BUYING
How do I know 'how much' house I can
afford?
There are several ways to gauge how much you can afford to spend
on a house. But, before you go house-hunting, get pre-qualified
for a mortgage so you'll know in what price range you can shop.
It is not unusual for first-time buyers to be somewhat baffled
about how to estimate what mortgage payment they will be able to
handle each month, plus how much money they'll need for a down payment
and closing costs.
That's why it is a good idea to get pre-qualified through a lender
before you even start to look for a home. Pre-qualification lets
a buyer know exactly how much a lender is willing to loan them.
Obviously, with pre-qualification in hand, the buyer can save a
lot of time and frustration. Pre-qualification does not obligate
buyers to take a loan from the lender, nor should it involve any
fees (until later, when they actually apply for the loan).
At the same time, you must understand that pre-qualification is
not pre-approval for a loan either which is a much more involved
formalized process that results in an actual letter of credit from
a lending institution for a specific loan. Depending on your unique
circumstances, you may wish to consider pre-approval as an option,
but it is not necessary. Consult with your real estate professional
to decide what's right for you.
The less formal process of pre-qualifying on the other hand is
a tremendous tool for buyers to have when making an offer. Usually,
pre-qualified buyers have an edge when making a purchase offer because
the seller knows that the buyer is pre-qualified, and that there
is at least one lender ready to make it happen.
In addition, it allows you the flexibility to choose the mortgage
that is best for you at the time of actual purchase - which is sometimes
months down the road. That can be important given the volatility
of interest rates.
When a lender pre-qualifies, they are more concerned about the
buyer's paying ability than the price of the property. For this
reason, lenders are interested in more than just a buyer's income.
They also want to know how much existing debt a buyer has, what
their on-going financial obligations happen to be, and what the
buyer's monthly budget looks like.
Lenders use an established debt-to-income ratio, usually between
.28 to 1 and .38 to 1, to calculate the amount of the loan they
are willing to give to a buyer. For instance, a lender who uses
a .3 to 1 debt-to-income ratio has determined that payments toward
debt reduction, including existing debt plus new debt associated
with buying a home, cannot be more than 30% of they buyer's gross
monthly income.
An important factor that may influence a lender to authorize a
loan with a higher debt-to-income ratio (where debt payments take
a higher percentage of a buyer's income) is a larger down payment.
Buyers who put a larger percentage of the purchase price down (5%,
10%, 15%, 20%, etc.) are considered better "risks," because
the theory is that the more a person has actually invested in the
purchase, the less likely they are to default on the loan.
Buyers usually discover that the pre-qualification process will
produce a home purchase price that is roughly 2 1/2 to 3 times their
gross annual income. The 2 1/2 -to-3 guideline is only a general
rule of thumb, however, and it doesn't take a buyer's full financial
situation into consideration. Since the lender's calculations will
also consider a buyer's actual debts and ongoing expenses, the loan
pre-qualification amount may be higher or lower.
Regardless of the price bracket a buyer targets, they should keep
pre-qualification in mind.
Return to the topics
How much should I budget to own my own home?
Aside from the down payment, the three largest expenditures involved
with the purchase of a home are usually your monthly mortgage payment,
insurance and taxes. Obviously, the amount of your mortgage payment
depends upon your down payment, rate of interest and the price of
the property.
Take, for example, a home that has a $100,000 mortgage. An 8% fixed
mortgage for 30 years, will run approximately $734 per month. What
about taxes? The rate will oftentimes vary from city-to-city, but
generally you might expect your yearly tax bill to total around
2% of the purchase price.That means, for a home with a market value
of $100,000, yearly taxes might run around $2,000. A local real
estate agent can help prospective homeowners refine these figures.
In addition, it is important to keep in mind that there are many
additional expenses incurred with home ownership, some of the most
obvious are utilities and trash collection. Smart homeowners should
also budget for one other item--maintenance and upkeep of the home.
If possible, a small amount should be set aside each month to pay
for those "rainy day" repairs such as painting, plumbing
(hot water heaters, garbage disposals), adding storm windows (to
improve energy usage), insulation (in attics), etc. And, if you
live in a home long enough there are inevitable repairs - e.g.,
the cost of roof replacement.
But home ownership is not just a one way street. That is, aside
from spending money on repairs and maintenance, homeowners can profit
from their property. The most significant benefit is the tax deduction.
It is no secret that among the last real income tax deductions available
to consumers today are the interest paid on the home loan and the
property taxes. This can amount to thousands of dollars in deductions
each year.
And, of course, the primary benefit of home ownership is appreciation
(equity that builds every month). A home, aside from being a place
that provides shelter, can be a profitable investment, and the rising
value of the property oftentimes provides another "savings"
account.
So, when it comes to buying a new home, remember one thing...the
purchase of a property requires budgeting and planning, but it can
also provide the buyer with a long-term investment and a return
that is hard to beat.
