI) plus other long-term debt should not exceed 33 to 38% of your monthly gross income.

Specifically, most lenders will consider 4 key factors to determine your ability to qualify for a home loan:

Income – This first element can include not only your gross monthly income and secondary income (commissions, bonuses) but also your history of employment, stability of income, education, even potential for future earnings.

Credit History -- This encompasses your history of debt repayment, total outstanding debt, highest balance, and your highest monthly debt balance.

Assets – Your assets consist of cash on hand, savings and checking accounts, CDs, stocks, bonds or any other type of liquid asset.

Property – The home you are planning to purchase will be appraised to determine the market value. The estimated value must be sufficient to secure the loan. Lenders will loan you no more than a certain percentage (usually 95%) of this value.

Closing Costs
Keep in mind that in addition to your down payment, you will also be responsible for paying fees for the loan and closing costs. These will be required at the time of closing unless you qualify and choose to have these included in your financing.

  • Closing Costs generally will range between 2 percent and 6 percent of the mortgage loan, depending on the loan and lender. You will be provided with a "Good Faith Estimate" of closing costs so you can know what to expect.
  • "Points", which are one-time charges equal to one percent of your loan amount, may be required by your lender at closing.
  • Your closing agent will charge a fee at the close of the sale.

 

5 Secrets to Buying the Best House for Your Money

Get "Pre-Approved" - Not "Pre-Qualified!"

  • Do you want to get the best property you can for the least amount of money? Then make sure you are in the strongest negotiating position possible. Price is only one element in the negotiations, and not necessarily the most important one. Often other terms, such as the strength of the buyer or the length of escrow, are critical to a seller.
  • In years past, I always recommended that buyers get "pre-qualified" by a lender. This means that you spend a few minutes on the phone with a lender who asks you a few questions. Based on the answers, the lender pronounces you "pre-qualified" and issues a certificate that you can show to a seller. Sellers are aware that such certificates are WORTHLESS, and here's why! None of the information has been verified!
  • Many times unknown problems can come to the surface! Some of the problems I've seen include recorded judgments, alimony payments due, glitches on the credit report due to any number of reasons both accurately and inaccurately, down payments that have not been in the clients' bank account long enough, etc.
  • So the way to make the strongest offer today is to get "pre-approved". This happens AFTER all information has been checked and verified. You are actually APPROVED for the loan and the only loose end is the appraisal on the property. This process takes anywhere from a few days to a few weeks depending on your situation. It's VERY POWERFUL and a weapon I recommend all my clients have in their negotiating arsenal.

Sell Your Property First, Then Buy the House

  • If you have a house to sell, sell it before selecting a house to buy! Contingency sales aren't nearly as strong as one that comes in with a ready, willing and able buyer. Consider this scenario: You've found the perfect house - now you have to go make an offer to the seller. You want the seller to reduce the price and wait until you sell your house. The seller figures that this is a risky deal, since he might pass up a buyer who DOESN'T have to sell a house while he's waiting for you. So he says OK, he'll do the contingency but it has to be a full price offer! You have now paid more for the house than you could have because of the contingency, and you have to sell your existing house in a hurry! Otherwise you lose the house! So to sell quickly you might take an offer that's lower than if you had more time. The bottom line is that buying before selling might cost you THOUSANDS of dollars.
  • If you're concerned that there is not a house on the market for you, then go on a window-shopping trip. You can identify possible houses and locations without falling in love with a specific house. If you feel confident after that then put your house on the market.
  • Another tactic is to make the sale ''subject to seller finding suitable housing''. Adding this phrase to the listing means that WHEN YOU DO FIND A BUYER, you will have some time to find the new place. If you don't find anything to your liking, you don't have to sell your present home.

Play the Game of Nines

  • Before house hunting, make a list of things you want in the new place. Then make a list of the things you don't want. You can use this list as a guide to rate each property that you see. The one with the biggest score wins! This helps avoid confusion and keeps things in perspective when you're comparing dozens of homes.
  • When house hunting, keep in mind the difference between ''STYLE AND SUBSTANCE''. The SUBSTANCE are things that cannot be changed such as the location, view, size of lot, noise in the area, school district, and floor plan. The STYLE represents easily changed surface finishes like carpet, wallpaper, color, and window coverings. Buy the house with good SUBSTANCE, because the STYLE can always be changed to match your tastes. I always recommend that you imagine each house as if it were vacant.
  • Consider each house on its underlying merits, not the seller's decorating skills.

