Who Not to Listen to When Buying or Selling Real Estate
When you’re buying or selling a house, real estate is going to be a hot topic of conversation in your daily life. It’s going to be at the forefront of your mind so it will inevitably come up everywhere you go, whether you’re at work, the grocery store, a friend’s house or a family gathering. When you’re having all of these conversations, remember this one extremely valuable piece of information: Don’t listen to the advice from anyone! Unless you run into someone who buys and sells property on a monthly basis, your best bet is to smile and nod when anyone starts to give you advice about real estate.
If you have the right team on your side, i.e., a great realtor and a great mortgage broker, they will be able to listen to your wants and needs and then guide you appropriately. They will be able to answer all of your questions and address all of your concerns. They will also be able to give you real-life advice based on all of the information and facts, and all with the expertise that years of experience have given them.
Who do you think knows what they’re talking about? Is it your parents who have only bought 3 houses in their entire lives and haven’t bought a house in the last 20 years, or the person who buys and sells property for themselves all the time and who represents clients buying and selling property on a daily basis? I’m not sure why real estate creates such a strong desire for people to share their “expertise” in the field, but it seems like everyone has an opinion, and, unfortunately, that opinion is usually only loosely tied to reality and facts. One of the worst offenders is the wannabe investor who has spent thousands of dollars on seminars and who pays monthly fees to be a member of a real estate investor group. To this day, I don’t think I’ve met anyone who attended a seminar on how to flip houses who actually ever bought an investment property. Those seminars are scams that sell you the dream of using other people’s money for your own gain. I’m not sure what world you’d have to live in for a stranger to give you their hundreds of thousands of dollars for you to profit from, but it’s definitely not this world.
The secret to real estate is knowledge and experience. Knowing how everything works and why is extremely useful, and being able to understand the different scenarios, personalities, trends and psychology is where success will be achieved.
Real estate is expensive so you don’t want to make a mistake, but there are people out there that don’t have a complete understanding of what can and should be done that can either push you into something that isn’t a good fit or convince you that something that is perfect for you is not a good idea. Yes, you should be cautious, but there’s a difference between being cautious and being unrealistic. You or someone you know can caution you out of everything. There’s always some negatives to every home and every property. Even if you had 20 million dollars to find the perfect home, it doesn’t exist. There is nothing, no matter how much money you have, that will be 100% perfect, so don’t waste your time looking for it, and don’t miss out on a great opportunity because there might be something better.
It all comes back to finding a really good realtor who has put in the time and effort to becoming an expert in the business. A great agent along with a great mortgage broker is the winning combination. Utilize their knowledge and listen to what they’re saying. It’s okay to question, but if you don’t trust what someone is telling you, then it’s probably time to find someone that has all the pieces to the puzzle.
One of the Biggest Keys to Buying Real Estate
The number one thing you should do when purchasing real estate is this: Know the inventory. If you’re in the market to buy real estate, you must be extremely familiar with all the properties out there. This goes for buying your first home, your forever home, an investment property and everything in between. Don’t rely on your realtor or anyone else to tell you about the available properties. You must get out there and physically see the properties for yourself (preferably with your agent so you can discuss them together). Once you know what’s out there, you will know what different properties are worth, and you’ll be able to make an educated and informed purchase.
The time you spend viewing properties that are for sale and following the market during the time you’re buying will pay off. Yes, it is time consuming, and you might rather be doing something else, but that understanding and knowledge you will have will allow you to make wise, informed and hopefully lucrative decisions.
Are you Chasing the Real Estate Market Up
If you’re certain that buying a house is a goal within the next couple years, then stop wasting time and make that goal happen as soon as possible, otherwise, all you’re accomplishing is chasing the market up. In this chase, you’re ensuring that you’ll be paying more money for the same house at a later date. You’ll also be losing any equity you could have been building during that “waiting” period. Chasing the market up will work out great for your future seller who gets to sell you the exact same house for significantly more money just because a few more months have passed. You could have been the one enjoying your house and benefiting from the appreciation.
If you’re not in a position to buy, e.g., you still have 6 months left on your lease, you’re not financially ready or you’re not sure if you’re going to have a job in a year, then you have no choice but to wait, however, if you’re financially ready and have nothing holding you back, then you should definitely make your move.
People often say that they want to continue to save in order to put more money down, which is great in theory. Most of the time, however, when we look at the numbers, that strategy has a major flaw. The big question you have to ask is how much more money can you save and over what period of time. Some people think that if they keep saving an extra $1,000 or $2,000 a month, they’ll eventually have a larger down payment to put toward their house. The idea is that the more they put down the lower the monthly payment. That strategy could work in a declining market, however, in a market that’s appreciating (even at a modest rate), chances are your ability to save on a monthly basis is going to be far exceeded by the market’s appreciation.
Even if you’re saving an additional $2,000 per month or $24,000 over a year, if the market goes up 5%, you’re going to be way behind. Let’s say you’re looking at buying a house for $700,000. If the market appreciates 5% over a year, then that 5% increase would cost you $35,000. While your savings account might have more money in it, you’re now paying $35,000 more for the same house, which completely negates the year of hard work and saving, and you’re now even farther behind because the $24,000 you saved is still $11,000 less than the new price. In addition, you were probably also paying to rent your existing home, so any money spent there was not being paid toward your own equity. And, to top it all off, had you bought the house at the $700,000 price at the beginning of the year, you would now own a house that’s worth $35,000 more than what you paid for it.
Unless you have the ability to save at a pace that is faster than the market appreciation, you should never wait. And, even if you can save at a faster pace, if you know you’re going to buy, why would you wait to pay more for the same house at a later date?
The Difference Between Condos
and Townhouses Explained
Over the years, the lines have been blurred when trying to define whether a unit is a townhouse or a condo. The simplest way to separate the two types of properties is by land ownership. If it’s a true townhouse, the land that the unit sits on is owned by the homeowner, whereas, if it’s a condo, the land is owned by the Homeowner’s Association (HOA). In Marin and Sonoma, true townhouses are often set up as Planned Unit Developments (PUD’s), and that’s how we define the land ownership structure of a particular development.
*Each development and HOA is set up differently, so you will need to verify the specific responsibilities of the owner and the HOA when buying a condo or townhouse. The following outlines general responsibilities and aspects for each type of property.
Typical Townhouse/PUD Features
- Owner is responsible for the exterior of the building as well as the interior. This includes the roof, siding, patios, decks, balconies, driveway and landscaping within the footprint of the property.
- The HOA is responsible for the communal areas, e.g., pool, gym, clubhouse, parks and landscaping outside the owners’ properties.
- Often built in rows so that the units share walls but there are no units above or below.
- HOA fees are less because individual owners are responsible for more of their own repairs.
- Insurance is higher because individual owners are responsible for more of their own repairs.
- Can be larger in size.