Return to the topics
How do I go about finding a mortgage?
The commotion of house hunting is finally over. You found just
the right house, and your offer has been accepted. It was a great
buy. Now, just one more hurdle - getting a loan - and you're home
free.
Often, buyers are so eager to get this "final detail"
behind them, they rush through this portion of the transaction,
and end up with less-than-ideal terms. Borrowers, however, have
something lenders want...their business. This positions them to
negotiate the best possible price (cost of loan), terms and service.
Let's look at price, or the cost of the loan. The first thing to
do is find out what the current rates are, information readily available
in your newspaper or from your real estate agent. When comparing
rates, figure the annual percentage rate (APR), which includes interest,
extra fees and costs amortized over the life of the loan. Also determine
the number of points, if any, that the lender will charge to make
the loan. (A point is equal to one percent of the loan amount.)
Next, consider what loan options the lender offers. There are six
or seven basic types of loans, which vary in their duration. Check
how rates are calculated (fixed versus variable), and whether charges
are fully amortized over the life of the loan, or whether you'll
have to pay points up front and/or balloon payments at the end.
Is there a prepayment penalty clause?
Which terms are best for you depends on such factors as what changes
you expect in your income, how long you plan to own the home, and
what you predict will happen with loan rates in the years ahead.
For example, if you only plan to reside in the home for a year or
two, starting with a lower Adjustable Rate Mortgage (ARM) might
be the best choice. If you have no plans to move, and feel that
inflation will rise rapidly, a fixed rate would obviously be better.
Finally, and perhaps most importantly, consider speed and service.
Buyers shouldn't have to wait days for approval and weeks for closing
just because the lender is slow.
Remember, qualified buyers are great prospects for lenders, so
give your business to the lender who demonstrates they not only
want it, they deserve it.
Return to the topics
Can I qualify for a mortgage if I have past
credit problems?
Credit problems can make it harder to qualify, but it's quite possible
for buyers with poor credit to obtain a home loan.
Anyone who has had a financial problem, whether it was a matter
of late credit payment, delinquent taxes, or even a judgment that
was filed, should expect this data to be a factor when applying
for a mortgage.
How critical a factor? Minor lapses will probably have little or
no effect. However, buyers with serious problems may still qualify
for a loan, but they may have to pay a higher rate of interest or
provide a larger down payment.
There are three steps that a person with past credit problems should
take before applying for a loan. First, request a credit profile
from one of three major credit reporting agencies. In fact, it's
best to request a report from all three, since not all creditors
report information to the same agencies. TRW will furnish a complimentary
copy once a year on request, at (800) 392-1122. Equifax (800/685-1111)
and Trans Union (800/408-1050) will also furnish reports for a nominal
charge.
Second, the buyer should optimize his or her credit profile by
citing prompt payment of rent, utilities, and other bills not reported
on the credit profiles.
Finally, the buyer should be prepared to provide comprehensive
and candid explanations for any late payments to the loan officer.
This is important because problems not reported by the buyer but
discovered by the lender will reflect unfavorable.
Many lenders are understanding about one-time problems such as
the loss of a job, a medical emergency, etc. Buyers with patterns
of delinquent payments might want to consider adding six months
or a year of flawless credit to their track record before pursuing
their home-buying plans. Discuss this with your real estate agent.
They can offer excellent suggestions.
So remember...if you are thinking about purchasing a home, but
are worried about your past financial record, don't give up. There
are solutions, lenders and agents who are in business to help.
Return to the topics
What are five common mistakes made by first-time
buyers?
A good home-buying decision is one that fits your lifestyle and
your budget. Sounds simple? Not always. Here are five common mistakes
frequently made by first-time buyers and how to avoid these pitfalls.
(1) Looking outside your price range. To avoid disappointment,
contact a real estate agent who can help you pre-qualify before
you start looking for a home. The agent can also provide valuable
insight on taxes and other expenses associated with a home (utility
bills, etc.) (2) Buying on impulse. Buyers, especially first-timers,
may be impressed by the first two or three homes they view. Look
at a good selection. List the positives and negatives. Narrow the
prospects to three or four, and then return for a closer look. Evaluate
more than just the property. Look at the surrounding area and community
amenities. Is this what you-and your family-want and need? (3) Not
planning ahead. Think seriously about any personal changes you are
planning in the next five to seven years. For instance, if you are
planning on having children, consider how the home will meet both
your current and future needs. If a double-income is necessary to
qualify for financing and make your payments, do your plans foresee
an income sufficient to continue making payments? (4) Failure to
focus on location. Don't just focus on the house, examine the neighborhood.
Is the area safe, well-maintained, moderately quiet and close to
work, stores, and schools? Find out about zoning and what new construction
is planned on any vacant land in the immediate neighborhood. Will
the property be easy to market when you are prepared to sell it?