Don't Be Pushed Into Any House

  • Your agent should show you everything available that meets your requirements. Don't make a decision on a house until you feel that you've seen enough to pick the best one.
  • A decade ago, homes were selling quickly, usually a few days after listing. In that kind of market, agents advised their clients to make an offer ON THE SPOT if they liked the house. That was good advice at the time. Today there isn't always this urgency, unless a home is drastically underpriced, and you'll know if it is.
  • Don't forget to check into the SCHOOL DISTRICTS of the area you're considering. Information is available on every school; such as class sizes, % of students that go on to college, SAT scores, etc. You can get this information from this web site.

Stop Calling Ads!

  • Please note - ads are sometimes created to make the phone ring! Many of the homes have some drawback that's not mentioned in the ad, such as traffic noise, power lines, or litigation in the community. What's not mentioned in the ad is usually more important than what is.
  • For this reason, I want you to be very careful when reading ads. Remember that the person writing the ad is representing the seller and not you! The most important thing you can do is have someone on your side looking out for your best interests. Your own agent will critique the property with an eye towards how well it meets your needs and will point out any drawbacks you should know about. So whether you decide to work with me or not, pick an agent you feel comfortable with and enlist the services of that agent as a buyer's broker. Then you become a client with all the rights, benefits, and privileges created by this agency relationship, and you're no longer just a shopper. Did you know that many homes are sold WITHOUT A SIGN ever going up or an AD EVER BEING PUT IN THE PAPER? These "great deals" go to those people who are committed to working with one agent. When an agent hears of a great buy, who do you think he's going to call? His client, who he has a legal obligation to work hard for you, or someone who just called on the phone and said "keep your eyes open"? So to get the best buy on a property, I always recommend that you hire your own agent and stick with him or her.

 

Limit the Deadline to Your Advantage

  • When it comes to real estate contracts, time is of the essence. In many cases, placing time constraints on your offer can often work to your advantage.
  • If you've ever seen a telethon fund-raiser, you would notice that over 90 percent of the donations are generated in the last half hour. Even if the telethon has been running for weeks; it doesn't matter. In the last few moments, just before the telethon goes off the air, the money starts rolling in.
  • In many sports, the game is often decided within the last few minutes. Take for example the two-minute drills in basketball or the two-minute warnings in football. How often does the game rest on the final basket or field goal?
  • The same rules apply in getting sellers to accept your offer. If you don't set a deadline for acceptance, the sellers may simply procrastinate to the point the deal falls through; even if it's an offer they might otherwise have taken!
  • Often, buyers underestimate the importance of limiting the sellers time to accept. This is unfortunate since it is a critical element in formulating the deal. Remember that by allowing for a lengthy deadline, you (the buyer) are committing yourself while the seller takes their time to either accept or reject your offer.
  • By setting a strict deadline, you are forcing the sellers to either accept, reject, or counter your offer. By placing the ball in their court, you are demanding they take action or risk losing a potential buyer. By countering or accepting your offer, they will be "locked in", thus preventing other buyers from offering competing bids.

How Much Time Should You Give the Sellers?

  • Now that you understand the importance of setting a deadline. The question remains: How much time should you give the sellers?
  • From my experience, give them the shortest time possible. So, if you know that it is possible to present your offer within an hour, then give them an hour. By doing this, you are forcing them to seriously consider your offer or risk losing a potential buyer.
  • Don't be worried about having your offer rejected. At least if it is rejected, you won't be wasting your time with indecisive sellers. If they counter your offer, you can always increase your price or revise the terms.
  • Since decisions typically require the coordination of several individuals -- one may be working, out shopping, or otherwise unavailable. Naturally, it may be difficult to have your offer considered within an hour. In most cases, allowing until midnight of the same day is reasonable.
  • Sometimes, it may be hard to get the sellers together all at once. They may be on vacation, have dinner plans, or be off on a business trip. Whatever the reason, I recommend offering no longer than 24 hours. If they need more than 24 hours, wait!! In today's age of cell phones, fax machines, and next day delivery, there is no excuse for taking longer than a day to decide. If the seller is serious, they will make themselves available to consider your offer.

Don't be Pressured by Agents Insisting on More Time

  • Some agents may hesitate to place pressure on sellers. Many are unsure of their negotiating skills. Others may be unwilling to present an offer that has a potential of being rejected.
  • Some agents may suggest that it's impolite to demand such a short deadline. Others may say "since your offer is weak, you should give the sellers more time to think about it." This is very bad advice. Whatever the reason, don't back down on forcing a strict deadline.
  • Buying a house is serious business. Sellers should not be offended by any offer you present. Instead, they should be thankful to get it!
  • Remember that the sellers' only motivation for letting your offer sit is that they are hoping for a better deal to come along. It is very possible this will happen. By setting a strict deadline, you minimize the possibility of opposing bids.
  • The deadline applies the pressure to get the deal you want.

