Great experience! Tom did a great job marketing our home. He was well prepared with comparable sales prices, and helped us establish a realistic sales price. Tom diligently followed through on all the details. We received an offer very quickly and were very satisfied with the price and Tom’s excellent service. We’d definitely use Tom again!
A mix of culture and beauty, the cities of Orange County and neighboring Los Angeles County, are essential to the destination referred to as Southern California. Here you’ll find everything you could wish for as an individual or family. The diversity of our communities makes it easy for anyone to feel at home. Share the lifestyle you’re looking for with us, and we’ll suggest communities that will match it perfectly! You’ll be surprised to learn that affordable options still exist in Southern California, but together we can explore those.
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What is the difference between list price, sales price, appraised value, market value, actual market value and assessed value?
What's a house worth?
A home ultimately is worth what someone will pay for it. Everything else is an estimate of value.
To determine a property’s value, most people turn to either an appraisal or a comparative market analysis. An appraisal is a certified appraiser’s estimate of the value of a home at a given point in time. Appraisers consider square footage, construction quality, design, floor plan, neighborhood and availability of transportation, shopping and schools. Appraisers also take lot size, topography, view and landscaping into account. Most appraisals cost about $350 to $550. A comparative market analysis is a real estate broker’s or agent’s informal estimate of a home’s market value, based on sales of comparable homes in a neighborhood. Most agents will give you a comparative market analysis for free. You can do your own cost comparison by looking up recent sales of comparable properties in public records. These records are available at local recorder or assessor offices, through private real estate information companies or on the Internet.
Can I find out the value of my home through the Internet?
You can get a rough idea of your home’s value by searching the Internet. There are a number of websites, like Zillow and Trulia, who use “Automated Valuation Modeling” (AVM), in order to estimate the value of properties. However, AVMs do not take into account the condition of the subject property, nor the condition of the comparable properties. Because there is no physical inspection of any of the properties, the valuation produced assumes an ‘average’ condition for all the properties. This, probably is not an accurate reflection of the reality. Finally, there is no one to physically check the accuracy of any of the data they have collected.
Most AVMs will, themselves, admit to inaccuracy rates of three to five percent, however, a recent study by Standard and Poor’s has shown inaccuracies can result in an over or under estimate of property value by as much as 20%. Enhancing this risk, several states do not make property records available to the public. And even in states that make information available, there can be a 60- to-90-day lag between the time a home sells and when the information is finally recorded.
The reality is that there is a great deal of information about your home, your neighborhood, and your community that AVMs can’t capture. They have no idea that your kitchen has granite counter tops with inlaid marble floors, or that three homes on your block are boarded up and in foreclosure. For that kind of knowledge, buyers and sellers must turn to professional real estate agents and appraisers not only to set prices and but help get the deal done as well. The National Association of REALTORS® in a recent survey found that a whopping 81 percent of home buyers who started their search for a home ‘online’ ended up purchasing it through a real estate agent who knew the area first hand.
Are some REALTORS® more highly trained than others in assessing the true value of my property?
Yes. Part of the equation involves the agent’s’ experience in developing a comprehensive Comparative Market Analysis (CMA). Another factor is the level of training a REALTORS® has in valuing your property. For example, the National Association of REALTORS® has an official certification program called the “Pricing Strategy Advisor” program (PSA). This program contains advanced education regarding pricing strategies, how to select appropriate comparables and make accurate adjustments, how to guide sellers and buyers through the details of CMAs and the underlying pricing principles that inform them, and how to interact effectively with appraisers. In order to better assist his clients, Mr. McKenzie has earned the Pricing Strategy Advisor (PSA) certification.
Having a REALTOR® who is expert in valuing property is especially valuable to buyers of real estate, in that knowing the true value of a property can help in making a realistic and supportable purchase offer.
Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home. They include upfront loan points, title insurance, escrow or closing day charges, document fees, prepaid interest and property taxes. Unless, these charges are rolled into the loan, they must be paid when the home is closed.