(5) Failure to understand the home buying process. Once you select
a home, get involved. Find a real estate agent willing to spend
time with you. Don't hesitate to ask questions. Have them explain
the negotiation, financing and escrow processes and other elements
involved in the transaction. Home-buying involves knowing the price,
and what's inside and around the property. Consider all your options
carefully. This may be the most important financial transaction
of your life.
Return to the topics
What's the real difference between a new
home & an old one?
While each offers its own style and charm, the difference usually
boils down to two things: (1) how the home fits into the buyer's
lifestyle; and, (2) the condition of the property.
Homes that are 10 years old or less are generally better insulated.
They have dual-glazed windows or thermal panes, which translate
into lower heating and cooling bills. And, in today's rising energy
cost environment, these considerations are significant. Although
there are some exceptions, homes that have been built with all-electric
systems, generally have higher utility bills.
Homes that range between 15 and 20 years old may be in need of
new water pipes, especially if the old ones were galvanized and
if a water softener was used. Water softeners and galvanized pipe
can be deadly and, after 15-20 years, re-plumbing is usually required.
Have a plumber or general contractor inspect the pipes. Needless
to say, it can be expensive to re-plumb an entire system.
Check the built-in fixtures and appliances for any signs of damage.
Flush toilets, test all the water taps and the electrical sockets,
open and shut the windows, and try all the lights. A window that
will not open may be a sign of a more significant problem-for example,
a wall may have shifted, or worse yet, it could indicate a problem
with the foundation itself.
It is also a good idea to ask the seller for copies of past utility
bills. Examine them for some insight into what you can expect monthly
gas and electric costs to be.
Although newer homes may be free of significant physical or structural
problems, there are other things to consider in making your decision.
Generally, room size and yard size tend to be smaller in some newer
homes. While, on the other hand, they usually offer the benefit
of the latest building and design technology. Many new homes also
have more windows and natural light incorporated into their design
plan, allowing for a more spacious feel and efficient energy usage.
Return to the topics
Should I get a professional inspection before
buying a home?
Definitely. Hiring a professional home inspector can save a great
deal of grief for buyers. The one exception would be when the home
is new and carries a written warranty by the builder.
Many buyers mistakenly believe that the only reason to have a home
inspection is to make sure that the house they're buying doesn't
have defects serious enough to warrant backing out of the transaction.
But there's more to it than that.
Certainly, an inspection will usually reveal major problems that
may even surprise the seller. The obvious ones are corroded plumbing,
antiquated and unsafe electrical systems, or structural and foundation
problems. And, the discovery of such problems may cause the buyer
to re-think his or her offer.
Although a competent inspector can uncover deal-crushing defects,
these problems are usually not commonplace. Typically, the seller
will already have told the buyer about anything major. More often,
inspections reveal less serious problems; problems that may not
be serious but can be aggravating.
For instance, there could be a minor electrical defect, or inferior
ventilation of a heating system or fireplace. If so, the buyer is
usually in the position of having the purchase price reduced, or
the defect corrected. More important, it also prevents the minor
problem from developing into a major disaster a year or two down
the road.
There is, of course, the possibility that the home inspection will
produce another outcome: everything is fine. In this case, they
buyer gains piece of mind, confident about the major investment
he or she is about to make. That, too, is an enormous benefit for
the cost of the inspection.
Now, how does a buyer find a home inspection? By asking their real
estate agent, friends, or lender. Inspectors are also listed in
the Yellow Pages under "Home Inspection Services." But,
a word of advice-don't hire a contractor. Contractors earn their
living doing repair and renovation work, so their recommendations
aren't likely to be as objective as those of a professional inspector.
Return to the topics
Is real estate a wise investment?
In the long run, there are fewer investments that have shown a
better return.
However, the key to investing wisely in real estate is understanding
how the industry differs from others. For example, when the defense
industry dips, it usually shows a national decline and the stock
prices of defense-oriented firms drop across the board. The same
is true of most industries. They are impacted nationally.
That is not the case with real estate, which is actually an industry
and investment driven by local conditions. One community may suddenly
lose a manufacturing facility, and almost overnight the market is
flooded with properties for sale. An excellent example is Southern
California. Several years ago, when defense cutbacks began an excess
of homes went up for sale, increasing the supply and lowering demand.
Therefore, it became a buyer's market. At the same time, Bakersfield,
a community less than 150 miles from Los Angeles continued to experience
high demand for real estate. With a short supply of homes, it was
a seller's market.
Obviously, the key to successful real estate investing, like stocks
and bonds, is to buy low and sell high. But, how do you know when
the "low" has been reached? Or, for that matter, how can
you judge when your property may be peaking in value?
Some investors rely partially on the media. They read the daily
newspaper, watch television and follow the trends. Although the
media provides a good deal of information, remember that by the
time things are printed or broadcast, the news may be old. For instance,
you will find statistics frequently quoted in the media that have
been supplied by the National Association of REALTORS (NAR). But,
NAR statistics, like most, tell you where things have been, not
where they are going.
