E-Newsletter Archive

May 2004

Appraisals Are Not Written in Stone You’re selling your home. Despite the immigration of some Bay Area buyers who can pay cash, chances are a buyer loan will be needed to buy your home and so an appraisal must be ordered. In the foothills and mountains of Placer County right now, your home might be worth well more than the last recordable sales comparable. This can create a situation where the appraiser will be at a loss for similar recent sales comps and higher than normal adjustments have to be made to compensate your home against similar homes that have sold last year. These higher adjustments make lenders nervous and can subject your appraisal to a review. This review appraisal on your home is performed by a different appraiser who has carte blanche to reach a different market value. Although most often the original appraisal is upheld, sometimes the review appraiser will arrive at a much lower figure and can certainly upset the apple cart of your transaction. This will create doubt in the lender’s and buyer’s minds about the value they originally agreed to pay for your home. The lesson here is to have a Plan B ready when you hear your appraisal is subject to review. One tip: consider a seller carryback for the difference of the amount of the original purchase price minus what the bank will lend on based on the review appraisal.

How can I reduce my closing costs? Often it's easier for buyers to qualify for a mortgage than it is for them to scrape together enough cash for the down payment and closing costs. more What is a clean contract? Real Estate Agent®s often talk about the merits of a clean contract. A clean contract, or purchase offer, is simple and straightforward -- one that's not complicated by lots of contingencies, restrictions and conditions. more Questions every buyer should ask Take this checklist along when you visit a home and talk to the listing agent. more

How can I reduce my closing costs?

Dian Hymer

Often it's easier for buyers to qualify for a mortgage than it is for them to scrape together enough cash for the down payment and closing costs.

Down payment amounts vary. Usually they're in the range of five to twenty percent of the purchase price. In addition, closing costs can run another $5,000 to $10,000, depending on where you buy and the cost of your loan.

Closing costs are fees associated with a home purchase that are paid at closing. Buyers and sellers both pay closing costs. Who pays which costs is often set by local custom, but it can be negotiable.

Typical buyer closing costs include such items as: fees associated with getting a mortgage, homeowner's insurance, titles and closing fees, inspection fees, proration of property taxes and transfer taxes (if there are any).

FIRST-TIME TIP: One of the easiest ways to lower your closing costs is to get a zero-point mortgage. Points is the term used for the loan origination fee. One point is equal to one percent of the loan amount.

A $180,000 mortgage with a 2-point loan fee will cost you $3,600 at closing. A no-point $180,000 loan will save you $3,600 in closing costs. But, expect to pay a higher interest rate on a no-point loan. There's an inverse relationship between the points you pay and your interest rate.

Another way to reduce your closing costs is to close late in the month. Lenders usually collect interest for the current month at closing. If you close on the fifth day of the month, you'll owe the lender 25 days of interest at closing. If you close on the twenty-fifth day of the month, the lender will collect 5 days of interest when you close. Closing at the end of the month can reduce your closing costs considerably if your loan balance and interest rate are high.

Asking the sellers to credit you money to pay for some of your closing costs is another way to reduce the amount of cash you'll need to close. Keep in mind that when you ask sellers to do this, it's the same as asking them to accept less for their home. For example, if you offer $200,000 with a credit from the sellers of $3,000 for your closing costs, this is the same as a $197,000 offer.

In a competitive situation, where multiple buyers are trying to buy the same home, you may have to pay full price or more to be the successful bidder. If you need the closing cost credit to make the deal work, raise your offer price by the amount of cash you need and then ask for the credit. For example, if the list price is $200,000, offer $203,000 with a $3,000 credit for your closing costs.

The property must appraise for the higher price for this to work. Also, lenders have restrictions on how much they'll allow sellers to credit for closing costs: often it's 3 to 6 percent of the purchase price. And, most lenders won't allow a credit that exceeds the actual amount of the buyers' non-recurring closing costs (costs paid by the buyers one time only at closing, such as points and title fees).

THE CLOSING: If the sellers are renting back from you after closing, ask them to credit you their rent money at closing. Clear this with the lender in advance, otherwise, the lender might require that rent be given to you later, when the sellers vacate. If the rent is credited, it reduces the cash you'll need to close.

©2004 Inman News All Rights Reserved

What is a clean contract?