Although the costs below are negotiable, buyers in California should expect to pay approximately 1-3% in closing costs on a purchase. Those costs can include…
How can I save on closing costs?
Why do I need a title report?
As much as you as a buyer may want to believe that the home you have found is perfect, a clear title report ensures there are no liens placed against the prior owners or any documents that will restrict your use of the property. A preliminary title report provides you with an opportunity to review any impediment that would prevent clear title from passing to you.
When reading a preliminary report, it is important to check the extent of your ownership rights or interest. The most common form of interest is “fee simple” or “fee,” which is the highest type of interest an owner can have in land. Liens, restrictions and interests of others excluded from title coverage will be listed numerically as exceptions in the report. You also may have to consider interests of any third parties, such as easements granted by prior owners that limit use of the property. Some buyers attempt to clear these unwanted items prior to purchase. A list of standard exceptions and exclusions not covered by the title insurance policy may be attached. This section includes items the buyer may want to investigate further, such as any laws governing building and zoning.
Do I need Title Insurance?
With all the choices in today's market, how do you go about finding the right home?
It seems the more research you do, the more alternatives you discover.
It’s important to visualize your needs and plan ahead. Know what you want in a home, what’s important to you, and what you can live without. Many of us start out with a champagne taste and a beer pocketbook, so it’s important to be realistic. Where and what you buy will affect you for as long as you live in the house. Get your priorities in order before you start looking or even talk to a real estate broker or sales associate.
For first-time home buyers, this is a new experience, so it’s especially important to do your homework. On the other hand, if you currently own a home, you may know exactly what’s lacking. You may need another bedroom or bathroom, or a good school nearby.
Decide where you want to live. Consider the following.
A big part of the answer hinges on where and how you earn a living. If your job requires a lot of reading or is quite stressful, public transportation may offer valuable time to sit quietly. Regardless, you should practice the commute in rush hour before you make a commitment. A seemingly quiet road can transform into gridlock during peak hours.
People with children have other major considerations: school and safety. If you plan to send your children to private schools, you can live where you want assuming you can easily arrange transportation. On the other hand, a lavish public school system may indicate high local real estate taxes. Check them out.
Obviously, lifestyle is an important consideration. People who frequently dine out, go dancing and attend the theater probably belong in the city or a close-in suburb. In other words, make sure you’re in close proximity to the things that matter most.
Type of housing
It used to be that homes came in a limited variety, but today, you have many choices. In addition to the traditional single-family home, you can buy a townhouse, condominium, apartment condominium or co-op, as in Leisure World Seal Beach or Laguna Woods. In Planned unit developments (PUDs), you can find almost any combination. In condos and other such communities, make sure the rules and regulations, as well as the by-laws, match your lifestyle. This type of housing is great for people who want to own their own space without being responsible for mowing the lawn or repairing the roof; a management company handles that. On the other hand, you’ll pay for these services, so in addition to checking the documents and financial soundness of the homeowner’s association, you must determine if the monthly fees are worth the services and additional amenities such as a swimming pool or exercise room.
Affordability can be a factor not only in the type of housing, but whether it’s new or an existing home. Old houses often have fine woodwork or interesting nooks and crannies not normally found in new homes. They generally sit on landscaped lots with mature trees and grown bushes. New homes may cost more, but you can make many more decisions on amenities, colors, carpeting and fixtures.
Selecting a real estate professional, preferably a REALTOR®, is an important first step in beginning your search. Make sure you feel confident about his or her knowledge and skills, and understand the business relationship that you have established between you.
Do we dig deep and buy a dream home or settle for a starter home?
Choosing between a smaller house in an affluent neighborhood, an older, bigger house in a more working-class community or a brand-new home is not easy. If you’re in this situation, start by examining your priorities and asking the following questions:
- Is the surrounding neighborhood or the home itself the most important consideration?
- Are each of the neighborhoods safe?