 

Counter-Offer Strategies

  • The art of the deal is negotiating. The goal, when you're countering a buyer's offer, is to get the highest price and best terms possible. Once you reject the initial offer, you must decide how much to counter. The answer is easy when the market is hot. You will counter at full price or more.
  • If the market is normal, you may receive less than full price for your property. In this case, one strategy would be to set your asking price higher than normal. How much lower than your asking price will you counter-offer?

Beware of Setting a Minimum Counter Price.

  • Setting a firm minimum counter price is a big mistake that some sellers make. Depending on the deal and the buyer your counter offer should be flexible. For example, after investigating the market, you set your asking price at $350,000. Your minimum price may be $320,000. If you are offered your minimum, you sell. If you are offered lower, you don't sell. It sounds simple.
  • Unfortunately, in this mindset, you box yourself into a limited deal. You want to be flexible when negotiating. Let us review our last example. The buyer offers $300,000. The seller rejects and counters with the minimum of $320,000.
  • The buyer counters with $305,000 again. Where do you go from here? You have already offered your lowest minimum counteroffer. The only recourse would be to repeat your same offer.
  • One strategy would be to counter lower at $315,000. Or what if the buyer is willing to pay more than your minimum?
  • The buyer might be willing to pay $330,000. You will actually have lost money again by countering too low.
  • There are housing situations where you are just lucky to be paying off the mortgage, commission, and closing costs. You might be offered a little less but you accept to some cash to save your credit. In this case, setting a minimum price would be reasonable.
  • If you do feel the need to set a minimum counter price, don't set it in stone.

Try to Get a Sense of the Buyer

  • Your counteroffer is not the final transaction. It is one step in the negotiating process. You counter. The buyer will counter your offer. You will then counter back. This process will repeat until the a deal is made.
  • Therefore, your counteroffer should not be your best and lowest. The buyer's first offer is usually a low-ball offer. A seller's first counter is a high-ball offer. Both parties are testing to see how the other will respond.
  • Let the buyer know you are willing to negotiate. You ask $340,000, the buyer offers $300,000. You counter $335,000. You must also send the message that you are not willing to drop your price too much.
  • Some buyers will cave and accept the counteroffer and others will not. Anytime you reject and counter, you are opening negotiations but you are also taking the risk of losing the deal.
  • There are some buyers who are just looking for a desperate seller. They make a lot of low-ball offers until they find the property. You are not going to find a good price with that type of buyer.
  • Others will counter with close to what they originally offered, in this case say $305,000 (now you're still $30,000 apart).

What if You're Close Together in Price?

  • After a few counters, You are only a few thousand dollars apart. You countered at $335,000 and the buyer countered back at $330,000. Now you're only $5000 apart. Should you accept the buyer's counter?
  • You can simply accept the deal. Another strategy would be to tell the buyer or the agent the you want to split the difference. They accept. You will then have sold your property at $332,500.
  • Splitting the difference can be an effective way of closing out negotiations to bring about a win-win situation.

What If You're Far Apart?

  • You counter at $335,000 and the buyer counters at $305,000. You're $30,000 apart. That's serious money.
  • There are only two ways of handling this situation. You could hold your original counter. The buyer would understand that this is your final offer. This could be a deal breaker. If you are highly motivated to sell, a steep decline of your price would get the ball rolling again. You counter at $320,000 saying this is your best but last offer.
  • This action could spark the buyer's interest. He/She could accept or at least make a higher counteroffer.

Is There a Time to Walk Away?

  • There are only two reasons to walk away from negotiations. You are truly angry and will not lower your price.
  • The second is for effect. You are willing to take less, but you want the buyer to think you've made your last, best offer. You say, "Take my last offer or leave it. I'll give you an hour to decide."
  • As a tactic, walking away can start negotiations. You could get your price or lose the deal.
  • There are no guarantees when negotiating real estate. The final outcome is often determined by the following percentages:
  • 10%--how good you are at negotiating
  • 45%--how motivated you are to sell
  • 45%--how motivated the buyer is to purchase
  • 100%--luck

 

How to Use Contingencies

  • Everyone is familiar with the conversation where the other person says, "Yes, but.." This person is agreeing with you but only if certain conditions are met.
  • A purchase agreement is similar in that you are agreeing to buy a property subject to certain things being met. The conditions you set are called contingencies.
  • It is uncommon to have a purchase agreement without contingencies. In fact, contingencies are an essential part of many offers. In general, contingencies are added to protect you (the buyer) but may also serve to protect the seller.
  • All of the contingencies of a purchase agreement must be met before the sale can be competed.