Typical Condo Features
- Own the unit up to and including the interior walls. The HOA is responsible for the exterior of the. This includes the roof, siding, patios, decks, balconies, driveway and landscaping.
- The HOA is responsible for the communal areas, e.g., pool, gym, clubhouse, parks and landscaping outside the owners’ properties.
- HOA fees are higher because they have to cover all the additional expenses for maintenance on the exterior of the units.
- Insurance is less because the HOA covers the replacement and repair costs for more items.
- Generally smaller in size.
How to Hold Title to Your Property
One important question you’ll need to answer during your real estate purchase is how to take ownership of the property, i.e., how to hold title. How you hold title has a significant effect in the event of death, so it is important that you have it set up so that it’s the most advantageous to you, your spouse, family, partner or company.
Sole Ownership—Ownership by an individual or other entity
- A Single Man or Woman. A man or woman who is not legally married or in a domestic partnership.
- A Married Man or Woman as his or her sole and separate property. A married man or woman who wishes to acquire title in his or her name alone. In this case, the title company insuring title will require the spouse to sign off on the fact that they will have no legal right to the property.
Co-Ownership—Ownership by two or more people.
- Community Property. Property owned together by a married couple.
- Community Property with Right of Survivorship (most common for married couples). Property owned together by spouses. If one person dies, that person’s interest ends and the property is entirely owned by the surviving spouse.
- Joint Tenancy. Property is owned by two or more people who may or may not be married and in equal interests. When a joint tenant dies, the property is automatically conveyed to the surviving owner(s).
- Tenancy in Common. Property is owned by any two or more people in undivided fractional interests. These fractional interests may be unequal in quantity or duration and may be executed at different times. Each tenant in common owns a share of the property and may sell, lease or will his or her share of the property.
- A corporation is a legal entity made up of one or more shareholders but is regarded under law as having an existence separate from the shareholders.
- An association of two or more people who can conduct business for profit as co owners.
- Trustees of a Trust. Legal title to property is transferred by the grantor to a person called a trustee. The property is held and managed by the trustee for the benefit of the people in the trust agreement.
Limited Liability Companies (LLC). An LLC is a legal entity considered to have a separate existence from its owners. The LLC will have an operating agreement that will determine how it functions and is taxed.
Update to Google Moving to Marin County:
Here is a quick update on the prospect of Google moving to Marin County. If you’d like to read my original post from August 2015, you can scroll down to see what I had to say then. Somehow this rumor continues to persist and remains my most popular blog post despite every piece of evidence clearly proving that it was nothing more than a rumor that doesn’t seem to have ever had any merit. The bottom line is that it’s over, and we can safely say that it was never going to happen. I’m still waiting for all those people who were so adamant that it was true say that they were wrong, however, I don’t think that’s going to happen either. There were so many stories from countless people that insisted that they had inside information, but there’s been nothing but crickets from them for the last year and a half. At this point, I don’t believe the story warrants any more attention than this quick paragraph, and we can now safely move on to more important things 🙂
How to Score the Best Deal When Buying Your New Home
or Investment Property
The single most important thing you can do to score a good deal, even when submitting offers in a market favorable for sellers is this: Be Active. There are a couple different aspects to this concept, but, once you’ve decided to buy a home, you need to be ready and you need to be willing to put in the time, whether that’s submitting documents to your mortgage broker, looking at houses the day they become available, or taking the time to get your offer submitted, even if you’re busy with work, family and other obligations.
Part of being active begins with having your financial house in order, i.e., have your loan ready to go by submitting the necessary financial documentation to your mortgage broker and have them run it through underwriting. By doing this, there shouldn’t be any hiccups during the loan process, which is attractive to any seller considering an offer from you because it shows your commitment to the property and the process. By taking care of this step prior to submitting an offer, you can also tighten the time period you’ll need to get your loan to go through. This timing can be the difference between your offer and another offer so make sure you’re on the positive side of that equation.
Being active also means staying on top of the market. Your agent (hopefully me) should have his eyes and ears open for possible off market listings as well as listings that are coming up in the near future. A little advanced knowledge can mean the difference. Realistically, however, you’re going to buy a home that is on the Multiple Listing Service (MLS) because the overwhelming majority of sellers utilize the active market exposure to reach the most buyers and obtain the most money for their home. Wouldn’t you?
A common misconception the public has is that the only way to get a good deal is by buying bank owned properties, which are basically nonexistent in today’s market. Out of the 2,148 houses that have sold in Marin County year-to-date, 13 of them were bank owned. That’s .6% percent of the market. Oh, and those 13 REO’s that did sell this year were sold for market value. Do you really want to continue to focus on REO’s?
We then have the other public misconception, and that’s the secret house for sale that sells for some ridiculous price well below market value. The truth is that, on the rare occasion those off-market sales for low prices do happen, there is ALWAYS a reason. If you looked at the details of the transaction and the property, you would find out that the property had some major flaws that are not apparent on the surface and the buyer had to buy the house with cash, and they’re going to have to put a ton of cash into it just to get back to even, so, unless you have $500,000, $700,000 or even a million+ in cash laying around, that property was not an option for you. And, you’re not a contractor, have never even remodeled a bathroom, let alone an entire house, and you have a full time job and two kids. You could never have bought that house. Is that a little harsh? Maybe, but the faster you are able to deal with reality on reality’s terms, the better off you’ll be. There’s no sense in wasting time waiting for something that doesn’t exist, so it’s better to get to work as soon as possible.
The bottom line is that we’ll keep all options open, including REO’s and off-market opportunities, but, realistically, you’re going to buy a house that’s on the MLS and other buyers just like you are going to know about it. Being proactive can increase your chances and staying on top of the market could pay off. This means, if you’re actively looking to buy a house, your agent should be watching the market all day every day, including weekends. If something comes on that’s available, go see it right away, even the first day it’s on the market. If you like it and want it, submit an offer immediately. Depending on the situation, a seller may set an offer date, in which case you might want to wait to get a sense of the competition, but this scenario will have to be evaluated for each individual property.
Now, here is the best real tip I can give you for getting a good deal. Keep in mind, though, that you should never only focus on these scenarios. You do, however, need to be able to recognize them when they present themselves and act quickly to utilize them to your advantage. The two scenarios I’m referring to are the times directly following a price reduction or when a house falls out of escrow with another buyer. There’s no better time to submit an offer with a chance for a good deal than the immediate hours following one of these events. If you wait a couple days, you’re probably going to lose your window. If a homeowner has to reduce their price, then they obviously missed the mark with the initial offer price and are probably still questioning whether the new price is going to work. At this point, they’re dealing with lots of emotions and a degree of uncertainty. The same goes for when a seller loses a buyer. There’s no way they can be confident that they’ll be able to find another buyer for the same price, so quick action on your part could work in your favor. An experienced agent will navigate all aspects of this process for you, but you’ve got to be willing to put in the time and pull the trigger.