- Is quality of the schools an issue?
- Do any of the areas seem to attract more families with children or adult residents? And where do you fit in?
As for the return on your investment, home-price appreciation is hard to predict. In the late 1980s, and again 10 years later, the more expensive move-up housing appreciated wildly. But during the recession that followed, smaller homes tended to hold their value better than more expensive ones.
How do I get the real scoop on homes I am looking at?
Home inspections, seller disclosure requirements and the agent’s experience will help. Disclosure laws vary by state, but in California, the law requires the seller to complete a real estate “Transfer Disclosure Statement,” which can be obtained from your California real estate agent. Here is a summary of the things you could expect to see in a disclosure form:
- In the kitchen — a range, oven, microwave, dishwasher, garbage disposal, trash compactor.
- Safety features such as burglar and fire alarms, smoke detectors, sprinklers, security gate, window screens and intercom.
- The presence of a TV antenna or satellite dish, carport or garage, automatic garage door opener, rain gutters, sump pump.
- Amenities such as a pool or spa, patio or deck, built-in barbeque and fireplaces.
- Type of heating, condition of electrical wiring, gas supply and presence of any external power source, such as solar panels.
- The type of water heater, water supply, sewer system or septic tank also should be disclosed.
Sellers also are required to indicate any significant defects or malfunctions existing in the home’s major systems. A checklist specifies interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors, foundation, as well as the electrical and plumbing systems. The form also asks sellers to note the presence of environmental hazards, walls or fences shared with adjoining landowners, any encroachments or easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property and lawsuits against the seller affecting the property.
Also look for, or ask about, settling, sliding or soil problems, flooding or drainage problems and any major damage resulting from earthquakes, floods or landslides. Finally, people buying a condominium must be told about covenants, codes and restrictions or other deed restrictions.
For first-time home buyers, purchasing a home is a new experience, so it’s especially important to do your homework. As a First Time Buyer Specialist (FTBS), Mr. McKenzie can assist you in making some of these important decisions. The FTBS certification is offered by the California Association of REALTORS®, and is designed to assist first-time home buyers through the purchase process, to provide a higher quality service to a new generation of today’s home purchasers (as well as those trying to come back into the market), and deliver information to these buyers on available mortgage programs to help them overcome the financing obstacles as they attempt to purchase a home.
Here are some of the loan programs available to first-time home buyers in California:
This is the go-to program for many first-time home buyers with lower credit scores. The Federal Housing Administration allows down payments as low as 3.5% for those with credit scores of 580 or higher. The FHA will insure loans for borrowers with scores as low as 500, but requires a 10% down payment for a score that low. Mortgage insurance is required for the life of an FHA loan and cannot be canceled.
The U.S. Department of Veterans Affairs helps service members, veterans and surviving spouse buy homes. VA loans are especially generous, providing competitive interest rates, often requiring no down payment or mortgage insurance. Although there is no official minimum credit score, most VA-approved lenders require scores of at least 640.
A USDA home loan is a zero-down-payment mortgage for eligible rural and suburban home buyers. USDA loans are issued by the U.S. Department of Agriculture through the USDA Rural Development Guaranteed Housing Loan Program. There are income limitations, which vary by region. Applicants with credit scores of 640 or higher receive streamlined processing. Those with scores below that must meet more stringent underwriting standards.
If you haven’t owned and occupied your own home in the past three years, you’re considered a first-time home buyer in California, and may want to choose one of these CalHFA programs as a more affordable path to home ownership.
- Down payment and closing cost assistance is available for low-to-moderate income borrowers.
- Some condos, manufactured homes and properties with guesthouses or in-law quarters are allowed.
- Property must be located in California and must be the borrower’s primary residence until it’s sold or refinanced.
- In most cases, borrowers must be U.S. citizens, permanent residents or qualified aliens.
- Must have a minimum credit score of 640, in most cases.
- Must meet all income and sales price requirements of the lender.
