Wednesday, November 14, 2018
The Process of Buying a Home
Buying a home can be stressful, but it can also be wonderfully enjoyable. As buyer agents our job is to accompany you and hold your hand throughout the process. We love what we do and like to have fun doing it. It can seem overwhelming at first, but we have been through the process thousands of times and offer you our support and our expertise from start to finish, and then some. We see Fourteen Steps in the process.
13. Prior to Closing
14. The Closing
Let’s start with some preliminary issues and questions you need to ask.
Should you rent or buy? How much can you afford? How much would you prefer to spend? What is your credit (FICO) score? What does it mean? Are there any errors on your credit report? Should you get pre-qualified or pre-approved? What lender will you use?
What towns would you like to live in and why? What is the average price of homes there? What are the demographics? What other factors should you consider? How do taxes fit into your decision? Are schools important to you? How about public transportation? How close do you want to be to your work, friends, family, and social networks?
What type of housing would you consider? Do you want a single family, condo, co-op, or multi-family? Do you want new construction or existing property? Are you interested in fixer-uppers or do you need a home in move-in condition. How much fix up are you willing to do?
What style of home interests you? Do you need to live on one floor? What about antique homes? How about Capes, Colonials, Victorians, Cottages, or Splits? Do you have allergies that may affect your buying decision?
How much influence will family or friends have in your buying decision? Who would you like to see the property before you make an offer?
What are you looking for in a home? What would you like to have? What do you need to have? What do you not want? How will you decide?
Searching for a home can be fun and challenging. There are many places to find houses for sale including homes magazines, newspaper ads, real estate offices , for sale by owners, yard signs and the ever-growing access to sites on the Internet.
Whenever a real estate company lists a property it goes into a common data base call the Multiple Listing Service (MLS). In Massachusetts the state MLS system is Property Information Network or MLS PIN.
It used to be that Realtor.com was the best place to search on-line, but with the advent of IDX and VOW sites you can find all of the MLS listings pretty easily. IDX stand for Internet Data Exchange which allows all real estate professionals to show other company listings on their web site. Some provide more information than others but you can pretty much see everything out there on most Realtor sites.
A VOW is a Virtual Office Website which requires the consumer to register but allows complete access to all listing and sale information. Ours gives you the ability to self-edit so you can change parameters on your own at any time.
We have excellent expressions of these solutions here on our site, so you should not need to go anywhere else to find homes for sale.
On our phone application from any location you can quick-search homes closest to where you are. You can search by town, address, MLS number, price range, size, style, etc. You can also locate and identify properties on an interactive Google map. Both interior and exterior photos are available. You can access property details and tax information and when you want to schedule a showing you need only push a “Call to See” button to reach us. And you can do all of this without ever meeting with us. Meeting, however, is the next important step.
We are the only logical choice for a home buyer but we invite you to compare us with others. You have the right to choose the person and company who represents you. The bothersome thing is that some home buyers think they are better off going it alone. When you think about it, that’s pretty senseless.
It isn’t going to cost you any more to use a Buyer’s Agent and it will most likely cost you less. For example, we’ve saved thousands of buyers millions of dollars in home purchases.
But some buyers seem to think if they work alone with the Seller’s Agent they will get a better price or they will capture the cooperating fee for themselves. This is a foolish approach and is akin to hiring the opposing attorney to help you win your case.
The best way to determine which Buyer Agent to use is to interview them. The Mass Association of Buyer Agents (MABA) suggests a buyer ask these questions when they interview a Buyer’s Agent.
What experience have you had as a Buyer's Agent? What specific training do you have as a buyer's agent? Does your office have ongoing sales meetings on ways to benefit buyer clients? Are you a member of a buyer's agent association? How long have you worked on the buyer's side? How long did you work on the seller's side? Do you also list houses for sale? Do agents in your office list homes for sale? If yes, How do you plan on keeping my information separate from seller's agents in your office? Do you have a private office? Private fax? Private phone service? Do you have regular office meetings to discuss the market and techniques in real estate? If yes, Do your sales meetings focus on ways to get the best price and terms for sellers, for buyers or for both? Do you work with a partner in your office? Does your partner list homes for sale? If yes, What will you do in the event that your partner is the listing agent on the home that I want to buy? If you (and your partner) list homes for sale, how many of the last 20 transactions that you have done have been on the buyers side? Will you sign a guarantee that you represent my interests exclusively and not attempt to sell houses you or your partner list? What geographical areas are you most knowledgeable about? Do you have full access to the area Multiple Listing Service (MLS)? Do you have access to For Sale by Owner (FSBO) and foreclosed properties? What is your fee structure? Will you give that to me, in writing? Will you make decisions about what homes to show me without regard to co-fees offered to cooperating agents on MLS listings? How many homes are you prepared to show me?
The agent you are interviewing is obligated to go over the mandated consumer/licensee relationship disclosure with you. This is a great opportunity to get all your home buying questions answered. You should consider it a hiring interview. Is this the agent you want to represent you? A good Buyer’s Agent will be asking, “Is this a buyer I would like to work for?” If it’s a match, you’ll be off and running together.
It’s important that you feel a connection to your agent and that you can draw on their experience and market knowledge. You will probably get a lot of home buying advice from friends and relatives but remember, your agent is legally and ethically obligated to be your advocate, so trust what they say. The fiduciary relationship is one of trust and includes six specific duties. Obedience to your lawful instruction, undivided loyalty, full and pro-active disclosure, confidentiality, accountability, and due diligence.
You and your agent should determine the best way and time for you to tour properties that interest you. It may be a property you found or one your agent informed you about. However, drive-bys and Open House are two ways for you to evaluate and eliminate the housing inventory that’s just not for you.
DRIVE-BYS Most home buyers appreciate the advantage given to them when working with Buyer's Agents to do "drive-bys" which means what it says, driving by the home to see its location, neighborhood setting, and overall characteristics.
Unlike traditional real estate agents, who feel the pressure to show and "sell" a particular home listing, Buyer's Agents want their clients to see as many homes from the outside as possible so that they don't waste time on homes that are not of interest to them.
During the drive-by preview process, there are many decisions that can be made. These decisions are personal in nature but very critical to the home buying process. You may come to realize that your criteria change because of aesthetic reasons or financial considerations. You may be willing to make some compromises to reach specific goals. This process will enable you to create your "short list" of homes that have enough appeal to warrant an appointment to see the inside.