Is Our Real Estate Market a Bubble
(written February 2016)
I have a client who insists the current real estate market is a major bubble getting ready to burst. He believes that the lending practices are still unstable, which will cause people to default on their loans and drive us back into the depths of foreclosures and short sales. He also asserts that unemployment is going to skyrocket and that the volatility of the global economy is going to cause housing prices to tumble.
After watching the real estate market closely over the last 12 years and witnessing the ups and downs, I completely disagree with his assessment. What’s currently happening is not indicative of a tumultuous market and what I’ve been seeing over the last 3 years has been solid growth and stability based on low inventory and stringent lending practices. To say that what’s happening with the economies of countries around the world, gas prices, the stock market, unemployment and the election doesn’t or isn’t going to affect the real estate market would be ignorant, so I’d like to make it clear that I’m not ignoring any indicators from any of those things. I am taking everything into consideration and watching how they influence our real estate market (or not) over months and years. Unemployment has continued to decline and is only 3.2% in Marin and 3.8% in Sonoma, which is the lowest it has been in 8 years. This means that people have jobs and are overall fairly confident in the economy and their current situation. When we have this stability, we have people that are ready to buy. The difficult thing with the current market, however, is that there isn’t enough inventory for the number of buyers.
One of the most important aspects of the real estate market is how property is financed and the equity owners have in what they own. The rigorous financial assessment that each buyer goes through before they’re given a loan by a bank is the single best reason I can give to explain why the current market in no way mirrors the bubble we were in before the housing crash. The lending practices are drastically different today, which means that everyone who buys a house is financially capable of affording that house. I would even take it a step further and say that banks have been so tight in their lending that they’re actually approving people for less than what they are capable of affording, however, this is a good thing since it will keep us from having a boom and bust like we had in the past. In addition, investors have been snatching up property since the crash and a lot of houses have been bought with cash, which gives the owner 100% equity and means that, even if property values go down, there’s no loan from a bank to default on. The investors could lose money, but that loss would be recognized by them individually and not collectively as a country like we saw with the crash and subsequent bailout.
Not only is this what I’m seeing while working with clients, but my wife and I have experienced this for ourselves with our own investment properties over the last few years. Most recently, we were able to capitalize on the market last spring with the successful sale of a renovation project. We quickly utilized part of that gain to invest in another property. That new property, with a lot of sweat equity, and decent appreciation has proved to be a solid investment. In addition, we’re looking to purchase another property in the first half of 2016. I raise these points so that I’m not just preaching but actually practicing. I want my clients to know that I am actively involved in our market and putting my own money on the line so they know that I truly believe what I’m telling them. Nobody wants to hear a sales pitch about how the best time to buy is NOW, although I do believe that now is a better time than it will be a year from now and probably a year after that.
There are always plenty of reasons to convince yourself to not do something–that’s why some people are doers and others are watchers. Overwhelming negativity can be stifling and a sky-is-falling attitude will render you forever stagnant. Buying a home for your family or investing in real estate is always a risk, but you can limit your exposure by making smart and informed decisions. On the other hand, if you’re going to lose sleep every night by putting your money into a property, then real estate is probably not for you and you would be better served putting your money into something else.
The bottom line is that either I’m going to be very wrong or my client is going to be very wrong, but I’m pretty sure it’s not going to be me.
Is Google Moving to Marin County?
(written August 2015)
If you haven’t heard the rumor by now, you should probably think about getting out more. The word on the street is that Google is going to move into the Fireman’s Fund building on San Marin Drive in Novato. I’ve gone from hearing about it once a month, to once a week and, now, almost daily. So…is it true? The only thing that I am absolutely certain about is that nobody knows.
My apologies to those of you who thought I might have an actual answer (I hate when people do that to me). I will share what I do know, which, unfortunately, isn’t much. In April, the Marin IJ ran an article discussing the move of Fireman’s Fund to Petaluma, which is set to take place in November 2015. In that article, the commercial real estate agent who helped Fireman’s Fund rent out some of the excess space they’ve had at their facility over the last few years was quoted as saying that he’d heard a rumor that Google, Facebook, “and a few other companies from the South Bay are looking at it.” From what I can tell, that statement is all we’ve got so far. From that point, people may have taken that 3rd, 4th or 5th hand account as truth or evidence that it is actually happening, but that seems to be a rather far stretch of the imagination.
Even if Google, or any of these companies, have actually looked at the site, which has yet to be confirmed, that doesn’t mean that it’s a done deal. As those of you who have purchased a home or even rented an apartment know, you have to look at many different possibilities before picking the final location. This could mean that Google is looking at dozens of properties before getting on one knee and proposing to the future Mrs. Google.
The Vice President of my company even called the City of Novato to try to get a possible confirmation or any information at all regarding the rumor, and all they said was, “yeah, we’ve heard that rumor too.” So, everyone in the know is either being very discreet about the facts or nobody really knows, although I think it’s safe to assume the latter.
To add a little fuel to the fire, I was just talking about the rumor with a friend of mine who has a friend who has friend (yup, I just did my friend’s aunt’s dog’s veterinarian said…) but isn’t that fitting with how much speculation has been swirling around this non fact for the last few months? Anyway, this person is somehow involved with employees that may or may not work for Google and she supposedly has asked these people if it’s true and they supposedly confirmed that it was. So, again, take it for what it is…
I’m not saying that it’s not going to happen, just that until Larry Page puts out an official statement declaring Google’s intentions, we should all stay realistic about the lack of information we have.
That being said, if you’ve been on the fence about buying property in Marin or Sonoma County, it’s probably a good idea to stop getting splinters because, if this thing does pop, you might find yourself priced out of your desired market. Novato and Marin won’t be the only places affected by a high-tech mega company moving in. The ripple will reach from Petaluma to Santa Rosa and even Napa County as well. Anyone else out there sufficiently scared yet?
Read my update to this topic here: Update to Google Moving to Marin County: April 2017
Home prices in Marin have risen, has yours? Find out now for free. Click the following link to find out: What’s My Marin County Home Worth?
Getting Pre Approved is Simple
If you’re thinking about buying a home, the FIRST thing you should do is find out what your price range is by getting pre approved for your loan with a mortgage broker. Getting pre approved is simple and can be done very quickly either over the phone or by email. If you just want to get a ballpark idea of what you can afford, you can call a mortgage broker and tell them your financial information. Based on your answers, the mortgage broker can tell you how much of a loan you would be approved for, what price house or condo you can buy and what your approximate monthly payment would be.