So what can you do? First, check local economic indicators. If,
for example, a community depends on defense spending, and there
is a government cutback, you can be assured that your area will
be impacted. Even if the community does not have a major defense
contractor, it may have subcontractors.
The local chamber of commerce can frequently help. They usually
have information on which companies are moving in and out of an
area. Logically, the relocation of a firm into a community generally
indicates that demand for real estate in that marketplace will increase-while
if firms are moving out of the area, housing demand will often shrink.
Aside from economic indicators, check real estate trends and cycles.
Talk to a real estate agent. They can provide statistics on how
quickly homes have sold, how prices have fluctuated in the past
six to 12 months, and projections of future home sales. They can
show you how today's market compares to last year's. Are sales headed
up? Down? The same?
The answers will not only help you determine what the market is
like in your area, but they will also be critically important in
helping you determine when and where to make your real estate investment.
Return to the topics
Does a home warranty protect a buyer in the
event something goes wrong after they have purchased a property?
Sometimes.
That's because home warranties are oftentimes misunderstood, and
not every warranty provides the same protection. All warranty companies
are not equal, either.
Warranties, of course, were designed to protect buyers from problems
that emerged after they moved into a dwelling. For example, if a
major appliance breaks or the roof leaks, the ideal warranty kicks
in and pays for the repairs.
On the surface, this sounds simple and straight forward. But, most
of the time it is not.
First, all warranties differ. Aside form the obvious differences
(the amount of deductible required), they may also vary insofar
as what is covered and what is not. For instance, with some warranties,
if the hot water heater works on the day of closing, but suddenly
does not work six months later, then it may be covered. And, with
other policies if the water heater was not in good working condition
when the home was purchased, and it breaks a week or two later,
there is no coverage.
Complex? Confusing? It can be. Even though the language in the
warranty must spell out exactly what's covered, it isn't always
the easiest document to understand. Thus, step one in evaluating
any warranty should be to take it to your attorney to help you decipher
the legalese. It may be well worth the hour or so that it will cost
you in legal fees.
Next, is the warranty company financially sound? In many states,
warranty companies can be doing business, despite the fact they
do not have the funds to back up their policies. Thus, step two
when evaluating a warranty is to take the policy to your accountant
or a local CPA. Have them check out the warranty company's financials.
Can they pay the claims?
Warranties can be critically important when it comes to new construction,
too. Obviously, the reputation of the builder is an important consideration.
However, problems with new homes can be enormously expensive if
they are not covered by a warranty.
There are two types of defects when it comes to new homes: patent
or latent. Patent are those problems which can be seen. Cracked
plaster, a fence that is off-kilter, etc. Latent problems develop
later, and may not show up for five or six months...ground shifting,
for example. Latent problems are usually more expensive than patent
problems. Thus, the warranty for a new home can be one of the most
important documents executed during the buying process.
Whether you are purchasing a new home or a resale, remember that
warranties definitely have a place when it comes to protection and
peace of mind in the real estate transaction, but make sure that
you check them out carefully.
Return to the topics
Is a pre-closing inspection -- that is, an
inspection of the property by the buyer before they move in -- really
important?
Yes, it is. The intent of a pre-closing inspection is to give the
buyer one last opportunity to verify that they are getting all that
was promised in the sales contract. Although buyers still have legal
recourse if they discover, even after closing, that the condition
of the home is not as it should be. The best time to identify problems
is before closing, when the seller will be motivated to correct
any deficiencies in order to close the transaction.
Typically, a buyer takes possession of a property one to three
months after signing the sales agreement. But, a lot can happen
before the actual move-in. Appliances and fixtures can break down,
and walls, carpets and doors can be damaged during the seller's
move-out. Sometimes the seller will simply have forgotten that he
or she had agreed to leave the refrigerator or window coverings
with the house. Whatever the reason, problems identified before
closing have the best chance of being remedied.
If possible, schedule the inspection right before the closing,
such as the day before. Ask your real estate agent to attend the
inspection with you.
What should you be inspecting? Using a copy of the sales contract
as a checklist, first make sure that all items that should be in
place: appliances, built-in furniture, window coverings, fixtures,
etc. are there. Test each appliance to make sure they work properly.
Bring along an electrical clock or radio to test each electrical
outlet. Test all electrical switches and the garage door opener,
if there is one. Run the garbage disposal and turn on every water
faucet, checking under the sinks for leaks. Flush the toilets. Inspect
the floors, carpets, walls and doors for recent damage.
If you discover that something is damaged or missing, make a note
of it and inform your agent immediately. In most cases, the seller
is usually able to take care of small problems immediately, either
by making a needed repair or offering compensation to handle it.
And, if there are major problems, the seller can even sign a statement
acknowledging the deficiency and agreeing to correct it. Although
pre-closing inspections take time and may be inconvenient, they
are important and well worth the buyer's time.