Some of the things you should look for when you drive-by properties include:
Location - Consider urban / suburban / rural lifestyles. Which lifestyle describes your personal preference? What life styles are in evidence Are they compatible you’re your life style? Consider driving by the houses that are on the top of your priority list at different times of the day. Is the neighborhood residential only? What is the impact of nonresidential use? Are the traffic and environment conditions satisfactory to you? What is the condition of other houses in the neighborhood? If unsatisfactory conditions are observed, you may want to consider other areas as you have no control over the property of others. What is the proximity to schools, shops, work, transportation, etc.? What is the quality of the schools? Compile information regarding educational services that are important to you.
What utilities and municipal services are present at the property under consideration? What is the tax rate and assessment of the property under consideration? How do adjacent communities compare? Does this community appear to be a good value to you as far as taxes are concerned? How do property values compare to adjacent communities? What compromises must be made from your ideal location? Are the compromises satisfactory to you?
Site - What is the slope of the site? Grading should be such that water flows away from the building on all sides. Water that stands near the foundation wall usually results in a wet or damp basement and other chronic conditions. How is the house situated on the site? What is the proximity to adjacent units? Is there adequate space and privacy?
Are bushes and shrubs away from the building? Is the space under porches and decks vented? Are trees overhanging the building? How is the site landscaped? Are sidewalks present? What material are they made of? What is their condition?
Structure - Standing away from the house and looking at the lines of the building, are the lines straight true or are the walls out of plumb and/or roof lines sagging? Is there evidence of good maintenance? What is the apparent condition of the roofing and siding? What type of foundation is present? What is its apparent condition? What is the apparent condition of the chimney? Is the siding well above the grade? Is the wood in contact with the ground? Are the lower edges of the basement windows above grade? Is there evidence of energy conservation? Are storm or combination windows and doors present at each door and window?
Driveway - How wide is the driveway? Will cars have to be moved to allow others to leave? Is there safe access from the driveway onto the street? What is the condition of the driveway? What is the slope of the driveway? Is there a garage or space for a garage?
Looking at the home with a critical eye during your drive-bys will save time as you eliminate some properties that do not meet your criteria because of negative conditions. However, if negative conditions are observed, these should not automatically be interpreted to indicate that a house should not be considered. Negative conditions must be evaluated and weighed against positive features. When buying a pre-owned home, a practical matter, you should be prepared to accept conditions that are less than ideal.
OPEN HOUSES - Open Houses are a good way for home buyers to view the inside of properties and broaden their exposure to current listings. You may want to visit with your agent or your buyer’s agent can give you notices of open house dates and times so you can be free to attend on your own.
Always give your agent’s card to the agent sitting the open house. Dropping by an Open House when you first start shopping for a home may seem harmless enough, even signing a "Guest Book" for the sellers, but many home buyers are not aware that they may cause a problem innocently visiting homes on a Sunday afternoon.
If you attend an Open House and talk with the Listing Agent about the home, the agent may feels that he/she is responsible for attracting you to the home and will expect to collect a two-sided commission, commonly referred to as the "double dip" by real estate agents. This is referred to as "procuring cause" in the industry and it describes the relationship between the agent and the buyers. Your Buyer Agent typically captures the Procuring Cause compensation on your behalf. It gets complicated if you don’t make it clear that you are working with a Buyer’s Agent.
Your agent will e-mail you all new listings as they come on the market. Open House notices are included In those e-mails.
ELECTRONIC ACCESS to properties is important to you as a home buyer. In addition to our self-editing VOW and comprehensive IDX computer and cell phone applications, you will get regular e-mails of all new listings and Open House alerts from your Buyer’s Choice agent. These include multiple photos and details of current and sold properties.
PRIVATE SHOWINGS for any property can be scheduled through your Buyer’s Choice Agent. This means all MLS property including “Entry Only” listings which some other companies refuse to allow their agents to show. We also set appointments for homes For Sale by Owner. Your agent can also help you with “Short Sales” and foreclosures. Most Buyer Agents will also preview properties for buyers who are out of the area or otherwise unable to attend a showing or inspection. Check with your Buyer's Agent to find out when and how this might apply.
SECOND SHOWINGS are typically done when you are seriously thinking of making an offer on the property. This gives the opportunity for you to make sure you are comfortable with this property before making an offer. In fast moving markets this may not be possible when multiple parties are interested in the home.
NEW CONSTRUCTION visits are also best done only with or through your buyer’s agent. Visiting on your own can often jeopardize the possible involvement of your agent in the negotiations. Talk to your agent about spec homes versus custom made. Do not write a check to sellers or builders. Deposits should go to an attorney’s or real estate broker’s escrow account.
CHECKING INTERIOR DETAILS Once inside the home you want to look carefully at interior details. The basement is particularly important so let’s start there.
(Basement) - Does the basement smell musty? Are there cracks in the foundation? Are there any water stains or water marks in the concrete? Is there a sump-pump? Are the current owners storing items directly on the floor and, if so, are they in good condition? Check the bottoms of metal items like the hot water heater. If it has rust and flaking this is an indication of a water problem. Check for the presence of a dehumidifier and note if it is doing an adequate job. Check for significant cracks in the walls, these can be a point of entry for water to come into the basement. note any white powder that may be on the walls. This is known as efflorescence and is the residue that is left after water has seeped into the building and evaporated. Consult the owner about the history of water problems.
Check the furnace. If you are looking at an older home the chances are that you are looking at an old furnace. Check for any leaking or odor of oil or gas. Ask the home owner if the furnace is the original and what has been done to update it. Check to see If there is water on the floor directly under the furnace this could be a sign that the boiler has cracked in the heat exchanger. There should be an inspection tag from the last time the oil or gas company did an inspection. A cleaning and maintenance should be done on a furnace at least once a year, usually in preparation for the winter season.
The electric service panel is usually located in the basement attached to a wall. An important rule to know about the electric panel is to not touch anything in it. Home inspectors not only have an electrical background but they also take precautions about what they are wearing and using to inspect these systems. If you are looking at an older home, there may still be fuses which mean it has not been updated. Preferably, there will be circuit breakers. Look on the main breaker, which is at the top, to see what the amperage is. It will usually, but not always, be stamped into this breaker. The minimum acceptable amperage is 100 amps. Newer homes come with at least a 200 amp service.