Dian Hymer

Real Estate Agent®s often talk about the merits of a clean contract. A clean contract, or purchase offer, is simple and straightforward -- one that's not complicated by lots of contingencies, restrictions and conditions.

A contingency in a real estate purchase is something that must be satisfied in order for the sale to go through. Contingencies protect buyers and sellers, but they also provide opportunities for real estate transactions to fall apart.

For example, the buyers may need to sell another property to come up with enough cash for the down payment. If their property sells, the deal goes forward. If it doesn't, the deal is off. Other common contingencies are for inspections, for financing, and for approval by other parties (like attorneys or accountants).

Less common contingencies are sometimes more difficult to satisfy. Perhaps the buyers only want to buy a property if they can modify it, or use it, for a specific purpose. For example, they might need city approval to run a day-care center.

Seller contingencies can also complicate matters. For example, a property that's being sold to settle an estate might require court approval of the sale. In this case, the buyers don't know that the house is theirs until the sale is confirmed in court.

Given the emotional nature of home buying and selling, most buyers and sellers prefer the cleanest contract possible. Buyers often shy away from buying homes where the sellers have complicating factors effecting the sale, like a requirement for court confirmation. Sellers often reject an offer if it's contingent on the sale of another property. In both cases, the degree of uncertainty is high.

Being able to offer a clean contract may give you an advantage when negotiating with the sellers. This is particularly so if you find yourself competing with other buyers for a property. Put yourself in the seller's shoes. The fewer strings attached to an offer, the better the chance it has of going through. The more contingencies there are, the more opportunities there are for something to go wrong.

FIRST-TIME TIP: Even though a clean contract may give you a competitive edge, you shouldn't delete contingencies from your offer if, in fact, you need to satisfy certain conditions in order to close the sale.

For example, if you need to line up a mortgage in order to close, you will need a financing contingency. If you write your offer without a financing contingency, you may risk losing your deposit money if you can't get the loan.

Rather than giving up the contingencies you need, shorten the time period required for satisfying these contingencies as much as possible. A typical financing contingency is about 30 days following acceptance. If you can shorten this by a week or two, the sellers will know they have a solid deal that much sooner.

In order to shorten a financing contingency, you need to be planning ahead. Many buyers get preapproved for the loan they need. To get preapproved you must submit a loan application and documentation such as verifications of employment and down payment. You must have your credit checked. Then the lender gives you loan approval subject to you finding the home you want to buy.

Buyers who aren't preapproved when they enter into contract to buy a home will need to submit a loan application within a day or so of acceptance to get approved within 2 or 3 weeks.

THE CLOSING: To make a clean offer, get your financing set up and take care of as many conditions as possible before you start negotiating.

©2004 Inman News All Rights Reserved

Questions every buyer should ask

Take this checklist along when you visit a home and talk to the listing agent.

Make note of your own observations, watch for defects, and ask about anything you may not see on your own.

§ What is the visible condition of the property? Poor exterior condition may spell problems inside. § Does the house require major repairs or replacements? Major repairs, such as a new roof, can be costly. Consider these costs if you decide to make an offer. § How old are the mechanical systems? Consider the cost of replacing older systems if you decide to make an offer.

§ Has the house been well maintained? Ask if the sellers have kept any maintenance records. § Where is the house located on the block? Corner lots can be spacious, but exposed to more traffic and noise. Interior lots can be quieter but too close to neighbors. § How is the house sited on the lot? Be sure the area around the house is graded properly to provide good drainage. § Are there noteworthy architectural features? Front porches, gables or other details add value to the property.

§ Are there noteworthy landscaping features? Established trees, shrubbery and perennials add value to the property. § What is the condition of the houses on either side and across the street? If neighboring properties are too run-down, they may affect your resale value.

§ What is the surrounding neighborhood like? Look for evidence of a sense of identity, and pride of ownership in the other homes. § How close is it to shopping and schools? Nearby services can also add value. § Are there community amenities nearby? Parks or recreation centers can add value to the property. § How long has the house been on the market? A long time on the market may indicate problems with the house or neighborhood that you need to know. § Why does the seller want to sell? If there's a problem with the house or the neighborhood, assess the situation carefully.

©2004 Inman News All Rights Reserved