Return to the topics
What are 'contingencies' and why are they
important?
A `contingency,' is an escape-clause that is added, in-writing,
to a contract which allows a buyer to back out of the transaction
if certain conditions aren't met.
Some contingencies, often called `riders',-like attorney approval
of the contract, or the passing of a home inspection-are obviously
designed to protect buyers from a poorly written contract or a defective
home.
Other purchase contingencies may hinge on the buyer's current living
situation, or his or her cash-flow.
For example, when it comes to contingencies many first-time buyers
can be better prospects for a seller's home than move-up buyers.
Why? Because offers from homeowners usually are contingent upon
the sale of their present home. And, even if a move-up buyer has
an offer for their home in-hand, their buyer's offer may be contingent
on another contingency (or sale), and so on down the line. If one
transaction in the chain falls through, they all might.
Cash offers can also be more attractive to sellers. Why? After
all, the seller will get their money at closing whether or not the
buyer has cash or takes out a loan. True, but cash offers don't
require lender approval, loan approval is never a certainty and
may delay or prevent closing. (Incidentally, for this reason, buyers
who get pre-qualified for a loan have an edge over other buyers.
A pre-qualified buyer is the same as a cash buyer.)
Buyers offering a larger-than-customary amount of "earnest
money", a deposit that accompanies an offer, can be more appealing
too. More money deposited along with the signed contract often demonstrates
greater sincerity and motivation to close the transaction.
Return to the topics
SELLING
How much is my home worth?
In today's fluctuating real estate market, answering that question
can be extremely complex. Generally, there are four criteria that
can help homeowners determine an accurate (as well as maximum) selling
price for their home.
First, investigate area trends. Check with a real estate agent
to determine the current selling price of homes in your area. Real
estate firms generally survey properties in the surrounding areas
and translate that to computerized reports divided into specific
communities. Compare your home with similar homes that have sold.
This should provide you with an idea of what homes are being sold
for as opposed to what they are listed for.
Next, pay attention to "migration" trends and see if
people (and businesses) are moving in-or out-of the area. One of
the best ways to track movement is to read the business section
of the local newspaper or talk to the Chamber of Commerce. If there
is a lot of movement into the community, chances are home prices
will be going up at a relatively rapid rate. Obviously, if there
is heavy migration out, prices will be flat or could even drop.
Remember, as well, that two side-by-side homes can command radically
different prices. Part of the reason can be attributed to certain
features that may enhance the value of the home in the buyer's eyes.
For instance, older homes that have been upgraded with new fixtures,
windows or room additions command higher prices than homes that
remain unchanged. In many cases, with minimal expenditure, these
price-enhancing features can be added and sellers can often increase
the property's value by thousands of dollars. Unchangeable elements
such as lot size, or single story versus two-story can, of course,
impact the value of adjoining homes.
Perhaps one of the most critical elements in selling a home, is
pricing. By carefully following the local real estate market, or
contacting a real estate professional, not only can sellers determine
the right time to sell but, more importantly, they can also ascertain
the correct price to list the property to get it sold.
Return to the topics
Why do some homes sell quicker than others?
They are priced right. Pricing is usually the number one determinant
as to how short or long a home will be on the market. Obviously,
the property has to be priced competitively, but do not set the
price based upon what you heard a neighbor received for their home.
Adjacent homes can be radically different. They both may have the
same floor plans, but improvements, a more desirable location in
the tract, and other seemingly small variations can make a significant
difference when it comes to price.
In determining the right price, one of the most important traits
you need is objectivity. Homeowners, naturally, have an emotional
attachment to their home, and because of their feelings they oftentimes
overestimate what their home is worth. Despite the attachment, try
to be practical and logical. Make a competitive study of recent
sales that are comparable to your home. Evaluate price per square
foot, age, condition, location, schools, and extras.
Remember, that the value of your home can be impacted by developments
that are not yet in place. Is there vacant land nearby? If so, what
businesses, or structures will be erected there in the future? Is
it a desirable addition to the neighborhood? If there is vacant
land, visit the local planning and zoning commissions to see what
might be built or, check with a local real estate professional to
help you find out what development plans might be in the offing.
He or she should also explain the elements that go into pricing
and why. And, ask the real estate associate about a CMA (Comparative
Market Analysis) and what it means.
Remember, too, that little things can make a big difference once
the home has been priced. Cosmetics are crucial. Spruce up the property
as much as possible. A little exterior paint, some new shrubbery,
and making sure that the house is always neat and clean can make
a tremendous difference. The most important impression is the first-and
the first thing buyers see is the exterior. It should look good.
To get an idea as to how price is determined, contact a local real
estate professional. Ask them to carefully choose an associate who
knows your neighborhood.
In today's market, there are buyers for homes that are priced competitively.