To get an official pre approval that will allow you to submit offers on houses, the mortgage broker will need to verify all your financial info and check your credit score, but that is easy as well. All you have to do is email, mail or deliver the following documents for the mortgage broker to review:
- 2 Most Recent Pay Stubs
- W2’s from Last 2 Years
- Tax Returns from Last 2 Years (if self employed)
- Bank Statements from Last 2 Months
That’s it! It’s much less painful than most people think. I can put you in touch with two or three different mortgage brokers that are very good at what they do and super easy to work with. There’s no obligation or pressure and you can then decide who you want to use. It really doesn’t have to be that hard. Buying a house can actually be fun and exciting instead of stressful and overwhelming. Piece of cake!
Actual Home Values vs. Zillow’s Estimates
If you’re trying to figure out how much your house is worth or how much you should be paying for a house you’re interested in buying, Zillow is not a good resource. Zillow obtains the information it displays by paying 3rd party data collection companies. Because the data is not coming directly from the Multiple Listing Service (MLS), which is where the actual sales and listings are recorded, it is prone to errors. I continuously see properties listed as sold that either didn’t sell or sold for a much different price. These incorrect sale prices then skew the estimates of other similar properties in the neighborhood. The same goes for current properties for sale. A lot of the listings are either no longer available or have incorrect details or both. This is not to say that I don’t look at Zillow, which I am known to do on a regular basis, but it’s really only to get an idea of what pricing ballpark a property might be in. That’s about as far as it goes—it’s a fun tool, but should never be relied upon. To get an actual valuation you need to have someone physically view the property who has also viewed other similar properties and knows what those properties are selling for and why. Everyone knows about location, location, location, but Zillow has no way of knowing what condition, condition, condition any given house is in, and that is where the rubber meets the road.
The following is an article from the LA Times that further discusses the discrepancy in Zillow’s Zestimates. There are actual examples of how far off Zillow can be and is. It’s a quick and interesting read, so check it out.
When “CBS This Morning” co-host Norah O’Donnell asked the chief executive of Zillow recently about the accuracy of the website’s automated property value estimates — known as Zestimates — she touched on one of the most sensitive perception gaps in American real estate.
Zillow is the most popular online real estate information site, with 73 million unique visitors in December 2014. Along with active listings of properties for sale, it also provides information on houses that are not on the market. You can enter the address or general location in a database of millions of homes and probably pull up key information — square footage, lot size, number of bedrooms and baths, photos, taxes — plus a Zestimate.
Shoppers, sellers and buyers routinely quote Zestimates to real estate agents — and to one another — as gauges of market value. If a house for sale has a Zestimate of $350,000, a buyer might challenge the sellers’ list price of $425,000. Or a seller might demand to know from potential listing brokers why they say a property should sell for just $595,000 when Zillow has it at $685,000.
Disparities like these are daily occurrences and, in the words of one agent who posted on the industry blog ActiveRain, they are “the bane of my existence.” Consumers often take Zestimates “as gospel,” said Tim Freund, an agent with Dilbeck Real Estate in Westlake Village. If either the buyer or the seller won’t budge off Zillow’s estimated value, he told me, “that will kill a deal.”
Back to the question posed by O’Donnell: Are Zestimates accurate? And if they’re off the mark, how far off? Zillow CEO Spencer Rascoff answered that they’re “a good starting point” but that nationwide Zestimates have a “median error rate” of about 8%.
Whoa. That sounds high. On a $500,000 house, that would be a $40,000 disparity — a lot of money on the table — and could create problems. But here’s something Rascoff was not asked about: Localized median error rates on Zestimates sometimes far exceed the national median, which raises the odds that sellers and buyers will have conflicts over pricing. Though it’s not prominently featured on the website, at the bottom of Zillow’s home page in small type is the word “Zestimates.” This section provides helpful background information along with valuation error rates by state and county — some of which are stunners.
For example, in New York County — Manhattan — the median valuation error rate is 19.9%. In Brooklyn, it’s 12.9%. In Somerset County, Md., the rate is an astounding 42%. In some rural counties in California, error rates range as high as 26%. In San Francisco it’s 11.6%. With a median home value of $1,000,800 in San Francisco, according to Zillow estimates as of December, a median error rate at this level translates into a price disparity of $116,093.
Some real estate agents have done their own studies of accuracy levels of Zillow in their local markets.
Last July, Robert Earl, an agent with Choice Homes Team in the Charlottesville, Va., area, examined selling prices and Zestimates of all 21 homes sold that month in the nearby community of Lake Monticello. On 17 sales Zillow overestimated values, including two houses that sold for 61% below the Zestimate.
In Carlsbad, Calif., Jeff Dowler, an agent with Solutions Real Estate, did a similar analysis on sales in two ZIP Codes. He found that Zestimates came in below the selling price 70% of the time, with disparities ranging as high as $70,000. In 25% of the sales, Zestimates were higher than the contract price. In 95% of the cases, he said, “Zestimates were wrong. That does not inspire a lot of confidence, at least not for me.” In a second ZIP Code, Dowler found that 100% of Zestimates were inaccurate and that disparities were as large as $190,000.
So what do you do now that you’ve got the scoop on Zestimate accuracy? Most important, take Rascoff’s advice: Look at them as no more than starting points in pricing discussions with the real authorities on local real estate values — experienced agents and appraisers. Zestimates are hardly gospel — often far from it.
Financial Benefits of Owning vs. Renting
- Mortgage Deduction: As a homeowner, you are allowed to deduct the mortgage interest from your tax obligation. For many people, this is a huge deduction since interest payments are typically the largest component of your mortgage payment in the early years of owning a home.
- Property Tax is Deductible: Real estate property taxes paid on your primary residence and a vacation home are fully deductible for income tax purposes.
- Some Closing Cost Deductions: The year that you buy your home you can claim the origination fees on your loan, even if your purchase is structured so that the seller is paying the closing costs.
You Build Equity Every Month
Your equity in your home is the amount of money you can sell it for minus what you still owe on it. When you make your mortgage payment each month, part of the payment reduces the amount you owe, which then increases your equity.
Forced Savings Plan
Every month you pay your mortgage and build equity is like a forced savings plan that can become valuable to your overall financial health and wealth.
Capital Gains Exclusion
If the home is your primary residence for at least 2 of the last 5 years, you don’t have to pay taxes on the profit up to $250,000 if single and $500,000 if married.
Over Time, Buying Is Cheaper Than Renting
In the first few years, it may be cheaper to rent. But, over time, as the interest portion of your mortgage payment decreases, the interest that you pay will eventually be lower than the rent you would have been paying. In addition, you are not throwing away all that money on rent. If you’re going to pay to live somewhere, why not pay off your own mortgage rather than someone else’s.
Bankrate.com has a good calculator to help you figure out how much you’ll actually be saving in taxes. Check it out here:
Cost to Buy a House
What does it actually cost to buy a house? This question is usually answered with something like, “we won’t really know until we have all the information.” Yes, it’s difficult to say because every purchase is different and there are many factors involved, blah, blah, blah, and nobody wants to be wrong, however, answering this question with a non answer doesn’t help when you’re trying to figure out what your actual expenses are going to be, so here is the cleanest APPROXIMATION of what it will actually cost to buy a house. I’ve also put links to tools and made notes on how to calculate a couple of the numbers on your own.
