.. their value is, those that have pending sales will only tell you what the listing price is (not what it is going to sell for) and those that have expired because they haven’t sold may indicate that they didn’t move because they were overpriced. Preparation Just having the right information is not enough. You must prepare yourself in order to use it effectively. The most important factor in your preparation is your emotional frame of mind.
Buying a house is emotionally charged enough, without adding more fuel to the fire by letting your emotions override your common sense. It is not unusual to be excited–in fact, it is normal–but you must keep your excitement in check or you will lose the value of all the information you have gathered. In addition to your emotional frame of mind, your financial frame of mind should be in order. An offer to purchase will carry a lot more weight if you have no dangling financial problems and you have been pre-qualified for a mortgage. “You can’t be afraid to let it go.” You must convince yourself that if the price is not to your liking (or worse, above your budget), you will be able to walk away.
It is important for you to set a realistic limit and then stick to it. Overpaying for a house is epidemic among buyers who let their emotions rule their better judgment. It becomes very easy to regret paying too much for a house when you make a mortgage payment every month. Unlike a product that you overpay for once when you buy it, a house reminds you every 30 days that you made a mistake! Finally, plan your work and work your plan. Organize your information and have it quickly available. When it comes time to make an offer, you don’t want your “ammunition” scattered on scraps of paper in the back seat of your car.
Realism Don’t throw away all of the information gathering and preparation you have done by making a ridiculous offer on a well priced home. Nothing will turn a seller off more than a low ball offer on a house that has been realistically priced. Often, negotiations will stop, rarely to be revived again. If they are re-opened, the sellers generally will show their displeasure at the initial low offer by locking at or near the listing price. An example: Mr.
and Mrs. Buyer have been looking at houses for months. Finally, they find the perfect house, which is an ideal match for their needs and wants. The house is listed at $155,000. Mr. and Mrs.
Buyer have a CMA in hand that shows average selling prices in the neighborhood to be in the $148,000 to $153,000 range. Ignoring the information they have, they make an offer of $120,000. Mr. and Mrs. Seller, annoyed at the low offer, counter offer at full selling price, $155,000.
The Buyers, still convinced that they can “steal” this house, make a 2nd offer of $125,000. The Sellers, now very frustrated, do not move from their $155,000 price. Suddenly, there is word that another offer is forthcoming, this time from Mr. and Mrs. Smith. In fear of losing the house, Mr.
and Mrs. Buyer up their offer to $154,000 (still needing some concession) and the Sellers accept. Consider, though, that a realistic first offer in the $150,000 range (remember, the CMA showed $148,000 to $153,000) may well have been accepted by the Sellers. If this were the case, the Buyer’s paid $4000 more than they had to. The moral: An unrealistic offer on a house that meets your needs and is priced correctly could end up costing more than it would with a realistic offer.
Offers An offer in a Real Estate purchase is a good deal different than one in other negotiations in which you many participate. A Real Estate offer can become a legally binding contract: If you offer to buy a house at a certain price and with certain terms, and the seller agrees and notifies you of their acceptance, you have bought a house! Yes, the closing and escrow details may still need to be finalized, but an offer can turn into a contract in a matter of hours, so it is important that you understand the potential consequences of an offer. Sales price Any concessions made by the seller The amount of buyer’s “earnest money” or deposit that accompanies the offer. Financing contingencies (subject to you securing an acceptable mortgage) Inspection contingencies (subject to an inspection report that is acceptable to you) Time and date of settlement and possession Contracts Once the perfect home has been found, it is time for the house buyer to take the step that makes so many of us tremble with fear: the sales contract. To take some of the mystery out of the house sales contract, we will discuss what the contract involves and the components of most Real Estate sales contracts. What: A legal description of the property as well as the street address.
How much: The selling price. Mortgage contingency: Subject to obtaining a mortgage (if applicable) and the specifics of the mortgage–amount, rate and term. Application to be made in X number of days. Deposit: How much money accompanies the contract and who will hold it Closing: When and where. Inclusions and exclusions: What is and is not included in the sale of the property.
Home inspection: Contingency for and to be done in X number of days. Warranties: Any that are included with the house and description of the warranty. Condominium: If the property is a condo, other provisions will apply Well and Septic: If applicable, they must be tested (and pass). Termite and Pest inspection: Who will pay and if there is infestation or damage, who will repair. Possession Date: When the buyers take possession of the house–before, at or after closing. Acceptance: How long the sellers have to respond to the offer with either acceptance or a counter-offer.
Arbitration: Any provisions for arbitration of disputes. Insurance: Whose insurance covers the property up until the closing date. Property Disclosures: Notices of any property disclosures concerning the house. Inspecting After you have found a property that meets your budget and needs, the next step is to determine whether the physical condition of the property will be acceptable. All Real Estate is definitely not created equal–there is a great variance in the way individual homeowners maintain their properties. In addition, you need to be aware of any hidden defects that could substantially affect the value of the home.
The only way to safely determine the condition of a property is to take advantage of every opportunity you have to inspect it. Closing It is the proverbial “signing on the dotted line:” the process of which will put the title to the house in your name, verify homeowners’ insurance on the property, commit in writing to the terms of the mortgage, and usually, put the keys to the house in your hands. In general, you will leave the closing and go to your new home as a homeowner. The weeks and months of anticipation are all settled in the short amount of time that you spend at the closing. What items will we need? The following are the most important items that you will need prior to or at closing and some hints regarding them: A Closing cost estimate: This should first be given to you by your Agent at the time of the contract, and then given to you by the Lender, a Good Faith Estimate, shortly after the application for the loan. This should give you a reasonably close estimate of funds you will need at the time of closing.
Homeowners’ Insurance Policy: This must be secured prior to the date of closing. Settlement Statement: You should have a copy of the Settlement Statement before the date of Closing. Generally this will not be available until one or two days prior to the actual Closing, but it is important to have it because it gives you the total amount of cash you will need at Closing and also how those various funds will be dispersed. In addition, it gives you an opportunity to iron out any discrepancies prior to sitting down at the Closing table. Your Agent should also have a copy for review.
Start asking for the settlement statement 4 or 5 days before the scheduled closing. This will save you having to chase it down the night before your closing. Certified Funds: On the day of Closing you will need certified funds for closing costs and down payments. This is an important reason for needing a copy of the Settlement Statement a day or two in advance–so you know the amount of funds needed and so that any problems can be handled in advance. Insurances One of the primary activities at the closing or escrow is the verification of all of the insurance that is needed or desired when buying Real Estate. Title Insurance: Insures that the title or deed to the home is good and marketable.
This is only issued after a successful title search. Title Insurance would most likely protect you, for example, if an unknown additional seller (for example an ex-wife or husband) suddenly surfaced months or years after you took possession of the property. Homeowner’s Insurance: Insures the home against damage or theft. This insurance will be structured to protect both you, as the owner, and the lender. There can be a good deal of variation in policies.
See the section on saving money on homeowner’s insurance for hints on getting the most insurance for the least amount of money. Personal Mortgage Insurance (PMI): This insurance, although paid for by you, protects the lender against a loss should you default. It is present and required on the majority of loans that have less than a 20% downpayment. Recent changes in laws affecting PMI will make it easier to get this insurance removed when the equity in your home reaches 20%. Do not confuse PMI with mortgage life insurance, which would pay off your mortgage should you die before it is paid off.
Mortgage life insurance can be purchased through your Insurance Agent, but is not required.