- Must take an approved home buyer education course and obtain a certificate of completion.
- Property must be 5 acres or smaller in size.
This program is an FHA-insured Energy Efficient Mortgage for both first-time and repeat home buyers that has a 30-year term with a fixed interest rate. To help borrowers make energy-efficient improvements that are more than the maximum amount allowed by the FHA, this mortgage is combined with a grant of up to 4% of the total loan amount. This program can also be combined with either the MyHome Assistance Program or School Teacher and Employee Assistance Program to help cover down payment or closing costs.
This is a deferred-payment subordinate loan that low- to moderate-income first-time home buyers in California can use to make a down payment or cover closing costs when taking a CalHFA mortgage loan. “Subordinate” means it doesn’t have to be paid until the home is sold, refinanced or paid off. MyHome Assistance Program loans are limited to 3.5% of the home’s purchase price or appraised value, whichever is lower. Qualified borrowers are generally allowed to combine the MyHome Assistance Program with other down payment assistance or grant programs.
Like the MyHome Assistance Program, the School Teacher and Employee Assistance Program is a deferred-payment subordinate loan that helps pay for a down payment or closing costs . The difference, as its name implies, is this program is reserved for teachers, school administrators, school district employees and staff members of California K-12 public schools. Employees of charter schools and county/continuation schools are also eligible. School Teacher and Employee Assistance Program loans are limited to 4% of the sales price or appraised value, whichever is less. Qualified borrowers are generally allowed to combine the School Teacher and Employee Assistance program with other FHA-approved or Fannie Mae Community Seconds subordinate loans, but not the MyHome program.
This program can make CalPLUS Conventional and CalPLUS FHA loans even more affordable by paying a portion of your closing costs. The CalHFA Zero Interest Program provides up to 4% of the total loan amount in the form of a no-interest second loan. Payments on a CalHFA Zero Interest Program loan are deferred as long as you live in the home, but you’ll be required to pay it back in full if you sell, refinance, transfer the title to someone else or default on the loan.
Knowing your limits is one of the most important rules of negotiation, and finding out what you can afford is one of the trust steps.
This can be done by pre-qualifying for a home loan with a lender. This step will help you narrow your search for both a neighborhood and particular houses.
The more you know about a seller’s motivation, the stronger a negotiating position you are in. For example, a seller who must move quickly due to a job transfer may be amenable to a lower price with a speedy escrow. Other so-called “motivated sellers” include people going through a divorce or have already purchased another home; or people who are selling a home in a probate sale or through trust administration upon death of the owner.
Remember, that the listing price is what the seller would like to receive but is not necessarily what they will settle for. Before making an offer, check the recent sales prices of comparable homes in the neighborhood to see how the seller’s asking price stacks up. Some experts discourage making deliberate low-ball offers. While such an offer can be presented, it can also sour the sale and discourage the seller from negotiating at all.
There are several cardinal rules to negotiating effectively:
Mr. McKenzie has been awarded the Real Estate Negotiation Expert (RENE) certification, the premier negotiation credential in the country. The RENE is conferred by the Real Estate Business Institute (REBI) and is an official certification of the National Association of REALTORS®. He has also been awarded the Pricing Strategy Advisor (PSA) certification, which provides enhanced tools, education, and expertise to determine the most accurate value for a property. The PSA certification is also an official certification of the National Association of REALTORS®.
The substantial training involved in obtaining each of these real estate designations enables Mr. McKenzie to provide professional advice to his clients, throughout the negotiation process.
More Questions About Buying a Home
You can only purchase a U.S. Department of Housing and Urban Development property through a licensed real estate broker. HUD will pay the broker’s commission up to 6 percent of the sales price.