(Laundry Room) - The laundry was always in the basement until recently. This location had the advantage of space and also of the soiled clothing being out of the main part of the house for aesthetic reasons. When there was the problem of having to walk up and down the stairs, installing a laundry chute from the upper levels was part of a solution.
Newer homes tend to have the laundry area off of the kitchen, often in its own section behind closed doors. Many people find this to be advantageous since they spend most of their time in the main level of the house. People with small children seem to prefer to have the laundry in or around the kitchen to save steps while supervising them.
Others argue that the dirty clothes emanate from the bedroom level and prefer to have a second floor laundry. This makes perfect sense since the clothes, towels and sheets usually have to be returned to the second floor. If this is your preference just pay heed to the possibility of odors from detergents being so close to the bedrooms.
Make sure that cabinets close tightly for storage of all cleaning solvents. There should be venting from the dryer to the outside. This is true whether you are using electric or gas. Also, the surrounding floors and walls should be resistant to moisture, humidity and the spilling of solvents. Cabinets and shelves are needed for storing detergents, softeners and bleach. Countertops are helpful for folding and sorting the laundry.
( Kitchen) - The kitchen is the center of living and activity in most homes. Whether you gather together for meals or wander in at different times, this is still where the food is as well as the microwave, dishwasher and stove. It should be located close to any possible eating areas, including the formal dining room, outside patio and family room. It should also be convenient to the garage or breezeway with the thought of carrying in groceries.
The kitchen should have an inviting atmosphere, be well lit and benefit from the sunlight with adequate windows. The window over the sink is a popular design for reasons of ventilation and adequate lighting. It's important to have an exhaust fan system that draws cooking fumes directly to the outside air.
It’s hardly possible to have enough counter or cabinet space. Newer homes have more utilization of all of the available areas. Corner cabinets have “lazy susans”. and additional counters are installed wherever possible. Pantries have also been welcomed back into homes, some equipped with sliding shelves and spice racks.
Today you can choose from a wide selection of countertop materials. But when buying an existing home you are restricted to whatever the previous owner has chosen. However, if you decide to redo the kitchen or if you are buying new construction, your choice can depend on your personal taste, desired usage and cost.
Many people like to have an eat-in kitchen since this is more convenient for daily or informal meals. Space should be allotted for a table and chairs. Center islands with barstools provide another informal eating place. They also provide extra counter space and cabinet storage underneath. Make sure there enough cutting surface.
Appliance colors help date the kitchen. In the1960s and 70s colors were Avocado Green, Harvest Gold and Deep Copper. Then we saw appliance colors go back to white and almond. Industrial-style stainless steel with an emphasis on professional quality ranges with oversized hoods is the current trend. This polished and high-tech look goes well with every décor.
For those who do not want stainless steel, there are still all-white appliances and also the integrated look. With this style, it's hard to tell that an appliance is not a cabinet. With an integrated style, you no longer have a kitchen designed to accommodate a refrigerator since the refrigerator is built into the look of the wood. Sub-zeros, which are built-in refrigerators, have been around for awhile but are now gaining in popularity. These are usually side-by-side and come with a framed overlay allowing you to put a on a wood front thus projecting a cabinet-like look.
Dishwashers are also available with fronts that disguise their appearance. The newer ones are coming with dishwasher drawers which can be used separately or simultaneously.
Gas cook tops and ranges are popular since a gas flame gives you more control than an electric burner, it is usually preferred by gourmet chefs although some will choose electric stoves with ceramic surfaces since they are easier to clean.
(Living Room) The living room is usually located in the front of the home to the right or left of the foyer. It should not be in an area where traffic passes through, but rather in a dead-end area. Many home owners have turned this room into a study or office. With the addition of French doors, this can be easily achieved. The idea of having a separate room for entertaining apart from casual spaces has remained with us over the years.
Because of the popularity of the family room, the living room has taken a position of less importance. Today, the family room, kitchen and three season porches are where most of the household activities take place, somewhat diminishing the importance of the living room as the family living center.
(Family Room) - The baby boom generation began after soldiers returned home from World War II. These larger families needed room for activities and the family room was born. Some older homes have it in a finished basement as do split level houses. In newer homes, the room is often located near the kitchen area. This is conducive to monitoring the activities of small children while cooking and cleaning.
It is generally true that the larger the family room, the smaller the living room. One is more formal and the other informal in both use and furnishing. If there is a music buff in the household it will be reflected in the shelves of stereo equipment and media storage. This is also where a home theatre will be located, equipped with a television and speaker system.
Built-in cabinets and bookshelves are a welcomed asset for holding various items such as books, photo albums, videos and CD's. However you use it, the family room is a welcomed asset and often a visual focal point of a home.
(Bedrooms) Bedrooms should be located away from the main living zones and have an accessible bathroom. Lighting and ventilation are also significant. The main sources of artificial lighting in bedrooms are ceiling lights and lamps on end tables or dressers. For sunlight and ventilation, you should check the size and placement of the windows.
Several windows and/or a skylight are preferred. The windows should also be located in a way that allows ample wall space for your furniture. If you have large bedroom furniture bring a measuring tape with you when viewing homes to make sure that the wall space will be adequate.
Three bedrooms are usually considered minimum for a family and are also important for resale. Large master bedrooms and master suites have grown in popularity. These often have walk-in closets and generous sitting areas. The master bath can range from a small bath with vanity and shower to a large one with double vanities, Jacuzzi tub and a separate shower.
When looking at older homes be sure to look for heating in each of the rooms. Also, If you view a home that has three bedrooms upstairs and a bed in a finished basement, it is not a four bedroom house. To qualify as a bedroom it should be either upstairs with the other bedrooms or in a quiet corner on the first floor and must also have its own closet.
(Bathrooms) - The bathroom has become a major selling feature in new homes. Next to the kitchen, it is the most important interior influence. Because of this, the number and quality of bathrooms in a home can affect its resale value.
You want to look for a minimum of one full and one half bath in a three bedroom house. The usual arrangement is a full bath in or near the master, a full bath down the hall with close proximity to other bedrooms and a half bath or powder room downstairs. Custom built luxury houses often have a full bathroom for each bedroom. A full bath has a tub and shower, or only a shower. The standard is a bath and shower combination.