Itemized List of Costs from Highest to Lowest:
- Down Payment (3.5% of the purchase price if you do an FHA loan all the way up to whatever percentage you’re willing to put down)
- Mortgage Insurance (Only applicable if putting less than 10% down)
- Property Taxes (Paid up front for the current 6 month period and prorated from the day you take possession of the property)
- Loan Origination Fee (What the bank charges for lending you money to purchase a home)
- Homeowner’s Title Insurance (One-time fee at purchase)
- Escrow Fee (Cost for the escrow account and officer)
- Homeowner’s Insurance (The first year is paid at time of purchase)
- Lender’s Title Insurance (One-time fee at purchase)
- Home and Pest Inspections
- Additional Inspections or Estimates from Professionals
- Appraisal Fee (Cost for professional appraiser to estimate property value and provide a written report as mandated by the lender)
- Deed Recording Service (Cost to have someone physically record deed at the County Recorder’s office)
- Notary Fee (Cost to have closing documents notarized)
- Credit Report Fee (What the mortgage broker charges to run your credit)
- Bank Wire Transfer Fee (Cost to wire money from your bank to the escrow account)
Estimated Cost if You’re Buying a House for $600,000 with 3.5% Down:
- $21,000 – Down Payment
- $4,632 – Mortgage Insurance (Only applicable if putting less than 10% down. This is an upfront premium paid at time of purchase. There will also be a monthly mortgage insurance premium).
- $3,750 – Property Taxes (This is the most you would have to pay at closing for a house worth $600,000. The property taxes will be prorated for every day you own the home within the 6 month billing period at approximately $20 per day).
- $2,000 – Loan Origination Fee (This fee is the hardest to predict so this is a major ballpark figure. There’s a huge variation depending on your mortgage broker and the bank you’re working with. It also depends on what kind of credit they’re giving you and what interest rate you’re taking or how many points you’re buying).
- $1,800 – Homeowner’s Title Insurance
- $1,200 – Escrow Fee
- $1,000 – Homeowner’s Insurance (First year paid at time of purchase)
- $775 – Lender’s Title Insurance
- $750 – Home and Pest Inspections
- $500 – Additional Inspections or Estimates from Professionals
- $500 – Appraisal Fee
- $130 – Deed Recording Service
- $100 – Notary Fee
- $30 – Credit Report Fee
- $25 – Bank Wire Transfer
TOTAL = $38,192
Tips and Links for Figuring Out Your Own Scenario:
Note: It is possible to structure your offer so that the seller gives you a credit to pay for part of your closing costs. This allows you to pay less money out of pocket at the time of purchase.
Upfront Mortgage Insurance (Usually only required if putting less than 10% down):
Multiply the loan amount by .008 (.8%).
Property taxes in Marin and Sonoma Counties can be roughly figured by multiplying the purchase price by .0125 (1.25%). Example: if you buy a house for $600,000 and multiply that by .0125 then your annual property taxes will be approximately $7,500.
Title Insurance & Escrow Fee:
The following is a link to a fee estimator for Escrow and Title fees. It works on a sliding scale based on the purchase price and loan amount. You can plug in the numbers that apply to your purchase:
What is Title Insurance
Title Insurance is an important part of a real estate transaction, but buyers and sellers often get confused about what it is and what it actually does, so here are the basics:
What is Title Insurance?
Title Insurance protects the buyer, seller and lender against serious financial loss due to a defect in the title. A defect could be a lien, claim or encumbrance on the title to the property.
Title Insurance for Buyers:
There is a one-time cost for the policy at the time of purchase. The title insurance will cover claims arising from issues that could have been discovered in public records as well as “non-record” defects that were not discovered during the title company’s investigation. The title company will not only satisfy any valid claim made against your title, but it will pay for the costs and legal expenses of defending against a title claim.
In addition, if you’re getting a loan from a lender to purchase the property, your lender will require that you pay for a title insurance policy for them as well.
Title Insurance for Sellers:
As a seller, your title insurance policy guarantees that the title to your property will be marketable when you decide to sell your home. The title insurance policy protects you from financial damage if the title is rejected by a prospective buyer.
The Home Selling Process
Find the Right Agent
If you’re reading this, you’ve already completed this step. Boom! My number is (415) 845-2518.
Maintenance and Repairs
Spend the money and have a professional home and pest inspection performed. Yes, having to spend $500 – $1,000 on inspections hurts, but it allows you to correct and/or disclose any issues prior to putting your home on the market, which will ultimately maximize your profit and eliminate surprises.
Your additional profit will more than cover the cost of the inspections for a few reasons: 1. A “clean” house that doesn’t require any repairs will usually be rewarded with a higher sale price, 2. Estimates from inspectors tend to be high, but those are the numbers you’ll have to work with, 3. By disclosing everything up front, you eliminate the buyer’s ability to negotiate a reduction of the purchase price based on those estimates, 4. By using your own people to fix any issues, you can control the cost and there won’t be any unknowns to worry the buyer.
This “unknown” aspect scares people, especially first-time buyers, and they’ll try to make you pay for it. The buyer will most likely have their own inspections performed, but there shouldn’t be any new information or discoveries, although that can happen.
Staging, Decluttering and Cleaning
While you’re getting all the maintenance and repair issues completed, you should also focus on how to make your home appeal to the most buyers. Think minimal. Remove EVERYTHING that doesn’t need to be there. This means all personal items and knick knacks—no more family photos or your favorite collection of shot glasses from around the world. Keep it basic, clean and simple. Buyers need to be able to envision themselves in the rooms of the house, and they won’t be able to do that if all your stuff is in the way and drawing their attention elsewhere.
Rooms should be set up to maximize the space. Get rid of additional pieces of furniture that can make the room seem closed in and heavy. Even if this means that you won’t have all your stuff right where you want it, you’re going to have to sacrifice a little bit of comfort in order to sell your home faster and for more money.
Be sure to allow as much light into every room as possible. Open blinds and curtains or even completely remove them, especially if they’re dated and bulky. Everybody likes light and bright. Brightness creates a warm and happy feeling and that’s what people want to experience when they walk into a home and as they go from room to room.
Also, think about painting walls and recaulking tubs, showers and sinks. The cleaner and fresher everything looks and feels, the better. Once all of these things are done, have your home professionally cleaned. Again, having to spend $150 – $200 hurts, but it’s another investment in your future profit. A professional cleaning will really make your home sparkle and set it apart from the competition. Buyers are picky. You don’t want to give them any reason to move on to the next house. If there are too many negatives, your house will be eliminated as an option and that buyer will be gone forever. The more buyers you can get to write an offer on your house, the better your situation will be, not just for the sale price but for the terms as well.
