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Sierra Savvy is the monthly real estate newsletter by Real Estate Agent Krista Noreika Realtor

June 2004

What to consider before signing the purchase contract
Purchase offers are often written in haste. more

What is an "as is" sale?
Occasionally, listings are advertised as "as is" sales. To some buyers this signals a potential bargain property. For others, an "as is" sale carries a negative connotation. It suggests that the property might be tainted. Often, neither perception is accurate. more

Reacting to rising rates
What happens to the real estate market when interest rates rise? more

How do you find a home to buy when listings are in short supply?
Finding a home to buy where there is a shortage of homes for sale can be frustrating, to say the least. But there are measures you can take to increase your odds of buying sooner rather than later. more

What to consider before signing the purchase contract

Purchase offers are often written in haste.

Sometimes buyers need to act quickly because there are other buyers who are threatening to make offers. Or, maybe there's just a 45-minute break over a lunch hour to get the job done. Some buyers don't even take the time to meet with their agents to prepare an offer. Instead, they use fax or email to send documents back and forth.

It's not surprising that most buyers don't have a clear understanding of their purchase offer. Many buyers don't take the time to read it before they sign it. This is unfortunate because when the seller signs the offer it becomes a legally binding contract.

The purchase offer, or contract, stipulates the price you'll pay for the property. But, it also includes all the other terms and conditions that will apply to the purchase transaction.

Residential purchase contracts differ but they usually include the following items: The buyer's name; the property address; the purchase price; a description of how the purchase will be financed; the closing date; the date possession will be delivered to the buyer; inspection and other contingencies; and title review.

There may also be provisions for the sale of another property; time periods for complying with the contract provisions; an itemization of which party pays which fees, like title insurance or for termite work; personal property included in the sale; any fixtures that are excluded from the sale; and a clause covering the condition of the property.

The contract often sets out guidelines for resolving disputes should they arise. There also could be clauses pertaining to compliance with local ordinances and disclosure requirements.

In other words, a residential purchase agreement is a meaty document. Furthermore, once the sellers have signed the contract, you can't unilaterally make a change to it without the seller's agreement.

The contract is bilateral, meaning it's mutually binding on both parties. All contract modifications must be mutually agreed to and any changes need to be in writing to be enforceable.

Buying a home is the most expensive purchase most people will make in their lifetimes. It's an exciting but emotional experience. It's difficult for most buyers to focus on the contract details when they're in the midst of trying to execute a contract to buy the next place they'll call home.

HOUSE HUNTING: To be a conscientious home buyer, you need to do your homework. This involves getting preapproved for the mortgage you'll need to complete the purchase. You'll also need to find a good agent to represent you, and research neighborhoods to determine where you want to focus your efforts.

In addition, it's wise to get hold of a prototype of the contract you'll be using when you do find a home to buy. Read this carefully and thoroughly before you even come close to putting pen to paper. If you have any questions, find out the answers before you find a home to buy. This way you'll be prepared to draft an offer quickly, if necessary. You'll also understand what you're agreeing to.

Some residential purchase agreements have optional clauses that can either be included or excluded. An agreement to arbitrate and a provision for liquidated damages clauses are two examples. These are legal clauses. In most cases, your real estate agent won't be able to advise you about these clauses, unless he or she is also an attorney.

THE CLOSING: If you can't decide on your own whether or not it's in your best interest to include these clauses in your purchase agreement, you should seek legal advice.

What is an "as is" sale?

Occasionally, listings are advertised as "as is" sales. To some buyers this signals a potential bargain property. For others, an "as is" sale carries a negative connotation. It suggests that the property might be tainted. Often, neither perception is accurate.

It's difficult to know from an advertisement what "as is" means with respect to the sale of a residential property. It can mean that the property is being sold in its present condition and without a warranty. In other words: The seller makes no guarantees about the property's condition.

In some states, like California, sellers may provide a general warranty of habitability when they sell a home. Generally, this means that the roof is free of known leaks and the dwelling systems like plumbing and electrical are in working order. With an "as is" sale, such a warranty probably wouldn't apply.

Probate, trust and foreclosure sales are often "as is" sales. The sellers of these properties could have acquired them under adverse conditions (either because a relative died or because a buyer defaulted on a mortgage). In these cases, the seller might have little, if any, actual knowledge about the property's condition. In many cases, sellers of probates and foreclosures haven't even seen the properties.

FIRST TIME TIP: Before you agree to purchase a property "as is", make sure that you have it thoroughly inspected. If it's a foreclosure, you might not be able to include an inspection contingency in the purchase contract. In this case you'll have to complete inspections before you make an offer.

When several buyers are competing for a hot listing, the winner is often the buyer who makes an "as is" offer. Sellers usually prefer an "as is" offer because it relieves them of the responsibility of completing repairs before closing. The buyers take on the burden of repairs which cuts down the hassle factor for the seller. Just make sure that you include an inspection contingency in an "as is" offer unless you've had a chance to complete all necessary inspections before you made the offer.