Many newer homes are being built with a Jacuzzi or simply an oversized tub in the master. In this case, you will want to take note of the size of the water heater to ensure that it is capable of providing sufficient hot water for a large tub.
All bathrooms should have fans that ventilate air to the outside; not into the attic.
When viewing bathrooms, check inside of the tub and shower for mold and mildew, making sure that it is cleanable and not permanently stained. Also check the grout between ceramic tiles for chipping and color.
Make sure that enough heat is getting to all of the bathrooms. Baths require additional heat, especially in the winter months. When built over a garage, bathrooms need proper insulation.
(Your home inspector) will address many more issues, but these should be helpful on your initial or second viewing inside a home. We’ll address the home inspection later.
When viewing properties it is a good idea to keep a comparison checklist of the homes you have already visited. It is easy to forget which house has what when you have seen a lot of listings.
Review Sellers’ Statement on each property if you have received one. Massachusetts does not require it but many times a listing agent will have the seller complete a list of potential issues or concerns with the property and what the seller does or does not know about them.
Choosing 1st, 2nd, and 3rd Favorites One way to remove some of the emotion in a home purchase and to give yourself an advantage in negotiations is to have backups to your favorite home to purchase. Sometimes it is helpful to let the seller know that a buyer has chosen their property as the first of several choices. This gives the seller the pride of knowing you chose them first and the concern that you have other properties you could move on to purchase. When sellers realize they are not the only game in town they become more reasonable in negotiations.
Market Conditions One of the factors affecting prices of homes is market conditions. Buyer's and Seller's Markets are just as you would guess... a Buyer's Market is favorable to buyers and a Seller's Market favorable to sellers. In general, when "days on market" is less than 30 days, it's a strong seller's market and you may be faced with multiple buyers competing for a home which could possibly create a bidding war.
On the other hand, in a slow-moving buyer's market, homes may get re-listed with several agents as sellers get discouraged or want to make their look like a 'new' listing on the Multiple Listing Service (MLS). When the marketing time is over 75 days, you are in a buyer's market which means there are more homes competing for home buyers. Sellers may have to offer price reductions and other concessions to get their homes sold.
Location The oldest mantra in real estate is location, location, location. It may also be some of the best advice around. You can apply the test to your own area. Think about the most desirable community near you and check the home prices. It is an easy bet that they will considerably greater than an identical house is a so-so community. The other piece of real estate advice that falls under this category is to buy a modest home in the most expensive community because it will be easier to resell because people are eager to enjoy the prestige of the area. Keep location in mind as you evaluate your top three choices.
Wants and Needs You have already determined your wants and needs during your preliminary preparation. Now that you have several choices to consider you need to evaluate which of the homes under consideration best fit the wants and needs list your have developed.
Additional items you may want to consider include if you haven’t already:
Do all of the bedrooms have a closet? This is important because an appraiser cannot call a room a bedroom unless it has a closet. Sometimes a closet outside the bedroom can count if it is nearby, but the secondary guidelines do require a closet. What does the town say about it?
Is there heat upstairs? It may sound crazy, but many times in older homes certain or all upstairs rooms have no heating unit of any kind. It is possible that the heating system in the house does keep the upstairs warm enough, but be alert to the potential problem.
What is the actual square footage? Many times, square footage is hard to get a handle on. Below grade rooms do not count as Gross Living Area even if they are finished. It may increase the value, but not the GLA. Be sure you are comfortable with the living space. Is the town hall information up to date? Did the Listing Agent measure properly?
Are there issues that affect home insurance costs? For example: swimming pool, trampoline, fuses or knob and tube wiring, abandoned oil tanks, age, woodstoves, faulty structures, ocean front, body of water on or near lot, older than 20 yrs roof- furnace- plumbing, etc.
How high-tech is the home? Is there high speed Internet available? Are there enough jacks for TV and Internet? Is the home pre-wired for a home theatre? etc.
Sweat Equity is the value of repairs and work you will do yourself. Calculating repairs and deducting them from the asking price helps get a more realistic sense of value. . But keep in mind that you don't really know the true cost of any property until you know what is wrong with it and what the costs are for repair.
If two similar homes have a 20,000 dollars difference in asking prices, you need to look closer to see if the home that cost 20,000 dollars less is the better value or does it need 25,000 dollars in repairs to make it match the home that appears to be more expensive? In many cases, you won't know the true cost of a home until after a home inspection. Don’t hesitate to bring in contractors to price out the costs for you.
Emotional Equity is the emotional investment you put into a house. It has nothing to do with the actual financial value of the property but it has a greater value to you emotionally. This doesn’t come without cost. In an emotional sense you have spent or invested feelings in the property and this makes it more valuable to you.
Emotional Equity is a reason some home buyers will pay more money for a property. At times this can be appropriate because it is hard to place a financial value on what you like and what is really important to you. Some buyers strongly regret not having purchased the house of their dreams because it seemed financially overpriced.
Emotional Equity can be inappropriate if you pay too much for a property because you are so emotionally invested. Beware of emotional mistakes some home buyers make. Buying a home is an incredibly emotional experience for many people, much more so than other financial investments. That's because we're choosing the place we're going to call home. It should be safe and secure, and in some way touch your emotional core.
But because the process calls upon us to reconcile our dreams with the realities of our checkbooks, it also plays upon our emotions. And once emotions are involved, it's difficult to take the distance you need to make an objective choice.
Time to Process is necessary after you have chosen the three homes you are most interested in. You should usually only offer on one property at a time. After you have made your comparisons and reviewed the Seller’s Statement of Property Condition you need to determine value.
What’s the property worth? This is a key question before ever making an offer on a property. Even if it seems like a sweet deal don’t ignore the homework. Your Buyer’s Choice Agent will use important data to help determine value. You will then determine what you want to offer. Price analysis helps you determine how much to pay for a property. Pricing should include the following.
CMA stands for Comparative Market Analysis. How does each property compare to other properties of similar style, size and location.
Square Footage is determined by dividing the living area (GLA) into the sale price of homes that have sold in the area. It is helpful to know the average price per square foot.
List Price to Sale Price is often used to determine how close to the asking price of a property people are paying in the current market place.
Original Price to Sale Price is looked at less frequently but can be very helpful in a slow market. Sometimes comparing a property to the ratio of LP to SP and OP to SP can be a very accurate measure.