City Resale Inspection
Most cities require a resale inspection that is typically paid for by the seller. I will order and schedule this inspection, which typically costs between $200 and $400 depending on the city. These inspections are used by the city to update their records and determine what actually exists at the property. They also look for any work completed on the property that was not properly permitted. The city resale inspection will be included in the disclosure package.
You must complete a Disclosure Package for buyers to review prior to making an offer. This process usually takes 1 – 4 hours depending on the home, but I will sit down with you and go through each page to make sure you’re fulfilling your obligation to the buyer and protecting yourself in the future. Providing this package to buyers up front allows them to submit offers based on full disclosure, which will also limit their ability to negotiate after the fact.
We will have discussed the value range of your home during our first meeting, but now that we’ve established at what condition your home will be sold (based on the home and pest inspections, staging and any repairs or upgrades you’ve made), we can determine the actual list price and strategy for sale. The strategy will depend on the current market and what you’re comfortable with, e.g., today we’re seeing multiple offers on pretty much everything priced well, and sellers who are willing to price their home at or just below market value are creating a bidding war that is actually driving up the price and netting them more money in the end. Each house and neighborhood is unique, so we’ll develop the strategy that will work best for your home and your goals.
Even before your home officially goes on the market, I will create interest by teasing it to the public.
Here are the things I do for my listings:
- Professional Photos Taken (once repairs and staging are complete)
- Virtual Tour Created
- Direct Mail Postcards or Letters to the Neighborhood
- Advertisements in Local Newspapers and Magazines
- Professional Property Brochure
- Individual Property Website, e.g., http://www.77MainStreet.com
- Networking with the 450+ Agents in My Company as well as Other Agents and Contacts in the Area
Once the home is officially entered into the Multiple Listing Service (MLS) and goes on the market, it will appear on over 1,000 websites.
My personal listings then get the following:
- Email Flyer to Every Agent in Marin, Sonoma and San Francisco Counties
- Featured or Enhanced Listing on Zillow.com, Trulia.com and Realtor.com
Your House Goes on the MLS and is Officially for Sale
Ideally, we’ll have your house hit the MLS on a Monday or Tuesday. This will maximize exposure and limit days on market as well as allow us to ride the momentum of being a new and fresh listing.
Broker Open House
I will hold a Broker Open House aka Broker Tour the first week your home is on the market. These open houses are on a Wednesday or Thursday depending on what city your home is in and they last for 3 hours. This is the time your home will be open so all the local agents can come and preview your house for any clients they may have.
Now that your house is on the market, it is extremely important that it’s easy for agents to show it to their clients. Ideally, the house will be vacant so people can go any time, but that’s not always possible. If you’re still living at the house, you can either set times when the house can be shown without an appointment or showings can be set by appointment only, i.e., agents will call me with a showing request and I will call, email or text you to make sure that time is okay.
The reality is that, especially in a market with a good amount of inventory, vacant and easy-to-show homes will almost always be viewed first. If those homes don’t work for the buyer, then they will figure out how to schedule an appointment to see the home that isn’t as easy to see. Obviously, every situation is different and having buyers schedule an appointment to view your home might be necessary. If that is the case, you need to be agreeable and flexible—you should do your best to make the requested time happen because that might be your only shot with that buyer. I can’t tell you how many times I’ve had a seller deny a request to a buyer and that buyer never came back. You may think that asking them to come at a different time isn’t a big deal, but something that small is often enough for a buyer to move on to another house. You may have accommodated the first 8 showings and this is the only time you’ve rejected one, but, for the buyer, this is their only experience with you and could be a sign of how you’ll be to work with should they decide to submit an offer on your house. It’s best to start out on a positive note, so a small sacrifice of your time might be what it takes to get your house sold the fastest and for the most money. Keep this in mind: the more showing requests you deny the longer you’ll have to deal with your house being on the market.
Depending on the market and pricing strategy, we may be able to set an offer date. In a strong seller’s market like we have today, we can put the house on the market on a Tuesday, have the broker tour on Wednesday or Thursday, an open house on Sunday and then accept offers on Tuesday or Wednesday of the following week. This strategy allows you to create buzz and ride the momentum into a successful sale. If the real estate climate is different, we will discuss the best way to get your home sold for the most money.
The Escrow Process
Congratulations! You’ve accepted an offer! The day after you deliver written acceptance of your buyers’ offer to them is the first technical day of the escrow and time periods. A typical offer will have about 10 days for a buyer to complete their investigations, 17 days for them to have an appraisal and receive full loan approval and 30 days to close the transaction. If you’ve followed my advice and had your own inspections done and had the buyer sign off on those reports at the time they submitted their offer, then the 10 day investigation period should be relatively smooth. Basically, they’ll just confirm what was in the reports and verify that they can obtain title insurance as well as homeowner’s insurance. They will also continue the processing of their loan including having an appraiser visit the house and determine his/her opinion of market value. By the 17th day, the buyers should have their loan fully approved and be able to release all their contingencies. From that point, you’re on the home stretch and will need to meet with the escrow officer to sign your closing documents. On the 30th day, the property will officially transfer to the buyer and the escrow officer will release any funds due to you. If you opted for a wire transfer then you should expect the funds to hit your account the next business day after closing.
The escrow process above is a little oversimplified as many things can and do happen throughout each transaction, but this will serve for our purposes as a general understanding of what to expect.
You are free and clear! Hopefully you were able to achieve your goals and are ready for the next chapter in your life.
Making an Offer in a Multiple Offer Situation
MARIN AND SONOMA COUNTY MULTIPLE OFFER SITUATION
After years of wallowing in a down market that favored buyers and allowed them to pick and choose the terms that worked best for them, we have now seen a considerable shift in favor of sellers. This is great news for those of you who took advantage of a down market and crazy low interest rates. For the rest of you would-be homeowners, you’re now faced with a tricky situation—the dreaded multiple offer scenario. Here are some tips that I use with my clients for getting their offers accepted when competing with other buyers on the same house.
STEP UP TO THE PLATE
Don’t mess around and try to figure out what price might get you the house. If you love the house and you want it to be your new home, figure out what it’s worth to you. In other words, at what number are you going to be upset when you find out someone else was able to buy the house for that price? When competing, you always need to put your best foot forward from the beginning. Make your highest and strongest offer initially, not when it’s too late and the seller has already decided to work with someone else.
PERSONALIZE YOUR OFFER
Either you or your agent should write a cover letter and submit it with your offer to the listing agent and sellers. In that letter, give them details about your personal story and why you love the house and want to make it your home. Did you grow up in the neighborhood and attend the school down the street? Are you getting ready to have your first child and looking to move to the suburbs to begin your new family? Do your parents live a few blocks away? Many sellers are extremely attached to their home and it means a lot to them to know you’re going to treat it with the same respect and care that they did.