A foreclosure property is a home that has been repossessed by the lender because the owners failed to pay the mortgage. Thousands of homes end up in foreclosure every year. Economic conditions affect the number of foreclosures, too. Many people lose their homes due to job loss, credit problems or unexpected expenses. It is wise to be cautious when considering a foreclosure. Many experts, in fact, advise inexperienced buyers to hire an expert to take them through the process. It is important to have the house thoroughly inspected and to be sure that any liens, undisclosed mortgages or court judgments are cleared or at least disclosed.
Judicial foreclosure action is a proceeding in which a mortgagee, a trustee or another lienholder on property requests a court- supervised sale of the property to cover the unpaid balance of a delinquent debt. Nonjudicial foreclosure is the process of selling real property under a power of sale in a mortgage or deed of trust that is in default. In such a foreclosure, however, the lender is unable to obtain a deficiency judgment, which makes some title insurance companies reluctant to issue a policy.
The U.S. Department of Housing and Urban Development acquires properties from lenders who foreclose on mortgages insured by HUD. These properties are available for sale to both homeowner-occupants and investors. You can only purchase HUD-owned properties through a licensed real estate broker. HUD will pay the broker’s commission up to 6 percent of the sales price. Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from the conventional market’s 5 to 20 percent. One caution. HUD homes are sold “as is,” meaning limited repairs have been made but no structural or mechanical warranties are implied.
In most states, a foreclosure notice must be published in the legal notices section of a local newspaper where the property is located or in the nearest city. Also, foreclosure notices are usually posted on the property itself and somewhere in the city where the sale is to take place. When a homeowner is late on three payments, the bank will record a notice of default against the property. When the owner fails to pay up, a trustee sale is held, and the property is sold to the highest bidder. The financial institution that has initiated foreclosure proceedings usually will set the bid price at the loan amount. Despite these seemingly straightforward rules, buying foreclosures is not easy as it may sound. Sophisticated investors use the technique so novices may find themselves among stiff competition.
Trustee sales are advertised in advance and require an all-cash bid. The sale is usually conducted by a sheriff, a constable or lawyer acting as trustee. This kind of sale, which usually attracts savvy investors, is not for the novice. In a trustee sale, the lender who holds the first loan on the property starts the bidding at the amount of the loan being foreclosed. Successful bidders receive a trustee’s deed.
Buying directly at a legal foreclosure sale is risky and dangerous. It is strictly caveat emptor (“Let the buyer beware”). The process has many disadvantages. There is no financing; you need cash and lots of it. The title needs to be checked before the purchase or the buyer could buy a seriously deficient title. The property’s condition is not well known and an interior inspection of the property may not be possible before the sale, says James I. Wiedemer, author of “The Smart Money Guide Bargain Homes, How to Find and Buy Foreclosures.” In addition, only estate (probate) and foreclosure sales are exempt from some states disclosure laws. In both cases, the law protects the seller (usually an heir or financial institution) who has recently acquired the property through adverse circumstances and may have little or no direct information about it.
Buying a foreclosure property can be risky, especially for the novice. Usually, you buy a foreclosure property as is, which means there is no warranty implied for the condition of the property (in other words, you can’t go back to the seller for repairs). The condition of foreclosure properties is usually not known because an inspection of the interior of the house is not possible before the sale. In addition, there may be problems with the title, though that is something you can check out before the purchase.
Yes. Buying a home “as is” is a risky proposition. Major repairs on homes can amount to thousands of dollars. Plumbing, electrical and roof problems represent significant and complex systems that are expensive to fix.
Your REALTOR® is one source. But your relationship with the inspector should be independent from the agent, so have your agent recommend several ones to you from which to choose. Beyond that, one can usually find an inspector by looking in the phone book or by inquiring at a real estate office or sometimes at an area REALTOR® association. Rates for the service vary greatly. Many inspectors charge about $400, but costs go up with the scope of the inspection.
A home inspection is when a paid professional inspector — often a contractor or an engineer — inspects the home, searching for defects or other problems that might plague the owner later on. They usually represent the buyer and or paid by the buyer. The inspection usually takes place after a purchase contract between buyer and seller has been signed.