Tax Assessment Ratios can be helpful in comparing the tax assessed value of a property you are interested in with the ratio of the tax assessed values of homes sold in the immediate area compared to their sale price.
Appaisals are an automatic when a buyer is using a lender to help with a home purchase. Typically the appraiser asks to see a copy of the Purchase and Sales Agreement prior to doing the appraisal. However, engaging an appraiser prior to making an offer on a property can give a very effective price point for the purchase.
When home prices are rocketing, you may at least want to include a clause that makes the purchase subject to the property appraising no less than the purchase price.
Now that you have considered everything and made a decision it is now time to write the offer.
After deciding on a price, the offer is written. All offers must be in writing. to be enforceable according to the Statute of Frauds.
Most Realtors use the preprinted form provided by their Realtor board. Consequently there is not one standard form in Massachusetts. The one we like to use is a “contract to purchase” and is legally binding. However, we can get the buyer out while the seller has no escape clause.
Price isn’t the only consideration in your offer, although it is usually the strongest. . Other factors are: how strong you are financially, if your closing date is agreeable with the seller's closing date and how flexible you can be. How can you convince the seller you are the best buyer for their property? What does the seller need and want?
You also need to know when to ask for what. We need to look for any exclusions on the listing sheet. You need to decide what personal items you want to include as part of your offer.
Fixtures typically stay unless they are excluded. Personal property is a different story, but it’s not always best to ask for a lawn mower, piano, refrigerator, or washer/dryer in your initial offer. Your Buyer’s Choice Agent will coach you in this.
Timing is also an important factor. Is the seller in a rush or comfortable staying for a while? Is the sale contingent upon them finding suitable housing? Can the parties close and the sellers lease back?
The information in the offer will eventually be transferred into the purchase and sale agreement along with your attorney's additional addendums and riders to protect your interest.
Contingencies These contingencies should be included in any written offer.
Financing Contingency This states the amount of financing you will be applying for and accomplishes two things. One, it protects your deposit should your financing be turned down and states that if you are unable to obtain your loan by a certain date, you may withdrawn from the transaction and have your deposit money returned. Two, it tells the seller how strong a buyer you are. He can see from the mortgage amount whether you are a 5%, 10%, 20% down or more buyer and this could matter in a multiple offer situation.
Home Inspection Contingency is written into the offer and is a ten day time-frame, to give you a chance to have the property inspected. A buyer broker contingency should state something to the effect that "If the property is found to be unsatisfactory in any way to the buyer, the buyer may terminate the offer and have the deposit returned."
The traditional, seller agent will have a contingency that states that a only certain amount of damage; $500 or sometimes, $1,000 will allow the buyers to get out of the transaction and have their deposit returned.
The Body of the Offer will contain the address of the property; the brokers involved in the transaction; the offer price; an initial deposit (usually $1,000); the second deposit to be put down at Purchase and Sale (usually 5% of the purchase price minus the $1,000 initial deposit), the date of the Purchase and Sale Agreement (usually within two weeks); the closing date; who holds the deposit (usually the listing agency); what is included in the sale (i.e., refrigerator, washer, dryer); any additional terms of the offer.
Presenting Offers After you have met with your agent and completed the offer it is now time for the agent to present it. This is often done by phone and fax as the two agents speak with each other and go over the specifics of the offer. This is where your buyer’s agent can influence the listing agent and schmooze at bit to get the agent wanting you as the buyer. Sometimes it is better for the two agents to meet alone privately instead of settling for the phone conversation. And on other occasions your agent may suggest it is best for them to meet with the seller in the presence of the listing agent. This is usually done when there is some animosity present. It is inappropriate for the agent to “go around” the listing agent. But in some instances when your agent is not getting cooperation from the listing agent they may talk to you about alternative ways of getting to the seller.
Counter-Offers Sometimes counter offers are handled verbally until price and terms are agreeable to both parties. Then it must be put in writing in order to be legally binding. Many times a counter offer is in writing but requires the seller’s signature after the buyer agrees in writing to the counter offer. From the buyer’s standpoint this doesn’t make much sense, so we usually are inclined to write a new offer with the clause “already agreed verbally” and then get the seller to sign and return to us and the buyer.
Accepted Offers An offer is never legally accepted until you have a contract signed by both parties. A phone call from the listing agent saying, “congratulations, the seller accepted your offer” means very little until you have the fully executed contract to purchase in hand.
As of May 2001 Home Inspectors must be licensed in Massachusetts. Mass law says real estate brokers and salespeople may not recommend a specific home inspection company or inspector unless representing the buyer as a buyer’s broker. Buyer’s Choice is pro-active in finding and recommending the best inspectors for you.
Prepare for the Home Inspection by taking advantage of Seller Property Disclosure forms used by home sellers to provide information about their homes. These disclosure forms are voluntary in Massachusetts but used by many real estate firms. It is also expected that use of these forms will reduce the number of lawsuits based on misrepresentation or failure to disclose defects. Real estate companies who require sellers who list with their firms to provide seller disclosure forms do so, primarily, to limit the broker's liability.
Seller property disclosure forms force home sellers to review their property information and think about things like how long ago they put on that "new" roof or replaced the heating system. The home inspection will help you get a true picture of the condition of the home but seller information can be very helpful.
Home sellers who kept good records of repairs and renovations and are willing to share the information can fill in some of the blanks for the home inspector as he analyzes the home's major systems and components.
Sellers sometime learn to live with problems that home buyers would not find acceptable such as an inadequate electrical system or a malfunctioning heating or air conditioning system.
Attend or at least be represented because accompanying the home inspector during the inspection is the best opportunity to learn about the home's features and maintenance. It is particularly useful for first time home buyers who have not had experience taking care of a home. Plan to set aside half a day for the process, as a comprehensive inspection should take several hours.
Reports just document the visible condition of the home. They won't provide you with repair options, time frames for future work, and other critical information. Nor do they include a discussion of the subtleties of the conditions found. They can sometimes make a relatively minor problem sound major - and vice versa. You need to hear the inspector's verbal comments to put things in perspective. Ask questions and take notes at the inspection. Keep your eyes open. You may spot something the inspector doesn't see. Realize that, in some cases, you will have a different set of concerns than your inspector. Not only are no two homes alike, each inspector has their own opinion as to what they regard as important or not important.