What are some Examples?

  • Contingencies can be virtually any conditions you wish to set. They can be anything such as having your Uncle John approve the central furnace or your Aunt Mary is satisfied with the kitchen sink. The sale is "contingent" upon all of the conditions being met. Contingencies are also called "subject to's" since the sale is "subject to" something happening.
  • An important contingency is a financing contingency. It states that the purchase is subject to the buyers being able to obtain a loan for the required amount. If you can not get the loan you need, the sale is canceled and you deposit is refunded. It is very important to have this contingency since you will loose you deposit if you are unable to get a big enough loan. Making an offer without a loan contingency is very risky.

What are Some Common Contingencies?

  • There are many contingencies that will protect you (the buyer). Here are some you will definitely want in your purchase agreement:
  • * You will be able to inspect the property and must approve the inspection.
  • * The sellers must disclose problems with the property and you must approve of such disclosures.
  • * You will be allowed to make a final inspection of the property just before the deal closes and confirm that the is no new damage since you originally inspected it.
  • * You will get your deposit back if the sellers back out.
  • * You can back out if you are unable to get financing.
  • Depending on your situation, there are many other contingencies you should add. For example, if you are moving to the area because of a new job. You will want a contingency stating that if you don't get the job, you can cancel and get your deposit back.
  • Make sure that you clearly state your needs to the agent or attorney preparing you agreement. If there are any special conditions that must be meet (such as being able to cash in some stocks for a down payment), make sure it is in writing a contingency. Otherwise you may be unable to complete the purchase on time and lose you deposit. In some cases, you may be sued by the sellers for performance. They may demand you complete the purchase or pay associated damages.

Who Writes In the Contingencies?

  • A contingency is a legal document and must contain the proper language to be legally binding. For this reason contingencies are ideally crafted by attorneys. However, since this is a normal part of business, many real estate agents are extremely versed in writing contingencies. In fact, agents may be far more experienced in this area than an attorney. In practice, your agent will be more than capable of writing the contingencies you need.

Whom Does the Contingencies Protect?

  • The contingencies noted so far are intended to protect you (the buyer). They allow you to back out of the deal without consequences if something does not work out -- you can't get financing, you discover problems with the house, you lose you job, etc..
  • As noted, contingencies may also be added to protect the sellers. Such examples are the sellers may insist that the transaction be completed within 30 days. If you are unable to get you cash together or get your financing, you could lose the house and your deposit!
  • Some sellers may want you to purchase the house "as is." That is, no matter what's wrong with it, the sellers won't be responsible for it. You may for example find that after making an offer, the septic system badly needs $15,000 worth of repair. If you agreed to by the property "as is" then you will be stuck paying the difference.

Contingencies Can Become Deal Points

  • Naturally, you will want to have contingencies that benefit you (the buyer) and want to exclude those that potect the seller. This is therefore a process of negotiation where contingencies become deal points which you can influence the actual cost of the transaction.
  • A deal point is a specific point on which the deal depends. For example, you want the sellers to replace the broken sprinkler system. So you include a contingency stating that the sellers must repair it. If the sellers refuse -- perhaps they have been watering the lawn by hand and are unwilling to fix it for the buyers.
  • Now you have a deal point. What are you going to do?
  • Well, this depends on how important the sprinkler system is to you. If you feel that you can't live without it and are unwilling to budge, you can refuse to remove the contingency. The seller can either accept the offer or reject it. If the sellers accept, you've got your sprinklers. However, if they reject, you're not getting your new home.
  • Often a better way if dealing with this situation is to calculate the cost of repairs and adjust the contingencies to compensate. For example you may retract your contingency for the sprinklers and insist that they leave the ceiling fans you really like. Perhaps the sellers were not looking forward to taking them down anyway and are willing to compromise on this point. In which case, although you will need to get the sprinklers fixed, you have saved several hundred dollars on the purchase of new fans.

You Can Use A Contingency to Get Yourself a Better Deal

  • The skillful negotiator will use contingencies to improve the deal. And there is really no limit to the type of contingency you can craft. Deal points can be over anything ranging from the date escrow closes to the specific closing costs the buyer and sellers must pay.
  • A great way to start negotiating is to find the sellers weak point and apply the pressure there. For example, the sellers may absolutely need to close the deal within 25 days so that they can purchase a new home. You agree as long as they fix the septic system, lower the price, repair the sprinklers, and leave the ceiling fans. In this way, they have met their criteria by giving you the superior deal.
  • Remember, that although contingencies are great points for negotiations, they are there to protect you. They offer you an easy way to back out if something goes wrong.