A lack of "action," usually indicates that your property
is one of those that has been priced incorrectly. Most important,
be objective. Try to look at your property as if you were a buyer
going through it. What do you like? What do you dislike? How does
it compare to other properties in the area? Is it worth more? Is
it worth less? Answer those questions objectively and you will not
only be on the way to pricing your home correctly . . . but to selling
it too.
Return to the topics
What are my options if I am thinking of selling
my home?
1. Sell it yourself.
Obviously, the advantage of selling the home yourself is you do
not pay a commission. But, statistics show when you team up with
a real estate professional, the chances of selling your home in
a shorter time span (and frequently for more money) are much better.
There are pros and cons to each technique. To determine which road
you are going to take, start by asking yourself one question. If
you needed a medical operation would you perform it yourself, or
have a professional do it for you?
Selling a house in today's market is not like it was a decade ago.
The market, as well as consumers, are much more astute and the laws
more complex. Liability and disclosure can complicate the sale.
Perhaps the biggest obstacle a seller faces when they decide to
market their own property is emotional attachment. Many owners are
blind to flaws that a real estate professional can see. And, a good
Realtor goes further and recommends steps the homeowner can take
to make the property more appealing, such as, a fresh coast of paint
in the kitchen, replacing a rusty mailbox, or removing clutter to
make the home appear more open. The objective view can be the difference
in making a sale.
2. Engage the professional services of a REALTOR®.
An experienced Realtor can also provide a seller with a Comparative
Market Analysis (CMA), so the owner knows what the home is actually
worth, instead of what they feel it's worth.
It's important to interview at least three Realtors before you
actually list the property. Make sure they work full-time. Part-time
dabblers in the profession are people you should avoid at all costs.
Ask them if they have a marketing plan for your home. Inquire about
the number of transactions they closed last year, and then compare
those results to the other agents you have interviewed.
The decision to sell your home is one of the most important financial
decisions you will make. Take it seriously.
Return to the topics
Which home improvements will add decent
value to my property and which won't?
While some home improvements can add significant dollars to the
resale value of a residence, others are barely worth the investment.
So how can homeowners decide which improvements will add significant
value and which won't? Here's a few tips on cost-effective improvement;
upgrades that can make the difference in the sale price and add
value to your property.
As a rule, kitchens and baths are the two areas that most often
make the difference in a sale. They make the most impact on buyers,
and definitely impact what buyers perceive the property is worth.
But, kitchens and baths are not inexpensive to upgrade.
The national average for remodeling an entire kitchen is more than
$20,000 with some running upwards of $30,000. Complete remodeling
can include cabinets, floors, counters, sinks, appliances, lighting
fixtures and new windows.
But, there's a way to put a new look on this important area without
spending significant moneys. For a relatively low cost, homeowners
can make spot improvements. For example, for as low as $1,000 the
existing countertop can be replaced with a Formica top. For $2,500
to $3,000, the existing cabinet faces can be replaced with solid
oak faces. Homeowners can buy a new sink at a home furnishing store
and have a contractor install it for approximately $300 - $400.
The end result is improved appearance and usually a higher selling
price for relatively minimal expenditure.
Other areas that influence price: central air conditioning is an
important feature for which buyers will usually pay extra. Room
additions, on the other hand, may add value, but may not end up
paying for themselves. Upgraded carpeting, top-of-the-line windows
and vaulted ceilings can command higher resale prices, but it is
unlikely that the seller will be able to recoup their original investment.
Existing features that have diminished with age can usually be
repaired without a lot of added expense. Hardwood floors, for instance,
cost $1.50 - $2.00 per square foot to refurbish, but it is a good
investment because buyers are willing to pay more for the refinished
appearance.
For older homes, people are more energy conscious, so improvements
in the insulation of windows, doors and storm doors are smart investments.
In general, neutral, light and bright are the best rules to follow
for decor. Freshly painted walls and clean carpeting also help to
sell a home faster.
Return to the topics
Can I make my home "better" looking
without spending a cent?
One sure way for you house to appear larger and more appealing
is if clutter is eliminated and furniture and household goods are
reorganized.
In fact, the time to have a garage sale is before you put your
house on the market, not after it is sold! When you decide to sell,
start going through your closets and cupboards, eliminating items
you don't want to keep. Do the same in the garage and backyard.
Get rid of, or store, odds and ends. It's interesting to note that
the longer someone lives in a home, the more used to the clutter
they become.
Unfortunately, closets, cupboards and garages brimming with "old
treasures" make a home look small and cramped to a prospective
buyer. Sellers should also carefully examine their furniture, and
consign items that are not needed to the storage or the garage sale.
Most homes occupied by the same owner for several years tend to
be somewhat over furnished. Erring on the side of space, not clutter,
makes for a more marketable home.
Another "item" that adds to the clutter of a home are
excess knickknacks. Scrutinize the kitchen for rarely used utensils/gadgets;
miscellaneous items in closets and cupboards, even small furniture
and throw rugs, that can be neatly stored. Pack or give away clothing
that will not be worn as well.