Read the report and the supplemental materials provided by the inspector. Many home buyers just do not read their inspection reports carefully. Inspection reports may provide a new slant on conditions found at the inspection. This is especially true for those conditions where the extent of the problem could not be resolved.
Note: if you cannot attend the inspection it is preferable to find an inspection company that provides written reports. It is difficult to understand checklist or on-site reports unless you were present for the inspection. You may also want to have the inspection videotaped for your subsequent review
Additional inspections not typically covered by the general inspection include
Environmental Inspections - Smart home buyers today schedule a home inspection by a skilled inspector and include many of the common tests for environmental concerns, such as lead paint, radon, asbestos, septic (Title V certification) and ask about and inspect for undesirable features such as underground oil storage tanks.
In Massachusetts, sellers are only required to disclose lead based paint and comply with Title V requirements for private septic systems. Buyer's Choice understand the importance of these inspections to home buyers and work to protect them from unexpected issues that can affect the cost and desirability of their home purchase.
Lead Paint - to meet state and federal requirements, every seller and real estate agent must provide a Property Transfer Lead Paint Notification before the signing of a Purchase and Sale agreement. Homes built before 1978 are likely to have lead paint in them which present a risk of lead poisoning, particularly to children.
Radon - is a colorless, odorless, tasteless radioactive gas that comes from the natural breakdown of uranium in rock deposits. When it accumulates in your home it can build up to dangerous levels which can increase your risk of developing lung cancer.
It is important to identify the defects and unfavorable conditions prior to the home purchase. In this way, the defects can be prioritized and managed. You can expect the home inspection to disclose defects that are not noticeable when you walked through the home during a showing appointment.
RENEGOTIATING AFTER THE INSPECTION The upshot is that you have to think through what repair or renovation would produce the result that is desirable given your circumstances and your standards. Below are some common sense guidelines on negotiations that may help you.
Act on the inspection findings If the inspection revealed the need for critical repairs and you just do not feel that these conditions are warranted and you should not have to pay for these, then speak up. The worst that can happen is they will say 'no'.
Follow-up on the inspection with specialists or trades people, where the inspection has revealed possible problems, or where the inspector cannot define the degree of the problem. To get this type of information you need to bring out one or more of the specialists in these disciplines.
Be reasonable Ask yourself to what degree were the problems revealed by the inspection (or your other investigations) reflected in the asking price of the home? And to what degree did the inspection reveal problems that were a total surprise to you.
There is no such thing a perfect home and every home will come with some work, some conditions that are less than optimal, and possibly some areas that will need repairs or maintenance.
Keep things Civil If the inspection reveals problems that are not reflected in the price of the home then use your buyer’s agent to renegotiate. Many seller brokers are fairly accepting of the need to have adjustments made in the price or have conditions repaired or resolved by the owner rather than lose the sale completely.
Look out for your own interests Get the best inspection you can possibly have done. Have the appropriate environmental assessments and testing done on higher risk items. Bring out specialists to evaluate systems excluded from the inspection, systems of major importance, or suspect conditions. Take an investigative approach. Since there are no standard forms in Massachusetts, make sure the Contract to Purchase you are submitting has unrestricted inspection contingencies. If you want out for any reason, then use your right to withdraw your offer by the end of your contingency period.
Urgent Items Look at every defect in terms of the urgency for repairs, the risk the item poses, and seriousness or the expense it will pose. Also examine the risks that go with the property. A good example of when you need to evaluate risks is when the probability of there being a problem is small, but the expenses involved in correcting the condition will be enormous. Unless the house is being sold in 'as is' condition and clearly needs major work, you may not want to have to do a lot of immediate repairs just to make the home habitable.
Understand the Market - When the market is hot and sales are brisk you may not have as much leverage on negotiating smaller or less critical defects and you will have much less leeway on renegotiations than in a slow real estate market. However, some things are almost always negotiable. Radon mitigation and termite treatment usually fall on the seller’s shoulders. Defects such as a failed heating system and other 'non-deferrable' expenses usually never go 'with the home', unless previously disclosed.
It all depends on the price Ask yourself: does the price of the home reflect the conditions found at the inspection (and through other investigations)? Sometimes the answer will be yes; sometimes 'no'.
Only negotiate new information Anything disclosed prior to the inspection probably is not going to be negotiable later on. If the seller told you the roof needed replacing, and you made your offer knowing this information, then it’s a lot harder to turn
Understand the seller Even while always working to get the best deal for yourself, try to maintain a good relationship with the seller. There is nothing to be gained by extracting every last possible concession from them. The home buying experience is much more rewarding when you maintain a good relationship with the seller.
Look at your abilities and those of the seller If the homeowner you are buying from is an experienced handyman or builder and you are not, it’s reasonable to ask that they complete work that has been started or to fix items that need repairs. On the other hand, if you have the skills to do home repairs and won't have to pay someone to do everything, then you may want to take care of the minor or routine problems yourself.
Major Systems If major systems are not operable at the time of the inspection or showed potentially significant defects, it is normally reasonable to ask the seller to resolve the condition of these items. You may want to bring in your own specialist to get an unbiased opinion on a system you have major concerns about. Then ask that the owner get the item repaired or certified to be "in good working order".
Note: with real estate owned property or homes that are vacant and/or winterized, the plumbing will sometimes be off, the electricity disconnected, or the heating system will be shut down or inoperable at the time of the inspection.
While it is always best to try to have these made operable by the day of the inspection, this is not always possible. In this case, you (or your attorney) should stipulate that the owner have the major systems in the home in "good working order" at some date prior to the closing.
Using the Home Inspection to Walk Away When you have a contingency clause giving you the right of ten days to have the property inspected, you typically will have the right to 'walk away' from the deal. In many cases, this occurs where the inspection (or the buyer's other investigations) turn up significant problems with the home they were not aware of previously.
It is important to realize that except in the direst circumstances, inspectors will not tell you to walk away from a home. It must be your decision to stay or walk.
Properties with serious defects merit walking away. A partial list would be homes with underground fuel oil tanks where the owner will not have them removed prior to the sale, homes where coastal or river way erosion are leading to a serious erosion of the property, homes that would be subject to periodic flooding, homes with serious structural deficiencies that just cannot be fixed without spending tens of thousands of dollars, homes with little redeeming value where the original construction was poor and everything went downhill from there.