It should be pointed out that no single issue will cause more consternation among the parties in a real estate contract than the home inspection. In recent years it has come to be known as ’round two’ of negotiations and the inspection report a ‘wish list’ for buyers. The home inspector, in a natural effort to flaunt expertise, may point out many things in the ’50s home you’re purchasing, that would, in fact, be code violations if the home were built today. That does not mean that the home is unsafe. If that were the case, all the homes built in the ’50s would have burned or toppled to the ground long ago. In fact it’s been shown the the old ‘knob and tube” electrical wiring of the early 20th century is actually safer in terms of short circuits than many modern day systems.
In short, the seller, in most cases, has no responsibility to ‘bring the home up to code.’ If the furnace is older, but still functions – it’s considered to be in good ‘working’ condition and the seller has no obligation to replace it. An older furnace should have been discounted in your original offer. The same is true for older appliances, or an older garage door opener without a laser ‘trip beam.’
Let your REALTOR® be your guide. He or she knows what inspection issues are important to the health and safety of your family and how to negotiate for their repair without killing the deal.
Making an Offer
A comparative market analysis (CMA) and an appraisal are the standard methods for determining a home’s value. Your real estate agent will be happy to provide a comparative market analysis, an informal estimate of value based on comparable sales in the neighborhood. Be sure you get listing prices of current homes on the market as well as those that have sold. You also can research this yourself by checking on recent sales in public records. Be sure that you are researching properties that are similar in size, construction and location. This information is not only available at your local recorder’s or assessor’s office but also through private companies and on the Internet. An appraisal, which generally costs $350 to $550 to perform, is a certified appraiser’s opinion of the value of a home at any given time. Appraisers review numerous factors including recent comparable sales, location, square footage and construction quality.
While a typical buyer may look at five to 10 homes before making an offer, an investor who makes bargain buys usually goes through many more. Most experts agree it takes a lot of determination to find a real “bargain.” There are a number of ways to buy a bargain property:
- Buy a fixer-upper in a transitional neighborhood, improve it and keep it or resell at a higher price.
- Buy a foreclosure property (after doing your research carefully).
- Buy a house due to be torn down and move it to a new lot.
- Buy a partial interest in a piece of real estate, such as part of a joint tenancy or tenants- in-common partnership. Please note that purchasing a property with someone else can be very legally complicated, and it is highly recommended that such an arrangement should not be undertaken without consulting an attorney. It should be noted here that Mr. McKenzie is both a professional Realtor®, and a licensed attorney with over two decades of experience, and the provision of his advice regarding issues of title are provided to his buyers or sellers, without charge.
A low-ball offer is a term used to describe an offer on a house that is substantially less than the asking price. While any offer can be presented, a low-ball offer can sour a prospective sale and discourage the seller from negotiating at all. Unless the house is very overpriced, the offer will probably be rejected. You should always do your homework about comparable prices in the neighborhood before making any offer. It also pays to know something about the seller’s motivation. A lower price with a speedy escrow, for example, may motivate a seller who must move, has another house under contract or must sell quickly for other reasons.
While your low offer in a normal market might be rejected immediately, in a buyer’s market a motivated seller will either accept or make a counteroffer. Full-price offers or above are more likely to be accepted by the seller. But there are other considerations involved:
- Is the offer contingent upon anything, such as the sale of the buyer’s current house? If so, a low offer, even at full price, may not be as attractive as an offer without that condition.
- Is the offer made on the house as is, or does the buyer want the seller to make some repairs or lower the price instead?
- Is the offer all cash, meaning the buyer has waived the financing contingency? If so, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.
It depends. Fixtures, any kind of personal property that is permanently attached to a house (such as drapery rods, built-in bookcases, tacked-down carpeting or a furnace) automatically stay with the house unless specified otherwise in the sales contract. But anything that is not nailed down is negotiable. This most often involves appliances that are not built in (washer, dryer, refrigerator, for example), although some sellers will be interested in negotiating for other items, such as a piano.