Sometimes purchase contracts are written "as is" for convenience in dealing with the buyer's lender. Let's say that the sellers had a termite inspection done before they put their home on the market. The termite report calls for the shower, floor and tub in the bathroom to be replaced. The cost of this work will run $5,000. The sellers are willing to pay for the repair work but the buyers would prefer to do the work themselves so that they can remodel the bathroom to their own specifications. So rather than asking the sellers to do the termite repairs before closing, the buyers write their purchase contract to be "as is" regarding termite work. And they ask the sellers to credit them $5,000 at closing.

Buyers purchasing a property that they intend to renovate extensively often prefer to purchase the property on an "as is" basis. For example, if the house has a $25,000 termite bill and it needs a new $10,000 roof, the buyers might prefer to reduce the purchase price by $35,000 and buy the property "as is".

An "as is" sale doesn't necessarily mean the property is a bargain, nor does is mean that the property should be dismissed as unacceptable. Find out the nature of the work required to put the property in good condition. Then decide if you're up for the project.

THE CLOSING: If an "as is" property will suit your long-term needs when it's fixed-up, it might be worth considering.

Dian Hymer is author of "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

Reacting to rising rates

Inman News

What happens to the real estate market when interest rates rise?

Higher interest rates can slow down home sales while lower interest rates tend to stimulate sales activity. Buyers like low interest rates because home loans cost less and they can afford to buy more. When interest rates increase, homes and loans are less affordable, shutting more people out of the real estate market. Other factors that affect the real estate market include job insecurity and low consumer confidence.

What happens if a property stays on the market for a long time?

The longer a property stays on the market, the more likely the seller is to receive low-ball offers, which are offers substantially below market value.

What if I cannot find a house in the short time I have during a relocation visit?

You may want to rent when you relocate. Renting in the new location gives you the opportunity to learn more about the area before you make a huge investment. It also can give you time to sell your home.

What is the best time to finance a fixer-upper?

The best time to buy a fixer-upper, if your intention is to turn the house around for immediate profit, is when home prices are climbing. Be careful that you don't get caught up in the buying frenzy that can occur in a hot market because you could end up overpaying for the house. This will cut into your profit margin. There is less risk if you are buying a fixer-upper to live in for several years while you fix it up.

How do you find a home to buy when listings are in short supply?

Finding a home to buy where there is a shortage of homes for sale can be frustrating, to say the least. But there are measures you can take to increase your odds of buying sooner rather than later.

First, make sure you get your finances in order. Then when the right property comes along you'll be prepared to make a strong offer. When listing inventories are low and the demand for homes is high, buyers often find themselves competing for housing. Buyers who are pre-approved for the mortgage they'll need to complete the purchase have a leg up on the competition.

Next, find an energetic, trustworthy agent who specializes in the area where you want to buy. Sometimes listings sell before they hit the open market. An out-of-area agent probably won't hear about new listings as soon as they become available. You should work with someone who'll call you about new listings before the public hears about them.

Carefully analyze what you need and want in a home. Prioritize the list, putting the features that are essential at the top. Buying a home requires making compromises. It's unrealistic to expect to find all the features you desire in one property. Usually buyers need to see some of the local housing stock in order to know how to prioritize their housing wants and needs.

Make sure that your agent knows what you are looking for. If your priorities change, let your agent know about it. From time-to-time you should reconsider listings that you liked but discarded because they didn't match your criteria. Such a listing might be worthy of another look if your priorities have changed since you last viewed the property.

For example, you might have initially wanted a home that you didn't need to renovate. After looking for a while with no success, you might decide to consider a home that only needs a cosmetic redo. In this case, it might be worth reconsidering a cosmetic fixer that you passed on initially if it's still on the market.

FIRST-TIME TIP: Ask your agent to see if there are any expired listings that might work for you. An expired listing is one that didn't sell during the listing period. Sometimes expired listings are re-listed, but often sellers decide to take a break from marketing. This is particularly the case over the holiday season, or during the winter months. Even though an expired listing isn't actively being marketed, it may still be for sale.

An Oakland couple had difficulty finding a home that suited their needs. Their agent remembered an expired listing that had the features these buyers were looking for and contacted the listing agent. The sellers were getting their home ready to go back on the market. They were happy to show it a little early. The home was a good match and the buyers bought it.

The more flexible you can be in your search criteria, the easier it'll be to find a home. For example, buyers who are open to several architectural styles have more options available to them. If several neighborhoods are acceptable, you'll have more listings to choose from. Buyers who are willing to make cosmetic improvements increase their odds.

Be diligent about looking at every listing that might work for you. Don't simply look at the outside. You could be pleasantly surprised by what's inside.

THE CLOSING: Consider foregoing the perfect home this time around. Just make sure you buy a good home that will be easy to resell. Dian Hymer is author of "Starting Out, The Complete Home Buyer's Guide," Chronicle Books, Revised 1998. Copyright 1999 Dian Hymer Distributed by Inman News Features

Sierra Savvy is a monthy newsletter produced by Krista Noreika for SnowPropery.com. Click here to sign up for the monthly E-Newsletter, or to read past issues.