You have to be careful with serious fixer-uppers, as those at the bottom end of the scale sometimes are so far gone they are not worth putting money into.
The ten day home inspection window is the time to do additional research and investigation on the property so you can still use the inspection clause to withdraw. This is where your buyer agent really shines. Due Diligence is a primary duty owed to you.
Due diligence will require homework at the town hall and registry of deeds. You or your agent will need to know how to read and interpret the Field Card. Are you dealing with the actual owner? Are there future development plans that will help or hurt you? How about environmental issues? Are there any encroachments, easements, or set-back issues? Were permits pulled for any work done? Is it public or private sewer? What about the water? Are there any current or planned betterment issues? How about covenants or restrictions?
What questions should you ask the seller? Can you get information from the neighbors? Are there stigmas of any kind? Are there high voltage lines? What about crime in the area? Did you check for noise pollution? Have you visited at night? Have you talked with the neighbors? Where are the level three sex offenders? Be thorough because this is your discovery period and you are quickly approaching the signing of a Purchase and Sale Agreement which binds you to the transaction much more strongly than before.
If things are good, you can tell your lender to order the appraisal. If there are unresolved issues or concerns, ask for an extension for the time and date to sign the Purchase and Sale. Your Buyer’s Choice Agent will help you stay on top of these issues.
It’s not required that you close with the lender who gave you your pre-approval. However it makes sense if they can provide you with a good rate and good service. But this is the time for you to shop lenders if you are not sure this lender is the one for you.
Most of us don’t know how to shop lenders. We start calling various lenders to see what their rates are. Then we hear about the bait-and switch games where one rate is quoted and later another is substituted and we throw up our hands in dismay. In reality, the only rate that really counts is the rate available on the day you lock-in.
In addition to getting the best available rate there is the question of lender fees which can vary considerably. Things like application fees, processing fees, underwriting fees, document preparation fees, discount fees, and hidden fees can be thousands of dollars difference from one lender to another. Getting a Good Faith Estimate (GFE) from each lender is the only way to get anything close to accurate numbers.
Then there are various types of loans. How do we choose from the myriad of available loans? Is a fixed loan best? How long a term should I pick, 15, 20, 30, or 40 year amortization? How about an adjustable rate mortgage? What about interest only? Is negative amortization or an option ARM a better choice?
To complicate things even more there are different types of lenders including banks, credit unions, mortgage brokers, mortgage lenders, etc. We don’t know the difference, so we give up and settle for someone with a friendly face and a nice smile.
So how do you shop for the best loan? If we’re convinced that good homework will turn up the best loan program, how do we go about it?
Getting a good interest rate can be difficult. How do you know what a good rate is right now? A neutral site to give you the average interest rate for loans is www.hsh.com
It’s important to know your credit score before you start calling lenders. Only call credible lenders and use the following script inserting your specific numbers. “My credit score is _____ and I’m looking for a 30 day lock on a $______ thousand dollar loan with no points. Can you tell me what your rate lock is today and what your costs are.
Next you compare the Good Faith Estimates, identify the fees that are not lender controlled, and choose the lender that offers the greatest savings. Even fees that are not controlled by the lender can vary. Some lenders are able to negotiate better fees with their service providers. A good buyer’s agent can help you with this and help you match the GFE with the actually Settlement Statement you should get prior to closing.
Now is the time to choose. Because it is the lender you will use that orders the appraisal it is imperative that you choose your lender now. Try to do as much of the above as early as you can but after the home inspection you need to decide!
It’s now time to cough up the second deposit and sign a P&S. Your Buyer’s Agent will deliver it to the property parties. Everything in the signed offer will be going into your purchase and sale agreement, plus any repairs or items negotiated after the home inspection. Now is the time to get in touch with a good real estate attorney. Your buyer agent can help you find a good one but do make sure you get a real estate attorney.
The purchase and sale agreement is usually drafted by the listing office or by the seller's attorney. Therefore, there is very little in it to protect your interests. You should have a copy of the agreement to be able to review it and discuss it with your attorney.
Your contact with your attorney can be done through telephone and fax, or you can meet in person. Aside from making any changes to the body of the agreement, your attorney will add a rider that is often several pages long. This will usually be a standard rider that the attorney uses for all home buyer clients. In addition to the rider, he/she will include wording that is specific to your home purchase.
If the seller is using an attorney, he and your attorney will work out the details of the agreement through faxing and telephone conversations. When the final document is agreed upon and ready to sign, four copies are made. All four copies need original signatures. It is customary for the buyers to sign the documents first and then the sellers will sign all four.
At the time of the signing, you will be putting down your second deposit which, with the initial binder, will usually be equal to 5% of the total price of the house. Sometimes the listing office will demand a bank check but usually you can just write a personal check for this deposit and in the bottom left corner simply write, "Deposit on (address of the property.)" Also, make a copy of the check for your records. Your lender will want a copy of both deposit checks. This money will be put into an escrow account through the listing office and stay there until your closing.
When the deposit is held in an interest bearing account, the interest is often split between buyer and seller at closing. You might include a clause that requests the deposits to be held in an interest bearing account with interest to the buyer at closing.
Meanwhile, how is the lending process going and how are you staying on top of it? Watch your commitment letter date and don't go forward without it. Make sure you thoroughly understand your loan program. Watch your rate lock very carefully and determine with your lender when to lock your rate.. Get a copy of the appraisal from your lender. Ask your lender for an amortization schedule.
The appraiser will contact the listing broker and meet with him or her at the property to conduct his evaluation. Buyers are typically not invited to the appraisal appointment.
The bank appraiser is independent of the bank, the realtors and anyone else involved in the process. Most appraisers are linked into the Multiple Listing Service which gives them the ability to look at all of the comparable sales for the area. The property must appraise for the price that you are paying for it or close enough to justify your loan. The bank will notify you of the results as soon as they are available.
Formal Loan Application - If you have not already done so, you must now actually apply for your loan. One of the important dates in the home buying process is the loan commitment date. You will want to keep in touch with your loan officer to make certain that the loan is done by this date. Your broker will also stay in touch with the loan officer to help this process along.
