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.
A market plagued by bank owned properties and short sales has finally become a thing of the past, and, while the days of these “distressed” listings are not completely gone, the graph above shows the return of a much healthier market dominated by traditional equity sales.
As the data shows, we went from having 22 distressed property sales in January of 2011 to just 10 in 2014. This is great news for our local Novato market as our property values continue to rise, just as they have over the last couple years, and largely propelled by low interest rates and a shortage of inventory as well as the fading distressed property market. As neglected bank owned homes are filtered out of the system, the market should continue on its path to health and prosperity.
What about the Shadow Inventory the banks are still holding onto? Well, we’ve been hearing about this illusive Shadow Inventory that’s going to flood the market since 2008, and, the first couple quarters it was supposedly coming, it definitely seemed possible, but, after personally working with banks and seeing first hand what their foreclosure to market process is, it quickly became apparent that there is no Shadow Inventory nor will there be one in the future. All along we’ve had a regular and steady dose of REO’s on the market, but never a flood. It seems to be a case of something that seemed like it could happen so it was repeatedly reported and touted as fact. It’s safe to say that the impending doom from a back log of foreclosed homes will never come to fruition. The data really speaks for itself.
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 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.