That being said, realistically your story will only get you so far, i.e., the amount of money the seller is going to net almost always wins out in the end, however, if your offer is close (within a few thousand dollars) the seller might consider taking slightly less to ensure the house is going to the right person. If the seller isn’t willing to take less money, your story might be enough to get you a counter offer to match the price being offered by someone else just because they like you more.
At the bottom of the letter, add a picture. Did you recently get married? Put one of your wedding photos on the letter so they can see you and identify with you as well.
In general, just do what seems to make sense and think about what you would like to hear and see if you were selling your house and looking at offers from a bunch of different people.
KEEP IT SIMPLE AND CLEAN
Don’t nitpick little details that don’t really matter. You want to be easy to work with and show the seller that you’re willing to be accommodating. If there are any signs that you’re going to be anything but accommodating, the seller will happily choose one of the other 7 offers and never give you a second thought.
Many agents like to write one year home warranty plans to be paid by the sellers into the contract as standard practice. This method was fine a couple years ago when it was a buyer’s market, but, when you’re competing, it’s little things like this that could cause you to lose the house to someone else. In addition, home warranties are fairly worthless and more hassle than they’re worth, but that’s a topic for a separate post.
Keep the close of escrow to a maximum of 30 days (unless the seller indicates they want or need a longer close, then be open and willing to give them whatever they want). Even if you’re going out of town for the week that you’re supposed to be closing or have a big project at work due that week, it doesn’t matter. You either want the house or you don’t. When you’re competing, you need to be willing to make some sacrifices to get it done. If you’re stressed out for a couple weeks because it’s not the ideal timing, then you’re going to have to accept that. The alternative is losing the house to someone else who is willing to do what it takes to make it work.
HAVE THE RIGHT AGENT
Your agent may be a bigger factor than you realize. The listing agent knows that they will have to work with your agent very closely throughout the escrow process, and they will make recommendations to the seller based on what they do or don’t know about your agent. If the listing agent has worked with your agent before and they have a good relationship, that’s a big benefit for you because the listing agent will be more likely to want to work with your offer. Even if your agent hasn’t worked with the listing agent, there are many things your agent can do to help your cause. I personally make sure that I’m on the ball by asking the right questions and make myself available when the listing agent has questions for me, whether through email, text or phone conversations. Nothing throws up more red flags for me when I’m listing a property than when a buyer’s agent is asking me questions that show me they’re not knowledgeable or they’re going to be difficult to work with. Having any sort of difficulty with communication before even getting into contract ALWAYS means problems throughout the escrow process. This means that if there are other options, as there are in a multiple offer situation, the seller is going to be much better off choosing a buyer with an agent who knows what they’re doing and is easy to work with.
HAVE THE RIGHT MORTGAGE BROKER
This is essentially the same as having the right agent. As a listing agent, if I see red flags with the buyer’s mortgage broker, then this will be a major negative for that buyer. If your mortgage broker is hard to get in contact with and doesn’t respond to simple messages or emails within a couple hours (at the most) then you’re not doing yourself any favors by continuing to work with that person. Not only will they hurt your offer, but these are great indicators for how they’ll be throughout the entire transaction. There are deadlines that have to be met, and, if your mortgage broker doesn’t meet them, it could cause you to lose all your negotiating leverage or even completely lose the house. Find somebody who’s there for you and is an asset to your home purchasing team, not a detriment.
As a buyer, competing with other buyers to get a home is not an ideal situation, however, if you surround yourself with the right people and are willing to step up to the plate and be accommodating, you will be the winner in the end. Buying a house is stressful, but, if you have the right people on your team, a lot of that stress will be eased by your confidence in their ability to perform. Always remember to focus on the big picture—when it’s all over, you will have the house of your dreams and be a proud homeowner!
Consider the Source
Have you ever gone to see a movie based on someone’s recommendation and then walked out of the theatre wishing you had your time and money back? Maybe the person who recommended the movie just loves every movie they see and is willing to overlook the flaws. With that in mind, it is always important to consider the source, whether you’re getting a movie recommendation or, more importantly, a recommendation for a good Realtor.
Be sure that you trust the person making the recommendation and understand why they’re referring that particular Realtor to you. Is it their coworker’s best friend? Maybe it’s their favorite aunt’s acquaintance? If so, proceed with caution. Getting a referral can be one of the best ways to find a professional in any business, but you need to know the facts. Buying or selling a home is a major transaction, so having the best representation possible is important, not just Aunt Janet’s friend who has her real estate license but actually has a full time job doing something else.
The best referral is based on actual experience. Have a direct conversation with the person making the recommendation about their experience with that Realtor. During the conversation you can determine if the recommendation is based on valid points or if it’s based on arbitrary truths that, while nice, aren’t necessarily going to benefit your home buying or selling experience, e.g., “she is super friendly.” That’s great, but does she know what she’s doing? Does she have experience with Short Sales and Bank Owned Properties? Does she know the local market or is she based out of a town an hour away?
Once you determine that whoever is making the recommendation has valid reasons, then you’re ready to actually talk to the Realtor. Make sure that it is a good match because you’ll be spending a lot of time with your agent, and there will definitely be a lot of correspondence, not to mention the amount of money involved in each transaction. You must trust your Realtor and be confident that he or she knows what they’re doing. Buying a house can be stressful, but, with the guidance of a good Realtor, a lot of the stress can either be avoided or greatly alleviated.
One more point: Just because your coworker’s sister is a Realtor and that’s why she’s referring her doesn’t mean that she’s not a great Realtor and perfect for you. I have been referred to clients by my friends and family and know that the service I provided for those clients was great, so it can work out well.
The important thing to remember is that just because someone knows someone in the business doesn’t mean that they’re good at what they do. Ask the right questions and consider the source.
Buying a Short Sale
What is a Short Sale?
A Short Sale means that the owner of the property owes more on their loan than what the property is currently worth, thus making them short on the payoff to the lender should they sell the property. The lender must approve the sale and agree to accept less money than what they are owed.
Important Aspects of Short Sales
- A Short Sale has to be approved by at least one lender (and can be up to three) depending on how many loans were taken out on the property.
- Just because your offer is accepted by the seller does not mean it will be accepted by the lender.
- Short Sales typically take 30 – 60 days to get a response once the offer is submitted to the lender. In some cases, it might take even longer.
- The time frames in the contract, e.g., inspection and loan contingency periods, begin the day after you receive written approval of your offer from the lender, however, the lender may require different terms than what was in your original offer, e.g., higher purchase price or a faster close of escrow.