In most states, it is the seller, but obligations to disclose information about a property vary. Under the strictest laws, you and your agent, if you have one, are required to disclose all facts materially affecting the value or desirability of the property which are known or accessible only to you. This might include: homeowners association dues; whether or not work done on the house meets local building codes and permits requirements; the presence of any neighborhood nuisances or noises which a prospective buyer might not notice, such as a dog that barks every night or poor TV reception; any death within three years on the property; and any restrictions on the use of the property, such as zoning ordinances or association rules. It is wise to check your state’s disclosure rules prior to a home purchase.
Property Taxes and Other Tax Issues
Property taxes are what homeowners are required to pay to the county in which the property is located. In 2018, the median property tax in California was $2,839 per year for a home worth the median value of $384,200. In Los Angeles County, the average property tax was $2,989, and in Orange County, the average property tax was $3,404. However, because of Proposition 13, many homeowners are not paying property taxes on the full value of their property, which serves to keep these averages artificially low. And, in most cases, when you purchase a new property, your property taxes will be “reassessed,” meaning that they will be based upon the current value of the property as determined by the county tax assessor.
In certain cases, there are ways to lower your property taxes, or even prevent a reassessment of the property, however, a real estate agent is not legally authorized to advise you on such issues. As a licensed attorney, Mr. McKenzie has much more experience with issues related to Proposition 13 and reassessment, and in some cases, his advice can save his clients substantial sums of money. Of course, this depends upon the particular circumstances of the property transfer.
Under the Tax Cuts and Jobs Act, state and local taxes (SALT) are still deductible, however, the total amount cannot exceed $10,000 annually. In addition, the deduction is only available if you itemize your deductions. And finally, it is always best to consult with your CPA regarding any issues of taxation.
An impound account is a trust account established by the lender to hold money to pay for real estate taxes, and mortgage and homeowners insurance premiums as they are received each month.
If you are taking out a FHA or VA loan, the lender can require an impound account to pay real estate taxes and hazard insurance premiums, as with a standard loan. Most conventional loans do not require an impound account.
What You Can Afford
Most experts recommend that you should get pre-qualified for a loan first. By being pre-qualified, you will know exactly how much house you can afford. Almost all mortgage lenders now pre-qualify and pre-approve customers, and many of them can even do it on the Internet.
You also can do your own affordability calculations; most recent consumer books on home buying include steps to doing so, as do various real estate Internet sites.
Real estate agents would say that the more you tell them, the better they can negotiate on your behalf. However, the degree of trust you have with an agent may depend upon their legal obligation. Agents working for buyers have three possible choices: They can represent the buyer exclusively, called single agency, or represent the seller exclusively, called sub- agency, or represent both the buyer and seller in a dual-agency situation. Some states require agents to disclose all possible agency relationships before they enter into a residential real estate transaction. Here is a summary of the three basic types:
- In a traditional relationship, real estate agents and brokers have a fiduciary relationship to the seller. Be aware that the seller pays the commission of both brokers, not just the one who lists and shows the property, but also to the sub- broker, who brings the ready, willing and able buyer to the table.
- Dual agency exists if two agents working for the same broker represent the buyer and seller in a transaction. A potential conflict of interest is created if the listing agent has advance knowledge of another buyer’s offer. Therefore, the law states that a dual agent shall not disclose to the buyer that the seller will accept less than the list price, or disclose to the seller that the buyer will pay more than the offer price, without express written permission. A buyer also can hire his or her own agent who will represent the buyer’s interests exclusively. A buyer’s agent usually must be paid out of the buyer’s own pocket but the buyer can trust them with financial information, knowing it will not be transmitted to the other broker and ultimately to the seller.
It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and pre-qualify you for a loan. Generally, the price you can afford to pay for a home will depend on six factors:
- Gross income
- The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
- Your outstanding debts
- Your credit history
- The type of mortgage you select
- Current interest rates
Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (or PITI as it is known). If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI. This ratio should fall between 28 to 33 percent, although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the 34 to 38 percent range.