Avoid Unnecessary Contingencies

  • Sometimes when buyers discover the great protective value of contingencies, they insist that extra ones be placed in the purchase offer. For example, you insist that the purchase become contingent on you not losing your job before the deal closes. (You pretty much get this protection in any event, since if you lose your job, the lender probably won't give you a mortgage, and you can back out using the financing contingency.)
  • Or you insist that the deal be contingent on your not getting ill during the escrow period, or your spouse not falling out of love with the home, or your getting approval of the purchase from you parents. Remember, you can make the deal contingent on anything!
  • The problem is that each time you add a contingency, you weaken the deal. The sellers ask themselves, "Why does the buyer insist on this?" If the quickest answer is that the buyer is wishy-washy and may not go through with the deal, the sellers may simply refuse to sign. You may squash a perfectly marketable deal simply by insisting on unnecessary contingencies.
  • As many real estate agents have witnessed, lawyers can ruin an otherwise marketable deal by adding contingencies favoring their clients to the point where the other party simply won't go along. While legal advice is great, sometimes common sense and human nature play a stronger role.

 

A Helpful Punch List for New Home Buyers

Your newly constructed dream house is almost ready and it's time for the all-important walk-through with your builder. Do you know what you should be looking for?

Some problems may not be readily visible, even if you hire a professional inspector. Fortunately, most builders offer a warranty to cover problems in the workmanship of a home -- they do not, however, cover problems resulting from owner neglect or faulty maintenance. Still, knowing what to look for in your pre-settlement walk-through is a good way to catch potential problems. Here's a helpful "punch list" to use from the National Association of Homebuilders:

Outside

  • Grading: Does the ground around the foundation slope away from the house? Make sure the water does not pond or pool in large puddles, especially near the foundation. To check, water the areas with a hose, if possible. Are there signs of erosion? Is the shrubbery placed at least 2-3 feet from the foundation
  • Roof and Gutters: Are the shingles flat and tight? Is the flashing securely in place? Do the gutters, downspouts and splash blocks drain away from the house?
  • Exterior Appearance: Are the windows and doors sealed and protected by weather stripping? Are the trim and fittings tight? Are there any cracks? Does the paint cover the surface and trim smoothly? Has landscaping been installed according to the terms of your contract?

Inside

  • Doors and Windows: Are all doors and windows sealed? Do they open and close easily? Is the glass properly in place? Are any windows loose or cracked?
  • Finishes: Is the painting satisfactory in all rooms, closets and stairways? Did the painters miss any spots? Are the trims and molding in place?
  • Floors: Is the carpet tight? Do the seams match? Are there any ridges or seam gaps in vinyl tile or linoleum? Are wooden floors properly finished?
  • Appliances, Fixtures, Surfaces, Etc.: Do all of the appliances operate properly? Are all of the appliances the model and color you ordered? Check all faucets and plumbing fixtures, including toilets and showers, to make sure they operate properly. Are there any nicks, scratches, cracks or burns on any surfaces, including cabinets and countertops? If you have tile counters or floors, was the tile and grout sealed by the builder or will you need to handle?
  • Electrical, Heating and Air: Check all electrical fixtures and outlets. Bring a hair dryer to test the outlets. Do the heating, cooling and water-heating units operate properly? Test them to make sure. If the home has a fireplace, do the draft and damper work? Test the doorbell. Also test the intercom system, garage door opener and any other electrical items.
  • Basement and Attic: Are there indications of dampness or leaks? Is there significant cracking in the floors or foundation walls? Are there any obvious defects in exposed components, such as floor joists, I-beams, support columns, insulation, heating ducts, plumbing, electrical, etc.?

Certificate of Occupancy: Has your local municipality signed off on your house?

As your real estate agent, I will be available to assist during all phases of your home purchase, including your walk-through. Please call me for more information on what you should look for and how I can help.

New or resale: hiring a professional inspector is a smart approach

Buying a home, whether a new or resale property, is one of the biggest investments you're likely to make. That's why hiring a professional inspector to check out your home's basic systems and structural integrity is so important. An inspector looks for and recommends changes that can make the difference in how much money you will spend for future repairs and maintenance. Even if you have a good eye for detail or are buying a brand new home, a thorough inspection by an experienced professional is a wise choice that can save you a lot of time, money and frustration in the future. Please call me for more information on how a professional inspector can make a difference in your home's purchase

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