- A Short Sale is not a guaranteed sale. In most cases, the owner of the home does not want to sell and may be exploring other options to keep their home, e.g., they may try to get a loan modification. Also, you never know how the lender is going to respond. You may have submitted a great offer only to have the lender reject it for no apparent reason. Dealing with lenders on Short Sales in a real estate transaction is less than ideal and doesn’t always make sense, so it’s important to stay patient and remember that, when attempting to purchase a Short Sale, there’s always the risk that the transaction will fall apart. That being said, I have closed many Short Sales successfully, and, if there’s any possible way to get it done, I will.
- Most importantly: Be prepared for a bumpy ride. Short Sales are not a smooth process and there will absolutely be some complications, however, any issues that arise can usually be solved. I have tons of experience with Short Sales and can usually anticipate and alleviate most of the issues. For those problems that can’t be anticipated, I will find or create a solution.
Buying a Home: An Overview
Buying a house can seem like a daunting goal, however, with the right person representing you, the process will be smooth and enjoyable. Every situation is different, but the following is an overview of the process from start to finish. If you have any questions, please don’t hesitate to contact me.
Important Note: I’m often asked by first time buyers how much commission they have to pay when they buy a house. Answer: When buying a house, you do NOT pay any commission. The commission is paid by the seller and split 50/50 between the real estate brokerage representing the seller and the real estate brokerage representing you (the buyer). Each brokerage then pays their agent a percentage (minus fees) based on the individual agent’s contract.
Step 1: Get Pre-Qualified for Your Loan
- Contact 3 mortgage brokers (I can provide recommendations)
- The mortgage brokers can assess your financial situation over the phone through a series of questions and let you know what your options are.
- The mortgage broker should be able to tell you approximately how much you qualify for during your first phone conversation. They will, however, need to pull your credit and process all your financial documentation before they can give you the actual amount. At that time, they will give you a ceiling number that you won’t be able to go over, but how much you actually want to spend is up to you.
Step 2: Look at Homes in Your Price Range
- Make a list of the 10 most important aspects of a home to you and put it in order from most important to not as important. This list will help us choose which homes we want to physically see.
- Once we’ve got a few possibilities, I’ll make appointments and we’ll begin our search.
Step 3: Writing Your Offer
- Once you find the right home, it’s time to structure your offer. The most important items included in an offer are:
- Purchase Price: The amount you want to pay for the home.
- Initial Deposit: This amount is deposited into the escrow account upon acceptance of your offer and will later get applied toward your down payment and closing costs. The initial deposit is typically 1% of the purchase price and is fully refundable until you remove all your contingencies.
- Increased Deposit: This is the amount you will add to the escrow account after a period of time during the escrow process. The increased deposit typically happens upon removal of all your contingencies. The increased deposit is usually 2% of the purchase price, bringing your total deposit to 3%.
- Inspection Contingency: Time period to investigate all aspects of the property including the home and pest inspections.
- Loan & Appraisal Contingency: Time period you will have to get fully approved for your loan (usually 17 days) and have an independent appraisal (ordered by mortgage broker) completed to determine that the property is worth at least the price you’re offering.
- Loan Amount: Total amount of money you’re borrowing to purchase the home.
- Who Pays for What: Is the seller paying or are you paying? Examples: county property transfer tax, property inspections, city inspections, natural hazard disclosure report, title insurance and escrow.
- Title & Escrow Company: This is the company that will issue your title insurance policy and administer the escrow account and transaction closing.
- Close of Escrow: This is the date the home will become yours. Typically 30 days from acceptance of your offer.
- These are the aspects that can make your offer strong or weak. For example, if you want to submit an offer lower than the asking price, some ways to make your offer stronger, even though the price is weak, are: shorten your inspection contingency period, shorten your loan contingency period, offer a quick close of escrow or increase your deposit.
- Counter Offers: When you submit an offer, the seller has 3 choices: 1. Accept your offer as is, 2. Counter your offer with different terms or 3. Not respond at all. If the seller wants to counter your offer, I will usually receive that within 3 days. Counter offers can go back and forth as many times as necessary.
- Acceptance: You and the seller have come to a written agreement and all the time periods begin.
Step 4: Open Escrow, Inspect the Property & Continue the Loan Process
- Open Escrow with a Title Company: I will open escrow with the title company you chose and have your initial funds deposited into the escrow account (usually 1% of the purchase price in the form of a personal check). You will receive the Preliminary Title Report—This report covers how title is currently held and what kind of exceptions to title are currently of record (for example, easements, liens and other encumbrances, basically things that affect the property). The preliminary title report will become the final title report on which title insurance is based. In addition to specific exceptions to title that will be listed on the title report, it will also list standard exclusions from coverage.
- Inspect the Property: It is always best to have at least a home and pest inspection. I have inspectors that I know and trust if you want recommendations. The cost of these inspections is usually the buyer’s responsibility and can cost around $1,000 depending on who you use and what inspections you get, but plan on spending at least $600 for the home and pest inspections. Once these two inspections are completed, the inspector may recommend further inspections by licensed professionals, e.g., pool, fireplace, furnace, plumbing, electric or structural. You can then decide what, if any, other inspections you’d like performed.
- Set Up Homeowner’s Insurance: Call insurance companies and line up insurance for your new home. Start with the company you have your car insurance with—a lot of times they can give you a better rate. I also have recommendations.
- Continue the Loan Process: Update any financial information as needed. I’ll also make sure the appraisal is ordered and takes place. The cost of the appraisal is paid by the buyer and is approximately $500.
Step 5: Remove Contingencies, Renegotiate or Walk Away
- After you have completed the inspections and reviewed the reports, it is time to make a decision. The 3 options are:
- Move forward with the purchase based on the original terms of the offer.
- Ask the seller for a credit or to fix anything discovered during the inspections. Every house or condo has something that needs to be repaired, so don’t be surprised when your reports have repair items on them. It’s the inspector’s job to focus on and point out all the negative or potentially negative aspects of the property. The seller may accept your request, say no or counter your request. If they counter your request then you must decide whether to accept, counter or walk away.
- Walk away and receive your deposit back, however, none of the money spent on inspections or the appraisal is refundable.
- Finish the loan process, including underwriting. This is where the lender has an underwriter review and evaluate your file to make sure everything checks out.
Step 6: Remove Contingencies
- Once you are comfortable with everything and decide to move forward, it is time to remove all your contingencies, including the loan and inspection contingencies.
- Once contingencies are removed, you will increase your deposit amount, typically 2% of the purchase price.
Step 7: Sign Loan Documents, Deposit the Remainder of the Down Payment and Closing Costs and Close Escrow
- Sign all of the loan documents (your contract with your lender) with the Escrow Officer.
- Deposit your money into the escrow account. This is the remainder of your down payment and any closing costs. Depending on timing it’s usually best to wire the money from your account to the escrow account.
- The loan will fund—the lender will deposit your loan amount into the escrow account.
- The title company will have the deed to the property recorded in your name with County and the property will officially become yours.