Rearrange and organize. Remove as many articles as possible from
the kitchen and bathroom countertops to the cupboards below. They'll
still be within handy reach in the newly created space. Organize
closets. Clear off your night stands and bureaus. Size up the arrangement
of your furniture.
Examine the walls and windows. Do they need repainting or new window
coverings? For some expert, objective advice, have your real estate
professional go through the home. Realtors know what enhances a
property's appearance and what hinders it. One last hint -- don't
forget the outside. Sweep the garage and sidewalks, trim the lawn
and bushes, wash all the windows, inside and out. It all helps to
make your home look fresher, lighter and larger.
Return to the topics
Should I appraise my home before putting
it on the market?
It isn't necessary, because rarely does an appraisal have anything
to do with the price the seller will actually get for their property.
Here's why . . .
First, to determine the asking price, a seller's agent will look
at the "comps", the price for which "comparable"
homes in the area have recently been sold. Based upon these prices,
the seller should adjust what they are asking. For example, if similar
properties in the area are selling for $210,000, then trying to
get $250,000 usually does not make sense. Thus, before putting the
house on the market, a seller should review the "comps",
which can be obtained from a local real estate professional.
The appraisal process used by a licensed appraiser is more theoretical
than a "comp," and doesn't predict what a buyer will be
willing to pay. Why would anyone ever get an appraisal then? Although
rarely needed by buyers or sellers, appraisals are normally required
by lenders who are considering making a loan.
However, sellers of expensive, custom homes may get appraisals,
because there may not be any homes in the area that compare. Buyers
of these one-of-a-kind homes will also have more confidence in an
asking price that is supported by an appraisal.
Before determining an asking price, sellers should give their agent
a list of major improvements done to the home, such as a new roof
or upgraded heating system. This will help the agent consider all
the factors when recommending a price. It will also put him or her
in a better position to sell the house, and all of its features,
for the best possible price.
Return to the topics
What is an MLS?
MLS stands for "Multiple Listing Service," which is usually
a computerized listing of virtually all the homes that are for sale
in a specific area.
When a Realtor lists your property for sale, they pay a fee and
your home is placed on the MLS system. The big advantage to sellers
is that the MLS is the #1 resource used by buyers (and agents) to
locate homes. Properties that are not listed (usually those being
sold by their owners) are not on the MLS, thus there are many buyers
and Realtors who will not be exposed to the home.
The MLS has become such a standard in real estate that no serious
broker would think of trying to sell real estate without it. It
would be like an accountant trying to work without a calculator.
About the only residential brokers who might not use the MLS are
those who exclusively handle foreclosed properties, or high-end
homes owned by celebrities and the like.
The MLS provides a surprising amount of detail, depending upon
the area of the country it may include: the location (by zip code),
size of the home (square footage), size of the lot, number of bedrooms
and bathrooms, extra rooms (such as a den, family room, formal dining
room, or enclosed patio), amenities (such as a backyard, fireplace,
hot tub, pool, kitchen features, new carpet and drapes), capacity
of garage, age of home, and of course, the selling price and terms.
Buyers can narrow their house-hunting searches dramatically by
using the MLS. For instance, their real estate professional can
do a computer search and ask for a listing of all homes within a
certain location and price range that have two or three bedrooms
and that are not more than ten years old. Not only will this request
generate a list of viable possibilities, it also helps buyers gauge,
roughly, what they can expect to get for their money, and to compare
the value of the homes listed.
Thus, the MLS is more than a system that lists properties. It's
an aid to both buyers and sellers, and is a definite asset to consumers
when it comes to real estate.
Return to the topics
GENERAL
Do I have enough homeowner's insurance?
Unfortunately most homeowners are inadequately insured. In fact,
many not only lack financial protection for the equity in their
home, but for their personal property as well.
Why?
It usually happens because lenders only require home buyers to
carry enough insurance to cover the value of the mortgage. Then,
in the event of damage or destruction to the property (fire, flood,
etc.), the lender's investment is covered. Unfortunately, this required
insurance is only for the lender's money. It does not cover the
homeowner's personal property, or their equity.
When deciding on insurance, homeowners should carry enough to cover
the replacement value of the home and all of its contents. The key
word is replacement. As the homes appreciates, so will its replacement
cost. Thus, the policy should be reviewed every year or two, adjusting
the amount of coverage if appropriate.
A word of caution, however. Do not insure for more than the value
of your real and personal property, because an insurance company
will not reimburse more than the replacement value of the property.
Consult with a reliable agent to ensure that you have the correct
amount of insurance.
The most common homeowner policies cover the home and its contents
without requiring an itemization of all furniture and personal effects.
Items over a specified value, such as jewelry and artworks, are
generally listed separately and usually require an additional premium.
Remember, few homeowners think about the value of their home or
the replacement costs-until a disaster hits. The key is to be pro-active.
Get the coverage you need, before you need it.