Here are some frequently cited reasons for buying a house:
- You need a tax break. The mortgage interest deduction can make home ownership very appealing.
- You are not counting on price appreciation in the short term.
- You can afford the monthly payments.
- You plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home include real estate commissions, lender fees and closing costs that can amount to more than 10 percent of the sales price.
- You prefer to be an owner rather than a renter.
- You can handle the maintenance expenses and headaches.
- You are not greatly concerned by dips in home values.
A REALTOR® is a good source for finding out the status of the local housing market. For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. If not, the housing research firm is located in Canton, Mich.; call (800) 755-6269 for information; the firm also maintains an Internet site. Finally, check with the U.S. Bureau of the Census in Washington, D.C.; (301) 763-2422. The census bureau also maintains a site on the Internet. The Chicago Title company also has published a pamphlet, “Who’s Buying Homes in America.” Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294.
Fannie Mae is expanding the availability of low-down-payment loans in an effort to help more people nationwide qualify for a mortgage. Fannie Mae’s Expanded 97% LTV Option offers 97% loan-to-value financing to help creditworthy home buyers who would otherwise qualify for a mortgage, but may not have the resources for a larger down payment. The homes purchased must be one-unit principal residences; fixed-rate mortgages are available with a maximum term of 30 years; and reserves (if required) may be gifted. There are two programs under this umbrella: the HomeReady program, and the Fannie Mae Standard program. The Fannie Mae Standard program is only available to first-time homebuyers, however, the HomeReady programs does not have this requirement.
Bankruptcies and foreclosures can remain on a credit report for seven to 10 years. Some lenders will consider a borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender’s decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.
Working with A REALTOR®
All real estate agents are not REALTOR®. A real estate agent is a REALTOR® only when he or she becomes a member of the National Association of REALTOR® (NAR). The term REALTOR® is a registered collective membership mark that identifies a real estate professional who is a member of the NAR, and who subscribes to its strict Code of Ethics.
A REALTOR® would say that the more information they have, the better they can negotiate on your behalf. However, the degree of trust you have with a real estate agent may depend upon their legal obligation.
Agents working for buyers typically have two possible choices:
- They can represent the buyer exclusively, called single agency,
- They represent both the buyer and seller in a dual-agency situation. In these cases, a fiduciary relationship is owed to both the buyer and the seller.
Regarding the confidentiality of information you share with your agent, because Mr. McKenzie is both a Realtor® and a licensed attorney, his clients benefit from the attorney-client privilege, even if he is only acting as your REALTOR®. This level of confidentiality is not possible between the average real estate agent, broker, or REALTOR®.
Yes, however buyers should be aware of the differences inherent in working with sales agents who are employed by the developer, rather than traditional real estate agents. Builders commonly require that an outside agent be present, and sign in, the first time a prospective purchaser visits a site before payment of commission even is discussed. At times when buyers use an advertisement to find the development themselves first, builders can refuse to pay any commission regardless of how helpful an agent may become later in the process. It is advisable to call the development first and inquire about their policy on compensating real estate agents if you are using one.
The information provided herein is general in nature, and should not be construed to be legal or tax advice. In addition, an attorney-client relationship is neither implied nor expressly created in response to this advertisement and is not formed unless a signed retainer agreement for legal services between the attorney and the client has been executed.
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List with Tom, he is the best!! I listed my property with Tom, he was so helpful and knowledgeable. He was accurate and realistic about pricing and getting it on the market quickly. We had an offer much sooner than I expected, (because of the similar properties I had been watching for many months that had not sold.) Tom is an attorney and that was a big plus for me because I had a complicated listing. He made it so easy and fixed everything perfectly! My accountant was very impressed with Tom’s work too! I highly recommend Tom McKenzie, because he Is knowledgeable, professional and so nice to work with!