Loan Commitment - The loan commitment is a formal document from the bank or lending institution which states that your loan has been approved for the purchase of the particular property that you are buying. This is over and above the pre-approval and is a loan that is "ready-to-go". In order to arrive at this point, your loan application has had to go into underwriting and the property you are buying has been appraised by a professional appraiser. The appraiser has usually been sent out by the bank to the property for appraisal prior to this point. The commitment letter contains all of the information about your loan including the rate, finance charges, amount financed, length of the loan and any outstanding contingencies.
Your loan commitment must be ready by the financing date agreed to in your purchase and sale agreement. If, for any reason, your bank needs additional time to have this document ready, you must get in touch with your attorney, broker or the seller and ask for an extension. If you cannot get a needed extension you may need to walk away from the transaction. Otherwise your 5% deposit money is at risk. If you slide by that important date it’s too late. You either need to close on the set closing date or forfeit your deposit.
The commitment letter clause is a protective clause for you as the buyer. Seller’s agents may ask for a copy, but it doesn’t allow the seller to back out if they don’t like the contingencies on your commitment letter.
Get Home Insurance – Several weeks before your closing you should get in touch with your insurance company to let them know that you are purchasing a home. They will prepare an insurance binder which can be sent to you or to the office of the closing attorney. This is done so that when you leave the closing your property will be fully and immediately covered. The policy is required by your bank, since your home will be collateral for the loan. Most standard policies will pay to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disasters that are listed on the policy. They will not ordinarily pay for flood or earthquake damage. If you want or need this coverage it is sometimes available at an additional cost depending on what part of the country you are buying in. A typical policy will also cover detached structures such as tool sheds, gazebos, or a detached garage.
Don’t forget liability coverage. This is coverage to protect you against lawsuits in the event someone is injured on your property. There is usually also a provision that will cover an event in which you, your children or pets accidentally ruin property belonging to a neighbor. Experts advise that you purchase at least $300,000 worth of liability protection.
Talk to your Attorney about the best way to take title. There are several possibilities. Married couples traditionally take title “tenancy by the entirety”. This arrangement is, actually, limited to married couples and includes an automatic right to survivorship.
You also need to talk to your attorney about Title Insurance. You are required to have Lender’s Title Insurance but Owner’s Title Insurance is an option. If you do not have a Buyer’s Attorney then talk to the closing attorney
Some buyers elect to purchase Owner’s Title Insurance and some decide against it. Generally speaking, it’s a good insurance to have.
You don't want problems from prior ownerships to interfere with your rights to your property. And you don't want to pay the potentially ruinous cost of defending your property rights in court.
A title insurance policy is your best protection against potential title defects, which can remain hidden despite the most thorough search of public records and the most careful escrow or closing.
You also want to talk to your attorney about filing a Declaration of Homestead which allows a family to protect up to $500,000 of the value of their primary residence.
Review the HUD1 The closing attorney should call you with final figures and fax a copy of the Settlement Statement (HUD 1)in advance of closing. Your attorney should review these items with you before getting to the closing table. You can get a good summary of what belongs on each line of the HUD1 here.
The HUD1 will summarize all of the financial credits and debits of the closing. It will tell you how much money you must bring to the table. This figure should come in a certified bank check made out to yourself and then you can endorse it over to the conveyance (closing) attorney at the closing table.
The Final Walk Through Most buyers choose to request and perform a final walk-thru just before closing to review the property's condition. Based on what they saw from their visual inspection during a showing, supplemented by the information in the home inspection report, their goal is to determine if the property is in the condition they expected it to be. The final walk-thru is also the time to determine the status of any agreed-upon repairs or modifications. Depending upon the nature of the repairs, it may be necessary to ask the home inspector to attend the final walk-thru. Most Purchase and Sale Agreements require the property to be "broom clean" and all trash and residue removed from the premises. Call ahead to your attorney to let her or him know about any problems at the walk-through.
Where is the closing? The P&S Agreement typically spells out when and where the closing will be. However, sometimes the closing attorney changes it. The default is the Registry of Deeds in the area the property is located. Coordinate with your buyer’s agent for confirmation and directions to the closing.
What to Bring to Closing-
Money You are responsible for bringing the remaining down payment and closing costs. These funds must be brought in the form of a certified bank check.
Photo ID - Be sure to bring your driver's license with you. You will be asked for a photo identification and a copy will be made for the file. The bank wants to be sure that the person who signs the mortgage note is, indeed, the person who will be paying it. If you are not a U. S. citizen, bring your passport, visa and any other related documents.
Your Check Book may be needed to settle a fuel adjustment or other payments made that are not recorded on the HUD1.
Address any Walk-Through Issues -If during the final Walk-Thru there are unresolved issues bring that to the attention of your attorney on your way to the closing. Your buyer’s agent will be with you at the Walk-Thru and will help you address any issues and any hold-backs required.
Holding money back in Escrow - An escrow hold-back is money held by a third person (usually an attorney) that is released upon fulfillment of some terms. Using escrows is one of the best ways to protect your interest when you simply cannot determine if there is problem until after you move in. For instance, let’s say there is two feet of snow on the ground when you make your offer and the home is vacant. There is no way you can tell if the septic system is functional until the snow has melted and you have lived in the home for a month. In this case, it would be highly advantageous to have a certain amount of money owed to the seller held in escrow under the condition that, if the septic system proves to be in need of repairs, the money will go towards fixing the system. If the system proves to be in good working order, the money is released to the seller.
How Long Does the Closing Take? - Plan for at least an hour. If possible, it's a good idea to take the day off from work or at least half of the day if you can. Occasionally, something unforeseen may happen which can lengthen the time you will be at the closing office. Examples are: missing documents, errors on documents or the attorney may not actually begin on time.
Signing the Paperwork -The main activity of the closing consists of signing all of the papers associated with your loan. The closing attorney will take each document, explain it to you and tell you where to sign. If you cannot make it to your closing, you can give power of attorney to your attorney, spouse or partner to sign in your place.
Following the Signing, the sale must be recorded at the registry of deeds. If your closing is at a lawyer's office, a courier will be sent to record the transaction. The property is not officially yours until it has been recorded. Many times keys will be given to buyers at the closing table, however, it is within the sellers' rights to have the keys held until the recording is done. If you are closing at the registry of deeds, this will happen almost instantaneously. If a courier is going to the registry, it may take several hours.
When all of the documents have been signed, money has changed hands and the seller has signed the deed over to you, your closing is over and the keys to the property are yours. Welcome to your new home!
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