Return to the topics
What is "escrow" and what does
it mean to buyers and sellers?
Escrow is a process that begins when the purchase offer papers
are signed by both parties, and ends when the loan is approved and
all the necessary requirements have been fulfilled by both the buyer
and the seller.
The escrow holder is an intermediary, and an agent of both the
buyer and seller. The escrow holder is given the buyer's deposit,
and holds onto all funds until the agreement is finalized. They
notify the seller when the deposit has been received and if the
check has cleared the bank. The escrow holder also draws up a set
of instructions, itemizing things that have to be done to the property
before it is sold and the title is transferred.
For example, if the seller is required to supply a termite inspection,
the escrow holder would track this obligation and make sure it is
fulfilled before any funds are transferred to the seller. Findings
in the termite inspection report must be corrected on or before
the close of escrow. If the report calls for a plumber, roofer or
other contractor, the agent would advise the seller and get authorization
for work to be done.
The escrow company also interacts with the title company. The escrow
holder receives a complete ownership history of the property and
any liens on record in the preliminary title report. Anything that
is out of the ordinary, such as condo liens, judgments, etc. against
the buyer and the seller must be clarified prior to the sale of
escrow.
The escrow process can be any number of days depending on what
is agreed upon between the buyer and seller. To assure a timely
closing, the buyer should do things like, inform the escrow holder
of the name and phone number of their insurance agent as soon as
possible. The homeowner insurance policy needs to be ordered early,
so verification can be made with the lender. The lender will not
fund a new loan without a homeowner policy. If there is a delay,
the escrow process may be held up.
Return to the topics
What does my Realtor mean when referring
to a "closing"?
A closing is the meeting where title and money are exchanged between
the seller and the buyer, and the sale of a home is finalized.
At the closing all the progressive steps in buying a home-from
the acceptance of the offer, title search, home inspection, buyer's
loan application to approval, etc.-come together in a final transaction.
The documents are ready to sign, the buyer is ready to hand over
the purchase price, and the seller is ready to transfer title (and
the keys!)
Usually held at the offices of a title company, the closing takes
less than an hour and sometimes less than 30 minutes. The meeting
is always attended by the buyer, usually the seller (although his
or her signature can often be obtained in advance), the brokers
and/or attorneys, and of course, the title company representative-who
acts as the intermediary for the seller and buyer in the transaction.
What goes on during the closing? First the buyer reviews all the
loan documents, which describe the loan amount, payments and itemization
of closing costs, including impounds for tax and insurance, etc.
If everything is as it should be, the buyer signs the loan papers.
Next, the buyer reviews and signs the title documents, making sure
the deed is recorded as desired (joint tenancy, tenants in common,
community property, etc.) By the time the closing is held, the title
company has already conducted a title search and verifies that the
title is held by the seller, and that no liens are held against
the property. If there are any obstacles or other conditions that
could potentially undermine the sale of the property, the title
company will tell the seller about them (in writing) at the closing.
Assuming, however, that the funds are in order, the deed is correct
and the title is clear, the final step is the disbursement of funds
to the seller for the purchase price of the home, and the presentation
of the keys to the buyer. The buyer may also receive a refund for
overpayment of closing costs, which were paid out of his or her
deposit check.
What should a buyer be prepared to bring to closing? That's easy:
everything. The buyer should bring all of the documentation relating
to the transaction, including a canceled check for the deposit paid
with the offer, just in case the title company or lender asks for
it unexpectedly. The title company should already have the loan
funds in its possession, but the buyer needs to bring a cashier's
or certified check for the purchase amount minus the loan amount
(that is, the down payment).
Ideally, the closing will go through "without a hitch."
Some delays, such as receiving loan funds from the lender or an
error in the loan documents, are unpredictable and therefore, uncontrollable.
Other delays, however, can be avoided if they are anticipated and,
if possible resolved ahead of time.
Return to the topics
What are closing costs and who generally
pays them - the buyer or the seller?
First, the responsibility of who pays for closing costs is always
negotiable. Local custom may dictate which fees the buyer will pay
and those the seller pays.
Typically, the buyer pays for home inspection services and escrow,
deed preparation and recording fees. He or she may also pay for
title insurance, since this is required by the lender. The buyer
is also responsible for any fees or costs associated with obtaining
the purchase loan.
The seller customarily pays the real estate agent's commission,
as well as costs associated with transferring an unencumbered title,
such as a title search, reconveyance deed and documentary transfer
tax. Often, a seller will sweeten the deal by offering a one-year
home warranty.
Who will pay for what closing costs should always be clearly spelled
out in the purchase offer. A creative sales associate will consider
the cash, income and tax situation of the home seller and the buyer
when constructing an offer. For instance, if the buyer is short
of cash, the agent may ask the seller to pay the buyer's loan points
up front in exchange for some other concessions from the buyer.
In this scenario, the buyer and seller benefit-and both get what
they want.
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